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Cavlovic v. J.C. Penney Corporation, Inc.

United States District Court, D. Kansas

July 14, 2017

ANN CAVLOVIC, individually and on behalf of those similarly situated, Plaintiff,
v.
J.C. PENNEY CORPORATION, INC., Defendant.

          MEMORANDUM AND ORDER

          Teresa J . James U.S. Magistrate Judge.

         Plaintiff Ann Cavlovic brings this putative class action against Defendant J.C. Penney Corporation, [1] asserting claims for violations of the Kansas Consumer Protection Act (“KCPA”)[2]and unjust enrichment. Plaintiff alleges Defendant's advertisements of its “original, ” “regular, ” “former, ” and “sale” prices and their corresponding price discounts are fraudulent and deceptive. This matter is before the Court on Defendant's Motion to Stay Proceedings and Compel Arbitration (ECF No. 31). Defendant requests that the Court stay these proceedings and compel Plaintiff to arbitrate her individual, non-class claims pursuant to arbitration provisions in her JCPenney credit card agreement and JCPenney rewards program agreement. For the reasons discussed below, the motion to compel arbitration is denied.[3]

         I. Summary of the Parties' Arguments

         Defendant argues all of Plaintiff's claims are subject to binding, individual (non-class) arbitration under two separate arbitration agreements: one set out in her credit card agreement and one set out in the terms and conditions of Defendant's rewards program. Defendant argues that, because Plaintiff used her JCPenney credit card on September 23, 2014 to purchase the gold hoop earrings that are the basis for her claims against Defendant for fraudulent and deceptive advertising of prices and discounts on that jewelry, Plaintiff's claims are subject to arbitration pursuant to the terms of her credit card agreement. Defendant alternatively argues that, because Plaintiff used the JCPenney rewards program and obtained rewards credit points for the jewelry purchase, her claims are likewise subject to arbitration under the terms and conditions of the rewards program agreement.

         Plaintiff argues she never agreed to arbitrate any of the claims she presently asserts against Defendant, and the arbitration provisions Defendant relies upon in its motion do not apply to her claims in this case. She also argues that the 2008 credit card agreement Defendant relies upon has been superseded by later versions containing materially different provisions regarding arbitration.

         II. Law Regarding Arbitration Provisions

         The Federal Arbitration Act (“FAA”)[4] provides that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”[5] The FAA permits courts to stay litigation in favor of arbitration and to compel arbitration.[6] Under section 4 of the FAA, a party aggrieved by the alleged failure or refusal of another party to arbitrate may move for an order compelling arbitration.[7] Before entering orders directing parties to proceed to arbitration, courts must be “satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.”[8] The United States Supreme Court has interpreted these provisions to manifest a “liberal federal policy favoring arbitration agreements.”[9]

         But despite this liberal policy, the presumption of arbitrability “falls away, ” when the parties dispute whether a valid and enforceable arbitration agreement exists.[10] “[A]rbitration is a matter of contract, ” and parties cannot be required to submit to arbitration any dispute which they have not agreed so to submit.[11] Nor does the FAA prevent parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration agreement.[12] Courts are required to simply enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.[13] When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally “should apply ordinary state-law principles that govern the formation of contracts.”[14]

         When there is a dispute between the parties regarding whether an arbitration agreement exists, the party moving to compel arbitration bears a burden similar to the one a summary judgment movant faces-it must make an initial showing that a valid arbitration agreement exists.[15] In other words, the party seeking to compel arbitration has the burden to “present evidence sufficient to demonstrate an enforceable agreement to arbitrate.”[16]

         III. Arbitration Provisions at Issue

         A. Arbitration Provisions in Plaintiff's JCPenney Credit Card Agreement

         1. The 2008 Agreement

         In its motion to compel arbitration, and memorandum in support, Defendant relied upon arbitration provisions contained in the 2006 credit card agreement[17] and subsequent 2008 notice of change in terms, [18] which were mailed to Plaintiff when she opened her JCPenney credit card account with GE Money Bank in February 2007 and with her April 28, 2008 billing statement (hereinafter collectively, the “2008 Agreement”). Defendant attached the April 20, 2017 Declaration of Martha Koehler, Manager of Litigation Support for Synchrony Bank, [19] to support its assertion that Plaintiff's JCPenney credit card agreement included a “broad agreement” to arbitrate her claims. The 2008 Agreement contains the following arbitration provision:

ANY PAST, PRESENT, OR FUTURE LEGAL DISPUTE OR CLAIM OF ANY KIND, INCLUDING STATUTORY AND COMMON LAW CLAIMS AND CLAIMS FOR EQUITABLE RELIEF, THAT RELATES IN ANY WAY TO YOUR ACCOUNT, CARD OR THE RELATIONSHIPS THAT ARISE FROM YOUR ACCOUNT, THIS AGREEMENT OR ANY PRIOR AGREEMENT OR ACCOUNT, INCLUDING THE ENFORCEABILITY OR SCOPE OF THIS PROVISION OR DISPUTES OR CLAIMS THAT AROSE BEFORE THIS PROVISION'S EFFECTIVE DATE, (“CLAIM”) WILL BE RESOLVED BY BINDING ARBITRATION IF YOU, WE OR JCPENNEY ELECTS TO ARBITRATE.
As used in this [arbitration] provision: “We, ” “Us, ” and “Our” mean (1) GE Money Bank and all of its parents, subsidiaries, affiliates, predecessors, successors, assigns, employees, officers and directors (collectively, the “Bank”), and (2) J. C. Penney Corporation, Inc. and all of its parents, subsidiaries, affiliates, predecessors, successors, assigns, employees, officers and directors.[20]

         Koehler indicated in her Declaration that subsequent notices of change in terms were enclosed with Plaintiff's October 28, 2008 and September 28, 2009 billing statements, but those changes did not relate to arbitration. Koehler's Declaration was silent on whether additional subsequent change in terms notices were enclosed in any of Plaintiff's billing statements after September 28, 2009.

         Relying on the 2008 Agreement language, Defendant argued in its memorandum in support of its motion that the parties agreed to “arbitrate any dispute or claim relating to [Plaintiff's] account, or the relationships that arise from the use of that account.”[21] Defendant argued the basis for Plaintiff's claims is a dispute over a charge on her JCPenney credit card account, and necessarily involves Plaintiff's account and relationship with JCPenney arising from use of that account. In short, Defendant argued but for Plaintiff's $171.66 charge on her JCPenney credit card account and obligation to pay that charge, Plaintiff suffered no injury and could not state a claim against Defendant.

         2. The 2016 Agreement

         Plaintiff disputes that the 2008 Agreement is the applicable version of the credit card agreement that would govern a dispute relating to Plaintiff's JCPenney credit card account. Plaintiff argues Defendant “declined to present to the Court the most recent and controlling versions of the two arbitration clauses, ” and attempts to “enforce an outdated, 10-year old version of the Synchrony Bank arbitration clause.”[22] Plaintiff attached to her response a September 2016 version of Synchrony Bank's JCPenney Credit Card Agreement (the “2016 Agreement”), which Plaintiff's counsel obtained from Synchrony Bank's website.[23] Plaintiff argues this 2016 Agreement made at least three significant changes subsequent to the 2008 Agreement that Defendant presented to the Court. With regard to the scope of the arbitration provision, Plaintiff points out that significant language upon which Defendant relied from the 2008 Agreement no longer exists in the 2016 Agreement. Specifically, Plaintiff argues language in the 2008 Agreement mandating arbitration of legal claims and disputes regarding “relationships that arise from the use of the [JCPenney credit card]” has been removed from the 2016 Agreement. Plaintiff argues the scope of the controlling credit card agreement has been significantly narrowed and the omission of this language reveals a clear intent of Plaintiff and Synchrony Bank not to arbitrate anything other than credit card account disputes. Plaintiff maintains her claims are based on Defendant's false advertising practices and exist regardless of whether Plaintiff paid for her purchase with cash or her JCPenney credit card.

         In its reply, Defendant argued that Plaintiff did not contest she agreed to the binding arbitration provisions in the 2008 Agreement, and that Plaintiff has provided no evidence she received the 2016 Agreement, or that the 2016 Agreement applies to the claims in this case. Defendant asserted it had “offered unrefuted testimony establishing that the agreements attached to its motion [i.e., the 2006 and 2008 Agreements] are the agreements that were sent to Plaintiff and govern the relationship at issue.”[24] Defendant noted that Plaintiff was given two opportunities to opt out of arbitration but did not do so.[25] Defendant argued even if the 2016 Agreement identified by Plaintiff governs the relationship between Plaintiff and Defendant, that would not change the outcome-Plaintiff would still be required to arbitrate her claims. Defendant contended this is so because every agreement in the record includes a binding arbitration provision and all of those agreements give Defendant express arbitration rights. Defendant characterized the differences in these agreements as “slight.” Defendant stressed the provisions of the 2016 Agreement include the language in bold capitalized letters alerting Plaintiff that most disputes will be subject to individual arbitration and the limited exceptions to which arbitration will not apply (neither of which are applicable to Plaintiff's claims here). Finally, Defendant argued at most the 2016 Agreement revisions would mean only that there was silence as to class arbitration with regard to Defendant; they would not mean the arbitration provision is to be ignored altogether.

         On June 21, 2017, after consulting with the parties' counsel regarding availability, the Court entered a Notice of Hearing setting an evidentiary hearing on Defendant's motion on July 6, 2017. The Court specifically indicated what issue the parties should address at the hearing:

The purpose of the hearing will be to hear testimony from Martha Koehler re the business records of Synchrony Bank (as broadly defined in Ms. Koehler's 4/20/2017 Affidavit) regarding Plaintiff's JCPenney credit card. Specifically, the Court will hear testimony concerning whether any Change in Terms notices and/or amended credit card agreements were sent to Plaintiff other than those referenced in the 4/20/2017 Affidavit.[26]

         The Court set the July 6 hearing because Koehler's Declaration, although identifying the 2008 Agreement, failed to indicate whether Koehler had thoroughly searched Synchrony Bank's records to determine if subsequent notices regarding changes to her credit card terms were sent to Plaintiff between 2009 and 2014, and whether the 2008 Agreement was the last (and most recent) sent to Plaintiff at the time she purchased the jewelry in September 2014. This, along with Plaintiff's identification of the 2016 Agreement, which included materially different arbitration provisions, and the failure of Defendant to verify in its reply the most recent applicable version of Plaintiff's JCPenney credit card agreement, put this issue squarely in play.

         3. The 2012 Agreement

         On June 30, 2017, Defendant filed a Notice with the Supplemental Declaration of Koehler, dated June 29, 2017, attached.[27] Koehler states in her Supplemental Declaration that out of an abundance of caution and in preparation for the July 6, 2017 hearing, she reconfirmed her findings with Synchrony Bank's marketing, IT, and compliance groups in order to confirm that no additional change in terms notices were sent to Plaintiff. Through that process, Kohler identified two additional change in terms notices that were sent to Plaintiff after 2009. In 2012, due to a “unique circumstance, ” GE Capital Retail Bank (Synchrony Bank's predecessor) sent a “global” change in terms to all eligible accounts, including Plaintiff. This “global” change included sending the entire card holder agreement incorporating the applicable change in terms to the eligible account holder (the “2012 Agreement”).[28] Another change in terms notice was sent to Plaintiff in October 2015, but it did not alter the arbitration provisions of the 2012 Agreement. Koehler also indicates that the 2016 Agreement obtained by Plaintiffs counsel from Synchrony Bank's website does not relate to Plaintiffs JCPenney credit card account and was not provided to Plaintiff.

         The 2012 Agreement contains the following provisions regarding arbitration:

RESOLVING A DISPUTE WITH ARBITRATION
PLEASE READ THIS SECTION CAREFULLY. IF YOU DO NOT REJECT IT, THIS SECTION WILL APPLY TO YOUR ACCOUNT, AND MOST DISPUTES BETWEEN YOU AND U.S. WILL BE SUBJECT TO INDIVIDUAL ARBITRATION. THIS MEANS THAT: (1) NEITHER A COURT NOR A JURY WILL RESOLVE ANY SUCH DISPUTE; (2) YOU WILL NOT BE ABLE TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING; (3) ...

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