Mitchell v. American Fair Credit Ass'n

• Decision Date: 10 July 2002
• Docket Number: No. A092880.,A092880.
• Citation: 122 Cal.Rptr.2d 193,99 Cal.App.4th 1345
• Parties: Dadra MITCHELL et al., Plaintiffs and Respondents, v. AMERICAN FAIR CREDIT ASSOCIATION, INC., et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

122 Cal.Rptr.2d 193

99 Cal.App.4th 1345

Dadra MITCHELL et al., Plaintiffs and Respondents, v. AMERICAN FAIR CREDIT ASSOCIATION, INC., et al., Defendants and Appellants.

No. A092880.

Court of Appeal, First District, Division 5.

July 10, 2002.

Certified for Partial Publication.^*

Review Denied October 23, 2002.^**

Mayer, Brown & Platt, Fredrick S. Levin, Los Angeles, Ronald D. Kurtz and Nicole Manna; Morrison & Foerster, Douglas L. Hendricks and Philip T. Besirof, San Francisco, for Defendants and Appellants.

Girard & Green, Daniel C. Girard, Eric H. Gibbs, San Francisco, and Martin S. Putnam, Oakland, for Plaintiffs and Respondents.

SIMONS, J.

The Legislature enacted the Credit Services Act of 1984(CSA) (Civ.Code, § 1789.10 et seq.) in response to certain business practices of credit services organizations. These organizations offer to obtain credit or improve the credit standing of consumers who have experienced credit problems. The CSA sought to provide consumers with information necessary to decide whether or not to purchase such services, by requiring certain disclosures and by mandating that every credit services contract be in writing and signed by the buyer. In this case, as a matter of first impression, we address a common question arising in a novel context. Consistent with the CSA, may a credit services organization modify its membership contract to require arbitration and preclude class relief by the simple expedient of notifying its members by mail that continued membership constitutes acceptance of the modification? We conclude it may not, because the CSA requires that contract modifications be signed. We further conclude that this requirement is not preempted by the Federal Arbitration Act and affirm the trial court's order denying in part the motion of defendants ¹ to compel arbitration.

In addition, defendants attempt to appeal from a separate order of the trial court granting class action certification and from a third order denying in part their motion to define the scope of the class. Because defendants have no right of appeal from the orders granting class certification and defining the scope of the class, we dismiss the appeals from those orders for lack of jurisdiction.

BACKGROUND

In July 1997, plaintiff Dadra Mitchell filed this class action suit against defendants alleging plaintiff and the members of the class were solicited by defendants to participate in a credit repair scheme in which participants pay in excess of $500.00 to join a membership club that provides credit education materials and an unsecured VISA® credit card with a $300 credit limit. The operative complaint alleges defendants misrepresent that members of AFCA will rebuild their damaged credit ratings through use of the education materials and the unsecured VISA® card. The complaint asserts causes of action for violation of the CSA, violation of the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.), unlawful/unfair business practices (Bus. & Prof.Code, § 17200 et seq.), and false and misleading advertising (Bus. & Prof.Code, § 17500 et seq.). The complaint seeks injunctive relief, in addition to compensatory damages, restitution and attorney fees.

In January 1998, six months after Mitchell filed the present lawsuit, AFCA changed its membership rules, obligating all new members to sign a separate agreement to arbitrate as part of the membership application process. AFCA also attempted to modify the terms of its membership agreement with existing AFCA members to require the arbitration of all disputes with AFCA as a condition of continued membership in AFCA.

On April 12, 1999, the trial court granted plaintiffs motion for class certification, certifying a class consisting of "all California residents who have entered into a membership contract with AFCA up to the present date, without prejudice to defendant seeking to narrow class membership during the course of this litigation." On May 5, 2000, AFCA petitioned this court for a writ of mandate seeking to direct the trial court to vacate its order of class certification. This court denied AFCA's writ petition on the ground that it failed to establish the propriety of writ review.²

On June 30, 2000, defendants filed a motion in the trial court to compel arbitration by all persons who joined AFCA beginning in January 1998, along with all existing members who impliedly agreed to the change in their membership agreement requiring arbitration by failing to cancel their memberships. The motion excluded plaintiff Mitchell, who defendants acknowledge had ceased her membership with AFCA before AFCA implemented its arbitration provision in January 1998.

Concurrently, defendants filed a motion for an order defining the scope of the class, arguing, among other things, that the trial court should narrow the scope of the certified class to exclude all those AFCA members subject to the arbitration provision. Defendants also sought an order narrowing the class definition to exclude persons whose claims were barred under the applicable statutes of limitation, and to exclude from the class persons who did not receive the same representations about AFCA that plaintiff purportedly received.

By separate orders entered October 3, 2000, the trial court granted in part and denied in part both motions. With respect to those class members who joined AFCA after January 1, 1998, and executed signed arbitration agreements, the court severed the claims for injunctive relief from the claims for damages or restitution and granted defendants' motion to compel arbitration of the monetary claims only. However, the trial court denied defendants' motion to compel arbitration for class members who received mailed notices of modification of their AFCA membership agreement "unless signed arbitration agreements were executed by such class members." Furthermore, citing Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67, the trial court denied in its entirety defendants' motion to compel arbitration for the claims for injunctive relief.

The trial court's order regarding defendants' motion to define the scope of the class was consistent with its order regarding the motion to compel arbitration. The trial court severed from the class action the monetary claims for damages and restitution of members who joined AFCA after January 1, 1998, and had executed signed arbitration agreements. Further, the court excluded from the class those persons whose claims the trial court found were barred by the applicable statutes of limitations. In all other respects, the trial court denied the motion. This appeal followed.

DISCUSSION

I. Appealability of Orders re Class Certification and Scope of Class^***

II. The Order Partially Denying the Motion to Compel Arbitration

A. AFCA Members Who Never Signed the January 1998 Modification

We consider whether the trial court correctly refused to compel arbitration for AFCA members who joined the organization before arbitration was mandatory and never signed the modification proposed by AFCA before January 25, 1998. We review the trial court's partial denial of the motion to compel arbitration de novo, since the trial court resolved no factual disputes in ruling on the motion. (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71, 100 Cal.Rptr.2d 683.)

In January 1998, AFCA sent its existing members a letter informing them that AFCA has "amended your Membership Agreement to provide for dispute resolution through arbitration." The letter stated that it enclosed a copy of the "ARBITRATION OF DISPUTES provision" and said it would become effective on January 25, 1998. The letter encouraged the members to "read this document [the `Arbitration of Disputes Agreement'] very carefully as it does affect your rights to go to court, to have a jury trial, to engage in discovery or to be included as a member of any class of claimants with respect to any dispute."

The final paragraph of the letter informed the members they had the right to reject this change in their agreement and then stated the affirmative steps that each was obliged to take in order to opt out. Members would have to write AFCA before January 25, 1998, and state that they rejected the arbitration provision. "You must give this notice in writing: it is not sufficient to telephone us." The final sentence of the AFCA letter notified the members that, by continuing their membership beyond January 25, 1998, they would be agreeing to abide by the arbitration provision.

1. Modifications of Credit Services Agreements Must Be Signed

Defendants contend that the opt-out procedure they employed created a valid modification of the membership agreement. The membership agreement provided that "[t]his contract may be amended or modified only by an instrument in writing." Defendants argue, and we agree, that a written agreement or instrument in writing results when there is a writing containing all terms and acceptance by the party to be charged. (E.O.C. Ord, Inc. v. Kovakovich (1988) 200 Cal. App.3d 1194, 1201, 246 Cal.Rptr. 456.) In E.O.C. Ord, Inc., the appellate court determined that a letter setting forth the terms of an attorney fee agreement sent to a client constituted an instrument in writing, for purposes of determining the length of the statute of limitations, even though the letter was never signed by the client. (Id. at p. 1202, 246 Cal.Rptr. 456.) Further, we agree with defendants that a consumer may be held to have accepted a written modification when the consumer receives notification of it, is provided an opportunity to accept or reject it, and accepts the modification according to the instructions provided. Numerous federal cases have found an acceptance of a written modification when, as here, the consumer fails to opt out. (See, e.g., Bank One, N.A. v. Coates (S.D.Miss.2001) 125 F.Supp.2d 819, 830-834; Marsh v. First USA Bank, N.A (N.D.Tex.2000) 103 F.Supp.2d....