On March 31, 2005, the North Dakota Supreme Court rejected a challenge to an arbitration provision in U.S. Bank’s credit card customer agreements. Strand v. U.S. Bank National Association ND, No. 20040068 (N.D. Mar. 31, 2005. A copy of the opinion is available on line, pdf format.) Specifically, the Court rejected the argument that agreeing to arbitrate on an individual basis, instead of on a classwide or representative basis, was unconscionable under North Dakota law.
Plaintiff filed the putative class action in February 2002 in the United States District Court for the Central District of California, asserting that cardholders were wrongly charged excess finance charges and late fees as a result of U.S. Bank’s payment posting policies. The Bank successfully moved to stay the litigation pending arbitration of plaintiff’s individual claim. Following the Ninth Circuit’s decision in Ting v. AT&T, plaintiff moved the district court to lift the stay on the grounds that Ting mandated a finding that the agreement was unconscionable and unenforceable. The district court deferred ruling on the motion to lift the stay, and instead certified two questions to the North Dakota Supreme Court: (1) Is a "no class action" provision in an arbitration agreement unconscionable under North Dakota contract law, and (2) If yes, is the remainder of the arbitration agreement enforceable? In a unanimous decision, the North Dakota Supreme Court held that U.S. Bank’s arbitration clause was not unconscionable and thus is fully enforceable. As a threshold matter, the Court rejected plaintiff’s contention that a finding of either procedural or substantive unconscionability would render the entire agreement unconscionable. The Court noted that, under plaintiff’s theory, "virtually every consumer transaction would be rendered unenforceable." The Court clarified that North Dakota adheres to the majority view that a party asserting unconscionability "must demonstrate some quantum of both procedural and substantive unconscionability."
While the Court agreed that the Bank’s credit card agreement was procedurally unconscionable, it rejected plaintiff’s contention that the requirement that arbitration proceed on an individual basis rendered the agreement substantively unconscionable. To be substantively unconscionable, the Court held, the arbitration clause would have to limit or exclude substantive remedies otherwise available at law and leave the plaintiff without an effective remedy.
The Court agreed with U.S. Bank that requiring arbitration to proceed on an individual basis was not a restriction on substantive remedies because the "right" to maintain a "class action" is purely procedural. Moreover, the agreement preserved the ability to obtain in arbitration all remedies available in litigation, including an award of attorneys’ fees. Finally, the Court noted that the agreement provided for the Bank to advance certain arbitral fees and required any arbitration to occur in the plaintiff’s home jurisdiction.
Having found that the arbitration provision was not unconscionable, the Court declined to reach the second certified question, which was contingent on an affirmative answer to the first question.
Morrison & Foerster LLP represents U.S. Bank National Association ND.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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