Hoffman v. Citibank (South Dakota), N.A.

• Decision Date: 14 October 2008
• Docket Number: No. 07-55616.,07-55616.
• Citation: 546 F.3d 1078
• Parties: Laura HOFFMAN, an individual, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. CITIBANK (SOUTH DAKOTA), N.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

546 F.3d 1078

Laura HOFFMAN, an individual, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. CITIBANK (SOUTH DAKOTA), N.A., Defendant-Appellee.

No. 07-55616.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2008.

Filed October 14, 2008.

Barry L. Kramer, Law Offices of Barry L. Kramer, Los Angeles, California, and Gretchen A. Carpenter, Strange & Carpenter, Los Angeles, CA, for the plaintiff-appellant.

Julia B. Strickland, Stroock & Stroock & Lavan LLP, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California; Andrew J. Guilford, District Judge, Presiding. D.C. No. CV-06-00571-AJG.

Before: STEPHEN TROTT, SIDNEY R. THOMAS and RAYMOND C. FISHER, Circuit Judges.

PER CURIAM Opinion; Concurrence by Judge TROTT.

PER CURIAM:

Plaintiff-Appellant Laura Hoffman ("Hoffman") appeals the district court's order compelling arbitration in her class action suit against her credit card company, Defendant-Appellee Citibank (South Dakota) N.A. ("Citibank"). The district court found that Hoffman was party to an arbitration agreement that waived her right to proceed on a class basis. Applying South Dakota law—the law chosen in the credit card agreement—the district court enforced the class arbitration waiver and ordered Hoffman to proceed on a non-class basis. Nonetheless, the district court found substantial grounds for a difference of opinion regarding a controlling issue of law, "whether California law or South Dakota law should be used to determine the enforceability of the arbitration agreement," and issued an order for immediate appeal. The case was stayed without completion of discovery. We granted permission for the appeal, and we have jurisdiction under 28 U.S.C. § 1292(b). Because we are persuaded that the district court's order compelling arbitration erroneously relied on cases that do not properly apply California choice of law rules, we remand for a determination of whether California or South Dakota law applies to the class arbitration waiver.

FACTUAL AND PROCEDURAL BACKGROUND

In 1994, Hoffman opened a credit card account with Citibank subject to a written credit card agreement. The card agreement contained a choice of law provision stating that "[t]he terms and enforcement of this Agreement shall be governed by South Dakota and federal law." The agreement permitted Citibank to change its terms by mailing Hoffman written notification of the change at least 15 days before the effective billing cycle. Upon receiving notice, Hoffman was provided 25 days to reject the changes in writing. Silence or using the card was deemed acceptance of the changes in accordance with South Dakota Codified Laws § 54-11-10.

Approximately seven years later, following the procedures set forth in § 54-11-10, Citibank mailed Hoffman a "Notice of Change in Terms Regarding Binding Arbitration to Your Citibank Card Agreement." The added arbitration provision stated, in pertinent part:

ARBITRATION:

PLEASE READ THIS PROVISION OF THE AGREEMENT CAREFULLY. IT PROVIDES THAT ANY DISPUTE MAY BE RESOLVED BY BINDING ARBITRATION. ARBITRATION REPLACES THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY AND THE RIGHT TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING. IN ARBITRATION, A DISPUTE IS RESOLVED BY AN ARBITRATOR INSTEAD OF A JUDGE OR JURY. ARBITRATION PROCEDURES ARE SIMPLER AND MORE LIMITED THAN COURT PROCEDURES.

Agreement to Arbitrate:

Either you or we may, without the other's consent, elect mandatory, binding arbitration for any claim, dispute, or controversy between you and us (called "Claims").

Claims Covered:

• What Claims are subject to arbitration? ... Claims and remedies sought as part of a class action, private attorney general or other representative action are subject to arbitration on an individual (non-class, non-representative) basis, and the arbitrator may award relief only on an individual (non-class, non-representative) basis.

* * *

• Broadest Interpretation. Any questions about whether Claims are subject to arbitration shall be resolved by interpreting this arbitration provision in the broadest way the law will allow it to be enforced. This arbitration provision is governed by the Federal Arbitration Act (the "FAA").

* * *

• Who can be a party? Claims must be brought in the name of an individual person or entity and must proceed on an individual (non-class, non-representative) basis. The arbitrator will not award relief for or against anyone who is not a party. If you or we require arbitration of a Claim, neither you, we, nor any other person may pursue the Claim in arbitration as a class action, private attorney general action or other representative action, nor may such Claim be pursued on your or our behalf in any litigation in any court. Claims, including assigned Claims, of two or more persons may not be joined or consolidated in the same arbitration.

The arbitration provision also included terms giving the cardmember the option to sue in small claims court and requiring Citibank to reimburse or advance arbitration fees under certain circumstances.

Citibank printed the following message on Hoffman's October 2001 statement alerting her to the enclosed notice:

PLEASE SEE THE ENCLOSED CHANGE IN TERMS NOTICE FOR IMPORTANT INFORMATION ABOUT THE BINDING ARBITRATION PROVISION WE ARE ADDING TO YOUR CITIBANK CARD AGREEMENT.

The change in terms provided that the arbitration provision would become effective on the day after the closing date appearing on Hoffman's November 2001 billing statement. Hoffman's November 2001 statement included a reminder advising her to call Citibank if she wanted another copy of the arbitration provision.

The change in terms expressly gave Hoffman "Non-Acceptance Instructions":

If you do not wish to accept the binding arbitration provision contained in this change in terms notice, you must notify us in writing within 26 days after the Statement/Closing date indicated on your November 2001 billing statement stating your non acceptance. ... If you notify us by that time that you do not accept the binding arbitration provisions contained in this change in terms notice, you can continue to use your card(s) under your existing terms until the end of your current membership year or the expiration date on your card(s), whichever is later. At that time your account will be closed and you will be able to pay off your remaining balance under your existing terms.

(Emphasis added.) Hoffman did not notify Citibank of her non-acceptance and continued to use her account by making additional charges and payments. Had she notified Citibank of her non-acceptance, it appears that her relationship with Citibank would have continued without change for the duration of the agreement.

Hoffman brought this consumer action in California state court against Citibank on behalf of herself and other similarly situated California cardholders. Hoffman alleged that Citibank increased the class members' interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed. The suit was initially brought in California state court but was removed to federal court by Citibank. The operative pleading, the First Amended Complaint, alleges a violation of the Unfair Competition Law, California Business & Professions Code §§ 17200, et seq.¹

Before filing an answer, Citibank filed a motion to compel arbitration and stay proceedings. The district court issued an order granting Citibank's motion to compel arbitration of Hoffman's claims on an individual, non-class basis.

In that order, the district court found that Hoffman was party to an arbitration agreement that was subject to a choice of law provision favoring South Dakota law. The district court then concluded without further analysis that the choice of law provision was enforceable, and thus South Dakota law governed the agreement. Applying South Dakota law, the district court concluded that the class arbitration waiver was not unconscionable and was enforceable.

Hoffman subsequently moved to certify the district court's order compelling arbitration for immediate appeal. The district court granted Hoffman's motion, finding that the choice of law issue presented substantial grounds for difference of opinion and was a controlling question of law, the appeal of which would materially advance the litigation. We granted Hoffman's petition for permission to be heard.

STANDARD OF REVIEW AND BURDEN OF PROOF

We review de novo a district court's order compelling arbitration. See Davis v. O'Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007). An arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable. See Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226-27, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). The applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable. See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). "[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

DISCUSSION

I. The Need for Remand

Federal courts sitting in diversity look to the law of the forum state when making choice of law determinations. See Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir.2005). In this case, Hoffman sued in California. When an agreement contains a choice of law provision, California courts apply the parties' choice of law unless the analytical approach articulated in § 187(2) of the Restatement (Second) of Conflict of Laws (" § 187(2)") dictates a different result. See Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100, 1117 (2005). The ...