Clements v. Alto Tr. Co.

685 F.Supp.3d 1249

Jacquelyn O. CLEMENTS, Plaintiff, v. ALTO TRUST CO. and Alto Solutions, Inc. (d/b/a AltoIRA), Defendants.

No. CIV 22-00062 RB/SCY

United States District Court, D. New Mexico

Filed August 4, 2023

Bradford Arthur Clements, I, Austin, Greenwich, CT, for Plaintiff.

Christina Muscarella Gooch, Sutin, Thayer & Browne, Albuquerque, NM, Thomas K. Potter, III, Pro Hac Vice, Burr & Forman LLP, Nashville, TN, for Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT C. BRACK, SENIOR UNITED STATES DISTRICT JUDGE

Before the Court is Defendants' Alto Trust Co. and Alto Solutions, Inc. (collectively, Alto) Motion to Compel Arbitration under Section 4 of the FAA. (Doc. 62.) Alto argues that Plaintiff Jacquelyn Clements electronically signed a clickwrap agreement that included a valid arbitration provision and that her claims in this lawsuit fall within the scope of that provision. It also argues that under the agreement's delegation clause, an arbitrator must determine issues of arbitrability.

Clements contends that she is not bound by an arbitration agreement because there is no valid and enforceable contract between the parties, or alternatively, because the arbitration provision itself is unconscionable. (Doc. 66.)

For the reasons outlined in this Opinion, the Court finds that the parties formed an enforceable contract with an arbitration agreement, but the agreement's delegation clause did not clearly and unmistakably delegate arbitrability issues to an arbitrator. Although the Court finds in Alto's favor on the issue of the contract's validity, the Court will deny the motion without prejudice and order further briefing as outlined in this Opinion.

I. Factual Background¹

A. Alto became the Lending Club Corporation's "preferred" custodian.

In 2020 Plaintiff Jacquelyn Clements, "an unsophisticated consumer" and citizen of Texas, opened a Traditional Individual Retirement Custodial Account (the "Lending Club IRA") with the Lending Club Corporation (Lending Club). (Doc. 59 (TAC) ¶¶ 1, 4-5.) Forge Trust served as the original custodian of Clements's Lending Club IRA. (Id. ¶ 6.) Sometime between March 3, 2021, and April 12, 2021, the Lending Club instituted "an opt-out period . . . for Lending Club IRA holders to decide whether they wanted to remain with their custodian" or transition to using Defendant AltoIRA (Alto),² Lending Club's "new preferred custodian." (Id. ¶ 7.) "The opt-out period ended on April 21, 2021 . . . ." (Id. ¶ 8.)

B. Alto made documents available to account holders.

During the opt-out period, Alto made several documents available to account holders relevant to the changeover. (See id. ¶¶ 9-21.) The documents included: (1) a Form 5305-A for traditional IRAs (the "Form 5305-A"); (2) a Custodian Agreement³; (3) an undated version of a Terms of Service document that was available through April 15, 2021 (the "undated TOS"); (4) a second version of a Terms of Service document dated April 16, 2021 (the "April 16, 2021 TOS"); (5) a Custodian Account Agreement (CAA) dated November 2019 that was available through April 15, 2021 (the "November 2019 CAA"); and (6) a second version of a CAA dated April 16, 2021 (the "April 16, 2021 CAA").⁴ (Id. ¶¶ 9-19; see also Docs. 59-1-59-4.)

Sometime between April 12, 2021, and April 15, 2021, the "Lending Club directed [Clements] to [Alto's] general website, where" Clements read the Combined 5305/Custodian Agreement, the November 2019 CAA,⁵ and the undated TOS. (TAC ¶¶ 34-35.) Clements emphasizes that the Combined 5305/Custodian Agreement contained the words "Custodian Agreement" on pages 3 and 13 and did not contain the words "Custodian Account Agreement." (Id. ¶¶ 10, 38; see also Doc. 59-1.) Similarly, neither version of the CAA contained the words "Custodian Agreement," but were both labeled "Custodian Account Agreement." (TAC ¶¶ 36-37; Docs. 59-3-59-4.) The CAAs, but not the Combined 5305/Custodian Agreement, contained an Arbitration Agreement. (See TAC ¶ 40; see also Docs. 59-1; 59-3-59-4.)

None of the documents Clements read prior to April 16, 2021, were labeled "draft" or otherwise indicated that they were subject to change. (TAC ¶ 41.) Defendants drafted all documents, and Clements had "no opportunity to negotiate or change . . . their terms." (Id. ¶ 42.)

C. Clements executed a clickwrap agreement.

On April 23, 2021, Clements executed a clickwrap agreement⁶ that contained the following text:

By signing below you confirm that you have read, understand, and agree to the Custodian Agreement and that you have received the Form 5305 (Form 5305-Roth, Form 5305-Traditional, or 5305 SEP) and the Gramm Leach Bliley notice. You understand that you are directing AltoIRA, Administrator, to establish a new self-direct IRA account(s) consistent with the accounts listed above, held at your prior custodian(s.) . . . .

(Id. ¶ 44; Docs. 62-1 ¶ 14; 62-1 at 26.) "All underlined terms were hyperlinked . . . ." (TAC ¶ 45.) The hyperlink connected to the "Form 5305-Traditional" took "consumer[s] to the Combined 5305/Custodian Agreement." (Id. ¶ 46.) The hyperlink connected to "Custodian Agreement" was mislabeled, because it took consumers to the April 16, 2021 CAA, not to the Custodian Agreement that was packaged with the Form 5305-A. (See id.)

Clements asserts that she "executed the clickwrap agreement without knowledge or a reasonable opportunity to obtain knowledge of the character or essential terms of what was in fact (but deceptively labeled) the [April] 16, 2021 CAA." (Id. ¶ 47.) Clements did not "provide an electronic signature directly on any version of the [CAA], the Custodian Agreement, or the Form 5305-A." (Id. ¶ 55.) Instead, she electronically signed underneath the statement with the incorrectly named hyperlinks. (See id. ¶ 44; see also Doc. 62-1 at 26.) Clements "indicated acceptance to the clickwrap statement electronically because she had already complied with her literal reading of it just days earlier . . . and did in fact agree to the correctly-titled [Combined 5305/Custodian Agreement]." (TAC ¶ 48.) She asserts that she "had no reason to think that either document had changed from what she read just days before . . . ." (Id. ¶ 49.) Clements "denies ever agreeing to any Custodian Account Agreement." (Id. ¶ 51.)

D. The differences between the arbitration provisions in the CAAs.

Both versions of the CAA contained an arbitration agreement. (See id. ¶ 20; Doc. 59-5.) Clements points to three differences between the two arbitration agreements that she alleges are key to this lawsuit: (1) the November 2019 CAA provides that the parties will arbitrate in New York, while the April 16, 2021 CAA provides that the parties will arbitrate in Nashville, Tennessee; (2) the November 2019 CAA provides that an arbitration proceeding will "be conducted by a panel of three neutral arbitrators," while the April 16, 2021 CAA provides that arbitration will "be conducted by a panel of three arbitrators selected pursuant to the AAA rules"; and (3) the November 2019 CAA states that neither party can pursue a class action or consolidated arbitration, while the April 16, 2021 CAA states that only Defendants may pursue a class action or consolidated arbitration. (See TAC ¶ 26; Docs. 59-3-59-4.)

E. Clements filed a demand for arbitration and later filed this lawsuit, seeking declaratory judgments in four counts.

On August 20, 2021, Clements filed a demand for arbitration with the American Arbitration Association (AAA). (See Doc. 28-1 at 2.⁷) She asserts that she filed the demand because of the "confusing and intimidating Arbitration Provision" and to "avoid being held liable for Defendants' legal fees, costs, and expenses [if they succeeded in filing] a motion to compel arbitration . . . ." (TAC ¶ 27.) "Once Clements filed her arbitration demand, the AAA required [Alto] to register the Arbitration Agreement with the AAA under its Consumer Arbitration Rules" and "to waive the mandatory nature of the (a) prevailing-party fee provision and (b) Nashville hearing location under its Arbitration Agreement . . . ." (Doc. 62-1 ¶ 16; see also Doc. 13-1 at 2.)

On October 8, 2021, Clements emailed Alto and the AAA Case Administrator and stated that unless Alto agreed to strike the arbitration agreement and provide certain remedies, Clements would file suit in federal court. (Doc. 13-4 at 2.) On October 12, 2021, Alto responded and declined to comply with Clements's demands. (Doc. 13-5 at 2-3.) On October 13, 2021, the AAA Case Administrator sent correspondence to the parties and stated that the issue "is a threshold issue, which must be determined by an administrator." (Doc. 13-6 at 2.) Without "an agreement by the parties or a court order staying [the] matter, the AAA [would] proceed with the administration of the arbitration." (Id.) In a separate letter sent on October 13, 2021, the AAA determined that any arbitration hearings in the matter would be held in Fredericksburg, Texas. (Doc. 13-3 at 2.)

The AAA held a conference call with the parties on January 4, 2022, and entered a scheduling order on January 6, 2022, setting an evidentiary hearing in September 2022. (See Doc. 13-7 at 2.) During the call, Clements's attorney "refused to allow the panel to determine arbitrability and enforceability issues and promised opposing counsel and the panel that a judicial action was forthcoming." (Doc. 22-2 ¶ 14.) Alto asserts, and Clements does not deny, that she submitted five arbitration demands in the AAA proceedings: one original demand and four amended demands. (See Doc. 62 at 11; see also Docs. 28-1 at 2-8 (original); 28-4 at 2-11 (first amended); 28-5 at 2-20 (second amended) 28-6 at 2-23 (third amended); 22-2 at 27-52 (fourth amended).⁸) Each demand said "Demand for Arbitration - Consumer Arbitration Rules." (See Docs. 28-1 at 4; 28-4 at 2; 28-5 at 2; 28-6 at 2; 22-2 at 27.) In her fourth amended demand,⁹ Clements "reserved" the issues of arbitrability and enforceability for decision by the Court and objected...