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UCL Class Action Defense Cases–Hoffman v. Citibank: Ninth Circuit Reverses District Court Order Dismissing Class Action And Compelling Arbitration And Remands For Reanalysis Of Whether Class Action Waiver In Arbitration Agreement Was Enforceable

District Court Order in Unfair Competition Law (UCL) Class Action Dismissing Class Action Complaint and Compelling Arbitration of Plaintiff’s Individual Claims Reversed and Remanded for Further Consideration because District Court’s Analysis of Whether South Dakota Law or California Law Applied was Flawed Ninth Circuit Holds

Plaintiff filed a class action against Citibank in California state court alleging violations of the state’s Unfair Competition Law (UCL); specifically, the class action “alleged that Citibank increased the class members’ interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed.” Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078 (9th Cir. 2008) [Slip Opn., at 14492]. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint and to compel arbitration of plaintiff’s individual claims. Id., at 14893. The district court concluded that the choice of law provision was enforceable, that South Dakota law governed the agreement, and that under South Dakota law “the class arbitration waiver was not unconscionable and was enforceable.” Id. Accordingly, the district court granted the defense motion, dismissed the class action, and ordered plaintiff to arbitrate her claims “on an individual, non-class basis.” Id. The district court certified its order for immediate appeal, and the Ninth Circuit reversed.

We do not here summarize the history of the plaintiff’s credit card account or the changes to the written credit card agreement, including the addition of a binding arbitration clause. See Hoffman, at 14489-90. We note only that the arbitration agreements including a class-action waiver provision. See id., at 14489-92. In analyzing the district court’s order, the Ninth Circuit noted that it reviews orders compelling arbitration de novo, and that “[a]n arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable.” Id., at 14493 (citation omitted). It noted further the well-settled rule that “applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable.” Id. The Ninth Circuit also noted that it “agree[d] with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law and therefore is enforceable if South Dakota law controls.” Id., at 14495 n.2. However, the Circuit Court held that the trial court erred in determining that South Dakota law applied, because “[f]ederal courts sitting in diversity look to the law of the forum state when making choice of law determinations,” id., at 14494, and the district court failed to examine under California law whether South Dakota or California law applied, id., at 14494-95. Accordingly, it remanded the action to the district court so that it could reexamine the issue. Id., at 14495.

In sum, the Ninth Circuit concluded, “We respectfully conclude that the district court erred because it did not apply California’s choice of law analysis as articulated in [Restatement (Second) of Conflict of Laws] § 187(2) and [Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 (Cal. 1992)], and more specifically because it did not address whether Citibank’s class arbitration waiver, accompanied by a non-acceptance provision, is unconscionable under California law.” Hoffman, at 14499-500.

NOTE: The Ninth Circuit discussed at length the analysis that should be followed by the district court on remand, see Hoffman, at 14495-99.

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