This post first appeared on the Securities Arbitration Alert blog. The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.
A unanimous Indiana Supreme Court holds that a predispute arbitration agreement (“PDAA”) and class action waiver unilaterally added by the bank to its account agreement were not enforceable. We let the Opinion in Decker v. Star Financial Group Inc., No. 22S-PL-305 (Ind. Mar. 21, 2023), speak for itself.
Facts and Procedural History
“Plaintiffs, Cliff and Wendy Decker, have a checking account with Star Financial Bank, a wholly owned subsidiary of defendant, Star Financial Group, Inc. The Deckers, on behalf of themselves and others similarly situated, filed a class-action complaint alleging the Bank collected improper overdraft fees. Before the Deckers sued, the Bank added an arbitration and no-class-action addendum to the terms and conditions of the Deckers’ account agreement. After the Deckers sued, the Bank cited the addendum and responded with a motion to compel arbitration, which the trial court granted.”
“The Deckers raise three arguments on appeal: (1) the Bank buried notice of the addendum at the end of their monthly statement and thus did not provide the contractually required reasonable notice; (2) the account agreement’s change-of-terms clause did not allow the Bank to add the addendum; and (3) the continued use of their checking account did not manifest their assent to the addendum… For us to affirm the trial court’s judgment of dismissal, the Bank must run the table on all three of the Deckers’ arguments. In contrast, the Deckers need win only one of their arguments for us to resolve the appeal in their favor. Without expressing any opinion on the merits of the Deckers’ first and third arguments, we hold that the specific language of the account agreement’s change-of-terms clause did not permit the Bank to add the addendum. Thus, the addendum was not a valid amendment to the account agreement.”
Reasoning: Bank’s Own Language Limits Changes
“The agreement’s operative provision is Section 10, which allows the Bank to ‘change any term of this agreement.’ The Bank proceeded here as if the account agreement’s change-of-terms clause gave it a blank check to amend the agreement any way it saw fit to fend off threatened litigation. But Section 10—which the Bank itself wrote—is not so elastic. This section does not say the Bank can change the agreement however it wants. If the Bank wanted such flexibility, it might have given itself the power to ‘change this agreement’ as desired. Instead, the section is more limited in scope. It limits the Bank to changing ‘any term of this agreement.’ Words matter. The difference between a far-reaching power to amend “this agreement” and the narrower power to amend ‘any term of this agreement’ makes all the difference on this record. The latter—which governs here—limits the Bank to modifying the terms that existed in the original account agreement. Relevant here, the original agreement contained neither a general dispute-resolution provision nor a specific arbitration or no-class-action provision. Thus, there was not ‘any term’ of that agreement the Bank could ‘change’ to effectuate the result it sought here through its addendum. Because the original account agreement did not mention dispute resolution generally or arbitration or class action specifically, Section 10 did not permit the Bank to add such provisions by amendment. To conclude otherwise would violate Section 10” (emphasis in original)
Concurring Opinion: Right Result But Wrong Reason
Judge Goff concurs in the result, but for a different reason: “I agree with the Court that the Deckers are not bound by the arbitration addendum to their account agreement. But I reach that conclusion for a different reason. In my view, the agreement—taken as a whole—permits the addition of an arbitration addendum. But, given the lack of reasonable opportunity to reject the addendum, the Deckers did not, as I see it, assent to a change in terms.”
(ed: We’re with Judge Goff.)