On March 22, 2018, the U.S. Court of Appeals for the Seventh Circuit, considering an interlocutory appeal, reversed a district court’s order granting a motion to compel arbitration of Telephone Consumer Protection Act (“TCPA”) claims raised in a putative class action, A.D. v. Credit One Bank, N.A., Case No. 17-1486.

The unanimous panel held that A.D., a minor, was not bound by the terms of the cardholder agreement to arbitrate with Credit One, and she also had not directly benefited from the cardholder agreement such that equitable principles persuaded the panel to apply the arbitration clause against her.

The case arose in 2014 when Judith Serrano filed suit against Credit One on behalf of her daughter, A.D., alleging that Credit One violated the TCPA by calling A.D.’s cellphone seeking payment for her mother’s overdue account.  According to the allegations, A.D.’s phone number was associated with Serrano’s Credit One account because, on at least one occasion, Serrano used A.D.’s cellphone and associated phone number to access her account or contact the bank.

The case evolved into a putative class action alleging TCPA claims, with A.D. named as the representative plaintiff.  The credit card agreement between Serrano and Credit One includes a mandatory arbitration provision requiring disputes involving the credit card holder and any authorized user to be heard in arbitration.  In its motion to compel, Credit One asked the district court to invoke the arbitration provision, arguing that A.D. was an authorized user under the agreement because she had used the card in the past.  The U.S. District Court for the Northern District of Illinois concluded that A.D. qualified as an “authorized user” because Serrano had once allowed A.D. to pick up an order of smoothies using the credit card, and therefore the arbitration provision in the cardholder agreement applied to the claims.  The district court relied on language in the agreement providing that  “[i]f you allow someone to use your Account, that person will be an Authorized User.”

The district court granted Credit One’s motion, compelled arbitration, and stayed the federal proceeding pending the outcome of arbitration.  A.D. filed a motion to certify the arbitration question for interlocutory appeal, which the district court granted.  The Seventh Circuit then granted A.D. permission to appeal.

The Seventh Circuit determined that A.D. does not qualify as an “authorized user” under her mother’s cardholder agreement with Credit One.  As such, the arbitration provision is unenforceable against her.  The court stated that “A.D. did not have any rights under the cardholder agreement that the contract gives to true authorized users.”  “Indeed,” it continued, “A.D. was 14 years old at the time of the smoothie transaction and, therefore, not even eligible to become an authorized user under the cardholder agreement.”
The court also considered equitable remedies raised by Credit One.  In so doing, the court noted that A.D.’s “mother, not A.D., benefited from the agreement.”  Thus, Credit One’s position “simply misapprehends the purpose and scope of the direct benefits estoppel remedy.”

Although the Seventh Circuit panel acknowledged that precedent establishes “bedrock principles about the enforcement of arbitration agreements,” and discussed the strong federal policy favoring arbitration, the appellate court nonetheless held that the arbitration provision was not enforceable in this case against the purported class representative plaintiff.

A copy of the opinion is available here.