A federal district court in California determined that since a credit card holder had suffered no injury, he lacked Article III standing to challenge an arbitration agreement on grounds of unconscionability.

In Lee v. Capital One Bank, Inc., No. C 07-4599 MHP, 2008 WL 648177 (N.D. Cal. March 5, 2008), Lee brought suit against Capital One for violations of California consumer protection statutes and fraudulent inducement.

Lee contended that Capital One's credit card member agreement contained unconscionable provisions. In particular, Lee alleged that the arbitration provision in the agreement contained unconscionable terms that violated his rights under California Unfair Competition Law (UCL) and California Consumer Legal Remedies Act (CLRA).

In response, Capital One moved to dismiss Lee's complaint for lack of Article III standing. The Court noted that, under Article III of the Constitution, federal judicial power extends only to "cases" and "controversies". Thus, Article III standing is a threshold requirement for federal court jurisdiction. At a constitutional minimum, standing requires the party invoking federal jurisdiction to show that it has suffered some actual or threatened injury as a result of the defendant's conduct.

Capital One argued that Lee's alleged injury was merely speculative because the challenged provisions had not caused him actual harm. In response, Lee argued that he would have liked to arbitrate his fraud claim, but could not because seeking to enforce an unconscionable provision is illegal, against public policy, and would require Lee to waive his legal challenge to the arbitration provision. Thus, Lee argued that his inability to arbitrate his claim caused him injury.

The Court rejected Lee's argument because it did not allege that injury was actual or imminent. The Court noted that Lee's theory rested on hypothetical assumptions about what may or may not transpire. Injury in fact is an Article III requirement, not an equitable consideration that can be put aside for convenience.

Next, Lee argued that he did not need to invoke the arbitration provision or other challenged provisions to establish injury in fact. Lee contended that he suffered a loss in value as a result of receiving an agreement with unconscionable provisions. This argument also failed.

The Court stated that Lee's theory wrongly assumed that the mere presence of purported, but unproven, unconscionable provisions in the agreement caused Lee a loss in value. The Court noted that to establish injury in fact in this case, Lee must do more than allege that provisions are unconscionable, he must show that they caused or would cause him concrete harm.

Finally, Lee argued that violation of a state legal right, here, Lee's rights under UCL and CLRA, established injury in fact. State law can create interests that support standing in federal courts.