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Bluestem Brands, Inc. d/b/a Fingerhut v. Darlene Shade

Case Number: 16-0793
Bluestem Brands, Inc. v. Darlene Shade

Type of Proceeding

Appeal from the Circuit Court of Berkeley County (Judge Silver)

Issues

Did the Circuit Court of Berkeley County err in finding that Respondent Darlene Shade did not enter into an enforceable arbitration agreement under which Petitioner Bluestem could compel arbitration?

Background

Petitioner Bluestem Brands, Inc. (“Bluestem”) runs a catalog retail company called Fingerhut, which permits customers to make purchases by telephone and on credit. Credit is extended to customers through agreements with banks, and specifically, with WebBank, a Utah Bank. The Respondent, Darlene Shade (“Shade”), was a customer of Bluestem, through Fingerhut, and made a number of purchases on credit between 2006 and 2015. During the course of her customer relationship with Bluestem, the terms and conditions of the credit agreement changed various times. In 2007, after Shade had already received credit through Bluestem, Bluestem changed the terms of the customer agreement to include an arbitration clause. This change was communicated to customers, including Shade, by a four page billing insert sent in the mail. Bluestem made additional changes to the customer Agreement when changing bank partnerships, and generally communicated these changes to customers, including Shade, through inserts to letters sent in the mail. These amended agreements continued to include arbitration clauses. The last amended agreement at issue, which went into effect in 2013, was not sent to Shade. At no time during the course of the customer relationship did Shade sign any arbitration agreement or verbally agree to arbitration.

In 2015, Shade stopped making payments to her credit account, and a debt collection action against her was subsequently initiated in the Circuit Court for Berkeley County. The debt collection was filed by Midland Funding, LLC, the entity pursuing the collection on the account. Default judgment was initially entered against Shade, but by agreement of the parties, Shade was permitted to file an amended answer and counterclaim against Midland, and a third-party class action complaint against Bluestem. Claims against Bluestem included violations of the West Virginia Consumer Credit and Protection Act (“WVCCPA”), W. Va. Code. § 46A-1-101 et seq., brought by Shade and on behalf of a class of similarly situated individuals.

Bluestem moved to compel arbitration pursuant to the terms of customer credit agreements. Discovery on the issue of arbitration was conducted by the parties. On July 21, 2016, the circuit court entered an order denying arbitration. Bluestem filed its appeal to the West Virginia Supreme Court on November 21, 2016. Shade filed her response on January 5, 2017. Bluestem filed its reply on February 10, 2017.

Positions of the Parties

Petitioner:

Petitioner Bluestem argues that the Circuit Court of Berkeley County erred in finding that Shade did not assent to the arbitration provisions of the agreements. Even though Shade did not manifest assent verbally or by signature, she manifested assent by her conduct. Bluestem also argues that it does not matter that the arbitration provisions were made by amendment to Shade’s original agreement with Bluestem. In support of this argument, Bluestem cites to a similar case in which the Supreme Court found that arbitration was appropriate and compelled it pursuant to the terms of the very same agreement that Shade had with Bluestem. Bluestem also argues that it was error for the circuit court to find that Bluestem could not enforce an arbitration clause with Shade because Bluestem was not a party to the agreements, but rather, the agreements were between Shade and the bank.

Bluestem argues that it may invoke arbitration under the last two agreements with Shade under both the plain language of the agreements, as well as under the principles of equitable estoppel and agency. Bluestem is a “merchant from which Shade purchased goods or services using her account,” and therefore Bluestem argues that the plain language of the credit agreement permits it to compel arbitration, as has been permitted by previous court decisions. Bluestem also argues that estoppel principles permit enforcement of the arbitration provision because they are closely related to the dispute and it was foreseeable that they would benefit from, or be subject to, the arbitration clause, and that common law principles of agency allow Bluestem to enforce an arbitration agreement on behalf of its principal, the bank who extended credit to Shade.

In support of its arguments, Bluestem cites to analysis of the Federal Arbitration Act which expresses a preference in favor of arbitration where a contract contains an arbitration clause. Acknowledging that the court must first find that a valid arbitration agreement exists before it may compel arbitration, Bluestem points to each of the successive agreements under which Shade received credit and made purchases for goods from Fingerhut. Shade assented to the agreements, including the arbitration clauses, because she received the benefits of the agreements through the credit and receipt of the goods she purchased. Bluestem also argues that Shade received notices or copies of the various agreements, and had the opportunity to review them each time.  Therefore, by continuing to make credit purchases under each, she assented to them. Bluestem argues that it was incorrect for the circuit court to find to that Shade had not assented to the arbitration provisions under these circumstances. No verbal or written assent is required, and Shade manifested assent through her conduct. Bluestem also argues that the circuit court erred in finding that no valid arbitration agreement existed because the amendments informing Shade of the arbitration clauses were communicated as “bill stuffers,” when the terms of the arbitration were actually included in the agreements themselves. Bluestem asserts that it is contrary to West Virginia law to permit a party to benefit from goods and services under a written agreement, then deny that the same agreement governs their relationship.

Because there was a valid and enforceable arbitration agreement in effect between Bluestem and Shade, Bluestem goes on to assert that the arbitration clause governs all claims at issue because all of them relate to the credit agreements, transactions, and actions arising out of those credit agreements. The circuit court erred in finding that Bluestem could not force arbitration because it was not a party to the agreement because, under agency law, Bluestem is entitled to invoke arbitration under the rights it was given under that agreement. Shade should further be estopped from denying this right of Bluestem because she has brought claims arising out of the credit extended from those same agreements. She cannot pursue these claims arising out of the credit agreements, but also deny that the arbitration provision of the agreements does not apply.

Respondent:

Shade argues that the circuit court did not err in denying arbitration because she did not assent to the arbitration provisions and, therefore, there was no enforceable arbitration contract for the court to enforce. The agreements at issue were all specifically and solely between Shade and the banks extending her credit. The terms of those agreements defined the parties as Shade (the customer) and the banks. Furthermore, Shade was not provided with appropriate notice or the terms of the arbitration provisions, and therefore could not have assented to them, nor did she sign anything acknowledging her receipt of any notice of the amendments or the terms of the arbitration agreements. She could not have assented to an agreement of which she was not aware. Shade argues that she did not assent by conduct because, in addition to not having been provided with any notice of the arbitration provisions, even if she had been provided with notice, the terms of the arbitration amendments did not allow Bluestem to invoke arbitration anyway. Shade points to a previous court decision addressing claims between another consumer and Bluestem where the court found that Bluestem’s catalog alone could not prove assent, simply continuing to order from Bluestem after receiving notice of an amendment could not alone show assent, and the catalog only served to put the customer on notice that an arbitration provision “would be forthcoming.” The circuit court therefore properly found that no valid arbitration agreement existed because there was no assent by Shade and Bluestem was not even a party to those agreements.

The circuit court further found that the agreements were illusory, and Bluestem failed to assert arguments before the court upon which it now seeks to improperly rely in its appeal. Inasmuch as Bluestem was not a party to the agreements, Shade argues that most of its arguments are irrelevant and inapplicable. However, the claims in Shade’s class action complaint are solely against Bluestem, not the bank, and are therefore separated from the terms of the agreements that existed between Shade and the bank. Shade alleges that Bluestem, not the bank, engaged in illegal debt collection practices, and that these practices, rather than the credit agreement between Shade and the bank, are the source of her claims. Bluestem cannot cite estoppel as grounds to enforce arbitration because the issues are separate and distinct. Finally, Shade argues that Bluestem’s agency arguments in favor of being able to enforce arbitration on behalf of the bank as its principal fail, because her claims against Bluestem arise out of statute and/or common law, not the contract. Shade is not attempting to assert any rights created by the agreement, and the circuit court correctly recognized this. Furthermore, Bluestem failed to assert any agency arguments below.

Probable Impact

Assent is a huge issue in arbitration cases.  This appeal will give the Supreme Court the opportunity to clarify some specifics pertaining to how assent may be manifested, particularly in situations where the arbitration clause is made by amendment, rather than contained in the original contract. The Court will also have the opportunity to address issues of agency and third-party enforcement of arbitration provisions, and who is entitled to invoke arbitration provisions and seek enforcement thereof. Finally, the Court may be inclined to provide guidance as to when a consumer may, or may not, be estopped from denying the validity of an agreement containing an arbitration provision while still having continued to receive goods or services under the agreement.

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