Cornell v. Desert Fin. Credit Union

684 F.Supp.3d 958

Eva CORNELL, Plaintiff, v. DESERT FINANCIAL CREDIT UNION, et al., Defendants.

No. CV-21-00835-PHX-DWL

United States District Court, D. Arizona

Signed July 31, 2023

Cynthia Christine Albracht-Crogan, Kaysey Lauren Fung, Cohen Dowd Quigley PC, Phoenix, AZ, David C. Wright, Pro Hac Vice, Richard D. McCune, Pro Hac Vice, McCune Wright Arevalo LLP, Ontario, CA, Emily J. Kirk, Pro Hac Vice, McCune Wright Arevalo LLP, Edwardsville, IL, for Plaintiff.

Brian Andrew Cabianca, David Sean Norris, Squire Patton Boggs (US) LLP, Phoenix, AZ, for Defendant Desert Financial Credit Union.

ORDER

Dominic W. Lanza, United States District Judge

INTRODUCTION

In this putative class action, Eva Cornell ("Plaintiff") alleges that Desert Financial Credit Union ("Desert Financial") violated certain federal regulations that require clear disclosure of a bank's overdraft practices. (Doc. 1.) Desert Financial has, in turn, moved to compel arbitration based on an arbitration clause that it added to its standard terms several years after Plaintiff opened her account. (Doc. 11.) After soliciting supplemental briefing on whether adding this clause resulted in a valid contract modification under Arizona law (Doc. 26), the Court concluded that "the most prudent course of action is to conduct further fact-finding and then seek certification from the Arizona Supreme Court on the unsettled legal issue that lies at the heart of the parties' dispute." (Doc. 38.)

To that end, the Court held an evidentiary hearing. (Doc. 44.) The evidence presented during the hearing establishes that, in April 2021, Plaintiff received, downloaded, and viewed a statement from Desert Financial that contained a notice of the change. This notice also identified a website that Plaintiff could visit to obtain more information about the change. However, the notice itself did not inform Plaintiff that she had the right to opt out of the change. Plaintiff did not visit the website, remained subjectively unaware that an arbitration provision had been added, and did not opt out by the specified deadline.

After the evidentiary hearing, the Court certified two questions of law to the Arizona Supreme Court: "(1) Does an effective modification of a consumer contract occur when the offeror sends notice of the proposed modification to the offeree, through a communication channel to which the offeree previously consented, even if the offeree fails to respond?"; and "(2) If not, what additional showings (such as actual receipt of the notice of proposed modification, subjective understanding of the proposed modification, or affirmative consent to the proposed modification) are necessary to achieve an effective contract modification in this circumstance?" (Doc. 52 at 16.) The Arizona Supreme Court has now responded, holding: "[O]n-going, at-will, consumer-business relationships consist of the day-to-day offer and acceptance of unilateral contracts; thus, businesses may effectively modify the non-negotiated, standardized terms governing these relationships if the business demonstrates that (1) the contract's initial terms expressly notified the consumer that the business could make future changes to the terms; (2) the business gave—and the consumer received—reasonable notice of the modification and an opportunity to opt out with no change to the status quo business relationship; and (3) the consumer continued the business relationship past a reasonable opt-out period." Cornell v. Desert Fin. Credit Union, 254 Ariz. 477, 524 P.3d 1133, 1135 (2023).

Following the issuance of the Arizona Supreme Court's decision, the Court solicited supplemental briefing from the parties regarding Desert Financial's still-pending motion to compel arbitration. (Doc. 67.) Additionally, after reviewing the parties' supplemental briefing (Doc. 69-72), the Court solicited still-more briefing on a discrete issue (Doc. 73), which the parties have now provided (Docs. 74-75). As explained below, the most recent round of briefing persuades the Court that Desert Financial's motion to compel arbitration must be denied.

BACKGROUND

I. Factual Background

The facts are largely the same as those laid out in the Court's certification order. (Doc. 52.) The following summary is based on the evidence submitted during the evidentiary hearing and other materials in the record. Any factual disputes were resolved by the Court in its capacity as the finder of fact. (Doc. 38 at 15-16.)

In October 2018, Plaintiff applied to Desert Financial to open a "Membership Savings" account and a "Desert Connect Checking" account. (Doc. 52 at 2.) In each application, Plaintiff "agree[d] to the terms and conditions of any account that I/we have applied for, and agree[d] that the credit union may change those terms and conditions from time to time." (Id.) Plaintiff also consented to the electronic delivery of all future communications from Desert Financial, including all disclosures, notices, and account statements. (Id.)

When Plaintiff opened her accounts, Desert Financial's Statements of Terms, Conditions, and Disclosures ("Terms") did not include an arbitration clause. (Id.)¹

In February 2021, Desert Financial updated its Terms to add an arbitration clause. (Id.) The clause was added in Section 28, which appears on page five of a fourteen-page document. (Id.) The new clause began as follows: "DISPUTE RESOLUTION; MANDATORY ARBITRATION. READ THIS PROVISION CAREFULLY AS IT WILL HAVE A SUBSTANTIAL IMPACT ON HOW LEGAL CLAIMS YOU AND THE CREDIT UNION HAVE AGAINST EACH OTHER WILL BE RESOLVED." (Id.) The bolded, partially underlined, all-caps format of this clause made it stand out from other portions of the document. (Id. at 2-3.) The new clause went on to explain that "[a]rbitration is not a mandatory condition of you maintaining an account with Credit Union. If you do not want to be subject to this arbitration provision, YOU MAY OPT OUT of this arbitration provision so long as the Credit Union receives notice of your desire to opt-out by April 30, 2021 or 30 days after you open your account, whichever is later." (Id. at 3.) The clause also provided details on how to complete the opt-out process.² (Id.)

Desert Financial did not send the new version of its Terms to Plaintiff (or to its other 375,000 customers). (Id.) Instead, to communicate the change, Desert Financial inserted the following orange-and-blue banner on the first page of its next cycle of monthly account statements:

Image materials not available for display.

(Id.) As noted, this banner informed customers that Desert Financial had "change[d] how we will resolve legal disputes related to your accounts at Desert Financial," provided a URL that customers could use to view the latest version of the Terms, and explained that the changes appeared in the "Dispute Resolution section" of the Terms. (Id.) The notice itself did not, however, inform customers of their right to opt out of the change.

Desert Financial began distributing the monthly statements containing this banner in increments beginning on March 5, 2021. (Doc. 55 [hearing transcript, hereinafter "Tr."] at 51.) In Plaintiff's case, this banner appeared on the account statement for the period of February 21, 2021 through March 20, 2021 ("the March 2021 statement"). (Doc. 52 at 3.) Because Plaintiff chose to receive electronic delivery of communications from Desert Financial, she did not receive a hard copy of the March 2021 statement in the mail. (Id.) Instead, on March 23, 2021 (i.e., five weeks before the April 30, 2021 opt-out date), she received an email from Desert Financial notifying her that her most recent monthly statement was available. (Id.)

The orange-and-blue-banner was only present in the HTML version of Plaintiff's March 2021 statement from March 23, 2021 through April 1, 2021. (Id. at 4 n.2.) After that date, Desert Financial swapped the banner in the HTML version for the next month's notice or advertisement. (Id.) Thus, after April 1, 2021, Plaintiff could only see the change-in-terms banner in the .pdf version of her March 2021 statement. (Id.)

During the early stages of this case, Plaintiff submitted a declaration avowing that she had never "seen" the March 2021 statement. (Doc. 18-1 ¶ 3.) During the evidentiary hearing, Desert Financial proved otherwise.

The relevant events occurred on April 13, 2021 and were precipitated by Plaintiff's efforts to buy a car from a car dealership. (Doc. 52 at 4.) As part of the financing process, the dealership asked Plaintiff to provide her three most recent bank statements. (Id.) In response, Plaintiff attempted to download the statements via Desert Financial's mobile banking application. (Id.) During the download process, Plaintiff not only viewed HTML versions of her monthly statements for January 2021, February 2021, and March 2021 via the app but also opened and saved a .pdf version of each monthly statement. (Id.) This distinction is important because, although the HTML version of the March 2021 statement no longer contained the orange-and-blue banner notifying customers about the change to the Terms, the .pdf version of the March 2021 statement did. (Id.) Thus, Plaintiff saw (however briefly) the notice regarding the change in Terms, which appeared in the March 2021 statement, during the download process. (Id.)

Although Plaintiff successfully downloaded the three monthly statements onto her phone via the app, she couldn't locate them on her phone afterward. (Id.) As a result, she called Desert Financial to request copies of the monthly statements. (Id.) After some discussion, Desert Financial's customer service representative transmitted the three monthly statements to Plaintiff via a third-party service called DocuSign. (Id.) Plaintiff, in turn, forwarded one of the DocuSign emails to the car dealership and provided a password so the dealership could download the statements. (Id.)

During the evidentiary hearing, the parties presented an array of technical evidence...