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FIA Card Services, N.A. v. Cohen

A-3026-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

CREDIT CARDS; ARBITRATION — Where a notice in a cardholder’s monthly statement attempts to alter the original credit card agreement to require the cardholder to arbitrate disputes, the purported modification is unconscionable and of no legal effect.

A credit cardholder defaulted on her account. The credit card company told her it intended to submit the matter to arbitration pursuant to an unsigned and undated set of “credit card terms” that supposedly was sent to all cardholders as an enclosure in a periodic statement. The cardholder challenged the arbitrator’s jurisdiction and disputed the validity of the arbitration agreement. Without the approval or participation of the cardholder, the arbitrator entered an award in favor of the credit card company. The credit card company then instituted an action in the Law Division to confirm the arbitrator’s award. The cardholder reiterated that she never agreed to arbitrate and denied ever receiving the terms purporting to require her to submit disputes to arbitration.

The Law Division confirmed the arbitrator’s ruling, finding that the cardholder’s denial of ever having received the terms relating to arbitration was not credible and that her continued use of the card was evidence of her acceptance of the contract terms. The cardholder appealed.

The Appellate Division reversed, holding that it was error to award the credit card company summary judgment given the evidential dispute over whether the cardholder had received proper notice of the conditions governing use of her card. It noted that unless a statute requires arbitration of a particular category of dispute, which was not the case here, a party seeking to compel arbitration must show that the other party had agreed to this forum for resolution. In the instant matter, the credit card company never submitted a duly executed and dated arbitration agreement, nor did it provide any evidence that the cardholder ever received such notice. It noted that the lower court rejected the cardholder’s version of the facts without a plenary hearing. It held that even if the credit card company could prove that the notice had been sent to the cardholder, she was not bound by any of its terms that derogated from her rights under the originally executed credit card contract unless the credit card company could show that she agreed to modify the terms of the contract. It rejected the lower court’s holding that had inferred the cardholder’s acceptance of the arbitration provision based on her continued use of the credit card because this impermissibly assumed the prerequisite of notice and knowledge. The Court’s conclusion was made without any preliminary determination of the legal effect and enforceability of such a unilateral modification. It also noted that earlier court decisions had found that where a notice is included in a cardholder’s monthly statement attempting to alter the original credit card agreement to require the cardholder to arbitrate disputes, the purported modification was unconscionable and of no legal effect. Lastly, the Court held that the record was too sparse to allow for any informed determination as to whether the customer accepted the new terms of use for the credit card. Thus, the case was remanded for further proceedings consistent with the Court’s opinion.

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