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Amended Complaint
Opposition to Motion to Compel Arbitration

F. Paul Bland, Jr.
Victoria S. Nugent
Trial Lawyers for Public Justice
1717 Massachusetts Avenue, Suite 800
Washington, DC 20036
(202) 797-8600

John T. Ward
Thomas J. Minton
Ward, Kershaw & Minton, P.A.
113 West Monument Street
Baltimore, MD 21201
(410) 685-6700

Michael P. Malakoff
Malakoff, Doyle & Finberg, P.C.
The Frick Building, Suite 203
Pittsburgh, PA 15219
(412) 281-8400

Counsel for Appellants

TABLE OF CONTENTS

Table of Authorities

STATEMENT OF THE CASE

ISSUES PRESENTED

STATEMENT OF FACTS

Plaintiffs' Allegations

Defendants' Arbitration Clause

The Circuit Court's Decision

SUMMARY OF ARGUMENT

Contract Formation

Unconscionability

ARGUMENT

I. THE STANDARD OF REVIEW IS DE NOVO.

II. THE CIRCUIT COURT MUST BE REVERSED BECAUSE
PLAINTIFFS NEVER AGREED TO ARBITRATE THEIR CLAIMS

A. ARBITRATION MAY ONLY BE IMPOSED WHERE BOTH
PARTIES HAVE CONSENTED TO IT

B. THE MARYLAND AGREEMENT ONLY PERMITTED
DEFENDANTS TO "AMEND" EXISTING TERMS, NOT
"ADD" NEW TERMS TO THE CONTRACT, AND THE
INSERTION OF AN ARBITRATION CLAUSE WAS THE
ADDITION OF A NEW TERM

C. PLAINTIFFS DID NOT AGREE TO ARBITRATE THEIR
CLAIMS BECAUSE THEIR CLAIMS DO NOT ARISE
UNDER THE VIRGINIA DOCUMENT

D. DEFENDANTS' ARBITRATION CLAUSE NEVER
BECAME EFFECTIVE BECAUSE DEFENDANTS DID
NOT PROVIDE THE NOTICE REQUIRED BY THE
CHANGE OF TERMS PROVISION OF THE MARYLAND
AGREEMENT

E. DEFENDANTS' ARBITRATION CLAUSE VIOLATES
THE PROVISION OF THE MARYLAND CONTRACT
PROHIBITING CHEVY CHASE FROM SHIFTING
ATTORNEYS' FEES TO PLAINTIFFS, EXCEPT IN
CIRCUMSTANCES NOT PRESENT HERE

F. NO AGREEMENT TO ARBITRATE EXISTS HERE,
BECAUSE PLAINTIFFS DID NOT VOLUNTARILY,
KNOWINGLY AND INTELLIGENTLY AGREE TO WAIVE
THEIR CONSTITUTIONAL RIGHT TO A JURY TRIAL

III. DEFENDANTS' ARBITRATION CLAUSE IS
UNCONSCIONABLE AND CAN NOT BE ENFORCED

A. ARBITRATION AGREEMENTS THAT ARE
UNCONSCIONABLE UNDER STATE LAW MAY
NOT BE ENFORCED

B. ARBITRATION CAN NOT BE REQUIRED WHERE IT
DOES NOT PROVIDE A REALISTIC OPPORTUNITY
FOR CLAIMANTS TO RECEIVE THE REMEDIES TO
WHICH THEY ARE ENTITLED

1. The "Loser Pays Rule" Contained in Defendants'
Arbitration Clause Undermines the Remedies and
Mechanisms of the Maryland Consumer Protection Act,
And Deters Plaintiffs from Pursuing their Claims Through
Arbitration, and thus is Unconscionable.

2. By Requiring Plaintiffs to Pay Excessive Fees, Defendants'
Arbitration Clause is Unconscionable.

3. The Arbitration Clause Here is Unconscionable and Thus
Unenforceable Because, By Preventing Plaintiffs from
Proceeding on a Class Action Basis, It Denies An Effective
Remedy to Nearly All The Class Members

CONCLUSION

STATEMENT OF THE CASE

On January 13, 1999, Dale Wells, Sharon Goldenberg and John Dovel filed this putative class action against defendants Chevy Chase Bank, F.S.B. ("Chevy Chase") and First USA Bank (collectively "defendants") in the Circuit Court for Baltimore City. Plaintiffs alleged that defendants breached their contract with plaintiffs and violated the Maryland Consumer Protection Act by, among other things, raising plaintiffs' interest rates over 24%, despite a promise "never" to do so. Record Extract ("E.") 24-25.

Defendants moved to compel arbitration. E. 26. Plaintiffs opposed this motion, arguing that (a) they had never agreed to arbitrate their claims, and (b) defendants' arbitration clause was unconscionable and unenforceable. After briefing and a hearing on August 16, 1999, the Circuit Court granted defendants' motion, compelling arbitration and staying the court proceedings. E.253.
Believing the Circuit Court's decision to be in error, plaintiffs filed this appeal. E.262.

ISSUES PRESENTED

I. WHEN THE LANGUAGE OF THE GOVERNING CONTRACT DEMONSTRATES THAT PLAINTIFFS DID NOT AGREE TO SUBMIT THEIR CLAIMS TO MANDATORY ARBITRATION, DID THE CIRCUIT COURT ERR IN GRANTING THE DEFENDANTS' MOTION TO COMPEL ARBITRATION? (Yes)

II. WHERE ALL OF THE UNDISPUTED SWORN TESTIMONY SHOWS THAT THE PLAINTIFFS COULD NOT AND DID NOT KNOWINGLY AGREE TO BE BOUND BY THE MANDATORY ARBITRATION CLAUSE, DID THE TRIAL COURT ERR IN FINDING THAT PLAINTIFFS HAD WAIVED THEIR CONSTITUTIONAL RIGHTS TO TRIAL BY JURY AND A DAY IN COURT? (Yes)

III. WHERE A MANDATORY ARBITRATION CLAUSE IMPOSES A "LOSER PAYS RULE" ON CONSUMERS IN CONTRAVENTION OF THE MARYLAND CONSUMER PROTECTION ACT AND THE COMMON LAW OF MARYLAND WITH ONEROUS TERMS FOR THE CONSUMER AND DISPROPORTIONATE BENEFITS FOR THE CREDIT CARD COMPANY, IS THAT CLAUSE UNCONSCIONABLE? (Yes)

IV. WHERE A MANDATORY ARBITRATION CLAUSE REQUIRES A CONSUMER TO PAY EXCESSIVE FEES THAT WILL DETER CONSUMERS FROM PURSUING VALID CLAIMS UNDER THE MARYLAND CONSUMER PROTECTION ACT AND THE COMMON LAW, IS THAT CLAUSE UNCONSCIONABLE? (Yes)

V. WHERE A MANDATORY ARBITRATION CLAUSE EFFECTIVELY BARS PLAINTIFFS FROM INITIATING A CLASS ACTION, AND THE UNDISPUTED EXPERT TESTIMONY IN THE CASE ESTABLISHES THAT FEW IF ANY CONSUMERS WILL HAVE ANY REALISTIC REMEDY IN INDIVIDUAL ARBITRATIONS, IS THAT CLAUSE UNCONSCIONABLE? (Yes)

STATEMENT OF FACTS

Plaintiffs' Allegations

Chevy Chase has issued credit cards to hundreds of thousands of customers nationwide. Prior to 1996, Chevy Chase had its headquarters in Maryland, E. 5, where a state usury statute caps credit card and other interest rates at 24%. In its agreements with all of its cardholders ("the Maryland Agreement"), Chevy Chase acknowledged this cap and specifically promised that it would "never" raise their interest rates over 24%. E. 6, 34.

In the Maryland Agreement, Chevy Chase also contracted to amend the Maryland Agreement only "in accordance with applicable law," which Chevy chase itself defined as Subtitle 9 of Title 12 of the Maryland Commercial Code ("Subtitle 9") and applicable federal law. E. 6, 35. Subtitle 9 requires, inter alia, notice of amendments to the cardholder with the opportunity to refuse the amendments and terminate the cardholder agreement. The Maryland Agreement, which is plaintiffs' only contract with defendants, contained no arbitration clause. E. 34-35.

In January 1996, Chevy Chase announced in its billing statements that it was officially changing its headquarters to Virginia. It then attempted to replace the Maryland Agreement with a new and different one ("the Virginia Document"). E. 9, 37-38. Under the terms of the new Virginia Document, interest rates were "not subject to a maximum limit." Not surprisingly, Chevy Chase did raise interest rates well over 24%, breaking its earlier promise "never" to do so. E. 10, 37. Chevy Chase also introduced a new mandatory arbitration clause into the Virginia Document. E. 38. The gravamen of the complaint is that Chevy Chase breached the Maryland Agreement because, when it sent plaintiffs the Virginia Document, it did not provide the notice it had contractually promised in the Maryland Agreement that it would provide, in the form in which the notice was promised. Instead, Chevy Chase designed its notice to minimize the likelihood that cardholders would notice it or object before Chevy Chase could unilaterally impose its terms.

Under Subtitle 9, which Chevy Chase contractually promised to follow, Chevy Chase had to provide certain specified notice if it sought to amend the contract in a manner that increased the interest, finance charges or any other fees charged to its customers. Md. Code Ann., Comm. Law I, § 12-912(b)(1). In fact, Chevy Chase did seek to amend the contract in such a manner:

(1) the Maryland Agreement stated that "your annual percentage rate will never exceed 24%" and the new Virginia Document stated that "your annual percentage rate is not subject to a maximum limit" E.15;

(2) the Maryland Agreement provided for calculation of the finance charge using a "monthly periodic rate" and the new Virginia Document provided for calculation of the finance charge using a more costly "daily periodic rate" E. 17-18;

(3) the Maryland Agreement required payment of a $15 fee for late payments and the new Virginia Document raised this fee to $20, E. 18-19;

(4) the Maryland Agreement did not contain a provision for an "overlimit" fee and the new Virginia Document imposed a monthly $20 penalty if a cardholder exceeded his or her credit limit. E. 18-19.

Chevy Chase was obligated under the Maryland Agreement to provide a formal notice of these significant and burdensome amendments, along with a statement that a second notice would be sent in the cardholder's next billing statement. Md. Code Ann., Comm. Law I, §12-912(b)(7). The first notice was required to be sent in an envelope bearing on its face, in 10 point type, a statement "that an important notice of an increase in rates or fees" was enclosed. Id., §12-912(b)(8). The second notice was required to contain the same substantive information as the first notice and to be presented in the same format. Id., §12-912(c)(2). Chevy Chase breached the Maryland Agreement and failed to comply with these contractual notice requirements.

Chevy Chase also breached its contractual obligation to comply with the requirements of Subtitle 9 by failing to provide cardholders notice of their absolute contractual right to refuse to accept these costly new contract terms. E. 17. Subtitle 9 requires that both the first and second notice must contain a statement in 10 point type that:

(i) States that if a written notice of refusal from the borrower in which the borrower refuses to accept the amendment is not received by the credit grantor within 25 days of the mailing of the second notice of amendment, the amendment will become effective on the first day of the billing cycle during which the effective date of the amendment occurs or at any later date specified in the notice of amendment;

(ii) Enumerates the borrower's rights under . . . this subsection upon timely notice of refusal by the borrower; and

(iii) Includes the address to which the borrower may send a notice of refusal.

Md. Code Ann., Comm. Law I, §12-912(b)(7). Neither the new Virginia Document nor the billing statement in which it was allegedly enclosed contained any of these required statements.

If Chevy Chase had complied with its contractual obligation to follow the notice requirements of Subtitle 9 and plaintiffs had submitted written refusal of the amendments, plaintiffs could have continued to use their cards "pursuant to [the Maryland Agreement's] original, unamended terms" for the duration of the period for which they had paid an annual fee. Md. Code Ann., Comm. Law I ., §12-912(b)(5). At the expiration of this period, plaintiffs could have then paid "any outstanding unpaid indebtedness in the account under the terms of the unamended agreement governing the plan." Id., §12-912(b)(6). Instead, Chevy Chase unilaterally assessed additional finance charges and fees in excess of what it legally could have charged pursuant to the Maryland Agreement. E. 9-10.

Defendants' Arbitration Clause

The Virginia Document also included a new Arbitration Clause. It is this clause which the Circuit Court has deemed applicable herein. The record establishes, however, that Chevy Chase sent this Arbitration Clause to plaintiffs in a manner that predictably resulted in very few (if any) of the hundreds of plaintiffs actually knowing about it. The record contains extensive and unrefuted testimony from Todd Hilsee, an expert in designing communications and marketing campaigns for consumer financial services companies. Hilsee concludes:

[T]he method that Chevy Chase used to inform its cardholders that it was attempting to amend its cardholder agreement to require them to submit to mandatory arbitration was ineffective from a communications standpoint. In other words, the vast majority of Chevy Chase's cardholders were unlikely to notice or become aware of this change to their cardholder agreement.

E. 145. (1)

Hilsee's conclusion is based on the following undisputed facts. First, Hilsee examined a notice in a billing statement that mentioned that the Virginia Document would be enclosed (but did not mention the arbitration clause), and found that it was "poorly designed from a communications standpoint," and "highly unlikely to result in widespread consumer awareness of the adoption of a mandatory arbitration clause." E. 145. Next, Hilsee examined the Virginia Document itself, and found it similarly deficient. E. 146. Hilsee contrasts a number of well-established methods by which Chevy Chase could have given its cardholders a real opportunity to make an informed decision about the new arbitration clause. E. 150, 152-54.

Instead, Chevy Chase chose merely to include its new arbitration clause in the fine print of an enclosure to a bill. Hilsee testifies that this method is known to be "entirely ineffective"in the industry, and that the response rate to such enclosures "is extremely low. Sophisticated communications professionals should expect that the overwhelming majority of consumers receiving such enclosures will simply discard these inserts." E. 248. One significant reason for this is that "materials inserted in bills are generally regarded as solicitations, advertisements, or promotions." E. 150. Hilsee cites to a body of empirical data that supports his conclusions that bill stuffers are likely to be disregarded.

The undisputed testimony of the named plaintiffs in this case is consistent with the expert's conclusions. None of the named plaintiffs ever saw a Virginia Document in any of their bills. E. 161, 164, 167. They did not realize that defendants were taking the position that the plaintiffs would lose their constitutional right to a trial by jury by simply using or retaining their Chevy Chase credit card. One of the named plaintiffs has testified as follows:

5. If I had been aware that Chevy Chase Bank or First USA Bank was attempting to get me to agree to give away my right to go to court and sue them if we had a dispute I would have refused.

6. I do not do business with any company which asks me to give up my constitutional rights in order to do business with them. In fact, I have canceled accounts with Montgomery Wards, AT&T, First Card and Norwest Financial because those entities attempted to get me to agree to forced arbitration in the event of disputes with them.

E. 162.

In addition, 136 other class members have contacted plaintiffs' counsel. All have been asked to provide whatever contract documents they had retained in their files. E. 111. Only two of these 136 persons provided a copy of the Virginia Document. E. 112. One of the two persons reported receiving the Virginia Document from Chevy Chase only after he had complained to Chevy Chase about his interest rates having been raised. E. 113. The other person does not recall when or how she received the Virginia Document. E. 114.

The Arbitration Clause itself is a disaster for credit card holders. First of all, it is prohibitively expensive. Under the clause, a plaintiff wishing to bring any claim against defendants must first mediate claims through the AAA, E. 38, requiring a filing fee of $150, which will be applied to the cost of subsequent arbitration in the event that mediation fails. E. 121-22. The parties generally split the cost of the arbitrator's hourly fee and any incidental expenses. E. 121-22. The hourly fee for an arbitrator's services in the D.C. metropolitan area ranges between $100 and $350. E. 116. Assuming that a claim could be resolved (or would reach an impasse) within one hour, a cardholder would be required to pay a bare minimum of $200 just to mediate the claim before the least expensive mediator in the shortest possible mediation, before proceeding to arbitration.

Under the Consumer Rules (2), a claimant must then pay $125 to arbitrate a claim. This payment entitles the claimant to a paper hearing. Upon request and payment of an additional $100, a claimant is entitled to a telephone hearing. This total consumer cost, however, will be reduced by the $150 mediation filing fee, bringing the consumer's payment to $275 for the cheapest mediation and telephone arbitration under the Consumer Rules.

If a consumer wishes to have an in-person hearing - the minimum due process he or she would expect with any court - the matter will be governed by the Commercial Rules with one significant amendment: while the parties generally split the administrative and service costs associated with the arbitration and while responsibility for the arbitrator's compensation is apportioned in the award under the Commercial Rules, a consumer electing to bring a claim valued at less than $10,000 under the Commercial Rules will be responsible for all the administrative fees, expenses and compensation costs. A claimant is required to pay a $500 filing fee, which should be reduced by the $150 mediation filing fee. E. 138-39. Further, the claimant must pay a daily hearing fee of $300 (the combined daily fees of $150 required of claimant and respondent) as well as the arbitrator's compensation and any miscellaneous expenses (e.g., arbitrator's travel and costs, room rental, costs of proof produced at the request of the arbitrator, stenographer's fee) incidental to the proceeding. E. 132-33, 138-39. Assuming that arbitration could be completed in one hour at the office of a down-scale arbitrator and that no incidental costs were incurred, a claimant would pay at least $750 to arbitrate this claim. Thus the bare minimum cost of mediation and arbitration under the Commercial Rules is $950.

Defendants' Arbitration Clause made no mention of the fact that cardholders would be responsible, in the arbitral forum, for substantial fees that are significantly larger than the filing fees required to initiate an action in court. E. 38. The sworn testimony of the plaintiffs establishes that they never even contemplated the imposition of such fees. E. 162, 165, 168. The size of the fee effectively precludes anyone with a claim of $1,000 or less from pursuing that claim.

Defendants' Arbitration Clause also contains a "Loser Pays" clause, which provides that: "The prevailing party in an arbitration shall be entitled to reasonable attorneys' fees (including allocated costs for in-house legal services), costs and necessary disbursements incurred in connection with such action or proceeding, as determined by the arbitrator." E. 38.

Defendants' Arbitration Clause also provides that "IF, FOR ANY REASON, THE CLAIM OR THIS AGREEMENT BECOMES THE SUBJECT OF A JUDICIAL ACTION, EACH PARTY HEREBY WAIVES ITS RESPECTIVE RIGHT TO A TRIAL BY JURY." (Capitals in original.) E. 138.
It further provides that "[e]ach party agrees to keep all claims and arbitration proceedings strictly confidential except for disclosures of information required in the ordinary course of business of the parties or by applicable law or regulation." E. 38.

In short, the arbitration clause provides no benefit to consumers while it provides a great benefit to Chevy Chase. Its onerous and costly provisions, including the claimed waiver of the consumer's constitutional right to seek recourse in court, virtually immunize Chevy Chase from consumer claims so long as it does not take enough money from an individual consumer to make it economically feasible for that consumer to seek recourse through expensive arbitration.
The Circuit Court's Decision

The Circuit Court held that the Virginia Document required plaintiffs to arbitrate their claims. First, it erroneously concluded that the creation of the arbitration clause complied with the change of terms provision of the Maryland Agreement, including the notice provisions of Md. Code Ann. Comm. Law I, § 12-912(b)(2):

The second sentence of § 12-912(b)(2) only applies when the amendment "has the effect of increasing the interest, finance charges, or other fees and charges to be paid by the borrower." Because the arbitration clause does not affect the intended fees, this portion of the law is not applicable.

E.257.

The Circuit Court further held that "Plaintiffs' argument that the arbitration clause is unenforceable because the Plaintiffs did not knowingly and voluntarily agree to waive their constitutional right to a jury trial was without merit." E. 258. The Circuit Court held that plaintiffs should be bound by the arbitration clause whether they had read it or not and found it to be irrelevant as a matter of law whether "the Defendants knew that it would not be read." E. 257.
The Circuit Court also held that Defendant's Arbitration Clause was not unconscionable, but instead "provides a fair and cost-efficient arena to solve problems between the parties." E. 259.

The Circuit Court found that the Loser Pays provision "is fair to both the parties. It rewards the Plaintiffs in victory, while decreasing the number of frivolous claims." E. 260.

Finally, the Circuit Court held that "[n]o remedy will be denied because the arbitration clause is valid." E. 260. The court also rejected plaintiffs' argument relating to Defendant's Arbitration Clause's effective bar against class actions, citing Gilman v. Wheat, First Securities, 345 Md. 361, 382 (1997), a case which is readily distinguishable.

SUMMARY OF ARGUMENT

This case is not about arbitration clauses in general. In general, there is no dispute that written agreements to arbitrate are enforceable. This case is about Chevy Chase's specific arbitration clause - the language of the Maryland Agreement, the language of Defendants' Arbitration Clause, the system of fees to be imposed upon these plaintiffs by this clause, etc. After the parties were in an established contractual relationship, Chevy Chase unilaterally concocted a new and significant contract term regarding arbitration.

Plaintiffs make two broad categories of argument about this ploy. First, we argue that no valid written agreement to arbitrate exists because no contract was formed under the Virginia Document. Second, we argue that, notwithstanding any agreement set forth in the Virginia Document, Defendants' Arbitration Clause is blatantly unconscionable and thus unenforceable under well-established law.

Contract Formation

Mandatory, binding, pre-dispute arbitration may only be imposed where all parties have knowingly consented to it. The undisputed evidence establishes that such is not the case here. The plain language of the applicable contract documents establishes that plaintiffs never agreed to arbitrate any claims with defendants. The Maryland Agreement is clear and unambiguous on this point.

While the Maryland Agreement did permit Chevy Chase to "amend" the existing terms of the contract, it did not provide that Chevy Chase could effectively disavow the contract and create a new one. Chevy Chase was not permitted to "add" entirely new terms to the contract. When Chevy Chase attempted to insert the arbitration clause in the Virginia Document, that was the addition of a new term and not the amendment of an old one.

Second, the plaintiffs did not agree to arbitrate their claims because their claims arose under the Maryland Agreement. The arbitration clause only applies to claims arising out of the Virginia Document. This argument flows directly from the language of the documents, and is fully supported by the recent ruling in Security Watch, Inc. v. Sentinel Systems, Inc., 176 F.3d 369 (6th Cir. 1999), cert denied., 120 S. Ct. 1220 (2000).

Third, the plaintiffs did not agree to defendants' arbitration clause because defendants promised in the Maryland Agreement not to amend that agreement without complying with Subtitle 9, which prohibits Chevy Chase from imposing attorneys' fees upon plaintiffs such as those imposed in the "loser pays" provision of Defendants' Arbitration Clause.

Finally, no arbitration agreement was formed because plaintiffs did not knowingly, voluntarily and intelligently agree to defendants' arbitration clause. The undisputed testimony is that none of the named plaintiffs knew that the arbitration clause had even been sent to them, and that not one of 136 class members who contacted plaintiffs' counsel reported having received the arbitration clause as an enclosure to a billing statement. A marketing expert testified that while banks are highly sophisticated in the means of effective communication, this arbitration clause was sent to plaintiffs in a manner that ensured that it was highly unlikely to be read. The well-established law in Maryland, as in the rest of the country, is that one cannot be found to have waived a constitutional right unless that waiver is knowing, voluntary and intelligent.

Unconscionability

The U.S. Supreme Court has said that arbitration is to be favored when it offers the same remedies that would be available in court and is just another forum for resolving disputes. Defendants' Arbitration Clause does not even approach this standard. It sets up a playing field so tilted that few if any consumers could ever win on it no matter how strong their claims were. The undisputed evidence in this case establishes that none of the named plaintiffs would pursue their claims in arbitration under this clause, that few if any other members of the putative class would do so and that it would be irrational for plaintiffs to do so given the extraordinary costs as well as the risks of fee shifting.

Defendants' Arbitration Clause re-writes the Maryland Consumer Protection Act, imposing a "Loser Pays" attorneys' fee provision that would bar any rational plaintiffs who might conceivably lose their case (which, of course, means every plaintiff in every case) from proceeding with their claims. Defendants' Arbitration Clause requires any consumer who wishes to actually appear in front of an arbitrator (as opposed to merely writing a letter) to pay ruinous fees that are likely to greatly exceed the average class members' claims. Defendants' Arbitration Clause is also set up in such a way as to bar plaintiffs from proceeding on a class action basis, despite (or perhaps because of) the unquestioned reality that in the context of this case, such a restriction guarantees that few if any consumers will have any meaningful avenue of relief available to them.

ARGUMENT
I. THE STANDARD OF REVIEW IS DE NOVO.

As set forth above, there are no factual disputes in this case. Plaintiffs and defendants each placed affidavits and documents before the Circuit Court, and neither party challenged the veracity of any of this evidence. Defendants took no discovery of any of plaintiffs' witnesses, and did not controvert any of the facts set forth in the affidavits of the witnesses in briefing or at the hearing. Accordingly, this appeal raises a pure issue of law, and thus the appropriate standard of review is de novo. See Comptroller of the Treasury v. Gannett Co., 356 Md. 699, 707 (1999) ("The facts of this case are not in dispute; the issue before us is strictly a question of law. 'The lower court's interpretations of law enjoy no presumption of correctness on review: the appellate court must apply the law as it understands it to be.'") (citations omitted). See also Smith Barney, Inc. v. Critical Health Sys. of N. Carolina, Inc., __ F.3d __, 2000 U.S. App. LEXIS 9635 at *4 (4th Cir. May 11, 2000) ("We review de novo the district court's conclusions regarding the arbitrability of the dispute."); Bailey v. Federal Nat'l Mort. Ass'n, 209 F.3d 740, 743-744 (D.C. Cir. 2000) (employing de novo standard of review to question of whether parties had entered a valid agreement to arbitrate dispute).

II. THE CIRCUIT COURT MUST BE REVERSED BECAUSE PLAINTIFFS NEVER AGREED TO ARBITRATE THEIR CLAIMS.

A. ARBITRATION MAY ONLY BE IMPOSED WHERE BOTH PARTIES HAVE CONSENTED TO IT.

"A party cannot be required to submit any dispute to arbitration that it has not agreed to submit." Hartford Accident & Indemnity Co. v. Scarlett Harbor Associates, 346 Md. 122, 127 (citation omitted). (3) In First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995), the Supreme Court emphasized that "arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes - but only those disputes - that the parties have agreed to submit to arbitration." See also AT&T Tech., Inc. v. Communications Workers, 475 U.S. 643, 648-49 (1986) ("[a]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit . . . .[A]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration.") (citations omitted). State law governing the formation of contracts, not the F.A.A., determines whether a valid arbitration agreement exists between parties. First Options of Chicago, 514 U.S. at 943.

Because the policy favoring arbitration only operates where parties have entered a valid contract for such arbitration, the argument here that there is a strong policy favoring arbitration puts the cart before the horse. Curtis G. Testerman Co., 340 Md. at 580 ("[A]n arbitration clause is only 'liberally read' when an arbitration agreement in fact exists"). In Badie v. Bank of America, 79 Cal. Rptr. 2d 273, 280 (Cal. App. 1998), rev. denied, 1999 Cal. LEXIS 1198 (Feb. 24, 1999), the Court explained:

Whether there is an agreement to submit disputes to arbitration . . . does not turn on the existence of a public policy favoring ADR. . . . That policy, whose existence we readily acknowledge, does not even come into play until it is first determined that the Bank's customers agreed to use some form of ADR to resolve disputes . . . and that determination, in turn, requires analysis of the account agreements in light of ordinary state law principles that govern the formation and interpretation of contracts.

To apply the presumption to the formation of an agreement to arbitrate "would permit the presumption to displace the fundamental rule that parties can be required to arbitrate only that which they have agreed to arbitrate." Hendrick v. Brown & Root, Inc., 50 F. Supp.2d 527, 538 (E.D. Va. 1999). (4)

Maryland law is clear that only courts may decide whether an arbitration agreement exists. See Stephen L. Messersmith, Inc., 313 Md. at 660 ("The final determination of whether a valid contract to arbitrate existed between the parties must be made by a court, not an arbitrator."); Petals Factory Outlet of Delaware, Inc. v. EWH & Associates, 90 Md. App. 312, 317 (1992) (holding that "where the parties are...in disagreement on the very question whether there exists an agreement to arbitrate the subject matter of the dispute, the resolution of that question is for the court") (citation omitted).

B. THE MARYLAND AGREEMENT ONLY PERMITTED DEFENDANTS TO "AMEND" EXISTING TERMS, NOT "ADD" NEW TERMS TO THE CONTRACT, AND THE INSERTION OF AN ARBITRATION CLAUSE WAS THE ADDITION OF A NEW TERM.

The Maryland Agreement, the original and only valid contract between Chevy Chase and the cardholders, contained no term dealing with the manner in which disputes between the parties would be resolved. E. 34-36. That contract did, however, provide that Chevy Chase could "amend the terms of this agreement. Also [Chevy Chase] may . . . add new credit services, discontinue any credit services or replace [the] card with another card." E. 35 (emphasis added).
This amendment clause, drafted by defendants, made a clear distinction between amending "the terms of this agreement" and adding or creating new terms. It clearly did not say that defendants had carte blanche to create a myriad of new terms not within the scope of the original agreement. The unforeseeable addition of a new term to the contract was not within the agreement of the parties, who never evinced any agreement as to the method of dispute resolution. Since there was no term in the original contract between cardholders and the banks that dealt with dispute resolution, there was no term that could be amended. That which does not exist cannot be "amended." (5)

Chevy Chase drafted the contract with the cardholders and, by its own drafting, contractually restricted itself and its successors to "amend[ing] the terms of this agreement," E. 35, or adding new credit services. The imposition of mandatory arbitration cannot be deemed a new credit service. Even if the wording of the change of terms provision could be deemed ambiguous as to whether it permitted the bank to add new terms to the contract, the ambiguity must be construed against the drafter. King v. Bankerd, 303 Md. 98, 106 (1985).

In Badie v. Bank of America, the defendant bank attempted to rely on a change-of-terms provision in its credit card contracts which was broader than the one found in Chevy Chase's contracts. The change-of-terms provision in the Badie case provided that the bank could change any "term, condition, service or feature" of the account. In reliance on that clause, the bank attempted to add a new term to its contracts which, like Chevy Chase's effort, would have resulted in mandatory arbitration of disputes between cardholders and the bank. The California Court of Appeals refused to enforce the arbitration clause. It found that the original contract, while broadly worded, pertained to matters integral to the bank/customer relationship and did not address collateral issues such as the method and forum for dispute resolution.

Our focus is on whether the words of the original account agreements mean that the Bank's customers, by agreeing to a unilateral change of terms provision, intended to give the Bank the power in the future to terminate its customers' existing right to have disputes resolved in the civil justice system, including their constitutionally based right to a jury trial. In our view, the object, nature and subject matter of these agreements strongly support the conclusion that they, as promissors with respect to the change of terms provision, had no inkling that the Bank understood the provision differently. In short, the original agreements do not suggest that ADR was one of those things concerning which . . . the parties intended to contract.

Badie, 79 Cal. Rptr. 2d at 287-88 (citations omitted).

The same conclusion was reached just six weeks ago by a federal district court examining a similar situation:
Defendants argue that the insertion of the arbitration clause and subsequent modification of it was authorized by the "Change of Terms" provision in Mr. Continolo's original credit card application. However, the provision is reasonably construed as allowing Household to terminate its agreement, change the credit limit or change financial terms of the account. It cannot be reasonably construed as explicitly allowing the insertion of an arbitration clause.

Long v. Fidelity Water Systems, Inc., 2000 U.S. Dist. LEXIS 7827 at *9 (N.D. Cal. May 26, 2000).

C. PLAINTIFFS DID NOT AGREE TO ARBITRATE THEIR CLAIMS BECAUSE THEIR CLAIMS DO NOT ARISE UNDER THE VIRGINIA DOCUMENT.

Defendants' Arbitration Clause only applies to claims "arising out of or relating to this Agreement or any related agreements. . . ." E. 38. Plaintiffs' claims are for breach of the Maryland Agreement, however, and not for breach of the Virginia Document. E. 15-19.

In Security Watch, Inc. v. Sentinel Systems, Inc., 176 F.3d 369, 372-74 (6th Cir. 1999), the court held that an arbitration clause contained in a 1994 agreement could not be applied retroactively to claims arising under the parties' pre-1994 agreements, because the arbitration clause was "essentially forward-looking." As in this case, the Security Watch court was faced with two consecutive agreements, only the second of which contained an arbitration clause. Even though the Sixth Circuit noted that the arbitration clause was "very broad in scope," it held that "this breadth of scope does not extend over time" to encompass debt accrued under the first agreement. 176 F.3d at 373. The Security Watch court held that to apply a new agreement's arbitration clause to claims arising under an earlier agreement would represent a "radical renegotiation of [the] earlier agreement []." 176 F.3d at 373 (citation omitted).

The same is true here. The Maryland Agreement is not a "related agreement," it is a prior agreement. Defendants' Arbitration Clause provides that it supersedes "prior discussions, arrangements, negotiations and other communications concerning dispute resolution." E. 38. The Virginia Document also defines the term "agreement" in such a way as to exclude "prior discussions, arrangements, negotiations and other communications." By its own terms, therefore, the Virginia Document does not "supersede" the Maryland Document.

A party seeking to apply an arbitration agreement retroactively bears a heavy burden of proof, because it is "nonsensical to suggest that [plaintiffs] simply would abandon [their] established rights to litigate disputes arising under the [earlier agreement]." 176 F.3d at 373. As the Sixth Circuit concluded, if defendants wanted their arbitration clause to apply to claims under the Maryland Agreement, they should "have [stated] so explicitly." Id. The same reasoning was followed in Long v. Fidelity Water Systems, Inc., 2000 U.S. Dist. LEXIS at *9-10: "Even assuming Mr. Continolo is deemed to have agreed to the arbitration provision, defendants offer no justification for holding that he agreed to arbitrate acts that occurred before the effective date of that agreement." The Long court noted "the complete absence of any language in the arbitration provisions suggesting retroactive application," an observation that could equally well be made here. Id. at *10. (6)

These same principles apply in Virginia, where there is also a presumption that the terms of new contracts have only prospective application. See Hendrick v. Brown & Root, 50 F. Supp. 2d 527, 533-37 (E.D. Va. 1999). Therefore, an arbitration agreement "may not be used to reach back to cover disputes arising before the agreement was executed, unless such pre-existing disputes are brought within the scope of the clause." Id. at 537, citing and quoting Pierless Importers, Inc. v. Wine, Liquor & Distribution Workers Union Local One, 903 F.2d 924, 928 (2d Cir. 1990) (emphasis in original). Contracting parties must clearly express their intent that their agreement apply retroactively. See, e.g., Nolan v. Control Data Corp., 579 A.2d 1252, 1254 (N.J. 1990) (the defendant explicitly stated that contractual amendments would apply "both retroactively and/or prospectively.") In Nolan, the court quoted then-Judge Scalia's opinion in Tymshare, Inc. v. Covell, 727 F.2d 1145 (D.C. Cir. 1984), based on Virginia law, which recognized that one contracting party was unlikely to agree to allow another party to retroactively divest it of rights under a pre-existing contract. Id. at 1153-54. Here, where the arbitration clause contains no express retroactivity language, the cardholders did not agree to divest their litigation rights under the Maryland Agreement.

D. DEFENDANTS' ARBITRATION CLAUSE NEVER BECAME EFFECTIVE BECAUSE DEFENDANTS DID NOT PROVIDE THE NOTICE REQUIRED BY THE CHANGE OF TERMS PROVISION OF THE MARYLAND AGREEMENT.

As set forth above, the Maryland Agreement provides that it may only be amended in accordance with Subtitle 9.(7) For any amendment that "has the effect of increasing the interest, finance charges, or other fees and charges to be paid by the borrower," Subtitle 9 set forth detailed requirements for notice, including a requirement that consumers be given the right to reject the proposed amendments. It is undisputed that defendants did not give plaintiffs the required notice.
The Circuit Court excused defendants' failure in this regard, stating that "[b]ecause the arbitration clause does not affect the intended fees, this portion of the law is not applicable." E. 257.

The Circuit Court is mistaken. First, by imposing mandatory filing and other mediation and arbitration fees that greatly exceed the filing fees required by courts, the arbitration clause did increase the "fees and charges to be paid by [any] borrower" who had a dispute with defendants. As set forth above, any borrower bringing a claim would be required to pay fees of at least $275 to go through defendants' two-step process of mediation and arbitration. If the borrower wished to have a telephone hearing, those fees would jump by $100, and if the borrower wished to have an in-person hearing (the minimum level of due process available in any court), the fees would exceed $900. These fees fit directly into the language of § 12-912 (b)(2), which refers to "other fees and charges to be paid by the borrower."

Second, the "Loser Pays" provision of the arbitration clause would enormously increase the "fees and charges to be paid by [any] borrower" who might not prevail. (8) The Maryland Agreement contained no such provision. Accordingly, under the change of terms provision drafted by defendants, Defendants' Arbitration Clause could not become effective unless the required notices were provided. (9)

E. DEFENDANTS' ARBITRATION CLAUSE VIOLATES THE PROVISION OF THE MARYLAND CONTRACT PROHIBITING CHEVY CHASE FROM SHIFTING ATTORNEYS' FEES TO PLAINTIFFS, EXCEPT IN CIRCUMSTANCES NOT PRESENT HERE.

As noted above, the Maryland Agreement provides that it may only be amended in accordance with Subtitle 9. That section prohibited defendants from seeking attorneys' fees from plaintiffs, unless each of the following conditions were met: (1) the cardholder defaulted; (2) the cardholder contracted to pay defendants' attorneys' fees; (3) defendants retained outside counsel to proceed in collection activities against the cardholder; and (4) defendants only charged the cardholder for the outside counsel's fees from those collection activities. Md. Code Ann., Comm. Law I, § 12-911.

Subtitle 9 also provides that plaintiffs could not waive their rights under § 12-911. See § 12-923(3):

Except as expressly allowed by law, an agreement governing a revolving credit plan or any instrument which evidences or secures an extension of credit under the plan may not contain a provision by which the borrower waives any right accruing to the borrower under this subtitle.

Despite promising in the Maryland Agreement to comply with Subtitle 9 in any amendment of that agreement, Defendants' Arbitration Clause violates §§ 12-911 and 12-923(3). As noted above, Defendants' Arbitration Clause contains a "Loser Pays" provision requiring plaintiffs to pay defendants' attorneys' fees if defendants prevail in an arbitration. E. 38. Since the present action is not a collection action by defendants against plaintiffs, the Loser Pays provision is barred by § 12-911 and thus by the amendment provision of the Maryland Agreement. Arbitration clauses that run afoul of the statutory anti-waiver provisions (such as § 12-923(3), incorporated into the Maryland Agreement) are to be treated differently from other arbitration clauses. See Lambdin v. District Court, 903 P.2d 1126, 1130-31 (Col. 1995). Where an arbitration clause seeks to circumvent a statutory limit in a way that any other contractual provision could not, the clause will be struck down without running afoul of the F.A.A.

F. NO AGREEMENT TO ARBITRATE EXISTS HERE, BECAUSE PLAINTIFFS DID NOT VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY AGREE TO WAIVE THEIR CONSTITUTIONAL RIGHT TO A JURY TRIAL.

As the Statement of Facts makes clear, the undisputed evidence shows that Defendants' Arbitration Clause was sent out in a manner that predictably and effectively ensured that plaintiffs would not notice it. Chevy Chase (like other large banks) is highly sophisticated in marketing and knows how to send information to persons in a format that they will read and understand. Instead, the record clearly reflects that Chevy Chase chose to use its expertise to avoid revealing important new information - the Defendants' Arbitration Clause was sent out in a manner at odds with principles of effective communications. In addition, as set forth above, the undisputed testimony of each plaintiff is that they did not knowingly receive any arbitration clause, and the evidence of a sample of 136 other putative class plaintiffs indicates that none of them knowingly received the clause either.

In light of these undisputed facts, plaintiffs did not agree to Defendants' Arbitration Clause. Why is this so? It might help to begin with a simple but indistinguishable hypothetical. Suppose the fine print of an amendment to a credit card agreement sent to card holders as an insert to their monthly bill included a provision limiting a cardholder's constitutional right of free speech by prohibiting the cardholder from ever speaking negatively about any proposed legislation that was supported by the credit card company.

Would such a term be enforceable? No. No court in the United States would enforce such a term. Why not? The answer derives from a long-standing doctrine of contract law and constitutional law that applies to all contracts: the well-established law of contract is that a party has not agreed to waive a constitutional right unless that party has voluntarily, knowingly and intelligently agreed to an unambiguous contractual provision waiving that right. For contracts not involving a fundamental right, by contrast, a much milder, less restrictive standard is employed - consent may be formal and constructive, and need not be truly voluntary, knowing and intelligent. (10)

In this case, the Virginia Document explicitly purports to take away the constitutional right "to trial by jury" from plaintiffs. E. 38. Article 23 of the Maryland Declaration of Rights provides that "[t]he right of trial by Jury of all issues of fact in civil proceedings . . . shall be inviolably preserved." This Court has explained that this right "requires that 'enjoyment of the right...be not obstructed, and that the ultimate determination of issues of fact by the jury be not interfered with.'" Attorney General v. Johnson, 282 Md. 274, 291(1978), overruled on other grounds, Newell v. Richards, 323 Md. 717 (1991).

Like that of other states, Maryland's general law of contracts holds that any contract obligating one party to waive a constitutional right is only valid if the waiver is voluntary, knowing and intelligent. See Meyer v. State Farm Fire and Casualty Co., 85 Md. App. 83, 90 (1990). (11) This principle has been recognized in numerous cases. See, e.g. Western Nat'l Mutual Ins. Co. v. Lennes 46 F.3d 813, 819 (8th Cir. 1995) ("Contractual clauses purporting to waive constitutional rights must be clear and unambiguous"); Erie Telecommunications, Inc. v. City of Erie, 853 F.2d 1084, 1096 (3rd Cir. 1988) ("constitutional rights, like rights and privileges of lesser importance, may be contractually waived where the facts and circumstances surrounding the waiver make it clear that the party forgoing its rights has done so of its own volition, with full understanding of the consequences of its waiver"). This rule is particularly pronounced in cases involving contracts of adhesion, such as the credit card agreements in this case. See D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 188 (1972).

In Badie, the California Court of Appeal noted that "[i]n order to be enforceable, a contractual waiver of the right to a jury trial 'must be clearly apparent in the contract and its language must be unambiguous and unequivocal, leaving no room for doubt as to the intentions of the parties." 79 Cal. Rptr.2d at 289. In Bailey, Chief Judge Edwards of the D.C. Circuit found that "a contract [to arbitrate] is not formed unless the parties reach an accord on all materials terms and indicate an intention to be bound." 209 F.3d at 746. Although Bailey may be distinguished on its facts from this case, the legal standard enunciated plainly applies here:
Fannie Mae's principal claim is that Mr. Bailey agreed to the new arbitration policy because he did not positively reject it. This is a non sequitur. Even if we accepted the premise . . . it would not follow that Mr. Bailey's failure to reject a proposal, without more, evidenced his assent to be bound.

209 F.3d at 746.

III. DEFENDANTS' ARBITRATION CLAUSE IS UNCONSCIONABLE AND CAN NOT BE ENFORCED.

A. ARBITRATION AGREEMENTS THAT ARE UNCONSCIONABLE UNDER STATE LAW MAY NOT BE ENFORCED.

The F.A.A. provides that arbitration clauses will not be enforced if there are grounds under a state's common law of contract for invalidating the clause. 9 U.S.C. §2. The purpose of the F.A.A. is to "place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991).

The Supreme Court has expressly stated that the defense of unconscionability is available to a party challenging an arbitration agreement. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) ( "generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening [the F.A.A.]"); Gilmer, 500 U.S. at 33 ("courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract'") (citation omitted). (12)

Maryland courts will not enforce unconscionable contracts. See Williams v. Williams, 306 Md. 332 (1986). In Maryland, courts look to both procedural and substantive issues in evaluating the unconscionability of a contract. Williams, 306 Md. at 340-41 (where substantive inequity is accompanied by procedural defects like inequality in bargaining power or oppression, equitable relief is more readily granted) (citation omitted). Under the Maryland Code section authorizing courts to invalidate unconscionable contract terms for the sale of goods, the Official Comment suggests the applicability of this analysis, stating: "The basic test is whether...the clauses involved are so one-sided as to be unconscionable. . . . The principle is one of the prevention of oppression and unfair surprise." Md. Code Ann., Comm. Law I. § 2-302.

B. ARBITRATION CAN NOT BE REQUIRED WHERE IT DOES NOT PROVIDE A REALISTIC OPPORTUNITY FOR CLAIMANTS TO RECEIVE THE REMEDIES TO WHICH THEY ARE ENTITLED.

Well-established law provides that individuals may not be forced into arbitration where it does not offer them the same remedies that would be available in court. This doctrine applies both to clauses that seek to rewrite underlying substantive laws (e.g., an arbitration clause cannot provide that claimants simply cannot receive remedies available under civil rights or consumer protection laws), and to arbitration clauses that rig the procedure so that individuals will be deterred from or unable to pursue their claims (e.g., arbitration clauses that require individuals to pay excessive fees to have their claims heard). Both problems afflict Defendants' Arbitration Clause here - it purports to re-write the Maryland Consumer Protection Act's attorneys' fees provision, and it effectively denies any meaningful remedy to plaintiffs.

The U.S. Supreme Court has conditioned its approval of arbitration on the requirement that arbitration offers remedies that are equal to those available in court. See Gilmer, 500 U.S. at 26 ("[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.") Accordingly, arbitration must offer "all of the types of relief that would otherwise be available in court" before a court will compel arbitration. Cole v. Burns Int'l Security Services, 105 F.3d 1465, 1482 (D.C. Cir. 1997). As the U.S. Court of Appeals for the Sixth Circuit held two months ago:

[E]ven if arbitration is generally a suitable forum for resolving a particular statutory claim, the specific arbitral forum provided under an arbitration agreement must nevertheless allow for the effective vindication of that claim. Otherwise, arbitration of the claim conflicts with the statute's purpose of both providing individual relief and generally deterring lawful conduct through the enforcement of its provisions.

Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 313 (6th Cir. 2000). These principles have been enunciated and applied by a host of courts. See Paladino v. Avnet Computer Tech., Inc., 134 F.3d 1054, 1062 (11th Cir. 1998) (Cox, J. concurring, for a majority of the court) (the arbitrability of claims under Title VII "rests on the assumption that the arbitration clause permits relief equivalent to court remedies. . . . When an arbitration clause has provisions that defeat the remedial purpose of the statute . . . the arbitration clause is not enforceable.") (citing Cole); Graham Oil v. ARCO Products Co., 43 F.3d 1244, 1247-48 (9th Cir. 1994), cert. denied, 516 U.S. 907 (1995) (invalidating an arbitration agreement that required a claimant to forfeit rights and benefits guaranteed by the Petroleum Marketing Practices Act, including imposing a limit on the recovery of punitive damages and attorneys' fees and a one-year statute of limitations). Taken together, these cases stand for a simple and powerful proposition: courts should not compel mandatory arbitration unless the arbitrator has the power to provide a claimant with all of the relief to which he or she is entitled. (13)

1. The "Loser Pays Rule" Contained in Defendants' Arbitration Clause Undermines the Remedies and Mechanisms of the Maryland Consumer Protection Act, And Deters Plaintiffs from Pursuing their Claims Through Arbitration, and thus is Unconscionable.

Defendants' Arbitration Clause states that "the prevailing party in an arbitration shall be entitled to reasonable attorneys' fees . . . ." (14) E. 138. This "Loser Pays Rule" is an enormous substantive shift from the law under the Maryland Consumer Protection Act or the common law of contracts. Defendants' arbitration clause does not just move a dispute to "another forum," it changes the underlying law in such a way as to discourage plaintiffs from pursuing any remedies through arbitration. Thus, this provision is unconscionable and unenforceable.

Under the Maryland Consumer Protection Act, a prevailing plaintiff shall recover her or his attorneys' fees, but a defendant shall only recover attorneys' fees if the plaintiffs' claims were frivolous. Md. Code Ann., Comm. Law I, § 13-408. (15) Similarly, at common law, the general rule is also that "the prevailing party generally does not recover attorneys' fees," Conte, § 1.03 at 4 (citation omitted), and that fees may only be awarded against losing plaintiffs in extreme cases, not, as with Defendants' Arbitration Clause, against any plaintiff who happens ultimately to lose her or his case:

Unlike prevailing plaintiffs who are ordinarily entitled to fees in civil rights cases, prevailing defendants may not recover fees unless they can show that the plaintiff's action was frivolous, unreasonable, or without foundation, or when plaintiff continues to litigate a case after the lack of foundation becomes evident. Courts generally have concluded that an award of attorneys' fees against a losing plaintiff is an extreme sanction and must be limited to truly egregious cases of misconduct.

Conte, § 1.05 at 9 (footnotes omitted).

The Supreme Court has enunciated the simple and sensible reason for this rule: requiring individuals to pay a defendant's attorneys' fees merely because they do not prevail would discourage plaintiffs from seeking the protection of the law. "To take the further step of assessing attorney's fees against plaintiffs simply because they do not finally prevail would substantially add to the risks inhering in most litigation and would undercut the efforts of Congress to promote the vigorous enforcement of the provisions of Title VII." Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978). The Christiansburg logic has been applied to statutes such as the Maryland Consumer Protection Act. See National Consumer Law Center, Unfair and Deceptive Acts and Practices, § 8.8.10.3 at 568 (1997) ("Courts have followed the Christiansburg Garment holding in [Unfair and Deceptive Acts and Practices] cases.") The Christiansburg rationale has also been applied to deny claims for fees to prevailing defendants for claims under the Truth in Lending Act. See Postow v. OBA Federal S&L Ass'n, 627 F.2d 1370, 1387-88 (D.C. Cir. 1980).

This rationale strongly applies here. The undisputed sworn testimony of each named plaintiff establishes that if they could be forced to pay defendants' attorneys fees if they did not prevail upon their claims, they could not afford to take the risk of pursuing their claims. Indeed, just a few hours of defense counsel's time in this case would likely exceed the financial stakes of most putative class members in this matter. Any class member who was cheated out of $500 or even $1,000, but who ultimately loses her or his case before Defendants' hand-picked arbitrator would be forced to pay many thousands of dollars to defendants' high-priced Washington, D.C. defense firm. The Circuit Court held that awarding attorneys' fees to the bank whenever it prevailed would discourage "frivolous" suits, E. 260, but the Supreme Court has made clear that losing does not equate to frivolousness. "In determining whether an action is frivolous, unreasonable or without foundation, the United States Supreme Court in Christiansburg Garment Co. discourages hindsight logic just because the plaintiff loses. . . ." National Consumer Law Center, § 8.8.10.4.5 at 570.

The "loser pays rule" is not a minor procedural rule, a mere part of "another forum." Defendants' "loser pays rule" is a significant re-writing of the Maryland Consumer Protection Act which will deter all cardholders from pursuing any relief no matter how strong their claims. The arbitration clause is thus unenforceable under the long line of cases discussed above and below.

2. By Requiring Plaintiffs to Pay Excessive Fees, Defendants' Arbitration Clause is Unconscionable.

The heavy arbitration costs described above very likely exceed the average class member's claims. In this case, plaintiffs' allege that Chevy Chase charged them excessive interest. Even though the Maryland Agreement promised that Chevy Chase would "never" raise plaintiffs' interest rates over 24%, E. 34, plaintiffs have been charged interest rates of 26% and even more on their balances. E. 11-13. If a plaintiff were charged an interest rate that was 3% too high under the Maryland Agreement (27% less the 24% allowed under the contract), and he or she had a balance of $1,000 for an entire year, the damages for that plaintiff would be $30. Even if a class member had a $10,000 balance for two years, that class member's damages would only amount to $600. (16)

The fees associated with arbitrating a claim are imposing. As explained above, if a cardholder were willing to proceed under the Consumer Rules, he would have to assert a claim of more than $275 just to cover the minimum he would owe the AAA. (17) The Consumer Rules, however, in failing to provide a claimant with the opportunity for an in-person hearing, are woefully inadequate. While it is true that arbitrations are not trials, and do not come clothed with the full complement of procedural safeguards found in court, it is equally true that "the arbitrator must grant the parties [to an arbitration] a 'fundamentally fair hearing . . . [including] adequate notice, a hearing on the evidence, and an impartial decision by the arbitrator.'" Wailua Assocs. v. Aetna Casualty and Surety Co., 904 F. Supp. 1142, 1148 (D. Haw. 1995) (quoting Sunshine Mining Co. v. United Steel Workers of America, 823 F.2d 1289, 1295 (9th Cir. 1987)). (18) To secure an in-person hearing, a cardholder would have to proceed under the Commercial Rules. Under those Rules, as explained above, it would not be economically rational to proceed unless damages amounted to significantly more than $950. The uncontradicted testimony of the class members confirms that the excessive fees required by Defendants' Arbitration Clause would effectively preclude them from seeking any remedy for defendants' breach of contract and deceptive practices. E. 162, 165, 168.

In a wave of cases decided during the last two years, federal and state appellate courts have refused to enforce arbitration clauses that required claimants to pay fees that might discourage or prevent them from bringing a claim. The leading case is Cole v. Burns International Security Servs., 105 F.3d 1465 (D.C. Cir. 1997), where, in a carefully reasoned opinion, Chief Judge Edwards held that an employee could not be required to pay an arbitrator's fee, which the court estimated to range from $500 to $1000 or more daily, to pursue discrimination claims, because the fees would discourage such an action and prevent the employee from vindicating his statutory rights. (Ultimately, the court interpreted an ambiguous provision in the agreement to require the employer to pay all of the arbitrator's fees, and so found the agreement enforceable. Cole, 105 F.3d at 1485.) The Eleventh Circuit, following Cole, found unenforceable an arbitration clause that required claimants to pay a $2000 filing fee and to bear potential responsibility for a portion of the arbitrator's fees. "[C]osts of this magnitude [are] a legitimate basis for a conclusion that the clause does not comport with statutory policy [enabling people subjected to workplace discrimination to vindicate their rights]." Paladino, 134 F.3d at 1062. (19)

No Maryland appellate court has addressed the question of excessive arbitration fees in a published opinion. The procedural/substantive approach to evaluating unconscionability makes clear that Defendants' Arbitration Clause is unconscionable in the context of this case.
As set forth in the Statement of Facts, Defendants' Arbitration Clause failed to disclose that plaintiffs would be required to bear these large fees. This silence constitutes an impermissible surprise and thus is procedurally unconscionable. See Myers v. Terminix Internat'l Co., 697 N.E.2d 277, 281 (Ohio Ct. Comm. Pleas 1998) ("[Plaintiff] was unaware of the undisclosed arbitration requirements. Such exorbitant filing fees [of $2000], "agreed to" unknowingly, would prevent a consumer of limited resources from having an impartial third party review his or her complaint against a business-savvy commercial entity. Therefore...the undisclosed filing fee requirement . . . is so one-sided as to oppress and unfairly surprise [the plaintiff]."). Defendants' Arbitration Clause is also procedurally unconscionable since it was communicated to plaintiffs in a way designed to avoid actual notice to them.

Maryland law establishes that a contract for the sale of goods that bars all remedies and avoids all damages is unconscionable. See Martin Marietta v. Internat'l Telecommunications Satellite Org., 991 F.2d 94, 100 (4th Cir. 1992) (applying Maryland law, the court held that a contract provision waiving possible contract, negligence and strict liability claims was against public policy and could not be enforced to block claims for gross negligence) (citing State Highway Admin. v. Greiner Eng'g Sciences, 83 Md. App. 621, cert. denied, 321 Md. 163 (1990) and Boucher v. Riner, 68 Md. App. 539 (1986)). Here, the arbitration agreement effectively bars all remedies available to Chevy Chase's cardholders, and therefore forces a result that is substantively unconscionable.

3. The Arbitration Clause Here is Unconscionable and Thus Unenforceable Because, By Preventing Plaintiffs from Proceeding on a Class Action Basis, It Denies An Effective Remedy to Nearly All The Class Members.

In this case, as set forth above, most plaintiffs' and putative class members' individual claims are worth only a few hundred or a few thousand dollars. For arbitration to be "just another forum" that realistically offers the same remedies as a court, it must be possible for plaintiffs to pursue their claims against defendants on a class-wide basis. Unfortunately, that is not possible under Defendants' Arbitration Clause because it does not provide for class-wide arbitration.(20) The uncontested evidence here is that arbitration will not provide "another forum." It will provide no forum at all.

The record below includes affidavits from three experts, with extensive backgrounds in and knowledge about the economic realities of individual and class action litigation, who reviewed the First Amended Complaint in this case. E. 178-87. These experts each concluded that the claims raised by plaintiffs in this case cannot realistically be brought on an individual basis to be resolved by an arbitrator or a court. E. 179-80, 182-84, 186-87. As one expert explained:
If I had been approached by any of the named class representatives in this case and asked to handle their claims on an individual basis, I would not have accepted their cases on a contingency fee basis, and would have strongly discouraged each of them from retaining me to handle such claims on an hourly basis. After reviewing their factual allegations (and even assuming them to be true), my judgment is that their claims are just not large enough to justify the great expense and time that is likely to be required to proceed with litigation against a bank with great resources, where the bank denies the claim. These claims would not be economically feasible on an individual basis, whether they were to be resolved by an arbitrator or a court.

E. 186. This expert concluded as follows:

[I]f the plaintiffs in this case are required to pursue their claims on an individual basis, even if I assume that their claims are completely valid and that they deserve to prevail under the law governing those claims, it is overwhelmingly likely that few if any of the people in the proposed class would be able to find an attorney to represent them on a contingency basis, and that it would be foolhardy for any consumer to retain counsel to pursue the relatively small amounts on an hourly basis. If those claims can only be pursued on an individual basis, my opinion is that very few - and probably, none - of the people in the proposed class have any realistic chance of obtaining a remedy for the conduct described in the first amended complaint, no matter how strong their claims are.

E. 187.

The conclusions of these experts are consistent with the Supreme Court's view that without the ability to proceed on a class-wide basis, most consumers with small claims will have no realistic opportunity to receive any justice for their claims:

The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.

Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997) (citation omitted).

Courts have repeatedly declined to compel arbitration where it would not provide all of the meaningful remedies available through the courts. Where (as here) undisputed facts have established that arbitration would bar individual consumers with a particular set of modest claims from pursuing those claims on a class action basis, then this procedural limitation creates a highly effective limit on substantive remedies. Arbitration of the claims brought in this action under this clause (that does not explicitly permit class wide arbitration) is not a meaningful remedy.

The Circuit Court disagreed, relying upon Gilman v. Wheat, First Securities, 345 Md. 361, 382 (1997), recons. denied (May 5, 1997). E. 260. Wheat is remarkably different from this case, however. While, as noted above, none of plaintiffs realized that there was an arbitration clause in the Virginia Agreement (much less that this clause, as drafted, would bar them from participating in a class action), the plaintiff in Wheat was a lawyer who taught law at a Virginia law school, and who had actual, personal knowledge that the contract he signed would bar him from proceeding on a class action basis. "Surprise" is a major component of unconscionability, and the Virginia law professor was obviously not surprised. In addition, Wheat is not even an arbitration case. It is a forum selection case, as to which the law is quite different. The court noted in Wheat, for example, that it is permissible for a forum selection clause to send a claimant to a forum where the limitations period has run, or a forum that requires large monetary payments for security. In other words, the court noted that with forum selection clauses, a plaintiff may be sent to a forum even if it does not offer the same remedies that are available in another forum. As noted above, however, one may not be sent to arbitration if the arbitral forum cannot offer the same remedies as are available in court.

Further, in Wheat, this Court noted that it knew of no case "in which the unavailability of a class action procedure, either generically or in a particular case, has been regarded as sufficient to render an otherwise valid forum-selection clause unenforceable." 345 Md. at 381. In fact, in the short time since the Circuit Court granted the motion to compel arbitration in this case, at least five courts have held in reported decisions that the unavailability of the class action device barred the enforcement of arbitration clauses where individual adjudication would leave most consumers with no remedy. In Powertel, 743 So. 2d 570, for example, an arbitration clause was held unconscionable where (as here) it was communicated to consumers on a take-it-or-leave-it basis, and was communicated in such a way that many customers would be unaware of it. The Florida Court of Appeals noted, among other things, that the arbitration clause would bar consumers from going forward on a class action basis. The court held that a class action "provides the most economically feasible remedy for the kind of claim that has been asserted here," 743 So.3d at 576, and noted that this provision would eliminate the deterrent effect that the law would otherwise have on the defendant. Similarly, in Ramirez v. Circuit City Stores, Inc., 90 Cal. Rptr. 2d 916 (1999), rev. granted, 94 Cal. Rptr. 2d 1 (2000), an arbitration clause was held to be unconscionable where, among other things, the clause "limits or eliminates the ability of an employee to obtain relief against Circuit City by participating in a class action." This "would unduly benefit the wrongdoer and unduly disadvantage the members of the affected class," and would insulate the employer from any threat of liability no matter how factually and legally correct the individuals' claims were. (21)

CONCLUSION

In light of the foregoing, this Court should reverse the Circuit Court's order granting the motion to compel arbitration and staying the action.
Respectfully submitted,

_____________________________
F. Paul Bland, Jr.
Victoria S. Nugent
TRIAL LAWYERS FOR PUBLIC JUSTICE, P.C.
1717 Massachusetts Avenue, N.W.
Suite 800
Washington, D.C. 20036
(202) 797-8600
(202) 232-7203 (Facsimile)

_____________________________
John T. Ward
Ward, Kershaw & Minton
113 West Monument Street
Baltimore, MD 21201
(410) 685-6700
(410) 685-6704 (Facsimile)

_____________________________
Michael P. Malakoff
Malakoff, Doyle & Finberg, P.C.
The Frick Building, Suite 203
Pittsburgh, PA 15219
(412) 281-8400
(412) 281-3262 (Facsimile)

ENDNOTES

1) The record contains both Chevy Chase's Reply Memorandum in support of its motion to compel arbitration, E. 194 to 222, and the transcript of the oral argument before the Circuit Court, E. 237 to 252. At no time in briefing or argument did Chevy Chase introduce any evidence to contradict Mr. Hilsee's testimony. Chevy Chase also chose not to depose Mr. Hilsee (or any of plaintiffs' other witnesses), preferring instead to argue that his evidence was not important as a matter of law. Accordingly, the sworn statements of Mr. Hilsee and the other witnesses introduced by plaintiffs are undisputed.

2) AAA's Arbitration Rules for Consumer-Related Disputes ("Consumer Rules") were promulgated after briefing in the Circuit Court was completed, and were faxed by AAA to counsel for defendants (but not plaintiffs). Counsel for defendants presented the Consumer Rules at the hearing before the Circuit Court. These rules, never attached to any pleadings filed with the circuit court, are not included in the Record Extract, but may be found at the following AAA website: www.adr.org/rules/commercial/000411ab.htm. See especially Administrative Fees, R.3 Initiation Under a Submission, R. 5 Proceedings on Documents, R. 6 Optional Hearing by Telephone.

3) See also Curtis G. Testerman Co. v. Buck, 340 Md. 569, 579 (1995) ("Arbitration is consensual; a creature of contract. As such, only those who consent are bound. . . . In the absence of an express arbitration agreement, no party may be compelled to submit to arbitration in contravention of its right to legal process.") (citations omitted); Stephen L. Messersmith, Inc. v. Barclay Townhouse Associates, 313 Md. 652, 658 (1988) (holding "[n]o one is under a duty to resort to . . . [arbitration] tribunals, however helpful their processes, except to the extent that he has signified his willingness" where parties disputed whether an agreement to arbitrate had emerged from their contract negotiations) (citation omitted); Gold Coast Mall v. Larmar Corp., 298 Md. 96, 103 (1983) ("Arbitration is a process whereby parties voluntarily agree to substitute a private tribunal for the public tribunal otherwise available to them. . . . A party cannot be required to submit any dispute to arbitration that it has not agreed to submit.").

5) Although plaintiffs raised this issue at some length before the Circuit Court, E. 244, the Circuit Court did not address this issue in its opinion.

6) Similarly, even were the Virginia Document deemed to have effectively amended the Maryland Agreement, that amendment did not permit Chevy Chase to increase the interest rate above 24% on debts incurred before any amendment. Nevertheless, it did so.

8) Other provisions of Subtitle 9 recognize that "charges" include attorneys' fee charges. See, e.g., 12-911(a) ("If a borrower defaults under the terms of a borrower's account to an attorney who is not a salaried employee of the credit grantor, the revolving credit plan permits, charge and collect from the borrower a reasonable attorney's fee.") (emphasis added).

9) There is nothing in the F.A.A. which prohibits this Court from holding defendants to a state law with which they contracted to comply. See Frizzell Const. Co., Inc. v. Gatlinburg, 9 S.W.2d 79 (1999) (where contract's choice of law clause incorporated Tennessee law, court would Tennessee statute providing that the issue of fraudulent inducement could not be submitted to arbitration in resolving the question of whether the parties had agreed to arbitrate their dispute).

10) The Circuit Court refused to consider plaintiffs' argument that "the defendants knew that it would not be read," E. 259, because plaintiffs should be bound by provisions sent to them in the mail whether they read them or not. This approach would reward companies with sophisticated marketing capabilities (such as defendants here, E. 146-147) that take away their consumers' fundamental constitutional rights in a way that the consumers do not notice until after their rights are gone.

11) The Circuit Court interpreted dicta in a footnote in Meyer as indicating that this doctrine may not be applied in arbitration cases, because doing so would contradict the policy in favor of arbitration. E. 258. This notion is mistaken. As this Court and the United States Supreme Court have made clear in authorities discussed above, the policy favoring arbitration does not apply until after a court has determined that two parties have first agreed to enter into an arbitration agreement. Moreover, a legislatively or judicially created "policy" in favor of encouraging voluntary arbitration could not override the constitutional right to a trial by jury.

12) A host of courts around the country have refused to enforce arbitration clauses that were found to be unconscionable. E.g., Shankle v. B-G Maintenance Management of Colorado, 163 F.3d 1230 (10th Cir. 1999); Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp.2d 1087 (W.D. Mich. 2000), appeal pending (6th Cir.); Baron v. Best Buy Co., Inc., 79 F. Supp.2d 1350 (S.D. Fla. 1999), appeal pending, (No. 99-14028-E, 11th Cir.); Graham v. Scissor-Tail, 623 P.2d 165 (Cal. 1990); Powertel v. Bexley, 743 So. 2d 570 (Fla. Ct. App. 1999); Iwen v. U.S. West Direct, 977 P.2d 989 (Mont. 1999); Williams v. Aetna Finance Co., 700 N.E.2d 859 (Ohio 1998), cert. denied, 119 S.Ct. 1357 (1999); In re Turner Bros. Trucking Co., 8 S.W.3d 370 (Tex. Civ. App. 1999), writ denied (May 11, 2000); Sosa v. Paulos, 924 P.2d 357 (Utah 1996); Arnold v. United Companies Lending Co., 511 S.E.2d 854 (W. Va. 1998).

13) See also Parrett v. City of Connersville, Ind., 737 F.2d 690, 697 (7th Cir. 1984) (holding that arbitration offended due process where arbitrator could not award full common law damages nor prevent harm to constructively discharged plaintiff before it occurred), cert. dismissed, 469 U.S. 1145 (1985); Martens v. Smith Barney, Inc., 181 F.R.D. 243, 256 (S.D.N.Y. 1998) ("arbitration must allow remedies central to the statutory scheme . . . [and] sufficient to satisfy statutory purposes"); DeGaetano v. Smith Barney, Inc., 983 F. Supp. 459, 469 (S.D.N.Y. 1997) (voiding provision of arbitration agreement that disallowed attorneys' fees to prevailing plaintiff in Title VII claim after concluding that "contractual clauses purporting to mandate arbitration of statutory claims . . . are enforceable only to the extent that the arbitration preserves the substantive protections and remedies afforded by the statute."); LaChance v. Northeast Publishing, Inc., 965 F. Supp. 177, 185 (D. Mass. 1997) (allowing plaintiff to pursue judicial claim under the Americans with Disabilities Act where arbitration agreement did not authorize arbitrator to provide remedy of 'reasonable accommodation' which plaintiff was entitled to pursue under the Act).

14) The undisputed facts show that plaintiffs never actually knew that this provision had been squirreled away in the fine print buried among advertisements in their bill stuffer. E. 162, 165, 168.

15) These provisions are normal. Most statutes providing causes of action for individuals against corporations and institutional defendants provide for attorneys' fees only to prevailing plaintiffs (and not prevailing defendants). See Alba Conte, 1 Attorney Fee Awards § 5.01 at 266 n. 1 (1993) (statutes providing attorneys fees only to prevailing plaintiffs include the Truth-in-Lending Act, the Consumer Credit Protection Act, the Fair Debt Collection Practices Act, the Consumer Product Safety Act, ERISA, the Clayton Act, and the Equal Credit Opportunity Act).

16) Plaintiffs also allege that Chevy Chase created a new over-limit fee of $20 and increased late fees from $15 to amounts of $20 and more. E. 10-13. While the damages from these fees are significant in the aggregate, they would serve to buy an average class member only about ten minutes of an arbitrator's time.

17)The Circuit Court stated that the new AAA rules would permit plaintiffs to arbitrate their claims for $125, E. 259-260, ignoring the fact that Chevy Chase's rules also require plaintiffs to first mediate their claims for a minimum of $150.

18) See also Hoteles Condado Beach v. Union de Tronquistas Local 901, 763 F.2d 34, 39 (1st Cir. 1985) ([t]he arbitrator must give each of the parties to the dispute an adequate opportunity to present its evidence and arguments"); Prudential Securities, Inc. v. Dalton, 929 F. Supp. 1411, 1416 (N.D. Okla. 1996) ("[a] fundamentally fair [arbitration] hearing requires the procedural steps of notice, an opportunity to be heard, the opportunity to present evidence which is relevant and material, and arbitrators who are not infected with bias" (quoting Bowles Financial v. Stifel, Nicolaus, 22 F.3d 1010 (10th Cir. 1994)) (emphasis supplied). Indeed, if it can be determined in advance of the arbitration that the procedure to be accorded disputants is fundamentally unfair in the sense that a disputant will be "den[ied] the fair opportunity to present his side of the dispute . . . the agreement to arbitrate should not be enforced." Graham v. Scissor-Tail, Inc., 623 P.2d at 176 (emphasis supplied).

19) See also Randolph v. Green Tree Financial Corp., 178 F.3d 1149, 1158 (11th Cir. 1999) (refusing to enforce an arbitration clause that "raise[d] serious concerns with respect to filing fees, arbitrators' costs and other arbitration expenses that may curtail or bar a plaintiffs' access to the arbitral forum"), cert. granted, 120 S. Ct. 1552 (2000); Shankle v. B-G Maintenance Management of Colorado, 163 F.3d 1230, 1235 (10th Cir. 1999) (refusing to compel arbitration where the claimant would be required to pay one-half of the arbitrator's fees - an amount projected to total between $1875 and $5000 - to resolve a discrimination claim against his employer. The court found that the agreement was unenforceable, "plac[ing] Mr. Shankle between the proverbial rock and a hard place - it prohibited use of the judicial forum, where a litigant is not required to pay for a judge's services, and the prohibitive cost substantially limited use of the arbitral forum."); Patterson v. Red Lobster, 81 F. Supp.2d 681, 688 (S.D. Miss. 1999) (requirement that individual pay half fees is "a factor weighing against enforcement of the agreement . . . ."); Giles v. New York, 41 F. Supp.2d 308, 313 (S.D. N.Y. 1999) ("mandatory arbitration provision featuring fee-splitting is unenforceable because it deprives individuals of their required 'reasonable right of access to neutral forum'") (citing Cole v. Burns); Martens v. Smith Barney, Inc., 181 F.R.D. at 255-56 (stating "arbitration agreement cannot impose financial burdens on plaintiff access to the arbitral forum" including steep filing fees and arbitrators' fees); Pitchford v. Oakwood Mobile Homes, 1999 U.S. Dist. LEXIS 20596 at *29 (W.D. Va. Dec. 20, 1999) ("exposure to fees in excess of $1,000 for claims exceeding $200,000.00, in this Court's view, present an insurmountable economic barrier for vindicating plaintiff's rights in the arbitrable forum. . . ."); Patterson v. ITT Consumer Financial Corp., 18 Cal. Rptr. 2d 563, 566-67 (Cal. App. 1993) (refusing to compel arbitration of modest consumer claims where claimants were required to pay fees on grounds of unconscionability), review denied, 1993 Cal. LEXIS 4322 (Aug. 12, 1993), cert. denied, 510 U.S. 1176 (1994).

20) Defendants' Arbitration Clause is silent on the subject of whether claims may be pursued on a class action basis in arbitration. The vast majority of courts to consider such a clause have refused to permit individuals to bring their claims in arbitration on a class action basis. See, e.g., Champ v. Siegel Trading Co., Inc. 55 F. 3d 269, 274 (7th Cir. 1995) (refusing to compel class-wide arbitration absent contractual authority, and noting similar rulings in Second, Fifth, Sixth, Eighth, Ninth and Eleventh Circuits).

21) See also In re Knepp, 229 B.R. 821 (N.D. Ala. 1999) (court refused to enforce arbitration clause, agreeing with plaintiffs that the clause "interferes with class action relief and consequently eliminates any reasonable opportunity for effective redress."); Johnson v. Telecash, Inc., 82 F. Supp. 2d 264, 271 (D. Del. 1999) (refusing to compel arbitration of Truth in Lending Act claims because, in part, "without the possibility of class action liability looming on a creditor's horizon, there is a very real possibility that these entities will not voluntarily comply with the Truth-in-Lending regulations"); Lozada v. Dale Baker Oldsmobile, 91 F. Supp.2d at 1105 ("both federal and Michigan case law support that an arbitration provision is substantively unconscionable because it waives c

STATEMENT RELATING TO FONT

This brief was prepared in the Times New Roman font, sized 12 point, double spaced.

CERTIFICATE OF SERVICE

I, Paul Bland, hereby certify that I have had served by first class mail two copies of the Brief of Appellants upon David J. Cynamon, Shaw Pittman, 2300 N Street, N.W., Washington, D.C. 20037, counsel for the defendants on July __, 2000.