Wells v. Chevy Chase Bank

• Decision Date: 08 March 2001
• Docket Number: No. 22,22
• Citation: 363 Md. 232,768 A.2d 620
• Parties: Dale WELLS et al. v. CHEVY CHASE BANK, F.S.B. et al.
• Court: Maryland Court of Appeals

768 A.2d 620

363 Md. 232

Dale WELLS et al. v. CHEVY CHASE BANK, F.S.B. et al.

No. 22, Sept. Term, 2000.

Court of Appeals of Maryland.

March 8, 2001.

F. Paul Bland, Jr. (Trial Lawyers for Public Justice, P.C., of Washington, D.C.; John T. Ward and Thomas J. Minton of Ward, Kershaw & Minton, P.A., Baltimore, and Michael P. Malakoff of Malakoff, Doyle & Finberg, P.C., Pittsburgh), all on Brief, for appellants.

David J. Cynamon (Shaw Pittman, on brief) Washington, D.C., for appellees.

Walter E. Laake, Cary J. Hansel, Joseph, Grenwald & Laake P.A.. Greenbelt, brief of the Maryland Trial Lawyers Assn. filed on behalf of the appellants, amicus curiae

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY,¹ RAKER, WILNER, CATHELL and HARRELL, JJ.

RODOWSKY, Judge.

This appeal was taken from an order compelling arbitration. A preliminary procedural issue is whether Maryland law, which authorizes such appeals, has been preempted by 9 U.S.C. §§ 1 through 16, the Federal Arbitration Act (FAA). The substantive issue is whether the appellants, plaintiffs below, agreed to arbitrate. As explained below, we shall answer each issue in the negative.

The plaintiffs are Dale Wells of Ellicott City, Maryland, Sharon Goldenberg of Washington, D.C., and John Dovel of Falls Church, Virginia (the Plaintiffs). They sue Chevy Chase Bank, F.S.B. (Chevy Chase) and First U.S.A. Bank, N.A. (First U.S.A.) (collectively, the Defendants). Plaintiffs' first amended complaint alleges that the Defendants, in a number of aspects, breached the open end credit agreement (the Cardholder Agreement) in effect between Plaintiffs, as cardholders of credit cards issued by Chevy Chase, and Chevy Chase, as the card-issuing credit grantor.

Prior to January 16, 1996, Chevy Chase had maintained its home office in Maryland.² The Cardholder Agreement provided for an annual fee, a minimum late charge fee of fifteen dollars, described the method of computing the finance charge, and stated that the "ANNUAL PERCENTAGE RATE will never exceed 24%." With respect to amendments the Cardholder Agreement read:

"We may amend the terms of this Agreement in accordance with applicable law at any time. Also we may at any time add new credit services, discontinue any credit services, or replace your card with another card."

The Cardholder Agreement also contained a "Governing Law" provision reading:

"This Agreement is made in Maryland. It is governed by Subtitle 9 [`Credit Grantor Revolving Credit Provisions'] of Title 12 [`Credit Regulations'] of the Commercial Law Article of the Maryland Annotated Code and applicable federal laws."

There was no mediation or arbitration provision in the Cardholder Agreement.

On or about January 16, 1996, Chevy Chase moved its home office to Virginia. With the periodic statements mailed in January and February of 1996 to its cardholders, Chevy Chase included a notice of change of terms of the Cardholder Agreement. The notice of change took the form of a restatement and revision of the Cardholder Agreement, with the new or revised terms italicized and, with respect to a waiver of jury trial provision, both italics and all uppercase print was used. Solely for purposes of this appeal, and without indicating any opinion on whether the Cardholder Agreement was effectively amended or whether the amendments are substantively valid, we shall call the product of the January and February mailings the "Amended Agreement." The Amended Agreement provided that it was made in Virginia and was "subject to and governed by Virginia law and applicable federal law and regulations." The Amended Agreement further recited that "[t]he parties agree that by engaging in activities with or involving each other, they are participating in transactions involving interstate commerce."

Also contained in the Amended Agreement was an alternative dispute resolution section which in relevant part reads:

"Mediation and Arbitration—Any controversy or claim (`Claim') between or among you and us or our agents, employees and affiliates, including but not limited to those arising out of or relating to this Agreement or any related agreements, including without limitation any Claim based on or arising from an alleged tort, shall, at the request and expense of the claiming party, be submitted to mediation, using the rules of the American Arbitration Association (`AAA').

"If mediation fails to resolve the Claim within 30 days from the date of engagement, then the Claim shall be determined by binding arbitration. (Mediation or Arbitration, as appropriate, are sometimes referred to below as the `Proceeding'.) Arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S.Code), notwithstanding any choice of law provision in this Agreement, and under the rules of the AAA. Either you or we may, by summary proceedings (e.g., a plea in abatement or motion to stay further proceedings), bring an action in any court having jurisdiction for the sole purpose of compelling compliance with these mediation and arbitration provisions."

(Emphasis added).

On or about September 30, 1998, First U.S.A. purchased the credit card portfolio of Chevy Chase.

Plaintiffs instituted the instant action in January 1999. They allege that the defendants breached the Cardholder Agreement by charging interest in excess of twenty-four percent, by increasing the interest on past balances, by failing to provide legally required notice of the amendments, by changing the method of calculating the finance charge without proper notice, and by increasing the late fees and over-limit fees without proper notice. Plaintiffs also allege violation of the Maryland Consumer Protection Act, Maryland Code (2000 Repl. Vol.), §§ 13-101(d) and 13-303(3) of the Commercial Law Article (CL).

The principal theory of the Plaintiffs' case is that the Cardholder Agreement was never effectively amended. In this connection, Plaintiffs principally rely on CL § 12-912 that addresses amendment of the agreement governing a revolving credit plan. In broad strokes, that section requires, "at least 25 days before the effective date of the amendment," a clear and conspicuous written notice, "[i]f the amendment has the effect of increasing the interest, finance charges, or other fees and charges to be paid by the borrower ... or altering the manner of their computation." § 12-912(b)(1). The notice must include "[a] clear statement comparing the original terms and the terms under the amended agreement." § 12-912(b)(1)(i). The initial notice is also to include "a statement that a second notice will be sent in the borrower's next periodic statement." § 12-912(c)(7). Both notices are to be in ten point type. Id. The notice is to advise of the cardholder's optional right to refuse the amendment and to describe the manner of refusing. § 12-912(c)(7)(ii). Where, as here, the plan charges an annual fee, rejection of the amendment entitles the cardholder to "use the account pursuant to its original, unamended terms, for ... [t]he duration of the time for which a fee was paid for use of the plan." § 12-912(c)(5)(i)1.

In addition, § 12-912(e) provides:

"If the terms of the agreement governing the plan, as originally drawn or amended[,] provide, any amendment may, on or after the date on which it becomes effective as to a particular borrower, apply to all then outstanding unpaid indebtedness in the borrower's account under the plan, including any indebtedness which shall have arisen out of purchases made or loans obtained prior to the effective date of the amendment."

Plaintiffs also seek to have their claims certified as a class action for a class consisting of

"[a]ll cardholders who had a Chevy Chase-issued Visa or MasterCard credit card prior to January 16, 1996 in which Chevy Chase agreed that the governing law would be Subtitle 9 of Title 12 of the Commercial Law Article of the Maryland Annotated Code and thereafter incurred any finance charges, late fees, or overlimit fees."

Defendants responded to the complaint by moving, pursuant to the FAA, to compel mediation/arbitration in accordance with the Amended Agreement. Plaintiffs' answer to the demand for arbitration was that they had never agreed to arbitrate. Principally, Plaintiffs contended that the Cardholder Agreement had never been effectively amended because the alleged failure to comply with CL § 12-912 caused the arbitration provision of the Amended Agreement, as well as its financial terms, to lack any contractual foundation. The Defendants made a twofold replication. First, they argued that the Amended Agreement was severable and that no provision in CL § 12-912 even addressed an arbitration provision in an open end credit plan.

The second ground argued by the Defendants was that § 12-912 was preempted by 12 C.F.R. § 560.2(a), a regulation of the Office of Thrift Supervision (OTS). That regulation undertakes to preempt by "occup[ying] the entire field of lending regulation for federal savings associations." Id.³ Plaintiffs' rejoinder was that, as stated in 12 C.F.R. § 560.2(c)(1), § 560.2(a) does not preempt the contract law of a state. Plaintiffs assert that in the Cardholder Agreement Chevy Chase covenanted that it would comply with Subtitle 9 of Title 12 of the Maryland Commercial Law Article and that federal preemption cannot negate that promise. Defendants' surrejoinder was that Plaintiffs' rejoinder misinterpreted the governing law provision of the Cardholder Agreement and that, in any event, that which had been invalidated by federal preemption could not be incorporated by reference as governing law into a contract.

The circuit court granted the Defendants' motion to compel arbitration. Essentially the court reasoned that CL § 12-912 did not prevent the arbitration provision, which was viewed as severable from the other provisions of the Amended Agreement, from becoming part of the contract between the parties.

Plaintiffs appealed from that...