Spann v. American Exp. Travel Services

• Decision Date: 30 August 2006
• Docket Number: No. M2004-02786-COA-R3-CV.,M2004-02786-COA-R3-CV.
• Citation: 224 S.W.3d 698
• Parties: Louise SPANN et al. v. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. et al.
• Court: Tennessee Court of Appeals

224 S.W.3d 698

Louise SPANN et al. v. AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. et al.

No. M2004-02786-COA-R3-CV.

Court of Appeals of Tennessee, at Nashville.

December 16, 2005 Session.

August 30, 2006.

Permission to Appeal Denied by Supreme Court January 29, 2007.

J. Knox Walkup, Barbara J. Moss, Donna L. Roberts, Nashville, Tennessee; and Julia B. Strickland and Andrew W. Moritz, Los Angeles, California, for the appellants, American Express Travel Related Services Company, Inc., American Express Centurion Bank, and American Express Publishing Corporation.

George H. Nolan, Christopher E. Thorsen, and Jonathan D. Rose, Nashville, Tennessee, for the appellees, Louise Spann and Vetahmary Higgins.

OPINION

WILLIAM C. KOCH, JR., P.J., M.S., delivered the opinion of the court, in which WILLIAM B. CAIN and PATRICIA J. COTTRELL, JJ., joined.

This appeal involves a dispute between a credit and charge card issuer and two cardholders regarding allegedly unauthorized charges to the cardholders' accounts by entities affiliated with the issuer. The cardholders filed a class action complaint in the Circuit Court for Williamson County asserting that the practice of charging them for goods and services they did not agree to purchase constituted an unfair and deceptive trade practice prohibited by various state consumer protection laws and gave rise to causes of action for negligent and fraudulent misrepresentation, conversion, and unjust enrichment. The issuer and its affiliates filed a motion to compel separate arbitrations against each cardholder in accordance with the class arbitration waiver clause of the arbitration provision in the cardmember agreements. The cardholders conceded that they were required to arbitrate their claims but asked the trial court to strike the class arbitration waiver clause as unconscionable. Siding with the cardholders, the trial court struck the class arbitration waiver clause and granted the motion to compel arbitration. The issuer and its affiliates appealed. We have concluded that the trial court did not err by granting the motion to compel arbitration. However, we have also concluded that the trial court erred by finding the class arbitration waiver clause unconscionable under Utah law.

I.

American Express Company (AmEx), headquartered in New York City, is a diversified, global provider of financial services, including traveler's cheques, charge cards, and credit cards.¹ Among its affiliated companies are: American Express Centurion Bank (AmEx Centurion), a Utah industrial loan corporation that issues American Express Optima credit cards; American Express Travel Related Services (AmEx Travel), a New York corporation that issues American Express charge cards; and American Express Publishing Corporation (AmEx Publishing), an AmEx Travel subsidiary located in New York that publishes luxury lifestyle magazines and provides other high-end services. AmEx Centurion, AmEx Travel, and AmEx Publishing (the "AmEx defendants") serve consumers throughout the United States.

In May 1994, Vetahmary Higgins, a retiree living in Hermitage, Tennessee, obtained an American Express charge card through AmEx Travel.² The card was governed by the 1994 "Cardmember Agreement" AmEx Travel sent to Ms. Higgins along with the card. The agreement provided that AmEx Travel had the "right to change this Agreement at any time," that it would notify Ms. Higgins in the event of any changes, and that it would "consider that you [i.e., Ms. Higgins] have accepted the changes if you keep or use the Card after we send our notice." The agreement stated that Ms. Higgins was free to reject any future changes in the agreement and to terminate her account. In the event Ms. Higgins elected to terminate her account, AmEx Travel agreed to refund a portion of her annual cardmember fee. Ms. Higgins would, however, remain responsible for all fees and charges incurred prior to that time.

In January 1998, Louise Spann, a retired teacher living in Brentwood, Tennessee, obtained an Optima credit card from AmEx Centurion. The card was governed by the 1997 "Cardmember Agreement." Like the cardmember agreement between Ms. Higgins and AmEx Travel, the agreement provided that AmEx Centurion could "change the terms of this Agreement at any time" and that AmEx Centurion would notify Ms. Spann of any changes. In addition, it designated Utah law as the substantive law governing the cardmember agreement and Ms. Spann's account. Neither the 1994 cardmember agreement AmEx Travel sent to Ms. Higgins nor the 1997 cardmember agreement AmEx Centurion sent to Ms. Spann contained an arbitration provision. In 1998, AmEx Travel unilaterally assigned Ms. Higgins's cardmember agreement to AmEx Centurion as allowed by the express terms of the 1994 cardmember agreement. As a result, Utah law governs both cardmember agreements.

In April 1999, AmEx Centurion unilaterally amended Ms. Higgins's and Ms. Spann's cardmember agreements to include an arbitration provision with a class arbitration waiver clause. Ms. Higgins and Ms. Spann were notified of the amendment by means of a ten-page mailer titled "F.Y.I." in large lettering on the front page beside the following caption: "A Summary of Changes to Agreements and Benefits." The front page of the mailer stated its purpose as follows:

F.Y.I. (For Your Information) is an update that notifies you of changes to your Cardmember Agreement and provides you with other important notices. Please take a moment to look over this document carefully before you file it away in a safe place. . . . All changes go into effect June 1, 1999, except where otherwise noted.

The front page of the mailer also contained a summary of the changes detailed in the mailer, though in a much smaller font than the preceding information.³ The first listed change concerned the addition of an arbitration provision to the cardmember agreements and was set apart from the rest of the text on the front page in a black box with white lettering as follows:

Arbitration Provision

We are changing the Cardmember Agreement to include an Arbitration Provision. This Provision may affect your right to go to court or to have a jury trial. It is important that you carefully read the Provision in its entirety.

A detailed, ten-paragraph arbitration provision that included a clause barring class or consolidated arbitration proceedings appeared on the second page.

One year later, AmEx Centurion unilaterally amended the arbitration provision to make it more equitable to cardholders in response to court decisions striking down other arbitration provisions as unconscionable based on features similar to those contained in the arbitration provision in its cardmember agreements with Ms. Higgins and Ms. Spann. AmEx Centurion did not, however, remove the clause barring class arbitration. Ms. Spann and Ms. Higgins learned of the changes to the arbitration provision through F.Y.I. mailers sent out in March and September 2000 respectively. In 2003, AmEx Centurion sent Ms. Higgins and Ms. Spann updated cardmember agreements incorporating the 1999 and 2000 changes, and the parties agree that the 2003 versions of the cardmember agreements govern the issues involved on appeal.

The arbitration provision in the 2003 cardmember agreements acknowledges that it arises out of a "transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act." It directs the arbitrator to "apply applicable substantive law consistent with the FAA and applicable statutes of limitations." In addition, the arbitrator, "at the timely request of either party, shall provide a brief written explanation of the basis for the decision." The separate choice-of-law provision in the cardmember agreements states that "[t]his Agreement and your Account, and all questions about their legality, enforceability and interpretation, are governed by the laws of the State of Utah (without regard to internal principles of conflicts of law), and by applicable federal law."

The arbitration provision applies broadly to "any claim, dispute or controversy ... arising from or relating to your Account, this Agreement, . . . and any other related or prior agreement . . ., or the relationships resulting from any of the above agreements ..., including the validity, enforceability or scope of this Arbitration Provision or the Agreements." The term "`Claim' includes claims of every kind and nature, including but not limited to ... claims based upon contract, tort, fraud and other intentional torts, statutes, regulations, common law and equity" and "is to be given the broadest possible meaning that will be enforced."

Either party has the right to demand arbitration of any claim, although AmEx Centurion has agreed not to demand arbitration for individual claims filed properly in state or municipal small claims courts. The cardholder has the right to determine which of the three major national arbitration organizations⁴ will conduct the arbitration, regardless of which party demands that the claim be arbitrated. All hearings to be attended by the cardholder must take place in the federal judicial district in which the cardholder resides. Moreover, regardless of which party prevails in the arbitration, AmEx Centurion is required to pay all filing, administrative, and hearing fees in excess of what the cardholder would have paid had he or she pursued the claim in a state or federal court rather than in arbitration.

The arbitration provision describes its own importance as follows:

Significance of Arbitration: IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR WE WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM, OR TO HAVE THEIR [sic] CLAIMS RESOLVED EXCEPT AS PROVIDED FOR IN THE CODE OF PROCEDURES OF THE NAF, JAMS OR AAA, AS APPLICABLE (THE "CODE"). FURTHER, YOU AND WE WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A...