80 A.D.3d 280
N.Y. App. Div.2010Background
- Plaintiff Mark Frankel opened a Citibank credit card in 1987 under an agreement allowing unilateral term changes by Citibank.
- About 14 years later Citibank allegedly mailed an arbitration change-in-terms stating disputes would be subject to mandatory, binding arbitration on an individual basis; non‑agreement would result in account closure.
- Plaintiff enrolled in a Voluntary Flight Insurance Program that was billed $13 per airline ticket, and Citibank repeatedly charged him this insurance even for non-ticket travel-related transactions.
- Approximately ten erroneous flight-insurance charges occurred, with Citibank reportedly retaining these charges despite knowledge of impropriety.
- Plaintiff filed a putative class action on behalf of others similarly charged for flight insurance, alleging a pattern to extract small sums from many consumers.
- Citicorp Insurance Services, Inc. and Citibank moved to compel arbitration; plaintiff cross-moved to stay arbitration pending a framed-issue hearing. The trial court granted arbitration on an individual basis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was there a valid arbitration agreement? | Insufficient mailing of the change-in-terms; no valid agreement. | Mailing and agreement to arbitrate established. | Substantial question; framed-issue hearing required. |
| Is the South Dakota choice-of-law provision enforceable? | SD law should not govern or render arbitration unconscionable. | SD choice-of-law should apply under NY conflict rules. | Issues of enforceability require further inquiry; not plainly enforceable. |
| Are the arbitration change-in-terms and the choice-of-law provision unconscionable under SD law? | Clauses were unilaterally imposed and prohibit class actions, defeating fairness. | Clauses are valid under SD law and properly enforceable. | Substantial question on unconscionability; remand for framed-issue hearing. |
| Should discovery have been allowed to resolve these issues? | Discovery needed to prove notice and unconscionability. | No basis to delay arbitration; discovery unnecessary at this stage. | Proceed to framed-issue hearing with ability to develop relevant evidence. |
Key Cases Cited
- Manos v. Interbank of N.Y., 202 A.D.2d 403 (1994) (court decides whether a valid agreement exists; discovery may be allowed)
- Matter of Cassone, 63 N.Y.2d 756 (1984) (arbitration enforcement considerations in New York)
- Matter of Schreiber v K-Sea Transp. Corp., 9 N.Y.3d 331 (2007) (framed-issue hearing standards and arbitration threshold issues)
- O’Brien v Bache Halsey Stuart Shields, 80 A.D.2d 846 (1981) (court may adjudicate whether a valid arbitration agreement exists)
- Welsbach Elec. Corp. v MasTec N. Am., Inc., 7 N.Y.3d 624 (2006) (choice-of-law principles and relation to substantive issues)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (federal rule governing use of state choice-of-law provisions)