404 F.Supp.3d 1240
N.D. Cal.2019Background
- Plaintiff Elizabeth Eiess, a USAA checking-account holder and California resident, alleges USAA charged three $29 NSF fees for repeated attempts to process the same $358.83 transaction and brings breach of contract, unjust enrichment, UCL, and CLRA claims as a putative class action.
- USAA’s Deposit Agreement contains an arbitration clause (JAMS/AAA), a unilateral modification clause permitting changes (including by website notice), and a choice-of-law provision selecting Texas law.
- The arbitration clause bars class/collective actions and prohibits an arbitrator from awarding injunctive or declaratory relief for the benefit of non-parties (public injunctive relief).
- USAA moved to compel arbitration of all claims and to enforce the class waiver; Eiess contends the contract is illusory (unilateral modification) and that the waiver of public injunctive relief is unenforceable under California law (McGill).
- The court held a contract was formed despite the unilateral-modification clause, declined to delegate formation/validity challenges to an arbitrator, compelled arbitration for contract/unjust enrichment and monetary statutory relief, but denied enforcement of the waiver to the extent it bars public injunctive relief and stayed that limited litigation pending arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a binding contract formed given USAA’s unilateral-modification clause | Unilateral-modification makes the agreement illusory and vitiates formation | Clause does not negate formation; implied covenant or other contract terms supply consideration | Court: Formation is a judicial question; under California law implied covenant prevents retroactive deprivation, so a contract formed |
| Whether gateway questions of arbitrability (formation/validity) were clearly delegated to arbitrator | Formation challenge should be decided by court; not delegated | Incorporation of JAMS/AAA rules plainly delegates arbitrability questions | Court: Formation cannot be delegated; validity/delegation not clearly and unmistakably delegated to an unsophisticated consumer, so court decides validity |
| Whether arbitration agreement is invalid (illusory) under applicable law | Arbitration clause illusory because USAA can retroactively amend and escape arbitration | Texas choice-of-law (per contract) allows enforcement; where Texas rules deemed arbitration-specific cases preempted by FAA | Court: For contract/unjust-enrichment and monetary claims, Texas law governs and Carey line (Texas rule treating arbitration clauses as illusory) is preempted by FAA; arbitration compelled for those claims |
| Whether waiver of public injunctive relief is enforceable for UCL/CLRA claims | McGill: California prohibits waiver of public injunctive relief; Eiess seeks public injunction (prospective, public benefit) | USAA: McGill inapplicable; Eiess lacks standing or seeks only private relief; Texas law applies | Court: California has materially greater interest for public-injunctive remedy; McGill applies; waiver of public injunctive relief unenforceable — those remedy claims must be litigated (but stay pending arbitration) |
Key Cases Cited
- McGill v. Citibank, N.A., 2 Cal.5th 945 (2017) (California rule: contract waiver of public injunctive relief unenforceable)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preempts defenses that apply only to arbitration)
- Blair v. Rent-A-Center, Inc., 928 F.3d 819 (9th Cir. 2019) (McGill rule is a generally applicable contract defense not preempted by FAA)
- Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015) (FAA saving clause permits generally applicable defenses to arbitration clauses)
- Kum Tat Ltd. v. Linden Ox Pasture, LLC, 845 F.3d 979 (9th Cir. 2017) (existence of contract is for court, not arbitrator)
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) (delegation to arbitrator requires clear and unmistakable evidence)
- Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202 (5th Cir. 2012) (change-in-terms clause can render arbitration agreement illusory under Texas precedent)