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The California Court of Appeal held that a lower court properly honored a credit card agreement's Delaware choice-of-provision in ruling that the lender effectively amended the agreement to include an arbitration clause by enclosing notice of the amendment within the borrower's periodic statement.
In MBNA America Bank, N.A. v. Newman, No. B190956, 2007 WL 882296 (Cal. Ct. App. Mar. 26, 2007), MBNA filed an arbitration claim against Newman, seeking to collect the unpaid balance on an MBNA credit card.
After receiving notice of the arbitration, Newman sent a letter to the arbitration administrator, the National Arbitration Forum, claiming that he never agreed to arbitrate. In response, the case coordinator sent a letter to Newman, explaining that his submission was incomplete because there was no proof of service and informing him that arbitration would proceed.
After a hearing, which Newman did not attend, the arbitrator issued an award in favor of MBNA. MBNA subsequently filed a petition to confirm the award. In opposing confirmation, Newman argued that the arbitration agreement was unenforceable.
The trial court scheduled an evidentiary hearing to determine whether Newman agreed to arbitrate. After the hearing, which Newman did not attend, the trial court applied Delaware law in ruling that MBNA effectively amended the cardholder agreement to include an arbitration clause. Specifically, MBNA amended the agreement by including notice of the arbitration clause in an envelope containing Newman's periodic statement.
On appeal, there were two issues: (1) whether there was substantial evidence to support the trial court's determination that Newman received notice of the amendment adding the arbitration clause; and (2) whether the trial court properly applied Delaware law to the question of whether the "bill stuffer" was an effective means of amending the cardholder agreement.
The Court affirmed the trial court ruling on both issues. First, even though Newman submitted an affidavit denying notice, there was sufficient evidence to support the trial court's finding that Newman received notice of the arbitration agreement because MBNA submitted evidence demonstrating that (1) all MBNA cardholders were notified of the amendment via a bill stuffer and (2) Newman's mail was never returned.
Second, the Court held that the trial court properly honored the cardholder agreement's Delaware choice-of-law provision because Newman's citation to Badie v. Bank of America, 79 Cal. Rptr. 2d 273 (Cal. Ct. App. 1998) failed to establish that Delaware law allowing bill stuffer amendments conflicted with a fundamental policy of California.
Moreover, the Court found that even if there were a policy conflict, Delaware law would still apply because Delaware had a greater interest in the issue than California. Delaware had a greater interest because it was home to MBNA and "has demonstrated by statute its concern that Delaware law should apply to claims between Delaware banks and their cardholders."
South Dakota has a statute that is virtually identical to the Delaware statute cited by the Court in determining that Delaware had a greater interest in the issue than California. The South Dakota statute provides: "A revolving loan account arrangement between a bank located in the state of South Dakota and a debtor shall be governed by the laws of the state of South Dakota." S.D. Codified Laws § 51A-12-12.
The South Dakota statute, coupled with the Court's holding in this case, casts doubt on the vitality of Firchow v. Citibank (South Dakota), N.A., No. B187081, 2007 WL 64763 (Cal. Ct. App. Jan. 10, 2007), in which the court refused to honor a credit card agreement's South Dakota choice-of-law provision partly on the ground that California had a greater interest in the issue – namely, the enforceability of a class action waiver.
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