The Supreme Court of Indiana recently reversed and remanded a trial court’s order compelling arbitration of two bank customers’ putative class action complaint. In so ruling, the Court held that the account agreement’s change-of-terms clause did not allow the defendant bank to add an addendum compelling arbitration and restricting class actions to the terms and conditions of the customers’ account agreement.
A copy of the opinion in Cliff Decker, et al. v. Star Financial Group Inc. is available at: Link to Opinion.
In 2019, the plaintiffs were assessed a $37 overdraft fee to their checking account at the defendant bank. The plaintiffs disputed the validity of the overdraft fee. At issue was the language of the terms of the account agreement. Specifically, the plaintiffs’ account agreement stated:
(10) Amendments and Termination. We may change any term of this agreement. Rules governing changes in interest rates are provided separately in the Truth-in-Savings disclosure or in another document. For other changes, we will give you reasonable notice in writing or by any other method permitted by law. … Reasonable notice depends on the circumstances. … If we have notified you of a change in any term of your account and you continue to have your account after the effective date of the change, you have agreed to the new term(s).
The account agreement did not mention arbitration, class actions, or resolution.
In 2020, prior to the onset of litigation, the bank provided the plaintiffs with a monthly statement that included an addendum to the account agreement providing that claims against the bank were subject to arbitration and could be brought only in a customer’s individual capacity. The addendum noted that it would become effective within 10 days if the plaintiffs retained their account with the bank.
The plaintiffs kept their account open with the bank and proceeded with filing a putative class action complaint against the bank alleging improper overdraft fees. The bank filed a motion to compel arbitration based on the addendum. The trial court granted the bank’s motion and dismissed the plaintiffs’ complaint.
The plaintiffs appealed, and the Indiana Court of Appeals reversed and remanded for further proceedings. Decker v. Star Fin. Grp., Inc., 187 N.E.3d 937 (Ind. Ct. App. 2022). The bank then sought transfer, which the Supreme Court of Indiana granted. 194 N.E.3d 594 (Ind. 2022).
On appeal before the Supreme Court of Indiana, the plaintiffs raised three arguments. First, they argued that the bank buried the notice of the addendum at the end of the monthly statement and did not provide reasonable notice under the contract. Second, the plaintiffs argued that the account agreement’s change of terms clause did not allow the bank to add the addendum. Third, the plaintiffs’ continued use of their checking account did not manifest their assent to the addendum.
In Indiana, a party cannot be required to submit to arbitration unless it has agreed to do so. MPACT Constr. Grp., LLC v. Superior Concrete Constructors, Inc., 802 N.E.2d 901, 905 (Ind. 2004). The Indiana Supreme Court reviews questions of contract interpretation de novo.
The Indiana Supreme Court reached its decision by exclusively analyzing the second issue raised by the plaintiffs. In the plaintiffs’ account agreement, Section 10 stated that the bank could change “any term” of the account agreement. The Supreme Court noted the importance of the use of “any term” and held that this alone limited the bank to modifying the terms that existed in the original account agreement.
As the original agreement did not contain a general dispute-resolution provision, a specific arbitration, or a no-class-action provision, the Court held that these provisions were not “any term” that the bank could effectively change through an addendum. As a result, the Indiana Supreme Court ruled that the trial court ultimately erred by relying on the account agreement and compelling arbitration because the addendum was not a valid amendment to the account agreement.
The Indiana Supreme Court further noted that the California Court of Appeals ruled in similar fashion and interpreted the language of an account agreement against the drafter of the agreement, the bank, when ruling the parties did not intend that the change of terms provision should permit the bank to add new contract terms that differ in kind from the terms and conditions included in the original agreement. Badie v. Bank of America, 79 Cal. Rptr. 2d 273, 277, 289 (Ct. App. 1998).
Similar to the ruling in Badie, the Supreme Court of Indiana noted that their opinion hinges on what the parties intended by using the words “any term.” Because the agreement did not define “any,” it was given its ordinary meaning and using “any” means that the agreement did not allow the bank to add new terms that differed in kind from the terms included in the original account agreement. Section 10 as written only allowed the bank to change the terms existing in the original account agreement, not add new ones. Because the original account agreement did not contain any reference to arbitration or class action provisions, the bank could not add these provisions by amendment. Therefore, the addendum was not a valid amendment to the account agreement.
Accordingly, the trial court’s judgment was reversed, and the case remanded.
Notably, a justice separately concurred that the plaintiffs were not bound by the arbitration addendum but for different reasons.
In support of this minority opinion, the concurring justice noted that section 2 of the original account agreement acknowledged that additional terms may form part of the contract and this section combined with section 10’s reference to a customer’s continued usage of the account after the effective date of the change meant the customer assented to the new terms of the addendum.
However, when applying this rationale to the plaintiffs’ particular situation the concurring justice noted that the plaintiffs did not assent to the addendum by failing to close their accounts within 10 days because the plaintiffs’ actions did not constitute definite and substantial reliance on the addendum.
Furthermore, the mere receipt of an unsolicited offer did not impair the plaintiffs’ freedom of action or inaction because the original account agreement required the plaintiffs to review the addendum within 30 days while the arbitration addendum required the plaintiffs to close their checking account within 10 days. Due to this conflict the concurring justice did not believe the plaintiffs had a reasonable opportunity to reject the offer.
In conclusion, the concurring justice agreed with majority of the Indiana Supreme Court that the plaintiffs were not bound by the arbitration addendum but not because the agreement prohibits the bank from adding new terms but, rather, because the plaintiffs’ failure to close the account within 10 days did not constitute assent to the addendum.