Hartmann v. CitiBank NA ( 2023 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Barbara Hartmann, No. CV-22-01961-PHX-DJH 10 Plaintiff, ORDER 11 v. 12 CitiBank NA, et al., 13 Defendants. 14 15 Defendant Citibank, N.A. (“Defendant”) has filed a Motion to Compel Arbitration 16 (Doc. 21). Defendant seeks to compel arbitration of Plaintiff Barbara Hartmann’s 17 (“Plaintiff”) claims related to her credit card account held by Defendant.1 (Id.) Defendant 18 also seeks to stay this action until the arbitration proceeding is completed. (Id.) 19 The Court must now decide whether a valid Arbitration Agreement exists. It does. 20 So, the Court grants Defendant’s Motion to Compel. 21 I. Background 22 On or about January 26, 2020, Plaintiff opened a Home Depot credit card in a Home 23 Depot store. (Doc. 21 at 14, ¶ 4). Defendant is the owner and servicer of Home Depot- 24 branded credit card accounts. (Id. at 13, ¶ 1). Plaintiff’s Card Agreement outlined the 25 terms of her account, which contained an Arbitration Agreement. (Id. at ¶ 5). Plaintiff 26 states that at the time she opened her credit card account, she was neither informed nor 27 received a copy of the Arbitration Agreement. (Doc. 24-1 at ¶ 7, 8). Defendant states it 28 1 The matter is briefed. Plaintiff filed a Response (Doc. 24), and Defendant filed a Reply (Doc. 27). 1 provided the Card Agreement when the account was opened in January 2020. (Doc 21 at 2 14, ¶ 6). It is uncontested that Plaintiff used the credit card after the account was opened. 3 (Id. at 15, ¶ 9; 39). Defendant claims its records indicate that Plaintiff did not choose to 4 reject the Arbitration Agreement. (Id. at ¶ 8). Plaintiff claims she closed the account on 5 May 14, 2020, leaving no balance on the card. (Doc 24-1 at ¶ 6). 6 On November 17, 2022, Plaintiff filed suit against Defendant under the Fair Credit 7 Reporting Act (“FCRA”) 15 U.S.C. § 1681 because of an alleged incorrect reporting on 8 her credit reports. (Doc. 1). Defendant requested Plaintiff submit to arbitration. (Doc. 24- 9 2 at ¶ 3). Plaintiff denied signing the Arbitration Agreement and requested documentation 10 proving otherwise. (Id. at ¶¶ 4, 5). Defendant provided an exemplar of the Card Agreement 11 Plaintiff received when she applied for the credit card. (Id. at ¶ 6). Defendant then filed a 12 motion to compel Plaintiff’s claims into arbitration. (Doc. 21). 13 II. Legal Standard 14 The Federal Arbitration Act (“FAA”) allows “[a] party aggrieved by the alleged 15 failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration 16 [to] petition any United States District Court . . . for an order directing that . . . arbitration 17 proceed in the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. If a party 18 has failed to comply with a valid arbitration agreement, the district court must compel 19 arbitration. Id. The district court must also stay the proceedings pending resolution of the 20 arbitration at the request of one of the parties bound to arbitrate. Id. at § 3. 21 In determining whether to compel arbitration, the court must limit its review to (1) 22 whether a valid agreement to arbitrate exists and, if so, (2) whether the agreement 23 encompasses the dispute at issue. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 24 1126, 1130 (9th Cir. 2000). If the answer is affirmative on both queries, then the court 25 must enforce the arbitration agreement in accordance with its terms. Id. at 1130. If a 26 genuine dispute of material fact exists as to these queries, a court should apply a “standard 27 similar to the summary judgment standard of [Federal Rule of Civil Procedure 56].” 28 Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 804 (N.D. Cal. 2004). 1 Arbitration agreements governed by the FAA are presumed to be valid and 2 enforceable. See Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226–27 (1987). The 3 party opposed to arbitration bears the burden of showing the arbitration agreement is 4 invalid or does not encompass the claims at issue. See Green Tree Fin. Corp.-Ala. v. 5 Randolph, 531 U.S. 79, 92 (2000). 6 III. Discussion 7 Defendant moves to compel arbitration based on the Arbitration Agreement 8 contained in Plaintiff’s Card Agreement. (Doc. 21 at 23). Before the Court can determine 9 whether a valid Arbitration Agreement exists, the Court must first determine what 10 substantive law applies—that is, whether Arizona or South Dakota law governs Plaintiff’s 11 Arbitration Agreement. 12 A. Choice-of-Law 13 Defendant argues South Dakota law applies based on Arizona’s choice-of-law rules. 14 (Doc. 21 at 7). Plaintiff argues that Arizona law applies because the Card Agreement “was 15 entered into in Arizona.” (Doc. 24 at 6). Generally, a federal court sitting in diversity 16 applies the choice-of-law rules of the state in which it sits. Schoenberg v. Exportadora de 17 Sal, S.A. de C.V., 930 F.2d 777, 782 (9th Cir.1991). But jurisdiction in this case is based 18 on federal question, not diversity. Thus, federal common law applies to the choice-of-law 19 rule determination. See id.; Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 20 2006) (federal common law choice-of-law rules apply where jurisdiction is not based on 21 diversity of citizenship). Federal common law follows the approach of the Restatement 22 (Second) of Conflict of Laws (the “Restatement”). Huynh, 465 F.3d at 997. 23 Under the Restatement, the parties’ choice-of-law provision “govern[ing] their 24 contractual rights and duties will be applied if the particular issue is one which the parties 25 could have resolved by an explicit provision in their agreement directed to that issue.” 26 Restatement (Second) of Conflicts of Laws § 187(1) (1988). Courts should adhere to the 27 parties’ choice unless “the chosen state has no substantial relationship to the parties or the 28 transaction and there is no other reasonable basis for the parties’ choice” or “application of 1 the law of the chosen state would be contrary to a fundamental policy of a state which has 2 a materially greater interest than the chosen state in the determination of the particular 3 issue” and that state “would be the state of the applicable law in the absence of an effective 4 choice of law by the parties.” See id. § 187(2). 5 Here, the parties’ Card Agreement contains a choice-of-law provision stating 6 “[f]ederal law and the law of South Dakota, where we are located, govern the terms and 7 enforcement of this Agreement.” (Doc. 21 at 24). South Dakota also has a “substantial 8 relationship” with Defendant because Defendant is located there. See Daugherty v. 9 Experian Info. Sols., Inc., 847 F. Supp. 2d 1189, 1195 (N.D. Cal. 2012) (finding South 10 Dakota law applied under Citibank’s choice of law provision); see also Cayanan v. Citi 11 Holdings, Inc., 928 F. Supp. 2d 1182, 1193–94 (S.D. Cal. 2013) (same); Hartranft v. 12 Encore Cap. Grp., Inc., 543 F. Supp. 3d 893, 913 (S.D. Cal. 2021) (same). Last, Plaintiff 13 has not argued that South Dakota law is contrary to a fundamental policy of Arizona. (See 14 Doc. 24). The Court will therefore apply South Dakota law to determine whether the 15 Arbitration Agreement is valid. 16 B. Whether the Arbitration Agreement is Valid 17 Plaintiff contends that Defendant’s Motion to Compel Arbitration should be denied 18 because a valid Arbitration Agreement does not exist. (Doc. 24 at 4). Plaintiff says she 19 never signed an Arbitration Agreement and thus the first query under Chiron is not 20 satisfied. (Id.) Plaintiff alternatively contends that even if a valid Arbitration Agreement 21 exists, the Agreement is procedurally and substantively unconscionable. (Id.) She says 22 the Agreement is procedurally unconscionable because she is disabled, and Defendants did 23 not present her with the Arbitration Agreement. (Id. at 6). Plaintiff also says the 24 Agreement is substantively unconscionable because it imposes South Dakota law on 25 consumers and “attempts to preclude [her] from applying the laws of the state in which the 26 contract was entered into.” (Id. at 7). The Court will address each argument in turn. 27 1. Whether Plaintiff Entered into the Arbitration Agreement 28 Plaintiff claims she never signed the Card Agreement that contained the Arbitration 1 Agreement and thus a contract was never formed. (Doc. 24-1 at ¶ 7–10). Under South 2 Dakota law, however, “use of an accepted credit card or the issuance of a credit card 3 agreement and the expiration of thirty days from the date of issuance without written notice 4 from a card holder to cancel the account creates a binding contract between the card holder 5 and the card issuer . . . .” S.D. Codified Laws § 54-11-9. It is undisputed that Plaintiff 6 opened and used the credit card. (Doc. 1 at ¶ 20). It also undisputed that her Card 7 Agreement stated “[t]his Agreement is binding on you unless you close your account within 8 30 days after receiving the card and you have not used or authorized use of the card.” (Doc. 9 21 at 20) (emphasis added). Therefore, Plaintiff’s use of her credit card and lack of closing 10 her account within 30 days constitutes acceptance of the terms in the Card Agreement, 11 which contained the Arbitration Agreement. See Cayanan, 928 F. Supp. 2d at 1199 12 (holding that under South Dakota law “continued use of a credit [card] account” constitutes 13 assent to arbitration). 14 Plaintiff further claims she does not “recall receiving any correspondence or other 15 notice from [Defendants] . . . [regarding] any documents that contained arbitration 16 provisions . . . .” (Doc. 24-1 at ¶ 10). But numerous courts have found the same Card 17 Agreement valid and enforceable, despite objections that the Card Agreement was not 18 signed or sent to them. See Hartranft, 543 F. Supp. 3d 893 at 920 (rejecting plaintiff’s 19 contention that he did not recall receiving the agreement to arbitrate because plaintiff “used 20 his card following receipt of the new terms”); see also In re Midland Credit Mgmt., Inc. 21 Tel. Consumer Prot. Litig., 2019 WL 398169, at *5 (S.D. Cal. Jan. 31, 2019) (same); 22 Cayanan, 928 F. Supp. 2d at 1196 (same). Following suit, Plaintiff’s purported lack of 23 memory is insufficient to render the Arbitration Agreement invalid. The Court therefore 24 finds a valid Arbitration Agreement exists. 25 Having concluded that a valid Arbitration Agreement exists, the Court next 26 considers whether the Arbitration Agreement is procedurally or substantively 27 unconscionable. 28 / / / 1 2. Whether the Arbitration Agreement is Procedurally or Substantively Unconscionable 2 South Dakota law requires a showing of both procedural and substantive 3 unconscionability for an arbitration agreement to be unenforceable. See Hoffman v. 4 Citibank (S. Dakota), N.A., 546 F.3d 1078, 1083 n.2 (9th Cir. 2008) (per curiam). 5 Procedural unconscionability focuses on the fairness of the bargaining process. Johnson 6 v. John Deere Co., 306 N.W.2d 231, 236 (S.D. 1981); Tompkins v. 23andMe, Inc., 840 7 F.3d 1016, 1023 (9th Cir. 2016). Substantive unconscionability focuses on whether the 8 contract had harsh or one-sided terms. Johnson, 306 N.W.2d at 237; Davis v. O’Melveny 9 & Myers, 485 F.3d 1066, 1075 (9th Cir. 2007). 10 As to procedural unconscionability, Plaintiff argues the bargaining process was 11 unfair because she is disabled. (Doc. 24 at 7). Her Complaint, however, contains no 12 allegations regarding her disability. Nor does Plaintiff provide any evidence showing how 13 her disability impacted her credit card application. (See Doc. 1). Plaintiff also asserts she 14 does not recall receiving the Arbitration Agreement and, without having seen it, this 15 eliminated her ability to bargain. (Doc. 24 at 7). But this does not render the Arbitration 16 Agreement procedurally unconscionable. Indeed, “numerous courts facing the same 17 Citibank Card Agreement have enforced it despite the fact that the plaintiff and party 18 objecting to arbitration never signed the agreement.” See Hartranft, 543 F. Supp. 3d at 19 920; see also supra III.B(1). 20 As to substantive unconscionability, Plaintiff contends the Arbitration Agreement 21 is unreasonable because it imposes South Dakota law on consumers and “attempts to 22 preclude [them] from applying the laws in the state in which the contract was entered into.” 23 (Id.) The Court already determined that South Dakota has a substantial relationship with 24 Defendant because that is where Defendant is located. Moreover, countless courts have 25 affirmed the application of South Dakota law to Defendant’s Card Agreement. See supra 26 III.A. 27 In sum, Plaintiff entered into the Arbitration Agreement by using her credit card and 28 1 has otherwise not met her burden to show the Agreement is procedurally and substantively 2 unconscionable. The Court therefore concludes the Arbitration Agreement is enforceable. 3 C. Whether the Arbitration Agreement encompasses the dispute at issue 4 Having determined that the Arbitration Agreement is enforceable, the remaining 5 question is whether the Arbitration Agreement encompasses the dispute at issue. Chiron 6 Corp., 207 F.3d at 1130. Defendant argues Plaintiff’s claims fall within the scope of the 7 Arbitration Agreement because any claims asserted against them arise from Plaintiff’s use 8 of the credit card and/or her relationship with Defendant. (Doc. 21 at 9). Plaintiff does not 9 dispute Defendants’ position. (Doc. 24). 10 The Arbitration Agreement states that “all Claims are subject to arbitration, no 11 matter what legal theory they’re based on or what remedy (damages, or injunctive or 12 declaratory relief) they seek, including Claims based on contract, tort (including intentional 13 tort), fraud, agency, your or our negligence, statutory or regulatory provisions, or any other 14 sources of law . . . .” (Doc. 21 at 23). Plaintiff filed suit under the FCRA because of an 15 alleged adverse reporting on her credit reports. (Doc. 1). That credit card account was 16 serviced by Defendants. (Id.) The Court therefore finds the Arbitration Agreement 17 encompasses Plaintiff’s claims and Defendant’s alleged conduct that form the basis for this 18 action. 19 D. Motion to Stay Proceedings 20 Defendant also moved to stay this action until the arbitration proceeding is 21 completed. The FAA provides that the court “shall on application of one of the parties stay 22 the trial of the action until such arbitration has been had in accordance with the terms of 23 the agreement.” 9 U.S.C. § 3; see also Leicht v. Bateman Eichler, Hill Richards, Inc., 848 24 F.2d 130, 133 (9th Cir. 1988). The Court will therefore grant Defendant’s request. 25 Accordingly, 26 IT IS HEREBY ORDERED that Defendant CitiBank NA’s Motion to Compel 27 Arbitration (Doc. 21) is granted. 28 IT IS FURTHER ORDERED that Defendant’s Motion to Stay (Doc. 21) || proceedings is granted. This action is stayed only to Citibank NA pending completion 2|| of arbitration. 3 IT IS FINALLY ORDERED that the parties shall submit a status report on October 10, 2023, and every sixty (60) days thereafter and within five (5) days of a 5 || decision by the arbiter. 6 Dated this 10th day of August, 2023. 7 8 Do we ? norable'Dian¢g/4. Hunfetewa 10 United States District Fudge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8-