Eastern District of Texas Rules on Arbitration of Credit Accounts

According to the Eastern District of Texas, a change-of-terms provision in a credit card agreement does not defeat the parties’ mutual obligation to arbitrate.

In Wynne v. American Express Co., 2:09-CV-00260-TJW, (5th Cir. Sept. 30, 2010), Todd Wynne brought deceptive trade practices, negligent misrepresentation and fraud claims against American Express (Amex), which alleged Amex’s representations regarding its “no pre-set spending limits” credit accounts were misleading and illusory. According to Amex, Wynne’s claims and credit account with Amex were both governed by an agreement which contained an arbitration clause and a class waiver. Amex filed a motion to compel arbitration and to dismiss Wynne’s claims or alternatively, to stay Wynne’s court action.

After noting there was an apparent dispute between the parties regarding whether Utah or Texas law governed the dispute despite a choice of law clause in the parties’ agreement which stipulated that Utah law would apply to any dispute, the court determined that Utah law governed for two reasons. First, Amex, the agreement and credit account were all located in Utah which established a relationship more than sufficient to meet the “reasonable relationship” requirements of the Texas Uniform Commercial Code (TEX. BUS. & COMM. CODE § 1.301(a)). Second, the application of Utah law was not contrary to “a fundamental policy of Texas.”

Utah law specifically allows change-of-terms provisions in credit card agreements subject to certain written notice requirements. Additionally, both Utah and Texas permit an underlying agreement to serve as consideration for a party’s agreement to arbitrate. Because of this, Wynne’s argument that the validity of the agreement to arbitrate was illusory since the terms could be changed by Amex at any time failed to convince the court. Similarly, Wynne’s reliance on the same change-of-terms provision to challenge the entire agreement also failed because the validity of the agreement as a whole is an issue for an arbitrator under the Federal Arbitration Act.

Although Wynne argued that the agreement was unconscionable, the court stated that he failed to meet the “heavy burden to prove the agreement was so one-sided as to be unconscionable under either Utah or Texas law.” According to the court, the agreement contained a mutual obligation to arbitrate which did not bind one party to the benefit of the other. Moreover, the agreement contained a provision that ensured Amex would cover the cost of an opposing party’s fees above the cost of litigation. Wynne also failed to establish any facts to support a finding that the agreement was procedurally unconscionable, such as evidence of fraud, misrepresentation or unfair surprise.

After the court found that both the agreement and the arbitration clause were enforceable, it next determined that Wynne’s claims were within the scope of the arbitration clause. Under the plain terms of the agreement, any claim or controversy arising from or relating to any Amex credit account were subject to the arbitration clause. Because Wynne only challenged the validity of the agreement and not its scope, and Utah, Texas and Federal law and policy favor arbitration, the court concluded “that there is a valid and enforceable agreement to arbitrate,” and held it had “no choice but to compel arbitration.”

The court granted Amex’s motion to compel arbitration and stay the proceedings but denied Amex’s motion to dismiss the complaint.

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