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The California Court of Appeal has enforced a class action waiver that was added to a credit card agreement through a notice included with the consumer's bill. The consumer argued that the waiver was procedurally unconscionable, but the Court rejected this challenge because the consumer was afforded an opportunity to opt out. The Court so held after it analyzed recent California precedent regarding the enforceability of class action waivers.
In Jones v. Citigroup, Inc., 38 Cal. Rptr.3d 461 (Cal. Ct. App. 2006), Jones filed a purported class action, individually and as a private attorney general, alleging that Citigroup failed to make required disclosures regarding certain finance charges and interest rates.
Citigroup filed a motion to compel arbitration, relying on a change in terms notice mailed to all customers in their monthly bills. The notice amended the original contract to include a mandatory arbitration provision, a class action waiver, and a private attorney general waiver. It also provided the consumer the option to opt out of the agreement. The original contract contained a unilateral change of terms clause.
According to Jones, the arbitration provision and its class action waiver were procedurally unconscionable because they were contained in a “bill stuffer.”
In rejecting Jones' argument, the Court noted that there is no precedent in California supporting the position that it is per se unconscionable to use a bill stuffer to amend an agreement. Instead, when California courts have struck down class action waivers, they have focused on their take it or leave it nature, not on the way they were presented.
In the current case, consumers were allowed 26 days to opt out of the modification in writing, and would be allowed to keep their card on the original terms until its expiration date. The Court found that this procedure for modifying the contract did not offend any public policy and was not procedurally unconscionable. Accordingly, the Court upheld the agreement and compelled arbitration.
Jones clarifies that California still requires both substantive and procedural unconscionability to invalidate an arbitration agreement. Where cardholders are given a reasonable opportunity to opt out of the modified agreement - or where take it or leave it is otherwise eliminated - courts will enforce contractual arbitration obligations. This case recognizes that an arbitration agreement is a contract term that can be modified and accepted, or rejected, according to applicable contract law.
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