Opinion Analysis


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

Case Opinion Date Opinion Author Decision Vote
16-0793
10/06/2017 Justice Workman Reversed Unanimous

Facts

Petitioner Bluestem Brands, Inc. (“Bluestem”) runs a catalog retail company called Fingerhut, which extends credit to customers through agreements with banks, so that customers may make Fingerhut purchases on credit. The Respondent, Darlene Shade (“Shade”), was a customer of Bluestem, through her numerous Fingerhut purchases made on credit between 2006 and 2013. In 2007, Shade received a packet from Fingerhut which set forth the terms of her credit agreement, including an arbitration provision, which set forth the opportunity for Shade to “opt out” of the arbitration agreement. Shade admits to receiving this document, and that she did not opt out, but rather continued to make Fingerhut purchases on credit. In 2010, Shade received notification from Bluestem that they had switched credit partners to a new bank, along with a new credit agreement also containing an arbitration provision with an opt out provision. She did not opt out, and continued to make purchases on credit. In 2012 and 2013, Bluestem switched credit partners again, but did not inform Shade of any new credit agreements or provide copies of any new credit agreements. Shade continued to make purchases on credit.

Shade’s credit account was past due, and collection efforts were initiated against her. In response, Shade filed a third-party complaint against Bluestem, bringing claims for violations of the West Virginia Consumer Credit and Protection Act (“WVCCPA”), W. Va. Code. § 46A-1-101 et seq., on her own behalf and on behalf of a group of similarly-situated individuals. Bluestem sought to compel arbitration. The trial court denied Bluestem’s motion to compel, and Bluestem then appealed.

Issues

Did the Respondent, who was a credit card customer, assent to the arbitration provisions contained in the credit contract?  Can a nonsignatory to an arbitration agreement enforce its terms?

Analysis

The standard of review used by the West Virginia Supreme Court of Appeals in analyzing this appeal from an order denying a motion to dismiss and to compel arbitration is de novo. The Court began by acknowledging that this case presented questions of general contract formation. In general, when a trial court is asked to decide a motion to compel arbitration, the trial court’s authority is limited to a two-step inquiry, (1) whether a valid arbitration agreement exists between the parties, and (2) whether the claims brought by the plaintiff fall within the scope of the arbitration agreement.

In examining the first part of this inquiry, the Court recognized the factual differences between the 2007 and 2010 credit agreements between Shade and the bank partners of Bluestem and the 2012 and 2013 credit agreements between Shade and the applicable bank partners. With respect to the 2007 and 2010 agreements, there is no dispute that Shade received the copies of the agreements, which each included arbitration provisions, had the option to “opt out” but declined to do so, and continued to make purchases on credit from Fingerhut. As such, these two agreements, including the arbitration provisions, were assented to by Shade and were valid. With respect to the 2012 and 2013 agreements, there is no evidence that Shade ever received notice that the credit agreements would change in their terms or that she ever received copies of either of the new agreements. Bluestem argued that she had notice of the changes and could call to inquire about the terms of those changes, but that Shade simply declined to do so. The Court did not find this argument compelling, and instead found that Shade did not assent to those agreements because it was not possible for her to assent to something about which she had no information or awareness. Bluestem argued that providing Shade with a phone number to call for additional information about the revised credit agreements was sufficient for assent, and cited cases in support.  The Court, however, distinguished each of the cases, finding that the customer had been provided with either the actual agreement or a notice of the substantive changes to the agreement, whereas Shade had been provided with neither. The 2012 and 2013 agreements were therefore not assented to by Shade, and were not valid. However, the 2010 agreement into which Shade validly entered remained in effect to govern the transactions at issue, and Shade was subject to the arbitration provisions contained in that agreement.

Having found that the 2010 agreement and arbitration provisions were valid to govern Shade’s purchases on credit, the Court next looked to whether Bluestem, as a non-signatory to the credit agreements, had the right to enforce the arbitration provision against Shade, a signatory to the agreements. Looking to well-established common law principles, the Court found that a non-signatory may enforce an arbitration provision against a signatory under an estoppel theory. Where a non-signatory to a written arbitration agreement seeks to enforce the provision against a signatory, courts must determine whether the signatory’s claims make reference to, presume the existence of, or otherwise rely upon the written agreement. Here, because Shade’s claims against Bluestem for violations of the West Virginia Consumer Credit Protection Act arise out of and rely upon the written credit agreement containing the arbitration clause, Bluestem, the non-signatory, may enforce that written arbitration clause against Shade, the signatory, under a theory of estoppel.

Because a valid and enforceable arbitration agreement existed through the 2010 credit agreement entered into by Shade, and because Bluestem could enforce the terms of that agreement against Shade through estoppel, the trial court erred in denying Bluestem’s motion to compel arbitration.

 

Commentary

The West Virginia Supreme Court of Appeals used this case to once again make clear that arbitration agreements are contracts, and that established principles of contract law will be applied to determine the validity and enforceability of those agreements. This case also makes clear that a non-signatory to a written arbitration agreement does have the right to enforce that agreement against an unwilling signatory in certain circumstances, where the signatory’s claims rely upon or reference the agreement at issue. Finally, the Court took the opportunity to address abuses by both parties in briefing this issue on appeal, in footnote 7, where the Court “caution[ed] counsel that supplementation under Rule 10(i) is not to be utilized for otherwise impermissible responsive argument or raising and/or developing new arguments or issues.” This chastisement by the Court was prompted by each party filing multiple letters claiming to provide “notice of additional authorities” pursuant to Rule 10(i) of the West Virginia Rules of Appellate Procedure. While acknowledging that some of the letters validly addressed new case law, the Court was wise to curb attempts to circumvent longstanding appellate rules prohibiting the parties from raising new arguments for the first time on appeal.

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