Szetela v. Discover Bank

• Decision Date: 22 April 2002
• Docket Number: No. G029323.,G029323.
• Citation: 118 Cal.Rptr.2d 862,97 Cal.App.4th 1094
• Court: California Court of Appeals Court of Appeals
• Parties: John SZETELA, Plaintiff and Appellant, v. DISCOVER BANK, Defendant and Respondent.

118 Cal.Rptr.2d 862

97 Cal.App.4th 1094

John SZETELA, Plaintiff and Appellant, v. DISCOVER BANK, Defendant and Respondent.

No. G029323.

Court of Appeal, Fourth District, Division 3.

April 22, 2002.

Rehearing Denied May 16, 2002.

Review Denied July 31, 2002.

Strange & Carpenter, Brian R. Strange, Gretchen Carpenter; Law Offices

of Barry L. Kramer and Barry L. Kramer, Los Angeles, for Plaintiff and Appellant.

Gibson, Dunn & Crutcher, Joel A. Feuer and Benjamin P. Broderick, Los Angeles, for Defendant and Respondent.

OPINION

MOORE, J.

In this putative class action, plaintiff John Szetela challenges an order granting Discover Bank's (Discover) motion to compel arbitration. Szetela argues the arbitration agreement, to the extent it prohibits class treatment of small individual claims, is unconscionable and unenforceable. We agree and therefore issue a writ of mandate directing the trial court to strike the portion of the arbitration clause prohibiting class or representative actions.

I FACTS AND PROCEDURAL BACKGROUND

Szetela opened a Discover credit card account in July 1993. The terms of his account were governed by a Cardmember Agreement. In July 1999, Discover sent Szetela a notice inserted inside his billing statement that purported to amend the terms of the Cardmember Agreement to include an arbitration clause.

In relevant part, the amendment states: "ARBITRATION. WE ARE ADDING A NEW SECTION TO READ AS FOLLOWS: [¶] ARBITRATION OF DISPUTES. In the event of any past, present or future claim or dispute (whether based upon contract, tort, statute, common law or equity) between you and us arising from or relating to your Account, any prior account you have had with us, your application, the relationships which result from your Account or the enforceability or scope of this arbitration provision, of the Agreement or of any prior agreement, you or we may elect to resolve the claim or dispute by binding arbitration. [¶] IF EITHER YOU OR WE ELECT ARBITRATION, NEITHER YOU NOR WE SHALL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR TO HAVE A JURY TRIAL ON THAT CLAIM. PRE-HEARING DISCOVERY RIGHTS AND POST-HEARING APPEAL RIGHTS WILL BE LIMITED. NETHER YOU NOR WE SHALL BE ENTITLED TO JOIN OR CONSOLIDATE CLAIMS IN ARBITRATION BY OR AGAINST OTHER CARDMEMBER WITH RESPECT TO OTHER ACCOUNTS, OR ARBITRATE ANY CLAIMS AS A [REPRESENTATIVE OR MEMBER OF A CLASS OR IN A PRIVATE ATTORNEY GENERAL CAPACITY. Even if all parties have opted to litigate a claim in court, you or we may elect arbitration with respect to any claim made by a new party or any new claims later asserted in that lawsuit, and nothing undertaken therein shall constitute a waiver of any rights under this arbitration provision."

If Szetela did not wish to accept the terms of the amendment, his only option was to notify Discover, which would then close his account. If he had selected this option, he would have been permitted to pay his remaining balance under the terms of the Cardmember Agreement prior to the amendment.

Szetela was not the original named plaintiff in this case. In October 2000, James Shea, a New Jersey resident, filed the present action against Discover as a putative class action. Discover filed a motion in New Jersey seeking relief that would effectively bar the California action.¹ In December 2000, a first amended complaint was filed adding Szetela, a California resident, as an additional named plaintiff. The amended complaint asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent or negligent misrepresentation, and deceptive business practices. These claims were based on alleged practices by Discover that resulted in cardholders being improperly charged fees for exceeding their credit limits ("overlimit fees") and incurring other penalties: (1) incorrectly stating the cardholder's "available credit" amount on their monthly statements, and (2) incorrectly calculating cardholders'"minimum payment due" on their monthly statements. Discover's overlimit fee was $29.

Based on the arbitration clause purportedly added to Szetela's Cardholder Agreement in 1999, Discover moved to compel arbitration of Szetela's claim on an individual basis. The court granted the motion, and Szetela eventually prevailed at arbitration, recovering $29, and then filed the present appeal. Discovery was also conducted to locate a new class representative, a person to whom the arbitration clause did not apply. A second amended complaint adding a new class representative was subsequently filed.

II DISCUSSION

A. Discover's Motion to Dismiss

A threshold issue is whether this court has jurisdiction to hear Szetela's appeal. Discover argues that we do not and has moved to dismiss the appeal on the ground that an order compelling arbitration is not appealable. (See, e.g., Melchor Investment Co. v. Rolm Systems (1992) 3 Cal.App.4th 587, 591, 4 Cal.Rptr.2d 343.) Szetela argues that the order to arbitrate signaled the "death knell" of the putative class action and is therefore appealable. The death knell doctrine permits the appellate court to review an order denying a motion to certify a class when it is unlikely the case will proceed as an individual action. (See, e.g., Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470, 174 Cal.Rptr. 515, 629 P.2d 23.)

Both sides raise valid points. Discover argues the death knell doctrine generally applies only in the context of a trial court's denial of a motion to certify a class. Szetela points out that although the court's order does not signal the death knell for the entire class, it does sharply limit the scope of the class to those not facially bound by the "no class action" provision. This alone, however, is not sufficient to create appellate jurisdiction.

Discover suggests the proper procedure is an appeal from an order on a motion to confirm or vacate the arbitrator's award. Yet Szetela, obviously, does not want to confirm the award, and grounds to vacate are extremely limited. (See Code Civ. Proc., § 1286.2.) It is not in Discover's interest to create an appealable order. Therefore, although the order is not appealable under the death knell doctrine, because of the unusual circumstances present here, we exercise our discretion to treat the appeal as a petition for a writ of mandate. (See Olson v. Cory (1983) 35 Cal.3d 390, 401, 197 Cal.Rptr. 843, 673 P.2d 720; Rogers v. Municipal Court (1988) 197 Cal.App.3d 1314, 1317, 243 Cal. Rptr. 530.) Unless we do so, this issue will effectively evade appellate review, establishing the lack of an adequate remedy of law necessary for a writ. The essential facts are undisputed and the case has been extensively briefed. The motion to dismiss is denied, and we therefore consider the merits of the case.

B. Szetela's Requests for Judicial Notice

Szetela requests that we take judicial notice of a trial court opinion in a parallel case in New Jersey. As part of the record in the court of another state, we have discretion to take judicial notice of the opinion. (Evid.Code, § 452, subd. (d).) Discover apparently fears that if we take judicial notice of the opinion, we will unquestioningly adopt its findings, which is not the case. Szetela's request is granted; however, the opinion will be given the weight appropriate to an out-of-state trial court decision.

Szetela further requests that we take judicial notice of a document purporting to be Citibank's recently amended credit card agreement. This document includes a no class action provision similar to Discover's amendment. Because this issue is not relevant to our decision in this appeal, we decline to do so. (See People v. Rowland (1992) 4 Cal.4th 238, 268, fn. 6, 14 Cal.Rptr.2d 377, 841 P.2d 897.) The request is denied.

C. Enforceability of the Arbitration Clause

The essence of Szetela's argument is that the no class action provision is unconscionable and should not be enforced.² Because no material facts are in dispute, we review the enforceability of the arbitration clause de novo. (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal. App.4th 64, 71, 100 Cal.Rptr.2d 683.)

An agreement to arbitrate is enforceable unless a recognized contract defense, such as unconscionability, exists. (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687, 116 S.Ct. 1652, 134 L.Ed.2d 902.) As our Supreme Court has noted, "under both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. [Citations.]" (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98, 99 Cal.Rptr.2d 745, 6 P.3d 669, fn. omitted (hereafter Armendariz).) Unconscionability is one such ground. (Civ.Code, § 1670.5, subd. (a).)

Szetela, as the party opposing arbitration, has the burden of proving the arbitration provision is unconscionable. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972, 64 Cal. Rptr.2d 843, 938 P.2d 903.) Unconscionability includes both substantive and procedural elements.³ (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531, 60 Cal. Rptr.2d 138.) Procedural unconscionability addresses the manner in which agreement to the disputed term was sought or obtained, such as unequal bargaining power between the parties and hidden terms included in contracts of adhesion. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212-1213, 78 Cal.Rptr.2d 533.) Substantive unconscionability addresses the impact of the term itself, such as whether the provision is so harsh or oppressive that it should not be enforced. (Ibid.) These elements however, need not be present to the same degree. "[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa."

(Armendariz, supra, 24 Cal.4th...