In Re: Checking Account Overdraft Litigation

• Decision Date: 16 June 2010
• Docket Number: No. 09-MD-02036-JLK, MDL 2036.,09-MD-02036-JLK, MDL 2036.
• Parties: In re: CHECKING ACCOUNT OVERDRAFT LITIGATION, This Document Relates to: Johnson v. KeyBank National Association; S.D. Fla. Case No. 1:10-cv-21176-JLK W.D. Wa. Case No. 2:10-cv-304.
• Court: U.S. District Court — Southern District of Florida

718 F.Supp.2d 1352

In re: CHECKING ACCOUNT OVERDRAFT LITIGATION,

This Document Relates to: Johnson

v.KeyBank National Association; S.D. Fla. Case No. 1:10-cv-21176-JLK W.D. Wa. Case No. 2:10-cv-304.

No. 09-MD-02036-JLK, MDL 2036.

United States District Court,S.D. Florida.

Miami Division.

June 16, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Mark A. Griffin, Karin B. Swope, Keller Rohrback LLP, Seattle, WA, Bruce S. Rogow, Robert C. Gilbert, Alter, Boldt, Brown, Rash, Culmo, Miami, FL, Edward Adam Webb, G. Franklin Lemond, Jr., Webb, Klase & Lemond, LLC, Atlanta, GA, Robert C. Josefsberg, Victor M. Diaz, Jr., John Gravante, III, Podhurst Orseck, P.A., Miami, FL, Barry R. Himmelstein, Michael W. Sobol, Jordan Elias, Mikaela Bernstein, Lieff Cabraser Heimann & Berstein LLP, San Francisco, CA, Ruben Honik, Kenneth J. Grunfeld, Golomb & Honik, PC, Philadelphia, PA, Ted E. Trief, Barbara E. Olk, Trief & Olk, New York, NY, Russell W. Budd, Bruce W. Steckler, Melissa K. Hutts, Baron & Budd, PC, Dallas, TX, for Plaintiffs.

Alan G. Kipnis, John M. Cooney, Arnstein & Lehr, LLP, Fort Lauderdale, TX, for Defendants KeyBank National Association.

ORDER DENYING MOTION TO COMPEL ARBITRATION

JAMES LAWRENCE KING, District Judge.

THIS CAUSE comes before the Court upon KeyBank's Motion to Compel Arbitration (DE # 425) filed May 3, 2010. On May 20, 2010, Plaintiff Responded (DE # 493) and on June 1, 2010, Defendant Replied (DE # 530).

Currently the Court has ruled on six (6) previously filed Motions to Compel Arbitration. Five were denied (DE # 447) and one was granted (DE # 514). This Court's May 10th Order Denying Motions to Compel Arbitration and May 25th Order Granting the Motion to Compel Arbitration are incorporated into this Order by reference and the Court will not restate the factual background or legal basis for those Opinions.

In this Order the Court addresses: (A) whether Ohio or Washington law applies; and (B) whether the arbitration provision and its un-severable class action waiver are unconscionable under the applicable law.

A. Choice of Law Analysis

The parties disagree on whether the state law of Ohio or Washington applies to the interpretation of this Agreement. Ohio law is the law specified by the Agreement. (Agreement at ¶ 26, Ex. A to Def. Mot. to Compel Arb. (“This Agreement and all Accounts shall be governed by the laws of the State of Ohio (without regard to conflict of law rules) and applicable federal law, but with respect to all fees and charges related to your Account, federal law alone controls.”).) Washington law, on the other hand, is the law of the forum state; the case was filed in the Western District of Washington.

In a multi-district litigation case, the transferee court applies the choice of law rules of the state in which the action was filed. Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir.1993) (citations omitted). The Court must therefore undertake a choice of law analysis under Washington law to determine whether Washington or Ohio law applies. See James Russell Engineering Works, Inc. v. Clean Fuels, LLC, No. C08-1427-MJP, 2009 WL 2406331 (W.D.Wa., August 3, 2009). Under Washington law, “choosing the applicable law is a two-part inquiry: first a court must determine whether there is an actual and meaningful difference between the potentially applicable laws; and second, a court must determine whether the parties' choice-of-law is actually effective.” Coneff v. AT & T Corp., 620 F.Supp.2d 1248, 1252 (W.D.Wash.2009).

First, “there must be an actual conflict between the laws or interests of Washington and the laws or interests of another state....” Id. (citation omitted). Here, an actual conflict exists. As the court in Coneff noted, “there is a split of authority in this country over the enforceability of class-action waivers.” 620 F.Supp.2d at 1253 (citing Scott v. Cingular Wireless, 160 Wash.2d 843, 161 P.3d 1000, 1004-05 (2007) (collecting cases)) (finding Washington law in contrast with Virginia, Illinois, and Alabama law which have all upheld arbitration clauses). Generally, Washington courts have invalidated class action waivers, whereas Ohio courts have upheld these waivers. See e.g., Scott, 161 P.3d at 1004-05; Credit Acceptance Corp. v. Davisson, 644 F.Supp.2d 948 (N.D.Ohio 2009). For example, a Washington court invalidated a class action waiver when applied to Washington's Consumer Protection Act ( Scott, 161 P.3d at 1006), whereas an Ohio court upheld the waiver in connection with Ohio's Consumer Protection Act ( Credit Acceptance Corp., 644 F.Supp.2d at 958-59). Further, whereas Ohio law requires both substantive and procedural unconscionability to invalidate a provision, under Washington law a provision may be deemed unenforceable based solely upon substantive unconscionability. See e.g., Hayes v. Oakridge Home, 122 Ohio St.3d 63, 908 N.E.2d 408, 412 (2009); Coneff, 620 F.Supp.2d at 1256. Thus, there is an actual conflict between Washington and Ohio law.

Regarding the second inquiry, the Court must determine whether the parties' contractual choice of law is effective. Washington follows the Restatement (Second) of Conflict of Laws. Id. Thus, under Washington law, a contractual choice of law provision is binding unless:

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

Restatement (Second) of Conflicts of Laws § 187(2).

The exception outlined in Section (a) does not apply. Ohio has a substantial connection to the parties. Defendant KeyBank is headquartered in the state of Ohio and deemed to be a citizen of Ohio. Thus, the Court must consider the complex inquiry required for the exception under section (b).

According to Washington law, section (b) requires a three part inquiry: (i) whether Washington law governs absent an enforceable choice of law clause; (ii) whether the contract would violate a fundamental public policy of Washington; and (iii) whether Washington has a materially greater interest in adjudicating the dispute than the other possible forum.

The first inquiry under section (b) is whether Washington law would apply absent the provision. Coneff, 620 F.Supp.2d at 1253. Washington courts have considered various factors when making this inquiry. Id. Courts have applied the ‘most significant relationship’ test which asks a court to consider “(1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, or place of incorporation of the parties.” Id. (citations omitted). Here, the contract was negotiated, signed and performed in Washington. Plaintiff entered a Washington branch of KeyBank, signed a contract with a local, Washington KeyBank representative, and deposited and withdrew funds from a local, Washington KeyBank. (Dec. of David M. Johnson, Ex. 1 to Opp. to Mot. to Compel.) The statements and Notice of Arbitration were all sent to Plaintiff's Washington home and his domicile and residence is Washington. ( Id.)

Defendant contends that the place of injury factor is not as important in a class action; rather, “the state in which the fraudulent conduct arises has a stronger relationship to the action.” (Def.'s Reply at 7 (quoting Coneff, 620 F.Supp.2d at 1254).) Here, Defendant asserts that the alleged deceptive conduct, the implementation of KeyBank's nationwide overdraft policy, arose in Ohio. This argument fails based on the asserted facts of this case. The alleged fraudulent conduct occurred in Washington. All conduct related to Plaintiff's relationship with KeyBank, the only relationship currently at issue in this case, took place in the state of Washington. The Agreement outlining the overdraft fees at issue was signed in Washington, Plaintiff made the alleged overdrafts in Washington, and he was charged all overdraft fees in Washington. Although Defendant urges the Court to view the issue in terms of many, as yet, non-existent class members, the Court currently has only one named Plaintiff before it. Thus, the Court finds that Washington has the most significant relationship to this case and that Washington law applies absent the contractual provision.

The Court must next determine whether the arbitration provision (and its class action waiver) violates a fundamental policy of Washington law. This is not an inquiry into whether this class action ban is unconscionable or whether a class action ban may be unconscionable under Washington law; rather, the Court must determine whether Washington has declared a strong public policy against class action waivers. The Court finds that it has.

Washington courts have found that Washington has a strong public policy in favor of class actions. See e.g., Coneff, 620 F.Supp.2d at 1255; Scott, 161 P.3d at 1007-08; McKee v. AT & T Corp., 164 Wash.2d 372, 191 P.3d 845, 852 (2008). “Washington courts favor a liberal interpretation of CR 23 [Class Actions] as the rule avoids multiplicity of litigation, ‘saves members of the class the cost and trouble of filing individual suits[,] and ... also frees the defendant from the harassment of identical future litigation.’ ” Scott, 161 P.3d at 1007 (quoting Smith v. Behr Process Corp., 113 Wash.App. 306, 54 P.3d 665, 672-73 (2002) (alteration in original)). Thus, “the interests of justice require that in a doubtful case ... any error, if there is to be one, should be committed in favor of allowing the class action.” Scott, 161 P.3d at 1008 (citations omitted). Moreover, while...