Wednesday, April 24, 2002
Barring Credit Cardholder From Joining Class Action Unconscionable—C.A.
By a MetNews Staff Writer
An arbitration clause by which a bank purported to bar a holder of its credit card from being part of a class action against it is unconscionable and unenforceable, the Fourth District Court of Appeal has ruled.
Div. Three Monday granted a writ of mandate allowing a Discover cardholder to be part of a class action alleging that the issuing bank charged excessive overlimit fees and miscalculated credit limits and minimum payments due on billing statements.
The plaintiff, John Szetela, joined the Orange Superior Court action in December 2000 as a second named plaintiff. The suit was filed two months earlier by James Shea, a New Jersey resident.
Szetela has had a Discover card in 1993. Discover moved to compel him to arbitrate his claim, as an individual, based on a 1999 amended to his cardholder agreement.
The amended provided, in part, that “IF EITHER YOU OR WE ELECT ARBITRATION, NEITHER YOU NOR WE SHALL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR TO HAVE A JURY TRIAL ON THAT CLAIM. PRE-HEARING DISCOVERY RIGHTS AND POST-HEARING APPEAL RIGHTS WILL BE LIMITED. NEITHER YOU NOR WE SHALL BE ENTITLED TO JOIN OR CONSOLIDATE CLAIMS IN ARBITRATION BY OR AGAINST OTHER CARDMEMBERS WITH RESPECT TO OTHER ACCOUNTS, OR ARBITRATE ANY CLAIMS AS A REPRESENTATIVE OR MEMBER OF A CLASS OR IN A PRIVATE ATTORNEY GENERAL CAPACITY.”
Orange Superior Court Judge Stuart T. Waldrip granted the bank’s petition. An arbitrator awarded Szetela $29.
But Justice Eileen Moore, writing for the appellate panel, said the no-class-action provision was procedurally and substantively unconscionable.
The justice rejected that bank’s contention that the agreement could not be procedurally unconscionable because Szetela was free to close his account and obtain credit elsewhere. The availability of alternative goods and services may determine whether a contract is one of adhesion, Moore explained, but a contract need not be one of adhesion to be unconscionable.
“Procedural unconscionability focuses on the manner in which the disputed clause is presented to the party in the weaker bargaining position. When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present….These are precisely the facts in the case before us.”
Including the amendment in a “bill stuffer” and telling Szetela that his only options were to accept it or close his account was “oppressive” and thus procedurally unconscionable, the justice wrote.
Besides, the jurist wrote, the clause was so unfair and one-sided as to be substantively unconscionable.
“Although styled as a mutual prohibition on representative or class actions, it is difficult to envision the circumstances under which the provision might negatively impact Discover, because credit card companies typically do not sue their customers in class action lawsuits,” Moore wrote. “This provision is clearly meant to prevent customers, such as Szetela and those he seeks to represent, from seeking redress for relatively small amounts of money…Fully aware that few customers will go to the time and trouble of suing in small claims court, Discover has instead sought to create for itself virtual immunity from class or representative actions despite their potential merit, while suffering no similar detriment to its own rights.”
The case is Szetela v. Discover Bank, 02 S.O.S. 1950.
Copyright 2002, Metropolitan News Company