Olson v. The Bon, Inc.

• Decision Date: 20 May 2008
• Docket Number: No. 24343-5-III.,24343-5-III.
• Court: Washington Court of Appeals
• Parties: Elizabeth A. OLSON, individually and on behalf of others similarly situated; Kenneth L. Peterson, individually and on behalf of others similarly situated; and Jeannette C. Colyear, individually and on behalf of others similarly situated, Respondents, v. THE BON, INC., an Ohio corporation; Facs Group, Inc., an Ohio corporation; John Does A-S, Defendants, Trilegiant Corporation, a Delaware corporation, Appellant.

183 P.3d 359

144 Wn. App. 627

Elizabeth A. OLSON, individually and on behalf of others similarly situated; Kenneth L. Peterson, individually and on behalf of others similarly situated; and Jeannette C. Colyear, individually and on behalf of others similarly situated, Respondents, v. THE BON, INC., an Ohio corporation; Facs Group, Inc., an Ohio corporation; John Does A-S, Defendants, Trilegiant Corporation, a Delaware corporation, Appellant.

No. 24343-5-III.

Court of Appeals of Washington, Division 3.

May 20, 2008.

Kent Michael Fandel, Graham & Dunn PC, Seattle, WA, Kenneth Kliebard, Todd McLawhorn, Kenneth Kliebard Howrey, LLP, Chicago, IL, for Appellant.

Darrell W. Scott, The Scott Law Group PS, Bryce James Wilcox, Attorney at Law, Spokane, WA, for Respondents.

KULIK, J.

¶ 1 Plaintiffs, Elizabeth Olson and others, were credit card customers with The Bon Marche department store (The Bon). The Bon offered its credit card customers the option to enroll in a credit protection program offered by Trilegiant Corporation (Trilegiant). The offer included a three-month free trial membership and cash back benefits which could be accepted by endorsing and negotiating a "check" for $2.50. Clerk's Papers (CP) at 12. Once the check was cashed, if the customer did not cancel before the trial period ended, membership was automatically renewed for a year for a specified annual charge.

¶ 2 After Plaintiffs enrolled in the trial membership program, Trilegiant allegedly mailed a "fulfillment kit" which included a provision requiring arbitration of any and all disputes. CP at 200. Plaintiffs denied receiving the kits. Plaintiffs did not cancel their membership and were charged the annual fee.

¶ 3 Plaintiffs filed a class action lawsuit against Trilegiant alleging that they were fraudulently induced into entering into the agreements and that they were wrongly billed for the credit protection program. Trilegiant moved to compel arbitration. Plaintiffs opposed the motion asserting (1) that they had not received the fulfillment kits containing the arbitration clause and, therefore, had not agreed to arbitration and (2) that the arbitration clauses were procedurally and substantively unconscionable. The trial court denied Trilegiant's motion to compel arbitration and Trilegiant appeals. We affirm.

FACTS

¶ 4 Trilegiant is a Delaware corporation that, among other services, provides a membership and credit card protection service called the Hot-Line program which, in part, assists members in the event of loss, theft, or fraudulent use of their credit cards. Trilegiant has provided memberships to millions of consumers across the United States.

¶ 5 The Bon is a retail department store and an Ohio corporation. It offers an in-house credit card through FACS Group, Inc. (FACS), a separate subsidiary of its parent company Federated Department Stores. The Bon offered Trilegiant's Hot-Line program to some of its credit card customers, including Elizabeth Olson, Kenneth Peterson and Jeannette C. Colyear¹ (collectively known as Plaintiffs).

¶ 6 In December 2003, Plaintiffs received a solicitation from Trilegiant in connection with their Bon credit card accounts. The membership enrollment solicitation letter informed the Plaintiffs of the benefits, terms, cost and method of enrolling in a Hot-Line membership program. The prominent inducement in the solicitation letter as shown by the subject line is the prospect of earning cash back on purchases at The Bon. The letter, however, also informed the recipient of the credit protection aspect of membership in the program.

¶ 7 The solicitation letter also contained an enrollment check, payable to the recipient of the letter, in the amount of $2.50. By endorsing and cashing the check, interested members agreed to enroll in a free, three-month trial membership in the Hot-Line program. Plaintiffs responded to the solicitation by endorsing and negotiating the check.²

¶ 8 The solicitation agreement provided that members could cancel at any time during the three-month trial period without charge. If, at the end of the three-month trial period, the member did not notify Trilegiant of his/her intent to discontinue membership, Trilegiant would automatically extend the membership on an annual basis. At that point, members would be charged an annual fee of $69.99 for continued membership. Each year thereafter, membership would automatically be renewed at the current rate unless Trilegiant was notified of cancellation. Members were entitled to cancel membership at any time and receive a full refund of that year's membership fees.

¶ 9 After a member is enrolled in the Hot-Line program, Trilegiant's practice is to mail the member a fulfillment kit further explaining the Hot-Line program and further elaborating on the terms and conditions of the program. The fulfillment kit contained a mandatory arbitration provision. Trilegiant contracted with a vendor, Jetson Direct Mail Service's, Inc. (Jetson), to mail the fulfillment kits to enrolled members.

¶ 10 The Plaintiffs filed a class action complaint in Spokane County Superior Court against The Bon, FACS, and Trilegiant claiming that the defendants had fraudulently induced them into enrolling in the credit card protection program and improperly charged their credit card for that program.

¶ 11 In December of 2004, Trilegiant filed a motion to compel arbitration and stay proceedings based upon the mandatory arbitration clause contained in the fulfillment kit.³ Plaintiffs opposed the motion arguing, in part, that they had never received the fulfillment kits containing the mandatory arbitration provisions; that Trilegiant had failed in its burden of proof since it could not specify which arbitration clause was included in the fulfillment kits; that they had been deceived into enrolling in the program; and that the arbitration clauses were substantively and procedurally unconscionable. Trilegiant replied detailing their custom and practices with regard to mailing the fulfillment kits and invoking the mailbox rule's rebuttable presumption which they contended the Plaintiffs had failed to rebut. Trilegiant further argued that the parties had agreed to arbitrate and stipulated that it would be bound under either of the two agreements. Trilegiant further argued that the Plaintiffs' fraudulent inducement arguments were insufficient to avoid arbitration and that the arbitration agreements were not procedurally or substantively unconscionable.

¶ 12 On April 22, 2005, the trial court held a hearing on the motion to compel. At the conclusion of the hearing, the lower court orally ruled from the bench and denied Trilegiant's motion. The court based its decision principally on the belief that Trilegiant had not proved that it mailed an arbitration agreement to the named Plaintiffs and that neither of the arbitration clauses was enforceable. The court declined to rule on the Plaintiffs' fraudulent inducement argument. Trilegiant appeals.

ANALYSIS

¶ 13 The issue presented here is whether the trial court erred in denying Trilegiant's motion to compel arbitration. We review trial court decisions on motions to compel arbitration de novo. Zuver v. Airtouch Commc'ns, Inc., 153 Wash.2d 293, 302, 103 P.3d 753 (2004) (citing Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936 (9th Cir.2001)).

¶ 14 Trilegiant first argues that the trial court erred in ruling that it had failed in its burden of proving that the arbitration clauses contained in its fulfillment kits became a part of the contract between the parties.

¶ 15 The duty to arbitrate arises from a contractual relationship. Mutual assent of the parties is an essential element of a valid contract. Yakima County (West Valley) Fire Prot. Dist. No. 12 v. City of Yakima, 122 Wash.2d 371, 388, 858 P.2d 245 (1993). Washington courts follow the objective manifestation theory by which the court will impute to a person an intention corresponding to the reasonable meaning of his words and acts. Morris v. Maks, 69 Wash. App. 865, 871, 850 P.2d 1357 (1993). Under this theory, the unexpressed, subjective intentions of the parties are irrelevant. Instead, the mutual assent of the parties is to be determined from their outward manifestations. Saluteen-Maschersky v. Countrywide Funding Corp., 105 Wash.App. 846, 854, 22 P.3d 804 (2001) (citing City of Everett v. Estate of Sumstad, 95 Wash.2d 853, 855, 631 P.2d 366 (1981)).

¶ 16 Here, the trial court concluded that Trilegiant had failed to meet its burden of proving that the fulfillment kits were mailed to or received by the Plaintiffs. Trilegiant, relying on the mailbox rule, argues that the trial court's ruling was in error.

¶ 17 The mailbox rule provides that the proper and timely mailing of a document raises a rebuttable presumption that the document has been received by the addressee in the usual time. Schikore v. BankAmerica Supplemental Ret. Plan, 269 F.3d 956 (9th Cir.2001); Lewis v. United States, 144 F.3d 1220, 1222 (9th Cir.1998). The presumption of receipt permitted under the common law mailbox rule is not invoked lightly. See Sorrentino v. Internal Revenue Serv., 383 F.3d 1187, 1191 (10th Cir.2004) (applying a strict standard of proof before invoking a presumption of receipt). It requires proof of mailing, such as an independent proof of a postmark, a dated receipt, or evidence of mailing apart from a party's own self-serving testimony. Id. at 1195 (invoking the mailbox rule's presumption of receipt requires independent proof of a postmark or evidence other than the taxpayer's self-serving testimony as to actual mailing). The independent proof may also be in the form of business records establishing the mailing, evidence of a course of business regarding mailing, or third party testimony witnessing the mailing. See Knickerbocker Life Ins. Co. v. Pendleton, 115 U.S. 339, 347, 6 S.Ct. 74, 29 L.Ed. 432 (1885) (adopting the rule that "allows usage and the course of...