Kortum-Managhan v. Herbergers Nbgl

Citation2009 MT 79,204 P.3d 693,349 Mont. 475
Decision Date17 March 2009
Docket NumberNo. DA 06-0566.,DA 06-0566.
PartiesSantana N. KORTUM-MANAGHAN, Plaintiff and Appellant, v. HERBERGERS NBGL, Herbergers HB, Household/Herbergers, and Saks Incorporated, Defendants and Appellees.
CourtUnited States State Supreme Court of Montana

For Appellant: William L. Managhan, Managhan & Kortum-Managhan Law Firm, PLLC, Kalispell, Montana.

For Appellee: Kimberly S. More, Crowley, Haughey, Hanson, Toole & Dietrich, PLLP, Kalispell, Montana, Leonard H. Smith, Crowley, Haughey, Hanson, Toole & Dietrich, PLLP, Billings, Montana.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 Santana Kortum-Managhan appeals an order of the District Court for the Eleventh Judicial District, Flathead County, granting a motion to dismiss and to compel arbitration filed by Herbergers NBGL, Herbergers HB, Household/Herbergers, and Saks Incorporated (collectively, Herbergers). We reverse and remand for further proceedings consistent with this Opinion.

¶ 2 Kortum-Managhan raises the following issues on appeal:

¶ 3 1. Can a credit issuer require a consumer to take affirmative action to avoid being deemed to have accepted a substantial change in the parties' original agreement which adds a binding arbitration clause?

¶ 4 2. Is a credit card "bill stuffer" sufficient notice to cause a consumer to knowingly and intelligently waive her fundamental constitutional right to a jury trial?

¶ 5 Because we find Kortum-Managhan's second issue to be dispositive of this case, we do not address her first issue.

Factual and Procedural Background

¶ 6 Kortum-Managhan opened an account with Herbergers in October 1998 after a Herbergers' employee asked her if she wanted to save 10% on her purchase by filling out an application for a Herbergers' credit card. The application did not include the terms and conditions of the agreement, and Kortum-Managhan later alleged that she never signed any agreement that included the terms and conditions for the use of her Herbergers' credit account.

¶ 7 Kortum-Managhan subsequently received by mail her Herbergers' credit card, issued by the National Bank of the Great Lakes, and a Revolving Credit Card Agreement pertaining to her Herbergers' credit card. This agreement did not include an arbitration clause. However, it did contain a provision purporting to allow Herbergers to unilaterally change the agreement as it saw fit and specifying that a cardholder's continued use of their Herbergers' credit card or other services constituted agreement to Herbergers' unilateral change in terms:

12. Change in this Agreement: The Card Issuer may at any time change any term of this Agreement, including the rate of FINANCE CHARGE, as long as the Card Issuer gives you notice of the change as required by applicable law. Any new term may, at the option of the Card Issuer, apply to unpaid balances as well as future balances to the extent permitted by applicable law. If you do not agree to the change, you may terminate this Agreement; however, you will continue to be obligated to pay any outstanding balance on your Account in accordance with the terms of this Agreement. Your use of your Account to obtain credit after the effective date of the change will constitute your acceptance of the change for both unpaid and future balances as of the effective date of the change. We may assign this Agreement or any of our rights under it without prior notice or your consent.

[Emphasis added.]

¶ 8 On September 24, 2004, Kortum-Managhan filed a Complaint against Herbergers alleging multiple violations of the Federal Fair Debt Collection Practices Act and the Montana Unfair Trade Practices and Consumer Protection Act. Kortum-Managhan alleged in her Complaint that Herbergers reported to the various credit bureaus that she had several accounts with Herbergers and its affiliates when, in reality, she had only one account. She maintained that this inaccurate reporting on Herbergers' part negatively impacted her credit score and that her application for admittance to the State Bar of Montana was impeded.

¶ 9 On February 11, 2005, Herbergers moved to dismiss Kortum-Managhan's Complaint and compel arbitration of the claims. Herbergers alleged that it mailed out a notice of change in terms to Kortum-Managhan in October 1999 along with her monthly statement. This "bill stuffer" contained various changes in the terms of the agreement including the addition of the following arbitration clause:

18. Arbitration for Disputes—No Jury Trials or Class Actions: This paragraph 18 describes how all Claims ... will be arbitrated instead of litigated in court.

...

B. We OR you have the right to require that each Claim be resolved by arbitration. A Claim will be arbitrated if (a) both we and you or (b) either we or you, exercise the right to require that a Claim be arbitrated. If, for example, we exercise our right to require that a Claim be resolved by arbitration but you do not also exercise your right to require that the Claim be arbitrated, the Claim will be resolved by arbitration....

C. If we or you request arbitration of a Claim, we and you will not have the right to litigate the Claim in court. This means (1) there will be no jury trial on the Claim, (2) no pre-arbitration discovery except as the Rules permit, and (3) no Claim may be arbitrated on a class-action basis, and neither we nor you will have the right to participate as a representative or member of any class of claimants pertaining to any Claim subject to arbitration. Generally, the arbitrator's decision will be final and binding. There are other rights that you would have if you went to court that also may not be available in arbitration.

Based on the foregoing, Herbergers argued that Kortum-Managhan agreed to binding arbitration through her continued use of her account after Herbergers notified her of the addition of the arbitration provision to her agreement.

¶ 10 Kortum-Managhan opposed Herbergers' motion to compel arbitration arguing that she did not agree to arbitrate all disputes with Herbergers and that she did not knowingly and intelligently waive her fundamental constitutional rights to trial by jury and to access to the courts. She asserted that she either did not receive the change in terms or she did not notice the change in terms "because [Herbergers] is continually stuffing [her] monthly billing statement with copious piles of junk mail" that she routinely throws away without reading. Thus, Kortum-Managhan argued that she was never advised, in any meaningful way, that she was waiving her fundamental constitutional rights to a jury trial and to access to the courts by her continued use of her Herbergers' credit card.

¶ 11 On July 10, 2006, the District Court granted Herbergers' motion to compel arbitration and dismissed the action. In its order granting the motion, the court concluded that Kortum-Managhan's continued use of her account after Herbergers notified her of the change in terms constituted an agreement to arbitrate and to waive her right to a jury trial. It is from this order that Kortum-Managhan appeals.

Standard of Review

¶ 12 Our review of a district court's decision to compel arbitration is de novo. Martz v. Beneficial Montana, Inc., 2006 MT 94, ¶ 10, 332 Mont. 93, 135 P.3d 790; Hubner v. Cutthroat Communications, Inc., 2003 MT 333, ¶ 4, 318 Mont. 421, 80 P.3d 1256; Iwen v. U.S. West Direct, 1999 MT 63, ¶ 17, 293 Mont. 512, 977 P.2d 989. Moreover, when reviewing a district court's dismissal of an action based upon a motion to arbitrate, we take all allegations of fact by the nonmoving party as true. Kingston v. Ameritrade, Inc., 2000 MT 269 ¶ 9, 302 Mont. 90, 12 P.3d 929 (citing Hilands Golf Club v. Ashmore, 277 Mont. 324, 328, 922 P.2d 469, 472 (1996)).

Discussion

¶ 13 Is a credit card "bill stuffer" sufficient notice to cause a consumer to knowingly and intelligently waive her fundamental constitutional right to a jury trial?

¶ 14 Kortum-Managhan contends on appeal that the District Court erred in granting Herbergers' motion to arbitrate because Kortum-Managhan did not knowingly and intelligently waive her fundamental constitutional rights to trial by jury and to access to the courts simply because she continued to use her Herbergers' credit card. She asserts that a "bill stuffer" containing changes in terms to an agreement and the addition of new terms is not sufficient notice of those changes and additions.

¶ 15 This Court has consistently determined that, in general, arbitration agreements between parties are valid and enforceable. Burkhart v. Semitool, Inc., 2000 MT 201, ¶ 15, 300 Mont. 480, 5 P.3d 1031 (citing § 27-5-114, MCA). Moreover, "[a] district court may not decide the merits of a case when a valid agreement requires the parties to a dispute to submit to arbitration." Ratchye v. Lucas, 1998 MT 87, ¶ 26, 288 Mont. 345, 957 P.2d 1128. However, when a district court compels arbitration, the threshold inquiry is whether the parties agreed to arbitrate. Zigrang v. U.S. Bancorp Piper Jaffray, Inc., 2005 MT 282, ¶ 8, 329 Mont. 239, 123 P.3d 237.

¶ 16 We held in Hubner that "`arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Hubner, ¶ 17 (quoting Ratchye, ¶ 14); accord First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995). We also stated in Hubner that "[a]cceptance or consent by the party against whom the contract is sought to be enforced is required before a contract is enforceable." Hubner, ¶ 21 (citing § 28-2-102(2), MCA).

¶ 17 The Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16) governs contracts involving commerce that contain arbitration clauses. Thompson v. Lithia Chrysler Jeep Dodge, 2008 MT 175, ¶ 12, 343 Mont. 392, 185 P.3d 332 (citing Martz, ¶ 12). Federal policy favors arbitration and places arbitration agreements on...

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