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  • 6th Circuit affirms decision compelling arbitration in data breach case

    Courts

    On December 2, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s decision dismissing a nationwide putative class action against an e-commerce provider, holding that challenges raised to the validity of an agreement to arbitrate were for the arbitrator to decide, not the court. According to the opinion, the plaintiff class, including four minor individuals, filed suit after the defendant allegedly failed to protect millions of customers’ personal account information that was then obtained in a 2019 data breach. The opinion noted that the defendant’s Terms of Service contained an arbitration agreement, a delegation provision, a class action waiver, and instructions regarding how to opt-out of the arbitration agreement. The district court granted the defendant’s motion to dismiss and compel arbitration after rejecting the plaintiffs’ arguments that the arbitration clause is “invalid” and “unenforceable” as to the minor plaintiffs under the infancy doctrine.

    On appeal, the plaintiffs argued that there was an issue of fact regarding whether four of the plaintiffs had agreed to the Terms of Service, and that the defenses of infancy and unconscionability rendered the Terms of Service invalid. According to the appellate court, though “a contract exists and . . . the delegation provision itself is valid, the arbitrator must decide in the first instance whether the defenses of infancy and unconscionability allow plaintiffs to avoid arbitrating the merits of their claims.” The appellate court further agreed with the district court that “[i]t’s not about the merits of the case. It’s not even about whether the parties have to arbitrate the merits. Instead, it’s about who should decide whether the parties have to arbitrate the merits.”

    Courts Privacy/Cyber Risk & Data Security Class Action Arbitration Data Breach Appellate Sixth Circuit

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  • District Court says bank’s arbitration clauses apply to PPP loans

    Courts

    On November 23, the U.S. District Court for the District of New Jersey granted a national bank’s motion to compel arbitration in an action concerning the bank’s alleged mishandling of Paycheck Protection Plan (PPP) loan applications. The plaintiff filed a lawsuit claiming the bank’s PPP loan disbursement process allegedly favored wealthy clients over smaller, less wealthy clients to maximize the bank’s origination fees. The plaintiff alleged that because the bank did not process applications on a “first-come, first-served” basis, the plaintiff did not receive its PPP loan in a timely manner. The bank moved to compel arbitration, “arguing that questions of arbitrability are for the arbitrator to decide in the first instance.” The plaintiff argued that the arbitration clauses in the bank’s agreements applied only to disputes regarding bank deposit accounts, and not to other financial products such as PPP loans. The court stayed the case and granted the bank’s motion to compel arbitration, noting that the bank’s deposit account agreement and online services agreement both include arbitration clauses. These clauses, the court stated, are “clear evidence” that the bank intended an arbitrator to decide questions related to scope. “Accordingly, Plaintiff must bring its claim before the arbitrator in the first instance, even if it contests the scope of arbitrability,” the court wrote.

    Courts Covid-19 SBA Arbitration CARES Act State Issues Small Business Lending

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  • District Court grants tech company’s motion to arbitrate smartphone data monitoring claims

    Courts

    On November 9, the U.S. District Court for the Northern District of California issued an order granting, among other things, a global technology company defendant’s motion to compel individual arbitration in a privacy class action and dismissing the action without prejudice. As outlined in a May order issued by the court, which granted in part and denied in part defendant’s motion to dismiss plaintiff’s first amended complaint, the plaintiff alleged that the defendant failed to disclose it was (i) monitoring and collecting Android smartphone users’ sensitive personal data while users interacted with apps not owned by the defendant; or (ii) generally collecting “sensitive personal data to obtain an unfair economic advantage.” While the court dismissed the plaintiff’s California Invasion of Privacy Act claims, it allowed claims brought under the California Consumers Legal Remedies Act (which “prohibits ‘unfair methods of competition and unfair or deceptive acts or practices’”) to proceed based on the reasoning that if the defendant had disclosed these material facts, the plaintiff would have acted differently.

    The defendant moved to compel arbitration, claiming the plaintiff was using a smartphone that was bound by an arbitration provision. The plaintiff countered in both the complaint and first amended complaint, as well as in his initial disclosures, that the phone he originally purchased was never subject to an arbitration agreement. However, the court noted that account information later showed that the smartphone used by the plaintiff at the time he filed suit, as well as the smartphone he later switched to, both came with individual arbitration provisions and class waivers, subject to user opt out. The court stated that the plaintiff did not opt out of arbitration for either smartphone, and further denied the plaintiff’s motion for leave to file a second amended complaint, dismissing the action without prejudice.

    Courts Privacy/Cyber Risk & Data Security Arbitration State Issues Class Action California

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  • 8th Circuit says website terms of use are unenforceable

    Courts

    On October 8, the U.S. Court of Appeals for the Eight Circuit overturned a district court’s ruling that a corporate defendant’s arbitration clause found in its website’s terms of use was unenforceable. The 8th Circuit disagreed holding that a triable issue of material fact existed as to whether the plaintiffs agreed to arbitrate.  Relying on a notation on the back of the gift cards that directed purchasers to its website where the terms of use and arbitration agreement were located, the defendant argued that the plaintiffs had agreed to arbitration. The district court disagreed explaining that plaintiffs “could not assent to it. . .unless they saw it first. For that reason, there was no ‘need’ to hold ‘a trial on the question of arbitrability.’”

    On the appeal, the 8th Circuit explained that the district court’s task was to determine if the defendant and the plaintiffs had an arbitration agreement, and, if so, what it covered; however, the district court improperly addressed the question of mutual consent, which was in dispute and “generally a factual question.” According to the 8th Circuit, where there is a material dispute of fact regarding whether there was an agreement to arbitrate, the Federal Arbitration Act requires the district court to proceed to a trial on the issue.

    Courts Class Action Arbitration Eighth Circuit Appellate

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  • District Court: Arbitration provision is severable from a voided loan contract

    Courts

    On September 16, the U.S. District Court for the Southern District of Alabama granted a defendant tribal payday lender’s motion to dismiss and compel arbitration, ruling that an arbitration agreement in a loan contract is still valid even if an arbitration panel found the contracts were void. The plaintiff initiated an arbitration proceeding against the defendant alleging that payday loan contracts carrying interest rates between 200 and 830 percent were void because the defendant was not licensed under the Alabama Small Loans Act to extend such loans. An American Arbitration Association panel determined, among other things, that the defendant had waived any tribal sovereign immunity, “the transactions involved off-reservation commercial activities to which sovereign immunity does not apply,” and that the loans were entirely void because each of the loans was extended without a license. The plaintiff filed suit in state court to confirm the arbitration award and pursue a class action on the premise that the loans are usurious and should be declared void. The defendant removed the case to federal court and asked the court to dismiss the proposed class action and compel arbitration. The district court agreed with the defendant that the arbitration agreement in the voided loan contract remained binding despite the arbitrator’s earlier determination in the plaintiff’s favor. Specifically, the court disagreed with the plaintiff’s argument that the arbitrator’s determination meant that “no aspect of the contact survives,” stating that the plaintiff “overlooks a central tenet in binding precedential arbitration law: severability.” According to the court, “‘[a]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.’”

    Courts Arbitration Tribal Lending Usury Payday Lending Class Action State Issues Interest Rate

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  • 9th Circuit says tribal lenders can arbitrate RICO class claims

    Courts

    On September 16, a split U.S. Court of Appeals for the Ninth Circuit concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The appellate court’s decision reversed a district court’s ruling that an arbitration agreement entered between tribal lenders and borrowers was unenforceable because it impermissibly waived borrowers’ rights to pursue federal statutory claims. As previously covered by InfoBytes, in April the U.S. District Court for the Northern District of California granted class certification to residents who received loans from an online lender, allowing them to pursue class Racketeer Influenced and Corrupt Organizations Act (RICO) claims based on allegations they were charged interest rates that exceeded state limits for lenders claiming tribal immunity. The class of borrowers include California residents who collected loans from an Oklahoma-based tribe, and California residents who received loans from a Montana-based tribe. The district court also ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. The lenders appealed.

    On appeal, the 9th Circuit majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “We do not dispute that [b]orrowers have a reasonable argument that the arbitration agreement as written precludes them from asserting their RICO claims or other federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver,” the majority wrote. “But, when there is a clear delegation provision, that question is. . .for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority added.

    The 9th Circuit’s opinion differs from decisions issued by other appellate courts, which found that certain delegation provisions were unenforceable for various reasons after reviewing whether an arbitration agreement as a whole was unenforceable due to prospective waiver of federal claims. (See InfoBytes coverage of the 3rd and 4th Circuit decisions here and here.) The majority stated that the other appellate courts “considered the wrong thing by ‘confus[ing] the question of who decides arbitrability with the separate question of who prevails on arbitrability.’” According to the majority, “[t]he proper question is not whether the entire arbitration agreement constitutes a prospective waiver, but whether the antecedent agreement delegating resolution of that question to the arbitrator constitutes prospective waiver.”

    Courts Arbitration Tribal Lending RICO Interest Rate Usury Ninth Circuit Appellate

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  • District Court denies company’s bid to arbitrate in class action

    Courts

    On September 15, the U.S. District Court for the Southern District of California denied a defendant tech company’s motion to compel arbitration, dismiss or stay a class action lawsuit alleging that it violated the California Invasion of Privacy Act, among other things, by monitoring certain contract employees’ social media activity. The complaint alleges that the named plaintiff, a contract delivery driver for the company, and other contract employees, utilized an online platform to “discuss ‘a myriad of issues surrounding their employment,’ including strikes, protests, pay, benefits, deliveries, working conditions, and unionizing efforts.” The plaintiff alleged that the company was secretly monitoring and wiretapping the employees’ social media groups and created a team “to ‘monitor and/or intercept[]’ posts to closed [online] groups ‘in real time . . . using automated monitoring tools,’” without obtaining consent.   

    With respect to the defendants’ motion to compel arbitration, the company argued that, under the applicable terms of service, the plaintiff was required to arbitrate his claims on an individual basis. The court, however, found that that the plaintiff met his burden to demonstrate that the claims alleged do not fall within the scope of the arbitration provision.

    Courts Arbitration Class Action Privacy/Cyber Risk & Data Security State Issues California

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  • Appellate Court affirms defendant waived right to arbitration

    Courts

    On August 18, a Florida District Court of Appeals affirmed a district court’s decision that an auto dealer (defendant) waived its right to compel arbitration after failing to mention an arbitration provision until days before the hearing. The plaintiffs filed a class action complaint alleging that the defendant engaged in deceptive practices regarding fees on car sales. While the defendant raised seven affirmative defenses, it did not raise arbitration, even though an arbitration provision was included in the contract between the defendant and each vehicle purchaser. The defendant moved for judgment on the pleadings and argued “that the type of damages sought in the suit were unavailable under the Florida Deceptive and Unfair Trade Practices Act,” but the court denied the motion. According to the opinion, days before the hearing, the defendant “filed its motion to compel arbitration ‘in opposition to plaintiff’s motion for class certification,’ raising arbitration as an issue for the first time fourteen months after the class action complaint had been filed,” contending that it did not waive its right to arbitrate due to prior filings being defensive in nature. Later, the defendant argued that even if the court found a waiver as to the named plaintiffs, it could not have waived its right to arbitrate with the unnamed class members. The court ruled that the defendant “engaged in class discovery without objecting to it or preserving its right to compel arbitration with the unnamed class members.”

    In making its decision, the appellate court cited a 2018 decision by the U.S. Court of Appeals for the Eleventh Circuit, which ruled that a bank had not waived its arbitration rights regarding the unnamed class members because it expressly stated it wished to preserve arbitration rights against those class members when the matter became ripe (covered by InfoBytes here). The appellate court agreed with the court, finding that the defendant acted inconsistently with regard to arbitration in the dispute and therefore waived any right to force the plaintiffs into arbitration.

    Courts Appellate Arbitration Deceptive Eleventh Circuit Auto Finance

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  • District Court says retailer not an intended third-party beneficiary of a credit card arbitration provision

    Courts

    On July 8, the U.S. District Court for the Central District of California denied a retailer’s motion to compel arbitration in a consumer data sharing putative class action, ruling that the retailer was not an intended third-party beneficiary of an arbitration provision in a credit card agreement. The proposed class had filed an amended complaint accusing several national retailers of illegally sharing consumer transaction data in violation of the FCRA, the California Consumer Privacy Act, and California’s unfair competition law, among others. The motion at issue, filed by one of the retailers, addresses a named plaintiff’s opposition to compel arbitration. The retailer argued that as an “intended” third-party beneficiary of the contract, it had the right to enforce an arbitration clause contained in a credit card agreement purportedly signed by the plaintiff when she opened a retailer credit card account issued by an online bank.

    The court disagreed, finding that the contract’s arbitration provisions specifically referred to the bank, and that the contract did not clearly “express an intention to confer a separate and distinct benefit on [the retailer].” Moreover, the court noted the contract at issue instructed the plaintiff to send any arbitration demand notices to the bank, adding that “[i]t seems unlikely that the parties would expect a demand for arbitration solely against the [retailer]—that does not involve [the bank]—to be sent to [the bank].”

    Courts Arbitration Third-Party Credit Cards Class Action State Issues CCPA FCRA Privacy/Cyber Risk & Data Security

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  • District Court: Underlying court judgment does not waive right to compel arbitration

    Courts

    On June 21, the U.S. District Court for the Western District of New York granted defendants’ motion to compel arbitration in an action accusing the defendant of violating the FDCPA by making false statements when attempting to collect outstanding debt. In 2018, the defendant purchased the plaintiff’s charged-off account and a year later filed a lawsuit seeking to collect on the outstanding credit card debt. Default judgment was entered in favor of the defendant, who then attempted to collect on the judgment by filing an income execution to garnish the plaintiff’s wages. The plaintiff filed suit, contending that the income execution contained false statements and failed to comply with various requirements under the New York State Consumer Protection Law. The defendants filed a motion to compel arbitration and to dismiss the complaint based on provisions in a credit card agreement between the plaintiff and the original creditor. The plaintiff argued that the arbitration provisions did not apply because the judgment obtained by the defendant on the underlying debt extinguished the agreement and, as such, “there is no longer an ‘account’ upon which to enforce the arbitration provision.” The court disagreed, noting that if the plaintiff’s assertion that “an underlying court judgment merges with and extinguishes an underlying contractual debt” was correct, “contracts would be rendered meaningless whenever a party breached any portion of an agreement and the other party obtained a judgment on such breach.” Additionally, the court noted that the agreement “expressly permitted parties to file suit without waiving the right to compel arbitration on subsequent claims.” Specifically, the agreement provides that cases filed to collect money owed by a consumer will not be subject to arbitration, but that a response to such a collection suit claiming any wrongdoing may be subject to arbitration. “Thus, regardless of whether an underlying court judgment merges with and extinguishes an underlying contractual debt, the contract itself and its obligations—including the ability to compel the arbitration of subsequent claims—do not similarly merge,” the court wrote.

    Courts FDCPA Debt Collection Arbitration State Issues Class Action

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