District Court Properly Dismissed Class Action and Granted Defense Motion to Compel Plaintiff to Arbitrate her Claims on an Individual Basis, Rather than as a Class Action, because Class Action Waiver in Arbitration Clause was not Substantively or Procedurally Unconscionable Eighth Circuit Holds
Plaintiff filed a putative class action against American Express Company and American Express Incentive Services (AEIS) alleging violations of the federal Truth in Lending Act (TILA); specifically, the class action complaint alleged that American Express violated TILA by “issuing pre-loaded, stored-value cards without making the disclosures required under the TILA.” Pleasants v. American Express Co., 541 F.3d 853, 855 (8th Cir. 2008). Defense attorneys moved to dismiss American Express Company on the ground that it was not a “creditor” within the meaning of TILA; plaintiff did not oppose the motion and the district court dismissed American Express Company from the putative class action. Id. Defense attorneys then moved to compel arbitration of plaintiff’s claims pursuant to an arbitration provision governed by the Federal Arbitration Act (FAA) that contained a class action waiver, id. The district court rejected plaintiff’s claim that the class action waiver was unconscionable, dismissed the class action and compelled plaintiff to arbitrate her individual claims against AEIS. Id. The Eighth Circuit affirmed.
Briefly, AEIS sent plaintiff three pre-paid cards, in the amounts of $25, $10, and $5, in return for her participation in online surveys; the cards could be used at any establishment that accepted American Express credit cards. Pleasants, at 855. Along with the cards, AEIS sent plaintiff the “Card Terms and Conditions,” which included a “Participant Agreement” that provided in part that any claims would be resolved by arbitration and that the parties “WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION,” id. A separate provision reiterated that all claims “shall be arbitrated on an individual basis” and that there “shall be no right” for any claims “to be arbitrated on a class action basis,” id., at 855-56. Plaintiff’s class action complaint alleged that at a time when the cards had a combined remaining balance of $25, she used the cards at a restaurant to pay for a $20 meal “but the restaurant processed one or more of the cards for $45 more than their stored value.” Id., at 856. AEIS demanded that plaintiff pay the $45 difference; when she failed to do so, AEIS sent her another letter requesting not only the $45 difference but, pursuant to the terms and conditions of the card usage agreement, a late fee of $10 and a transaction fee of $25. Id. Plaintiff disputed the charge and filed the class action when AEIS continued with collection efforts, id.
In response to AEIS’s motion to compel arbitration of her individual claim, and to dismiss the class action, plaintiff sought “to engage in discovery related to the validity of the arbitration clause.” Pleasants, at 856. The district court denied the motion, id., at 856-57. Plaintiff opposed the motion to compel arbitration on the ground that the class action waiver was substantively and procedurally unconscionable.” Id., at 857. In rejecting this claim, the district court held, first, that the class action waiver did not render the arbitration clause substantively unconscionable because while the amount in controversy was small the plaintiff “could vindicate her rights without the class action mechanism, because ‘[u]nder TILA’s remedial provision…plaintiff, if successful, is entitled to the “costs of the action, together with a reasonable attorney’s fee as determined by the court.”’” Id. (citation omitted). Second, the district court held that the agreement was not procedurally unconscionable because “the class-action waiver was in all-caps font” and was presented in a “conspicuous manner,” id. (citation omitted).
Reviewing the court’s order de novo, the Eighth Circuit affirmed. The Circuit Court held at page 857, “Under the FAA, written agreements to arbitrate are ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’” (Citation omitted.) The Court noted that in order to void a contract under Missouri law, the contract must be both substantively and procedurally unconscionable. Pleasants, at 857 (citation omitted). “‘Procedural unconscionability in general is involved with the contract formation process, and focuses on high pressure exerted on the parties, fine print of the contract, misrepresentation, or unequal bargaining position.’” Id., at 857-58 (citation omitted). On the other hand, “Substantive unconscionability refers to ‘an undue harshness in the contract terms themselves.’” Id., at 858 (citation omitted). While the Eighth Circuit recognized that a Missouri Court of Appeals decision had struck down an arbitration clause that contained a class action waiver, the reasoning behind that decision was that “the costs of litigating the dispute under this agreement would ‘be so prohibitively expensive as to preclude, for all practical purposes, an aggrieved party from seeking redress,’” id. (citation omitted). The Circuit Court also found it unnecessary to predict whether the Missouri Supreme Court would follow the appellate court opinion because of “at least one important difference” between that appellate court opinion and the case at bar: plaintiff’s arbitration clause does not limit her remedies, and under TILA “a prevailing plaintiff may recover attorney’s fees, costs, statutory damages (up to $2,000), and actual damages.” Id. The Eighth Circuit therefore concluded at page 859: “[Plaintiff’s] total recovery of attorney’s fees, costs, and statutory damages of $2000 would likely exceed the costs of pursuing her claim. Enforcing the agreement under the circumstances of this case, therefore, does not lead to an unconscionable result.”
In sum, the Eighth Circuit agreed that the class action waiver was not substantively unconscionable under the facts of this case. Pleasants, at 859. It further agreed that “there are not strong indicia of procedural unconscionability, given the conspicuous manner in which the class-action waiver appeared.” Id. Accordingly, the Circuit Court held that the arbitration clause was enforceable and that the district court did not err in compelling plaintiff to arbitrate her claims on an individual basis rather than as a class action. Id.