One-Sided Gift Card Arbitration Clause May Be Unconscionable in California
On Aug. 6, 2015, a California federal judge in the Diane Matalas v. Visa USA Inc. class action case requested further briefing regarding whether the arbitration clause in a Wells Fargo cardholder agreement for a network branded gift card might be unenforceable because one-sided terms in the cardholder agreement were “substantively unconscionable.” Although there is no determination yet in the case, the judge’s query underscores that arbitration requirements are being subjected to significant scrutiny and highlights the need for care in drafting cardholder agreements.
The cardholder agreement in this dispute included a clause that gave the issuer the right to “change the terms of, or add a new term to, this Agreement or change any feature of, or add a new feature to, the Card” and informed cardholders that the bank would “give you notice of such change in term or feature … as required by law.”
In reviewing the card issuer’s motion to compel arbitration based on the cardholder agreement’s arbitration clause, Judge George Wu cited a Ninth Circuit case as holding that “a contract is substantively unconscionable if one party (but not the other) is allowed to unilaterally make substantial changes in the terms of the agreement.” However, in early August 2015, the California Supreme Court in the Sanchez v. Valencia Holding Co. case held that “[n]ot all one-sided contract provisions are unconscionable,” and class action waivers are enforceable despite a state statute indicating otherwise.
Judge Wu also asked the parties to brief why California law should apply to the dispute when the cardholder agreement expressly states that South Dakota law shall govern the agreement and its interpretations.
