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A federal district court in New York, applying South Dakota law, upheld a class waiver in an arbitration agreement, finding that the cardholder’s ability to opt out of the agreement precluded a finding of procedural unconscionability. Moreover, as the Court noted, the case law limiting the enforceability of class waivers is a “minority position.”
In Dumanis v. Citibank (South Dakota), N.A., NO. 07-CV-6070, 2007 WL 3253975 (W.D. N.Y. Nov. 2, 2007), Dumanis transferred a large sum of credit card debt onto a Citibank Platinum credit card under the assumption that he would receive a 1.99% interest rate until the balance was paid in full.
Dumanis later received notice that an arbitration agreement was being added to his cardholder agreement. The arbitration agreement contained a class action waiver barring class-wide proceedings. Dumanis was given the option to opt out of the agreement and retain his card until it expired. But he did not exercise this option.
When the interest rate on the card increased to 19.74%, Dumanis filed a class action lawsuit against Citibank. In response, Citibank moved to compel arbitration. In opposing the motion, Dumanis argued that the class action waiver rendered the arbitration agreement unconscionable.
The cardmember agreement contained a South Dakota choice-of-law provision, but there is no South Dakota case law on the enforceability of class waivers, so Dumanis relied on California law – specifically, Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (2005) in arguing that the class waiver rendered the agreement unconscionable.
In rejecting Dumanis’ reliance on California law, the Court explained that Discover Bank and its progeny are “the minority position among courts in the United States.” Moreover, the Court found that the opt-out provision precluded the requisite finding of procedural unconscionability.
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