Last week, the Eleventh Circuit refused to compel arbitration because the defendant financial institution failed to prove that its online deposit agreement actually included an arbitration clause. This decision reflects the importance of (1) documenting the original agreement (both the actual terms and the assent of the consumer), (2) retaining the documentation, (3) documenting any change in terms (and the customer’s assent to them) and (4) carefully proving the existence of these agreements (and the customer’s assent) in Court.
In 2005, Christina Bazemore applied for and received a credit card from First Bank of Delaware. She filled out the application online. After failing to pay off items she charged, Ms. Bazemore’s account was transferred to Jefferson Capital Systems, LLC, which she later sued for violations of the Fair Debt Collection Practices Act. Jefferson Capital moved to compel arbitration based on an agreement that supposedly existed between Ms. Bazemore and First Bank of Delaware. The trial court denied the motion to compel arbitration, and the Eleventh Circuit affirmed.
In reaching that conclusion, the Court found that the state law of contract formation governed whether an arbitration clause existed or not. The Court then found that Jefferson Capital had failed to establish that Ms. Bazemore had agreed to any terms and conditions beyond those that would require her to repay her credit card. Specifically, the Court held that the testimony of an employee who maintained records for First Bank of Delaware was insufficient by itself to establish that Ms. Bazemore had agreed to any terms and conditions. The employee’s testimony was insufficient because he did not allege that he had personal knowledge that Ms. Bazemore accepted the terms and conditions, and he did not produce any supporting documents. There was also no evidence that Ms. Bazemore accepted a so-called “clickwrap agreement,” only the employee’s assertion that it was First Bank of Delaware’s practice to send a Cardholder Agreement to its new customers once their application was approved. The employee did not even testify as to the specific contents of the Cardholder Agreement supposedly sent to Ms. Bazemore. As such, Jefferson Capital had not met its burden to establish the existence of a valid agreement to arbitrate.
Practically, this ruling emphasizes the importance of detailed record-keeping, and the potential cost of failing to keep appropriate records. While Jefferson Capital presented evidence that First Bank of Delaware generally sent a Cardholder Agreement to its customers—and that those agreements generally contained arbitration provisions—Jefferson Capital was unable to show that Ms. Bazemore ever specifically received such an agreement with a specific arbitration provision. As such, companies should be very careful to retain detailed records of when it sends contracts to specific customers and what the terms of those contracts are. While this presents a hassle in the short term, it can save companies on costly and uncertain litigation in the long term.
The full opinion in Christina Bazemore v. Jefferson Capital Systems, LLC (No. 15-12607) is available here.