Watkins v. Rapid Financial Solutions, Inc. ( 2021 )

2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 * * * 6 CHRISTOPHER WATKINS, Case No. 3:20-cv-00509-MMD-WGC 7 Plaintiff, ORDER v. 8 RAPID FINANCIAL SOLUTIONS, 9 INC, d/b/a ACCESS FREEDOM CARDS, et al., 10 Defendants. 11 12 I. SUMMARY 13 This is a class action lawsuit brought by Plaintiff Christopher Watkins, a former 14 inmate under the custody of the Nevada Department of Corrections (“NDOC”), who 15 received the return of his money upon his release in the form of a prepaid debit card and 16 funds respectively issued and managed by Defendants Rapid Financial Solutions, Inc. 17 (“Rapid”) and Axiom Bank N.A. (“Axiom”).1 (ECF No. 1-2.) Plaintiff alleges that the forced 18 use of these cards on inmates—commonly referred to as “prison release cards”—are in 19 violation of both federal and state laws. Before the Court is Defendants’ motion to compel 20 arbitration of Plaintiff’s claims. (ECF No. 13 (“Motion”).)2 Because the Court finds that 21 Plaintiff did not mutually assent to the Cardholder Agreement and that an unconscionable 22 adhesion contract was formed, Defendants’ Motion is denied. 23 II. BACKGROUND 24 The following facts are adapted from Plaintiff’s complaint, and the briefs and 25 attached exhibits relating to the Motion. 26 27 1Cache Valley Bank (“Cache”) was named a defendant in Plaintiff’s complaint, but the parties stipulated to dismiss without prejudice all claims against Cache. (ECF No. 12.) 28 2The Court has further reviewed Plaintiff’s response (ECF No. 20) and Defendants’ 2 Plaintiff Christopher Watkins was an inmate in the custody of the NDOC and 3 housed at the Stewart Conservation Camp (“SCC”). (ECF No. 1-2 at 5.) While in custody, 4 Plaintiff was voluntarily employed as a firefighter and earned $1.00 per hour; $0.10 of his 5 hourly earnings were transferred to his prison trust account. (ECF No. 20-3 at 2.) Plaintiff’s 6 family members additionally deposited money into the account. (Id.) 7 Ten days prior to his release, Plaintiff met with his case worker who instructed him 8 to sign documentation that would close out his trust account. (Id.) The case worker notified 9 Plaintiff that an approximate $400.00 in his account would be loaded onto an Access 10 Freedom Card (“release card” or “card”).3 (Id.) Plaintiff declares that he was “not told what 11 it was that he was signing and was not given an option not to sign” and “not given an 12 option to receive his money by any other means.” (Id.) He was “not given a brochure or 13 any documentation regarding the Access Freedom Card until after [his] release.” (Id. at 14 2.) Moreover, the case worker informed Plaintiff that the release card was activated and 15 would be given to him on the date of his release. (Id. at 3.) 16 On April 6, 2020, the NDOC credited $431.20 onto the release card. (ECF No. 13- 17 5 at 2.) Plaintiff activated the release card on April 7, 2020. (ECF No. 13-1 at 6.) Shortly 18 thereafter on April 10, 2020, Plaintiff was charged a weekly account maintenance fee of 19 $1.50. (ECF No. 13-5 at 2.) 20 On April 13, 2020, Plaintiff was released from NDOC custody and was dropped off 21 at a 7-Eleven convenient store down the street from the prison facility. (ECF Nos. 20-3 at 22 3, 1-2 at 9.) He received an Access Freedom Card issued by Rapid with his pre-loaded 23 account funds, which were maintained by Axiom. (ECF No. 1-2 at 5-6, 9.) Rapid affixes 24 its card to a tri-folded Cardholder Agreement (the “Agreement”). (ECF No. 13 at 5.) 25 Plaintiff attempted to withdraw money from the release card at an ATM to purchase a bus 26 27 3A Customer Transaction Report of Plaintiff’s release card reflects that on April 6, 2020, the NDOC credited $431.20 onto the card and subsequently credited an additional 28 $17.48 onto the card on May 5, 2020. (ECF No. 13-5 at 2.) 2 Eleven to use a telephone to call the number on the card. (Id.) Plaintiff was told over the 3 phone that the card was not activated but that he could use the card in a few minutes. 4 (Id.) On the date of Plaintiff’s release, $12.99 at the 7-Eleven, $101.59 at a Save Mart, 5 and $5.73 at Dallas-Fort Worth International Airport, were deducted from the card. (ECF 6 No. 13-5 at 2.) 7 B. Cardholder Agreement 8 In fine print at the top-left corner of the Cardholder Agreement, it states that 9 effective June 2019: 10 This Cardholder Agreement (this “Agreement”) sets forth the terms of your prepaid Card. Please read it carefully and retain it for your records. If you do 11 not agree to these terms, do not use the card; or If you would like to cancel call Customer Service at 1-877-287-2448. Otherwise, your acceptance and/or 12 use of the Card will be evidence of your agreement to these terms. 13 NOTE: THIS AGREEMENT REQUIRES CERTAIN DISPUTES TO BE RESOLVED BY WAY OF BINDING ARBITRATION, RATHER THAN BY 14 JURY TRIAL. THE TERMS OF THE ARBITRATION CLAUSE APPEAR AT THE END OF THIS AGREEMENT. 15 16 (ECF No. 13-3 at 2 (capitalization and emphasis in original).) The Agreement additionally 17 states that “[t]he arbitration will be administered by the American Arbitration Association 18 (the ‘AAA’) under its Commercial Arbitration Rules (the ‘Arbitration Rules’).” (Id.) It further 19 states, “this provision limits or waives certain of your rights, including the right to bring a 20 court action and to have a jury trial; there will be no class claims in arbitration.” (Id.) 21 On the other side of the Cardholder Agreement, it states that there is a weekly 22 $1.50 fee that “begins 3 calendar days after the card is activated or 90 days after card 23 issuance if not activated.” (Id. at 3.) There is a $2.75 ATM withdrawal fee, $2.75 ATM 24 decline fee, $1.50 ATM balance inquiry fee, and $2.99 card replacement fee. (Id.) The 25 Agreement includes instructions on how to register the card and request a paper check. 26 (Id.) Both the Agreement and the release card provide a toll-free customer service 27 number. (ECF No. 13 at 8.) 28 2 “The [Federal Arbitration Act (“FAA”)], 9 U.S.C. § 1 et seq., requires federal district 3 courts to stay judicial proceedings and compel arbitration of claims covered by a written 4 and enforceable arbitration agreement.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 5 1175 (9th Cir. 2014) (citing 9 U.S.C. § 3). The FAA limits the district court's role to 6 determining whether a valid arbitration agreement exists, and whether the agreement 7 encompasses the disputes at issue. Id. (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 8 207 F.3d 11236, 1130 (9th Cir. 2000)). “The Arbitration Act establishes that, as a matter 9 of federal law, any doubts concerning the scope of arbitrable issues should be resolved 10 in favor of arbitration . . ..” Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 11 1, 24-25 (1983). Thus, “[t]he standard for demonstrating arbitrability is not a high one; in 12 fact, a district court has little discretion to deny an arbitration motion, since the Act is 13 phrased in mandatory terms.” Republic of Nicar. v. Std. Fruit Co., 937 F.2d 469, 475 (9th 14 Cir. 1991). However, “arbitration is a matter of contract and a party cannot be required to 15 submit to arbitration any dispute which he [or she] has not agreed so to submit.” AT&T 16 Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United 17 Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). “[T]he 18 party seeking to compel arbitration[] has the burden of proving the existence of an 19 agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio 20 Inc., 771 F.3d 559, 565 (9th Cir. 2014) (citation omitted). 21 IV. DISCUSSION 22 Plaintiff opposes arbitration and, in support of his position, explicitly cites Reichert 23 v. Keefe Commissary Network, LLC, Case No. C17-5848RBL, 2018 WL 2018452 (W.D. 24 Wash. May 1, 2018),4 a similar dispute in which Rapid is a defendant. (ECF No. 20 at 5.) 25 4The Court notes that the Ninth Circuit vacated and remanded the district court’s 26 order denying a defendants’ motion to compel arbitration against a different plaintiff in the same action. See Reichert v. Keefe Commissary Network, LLC, Case No. C17-5848RBL, 27 2019 WL 7833109 (W.D. Wash. Oct. 30, 2019) (“Reichert I”), vacated and remanded by Reichert v. Rapid Invs., Inc., 826 F. App’x 656 (9th Cir. 2020). The district court 28 subsequently denied again defendants’ motions to compel arbitration. See Reichert v. 2 nonmutual issue preclusion,5 and that there was no mutual assent or consideration with 3 respect to the Cardholder Agreement. (Id. at 5-8.) Because the issue of mutual assent is 4 dispositive—as further discussed below—the Court will only address the parties’ 5 arguments in relation to that issue and will not reach the consideration argument. 6 To enforce an arbitration agreement, the Court must determine (1) whether the 7 parties agreed to arbitrate their disputes, and (2) if the claims in dispute are within the 8 scope of the arbitration agreement. See Nguyen, 763 F.3d at 1175. In making these 9 determinations, the Court applies “ordinary state-law principles that govern the formation 10 of contracts.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Under 11 Nevada law6 a formation of a contract requires there be: 1) an offer and acceptance; (2) 12 Keefe Commissary Network, LLC, Case No. C17-5848 BHS, 2021 WL 2223709 (W.D. 13 Wash. June 2, 2021) (“Reichert II”) 14 5The Court declines to dismiss the Motion based on issue preclusion. An important fact that distinguishes the cited Reichert I order from this action is that plaintiff Reichert 15 asserted that he did not receive a copy of the Cardholder Agreement when he was released. See Reichert I, 2018 WL 2018452 at *1 (“Reichert claims he did not receive a 16 copy of the Cardholder Agreement when he was released[.]”). More analogous to this action is the subsequent order in Reichert II, see note 4, supra, where plaintiff Moyer did 17 receive the Cardholder Agreement and the court found no contractual relationship existed and denied arbitration. See 2021 WL 2223709 at *6 (“It is undisputed at a minimum that 18 [Moyer] received an Agreement with his February 2018 card, so the Court focuses its analysis on that interaction.”) Because the parties in this action have not briefed issue 19 preclusion with respect to Reichert II, this Court will not dismiss the Motion on this basis. See United States v. Walker River Irrigation Dist., 890 F.3d 1161 (9th Cir. 2018) (stating 20 that the Ninth Circuit has “never ‘upheld a dismissal order for claim or issue preclusion where the parties were not given an opportunity to be heard on the issue[.]’” (quoting 21 Headwaters Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1055 (9th Cir. 2005))). 6The Court notes that the Cardholder Agreement has a choice of law provision that 22 states, “[a]ll matters, whether sounding in contract, tort or otherwise, relating to the validity, construction, interpretation or enforcement of this Agreement shall be determined 23 by the laws of the United States and, to the extent not inconsistent therewith, the laws of the State of Utah.” (ECF No. 13-3 at 2 (emphasis added).) However, the parties do not 24 appear to dispute that the Agreement is governed by Nevada law. (ECF Nos. 13 at 15 (citing formation of a contract under Nevada law); 20 at 8 (stating that “[t]he law in Nevada 25 is no different.”).) Moreover, pursuant to NRS § 97B.100(1), “[a] choice of law provision in a consumer form contract which provides that the consumer form contract is to be 26 governed or interpreted pursuant to the laws of another state is void. Enforcement and interpretation of such a contract must be governed by the laws of [Nevada] if enforcement 27 of the consumer form contract is sought in a court of [Nevada].” (emphasis added.) Accordingly, this Court will apply the principles governing the formation of contracts in 28 accordance with Nevada law. 2 (Nev. 2005). “A meeting of the minds exists when the parties have agreed upon the 3 contract’s essential terms.” Certified Fire Prot. Inc. v. Precision Constr. Inc., 283 P.3d 4 250, 255 (Nev. 2012). 5 In their Motion, Defendants assert that the arbitration clause of the Cardholder 6 Agreement is enforceable because Plaintiff had activated and voluntarily used the release 7 card. (ECF No. 13 at 16-18.) Defendants further assert that Plaintiff had the option of 8 rejecting the release card by calling Rapid and requesting a check for the full balance on 9 the card. (Id. at 10.) Plaintiff counters that while inmates are in custody, they are unable 10 to exercise any free will to consent or assent to a contract such as the Cardholder 11 Agreement. (ECF No. 20 at 7.) The Court is persuaded by the evidence that there was 12 no mutual assent to the Agreement based on activation, nevertheless an adhesion 13 contract was formed but the contract is unconscionable and therefore unenforceable. The 14 Court therefore agrees with Plaintiff but will address Defendants’ arguments in turn. 15 A. Activation 16 Defendants argue that Plaintiff’s telephone call to Rapid to activate the release 17 card constitutes acceptance of the Cardholder Agreement. The Court disagrees. 18 There is no evidence to support that Plaintiff was in possession of the Cardholder 19 Agreement when the card was activated on April 7, 2020. Plaintiff’s sworn declaration 20 states he was “not given a brochure or any documentation” regarding the release card 21 “until after [his] release” on April 13, 2020.7 (ECF No. 20-3 at 2.) Nor did anyone at the 22 SCC inform him “about the purpose or importance of any terms and conditions” of the 23 release card. (Id. at 4.) While Plaintiff does not appear to dispute receiving the Agreement 24 (on April 13, 2020), or that he called to activate the card on April 7, 2020, the record does 25 not reflect that Plaintiff had a copy of the Agreement when he called Rapid to be aware 26 of the terms and conditions. Thus, Defendants’ assertion that the Agreement and release 27 28 7Defendants affirm this fact in their Motion by stating that “Plaintiff received the Cardholder Agreement upon release from SCC.” (ECF No. 13 at 10.) 2 not warrant consideration as that information was not in Plaintiff’s possession when he 3 activated the card on April 7, 2020. 4 Moreover, Plaintiff declares that he never signed “anything agreeing to any terms” 5 relating to the release card. (ECF No. 20-3 at 4.) His sworn declaration makes clear that 6 he was unaware, therefore could not purposefully intend by any action, to “be potentially 7 bound by a contract” with Defendants. (Id.) It is Defendants’ burden to prove based on a 8 preponderance of the evidence that an enforceable contract existed, which includes 9 demonstrating that Plaintiff had a copy of the Cardholder Agreement when he purportedly 10 accepted the contract. See Knutson, 771 F.3d at 565. Despite Defendants’ assertion that 11 there was a “meeting of the minds” because Defendants proffering a written contract 12 accepted via activation (ECF No. 13 at 20), the Court finds differently because Plaintiff 13 was unaware of the essential terms nor in possession of the Agreement to inform him 14 otherwise at the time of activation. As such, there was no meeting of the minds and no 15 mutual assent. See Certified Fire Prot. Inc., 283 P.3d at 255. 16 B. Voluntary Use 17 Defendants argue that Plaintiff’s voluntary use of the release card constitutes 18 consent pursuant to the Cardholder Agreement. The relevant language of the Agreement 19 states, “your acceptance and/or use of the Card will be evidence of your agreement.” 20 While the Court agrees with Defendants that Plaintiff accepted and used the card, the 21 resulting adhesion contract is unenforceable as it is both procedurally and substantively 22 unconscionable. 23 In Nevada, an adhesion contract is “a standardized contract form offered to 24 consumers of goods and services essentially on a ‘take it or leave it’ basis, without 25 affording the consumer a realistic opportunity to bargain, and under such condition that 26 the consumer cannot obtain the desired product or service except by acquiescing to the 27 form of the contract.” Obstetrics & Gynecologists Wixted v. Pepper, 693 P.2d 1259, 1260 28 (Nev. 1985) (citation omitted). An adhesion contract’s distinct feature is that “the weaker 2 reasonable expectations of the weaker or adhering party and is not unduly oppressive.” 3 Id. at 1261 (internal quotes and citation omitted). “However, courts will not enforce against 4 an adhering party a provision limiting the duties or liabilities of the stronger party absent 5 plain and clear notification of the terms and an understanding consent.” Id. Generally, 6 procedural and substantive unconscionability must be present for a court to exercise 7 discretion not to enforce. See Burch v. Second Jud. Dist. Court, 49 P.3d 647, 650 (Nev. 8 2002). Courts may apply a sliding scale test for unconscionability. See id. at 650-51. 9 As explained above, no contract was formed on April 7, 2020. However, Plaintiff 10 received the Cardholder Agreement upon his release from custody and thus on notice of 11 the terms and relevant language—“your acceptance and/or use” is evidence of your 12 agreement. Pursuant to the language, by virtue of receiving the release card, Plaintiff had 13 “accepted” the Agreement the moment he received the card tri-folded with the Agreement. 14 See Reichert II, 2021 WL 2223709 at *6 (articulating that plaintiff inmate would have 15 already accepted a prison release card when he took the card into his possession). 16 Plaintiff’s acceptance is further supported by his declaration. (See ECF No. 20-3 at 3 (“I 17 then went inside the 7-11 to use their telephone to call the phone number on the Access 18 Freedom Card. I was informed that the card had not yet been activated but I would be 19 able to use it within a few minutes.”).) As such, the Court finds that an adhesion contract 20 was formed. 21 However, the Court also finds both procedural and substantive unconscionability 22 exists in this instance and declines to enforce the arbitration clause or the contract. See 23 Clark v. Honderman, Case No. 2:19-cv-01807-KJD-DJA, 2021 WL 2688628, at *2 (D. 24 Nev. Feb. 9, 2021) (citation omitted) (“[W]hether an agreement is procedurally 25 unconscionable, a court must evaluate how the parties negotiated the contract and the 26 circumstances of the parties at that time.”); Godhart v. Tesle, Inc., Case No. 2-19-cv- 27 01541-JAD-VCF, 2020 WL 2992414, *2 (“Substantive unconscionability focuses on 28 whether an agreement’s terms are one-sided or bilateral.”). 2 the card “from a condition of absence of liberty of choice which Defendant[s] reasonably 3 could have anticipated.” Regan v. Stored Value Cards, Inc., 85 F. Supp. 3d 1357, 1364 4 (N.D. Ga. 2015) (emphasis in original). Plaintiff’s sworn declaration states he did not ask 5 or apply for the card; he was not told what he was signing when he was given paperwork 6 to sign for the card; he was not given an option to not sign paperwork; and he was never 7 informed he could receive his money back in any other form other than the release card. 8 (ECF No. 20-3 at 2, 4.) Plaintiff further declares that he was unaware and did not have 9 reason to believe that receiving the release card bound him to a contract with Defendants. 10 (Id. at 4.) 11 Additionally, Plaintiff had just been released from prison and was dropped off at a 12 7-Eleven. He received the Cardholder Agreement and the release card simultaneously 13 upon his release. His money was already preloaded onto the card—even before he called 14 to activate it on April 7, 2020—and he was already subject to Defendants’ terms as he 15 was charged a $1.50 weekly account maintenance fee. That amount may appear nominal 16 to some, but to an inmate earning $1.00 per hour as a voluntary firefighter, with only $0.10 17 going into his account, that amount cannot be understated. Moreover, he did not have 18 cash or any method of payment other than the release card and had no means of 19 transportation. His only option was to use the card to purchase a bus pass. The 20 overwhelming facts in this case provide that Plaintiff was not offered a release card on a 21 “take it or leave it” basis, see Pepper, 693 P.2d at 1260. Rather, Plaintiff believed he had 22 to take it if he wanted the return of his money. Accordingly, the Court finds there was 23 procedural unconscionability as Plaintiff was never in a position to negotiate a contract or 24 its terms given the circumstances. See Clark, 2021 WL 2688628, at *2. 25 Upon receiving the release card, Plaintiff was bound to a $1.50 weekly—not 26 monthly or yearly—fee, $2.75 ATM withdrawal fee, $1.50 ATM balance inquiry fee, $2.75 27 ATM decline fee, and a $2.99 card replacement fee. More concerning, however, is that 28 by receiving the card to access his money, Plaintiff was renouncing his right to sue or 1 || bring a class action. See Reichert //, 2021 WL 2223709, at *7 (stating that a reasonable 2 || person in an inmate’s position cannot be expected to understand he was renouncing his 3 || right to sue or bring a class action). While Defendants state that their cards provide 4 || services and features such as security and immediate access to funds (ECF No. 13 at 5 || 19), those are not services and features that Plaintiff applied for or requested, but 6 || nevertheless was subject to fees in return, even before receiving the card. The Court thus 7 || finds that substantive unconscionability also exists here. See Godhart, 2020 WL 2992414 8 || at *2. Together with the overwhelming weight of procedural unconscionability, see Burch, 9 || 49 P.3d at 650-51 (applying a sliding scale), the Agreement is an unconscionable 10 || adhesion contract. Accordingly, the Court declines to enforce it. 11 C. Rejection Option 12 Defendants argue that Plaintiff's failure to cancel the release card and request a 13 || check is an objective manifestation of assent. Because the Court finds, as discussed 14 || above, that Plaintiff had entered an unconscionable adhesion contract upon receiving the 15 || card, Defendants’ argument is moot. Upon his release, had Plaintiff used the phone to 16 || call Rapid to cancel the card and request a check, Plaintiff would have already “accepted” 17 || and been bound by the terms of the Cardholder Agreement. Accordingly, whether Plaintiff 18 || assented to the Agreement by failing to reject the release card is immaterial. 19 || V. CONCLUSION 20 The Court notes that the parties made several arguments and cited to several 21 || cases not discussed above. The Court has reviewed these arguments and cases and 22 || determines that they do not warrant discussion as they do not affect the outcome of the 23 || Motion before the Court. 24 It is therefore ordered that Defendants’ motion to compel arbitration (ECF No. 13) 25 || is denied. 26 DATED THIS 30" Day of August 2021. ( A 27 4 CE 2 MIRANBA M. DU 28 CHIEF UNITED STATES DISTRICT JUDGE 10