I have to admit I was a little concerned about the Arbitration Resolution Services, Inc. business model when I read summaries describing Martin v. Wells Fargo Bank, N.A., No. 12-6030 (N.D. Cal. Dec. 2, 2013). It sounded like the court was saying online agreements to arbitrate were not enforceable. Then I read the actual case. Turns out this case is just about failure of proof.
Murky Facts Made Clear
The facts are somewhat convoluted, but are pretty easily distilled: 1) customer opens a checking account with Wells Fargo in 1987; 2) account agreement does not provide for arbitration, but the bank reserves the right to change “any of the charges, fees or other information contained in this notice;” 3) in late 2011 bank amends the terms of the customer agreement by adding an arbitration clause; 4) notice is given by a paper billing insert mailed to customers and by an electronic notice that appeared when customers logged into their account on the web; 5) complaining of repeated unauthorized calls from the bank to her cell phone, customer sues the bank in late 2012, seeking class certification and injunctive relief; 6) relying on the arbitration clause, the bank moves in federal district court to stay litigation and compel arbitration; and 7) customer denies getting the mailed notice or logging on and seeing the electronic notice.
Lack of Proof
The court denied the bank’s motions to enforce the arbitration agreement on two grounds. First, it finds insufficient proof that the customer either got the paper notice, or logged into her account and saw the electronic notice. “On this record, Wells Fargo treats the question of whether it provided sufficient notice to Martin casually, relying upon a declaration that Martin was notified of the arbitration provision ‘via a mailing insert that she was targeted to receive in December, 2011’ and an online message ‘she would have received upon logging into her account.’ …Wells Fargo supports its position with the Larsen Declaration, which states only that Martin’s account ‘was on the list targeted to receive this insert.’ … Larsen does not rely upon evidence that an insert was actually mailed to Martin and stops short of making a definitive statement the insert containing the arbitration provision was mailed. She states only that Martin ‘was targeted to receive’ the insert. … Wells Fargo has not provided the Court with any legal precedent to support the premise that ‘targeting’ an individual to receive a mailing constitutes proper notice. As to the online notification, Martin maintains she did not see the notification on her online account, nor does she recall logging in to the online account during the period Wells Fargo asserts the notice was displayed online… Wells Fargo has not yet produced evidence to contradict Martin’s position.”
Material Change of Terms
Second, the court held that, while the 1987 agreement put customers on notice that certain terms might be changed, it was a stretch to say the language contemplated something as significant as an arbitration agreement. Relying on hornbook law that ambiguities in contacts are construed against the drafter, the court stated “It therefore appears that the addition of an arbitration provision is not a change to ‘charges, fees, or other information,’ the only aspects of the 1987 agreement Wells Fargo reserved the right to change. There are no arbitration provisions within the 1987 agreement nor are there references to any form of alternative dispute resolution… Had Wells Fargo, the drafting party, intended its initial agreement to allow for the subsequent addition of an arbitration provision, it could have included those terms within the 1987 agreement.”
Change of Terms
This being the time of year I gear up to teach my arbitration class at Fordham Law School, I close with lessons learned. Seems to me the two key takeaways here for arbitration clause drafters are: 1) be really clear when you add an arbitration clause to an existing contract; and 2) be prepared to back it up with clear, unambiguous proof. Class dismissed.