Pruett v. WESTconsin Cred. Union

409 Wis.2d 607

2023 WI App 57

Jeffery Pruett, Plaintiff-Respondent,

v.WESTconsin Credit Union, Defendant-Appellant.

Court of Appeals

No. 2022AP887. Submitted on briefs February 22, 2023.— Decided October 24, 2023.

2023 WI App 57

(Also reported in 998 N.W.2d 529.)

APPEAL from an order of the circuit court for Dunn County: LUKE WAGNER, Judge. Affirmed.

On behalf of the defendant-appellant, the cause was submitted on the briefs of John L. Pollock of Litchfield Cavo, LLP, Milwaukee, and James R. Branit and Jason E. Hunter of Litchfield Cavo, LLP, Chicago, Illinois, pro hac vice.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Nathan E. DeLadurantey of DeLadurantey Law Office, LLC, Brookfield, and Vess A. Miller of Cohen & Malad, LLP, Indianapolis, Indiana, pro hac vice.

Before Stark, P.J., Hruz and Gill, JJ.

¶ 1. STARK, P.J. Jeffery Pruett filed a class action complaint alleging that WESTconsin Credit Union (WCU) had improperly charged and collected fees from its members.¹ In response, WCU filed a motion to compel arbitration based upon an Arbitration and Class Action Waiver Agreement (the Arbitration Clause) that WCU added to its Membership and Account Agreement (the Agreement) in 2021. The Arbitration Clause provided that either WCU or a member may compel arbitration in a dispute between the parties, subject to some exceptions not relevant here, and withdrew the right for its members to participate in a class action, as either a class representative or a class member. The Arbitration Clause applied to "any dispute between us concerning your Membership, your accounts, or the services or products related to your accounts [,]" meaning, as WCU argues, the amendment had retroactive application. (Emphasis added.) WCU alleges that Pruett received notice of the Arbitration Clause, and it further argues that Pruett agreed to the amendment by failing to opt out of its application using the specified procedure—i.e., Pruett's silence and continued use of his account signaled his assent to the Arbitration Clause.

¶ 2. WCU appeals from the circuit court order denying its motion to compel arbitration pursuant to Wis. Stat. § 788.02 (2021–22).² The issues on appeal, according to WCU, are whether: (1) WCU's contractual authority to change the terms of the Agreement permitted it to add the Arbitration Clause; (2) Pruett's failure to opt out of the Arbitration Clause and his continued use of his WCU account constituted his agreement to the terms of the Arbitration Clause; (3) the Arbitration Clause applies retroactively to claims that accrued before WCU added the clause; (4) the retroactive application of the Arbitration Clause is unreasonable and in violation of the contractual duty of good faith and fair dealing; and (5) the language in the Agreement is sufficiently clear to allow an opportunity for a member to timely opt out of the Arbitration Clause.

¶ 3. We conclude that WCU's contractual authority to change the terms of the Agreement did not permit it to add the Arbitration Clause, which we determine contained new terms that the parties did not address or contemplate in the original contract. Further, Pruett did not affirmatively assent to the Arbitration Clause by his failure to opt out of its provisions and continued use of his account; therefore, the clause cannot be enforced against Pruett. For the reasons that follow, we affirm the circuit court's decision.

BACKGROUND

¶ 4. Pruett commenced this class action lawsuit on July 19, 2021, alleging that WCU improperly charged its members certain overdraft fees between 2017 and 2020. Pruett's complaint alleged multiple counts of breach of contract, unjust enrichment, and a violation of the Wisconsin Deceptive Trade Practices Act, under Wis. Stat. § 100.18. Pruett sought monetary damages, restitution, and injunctive and declaratory relief. The merits of those claims are not before us on appeal.

¶ 5. Instead, this appeal concerns the terms and conditions of the Agreement and whether WCU's 2021 modification of that Agreement requires that the merits of this dispute be resolved by arbitration of only Pruett's claims, rather than by the circuit court in this class action lawsuit. As WCU explains, its relationship with its members is governed by its bylaws as well as the terms and conditions of the Agreement. It is undisputed that Pruett opened his account with WCU in 1991, and he agreed to comply with the terms and conditions of the Agreement at that time. It is also undisputed that at the time Pruett opened his account and at the time the improper fees alleged in the complaint were assessed, there was no arbitration agreement between Pruett and WCU.³ The Agreement did, however, include a "Notice of Amendments" section (hereinafter, change-of-terms provision), which stated:

Except as prohibited by applicable law, we may change the terms of this Agreement. We will notify you of any change in terms, rates, or fees as required by law. We reserve the right to waive any term of this Agreement. Any such waiver shall not affect our right to future enforcement.

¶ 6. WCU claims that on or about April 27, 2021, it sent "notice of changes to its membership agreement to its members," which "advised members that WCU was implementing an Arbitration and Class Action Waiver Agreement … that would become effective 60 days after the member’s receipt of the Notice." WCU claims that the Arbitration Clause was permitted under the "Notice of Amendments" clause of the May 2018 version of the Agreement in effect at the time. The mailing sent to members included: (1) "a document titled 'Important Information Regarding Your Account at [WCU]'" (the Notice); (2) the amended Agreement; and (3) "the amended Electronic Fund Transfers Agreement and Disclosure." The Notice was sent to WCU's members "at the valid, deliverable mailing address on file for each member."

¶ 7. The Notice informed members of "important changes" with the Agreement, including the added Arbitration Clause.⁴ The Notice provided:

IMPORTANT: The Arbitration and Class Action Waiver Agreement provision is effective within 60 days of this notice (the "Effective Date") unless you opt-out in accordance with the specified opt-out process described at Section 35c of the enclosed Account Agreement Arbitration and Class Action Waiver Agreement. THE ARBITRATION AND CLASS ACTION WAIVER AGREEMENT APPLIES TO ALL CLAIMS THAT ARE FILED OR INITIATED ON OR AFTER THE EFFECTIVE DATE, EVEN IF THE CLAIM ARISES OUT OF, AFFECTS, OR RELATES TO CONDUCT THAT OCCURRED PRIOR TO THE EFFECTIVE DATE.If a claim is filed or initiated prior to the Effective Date, the Arbitration and Class Action Waiver Agreement will not apply to such claim.

YOU WILL INDICATE YOUR AGREEMENT TO THE ARBITRATION AGREEMENT AND CLASS ACTION WAIVER BY (1) FAILING TO OPT-OUT AS EXPLAINED AT SECTION 35C OF THE ENCLOSED ACCOUNT AGREEMENT ARBITRATION AND CLASS ACTION WAIVER AGREEMENT, AND (2) CONTINUING YOUR MEMBERSHIP WITH WEST-CONSIN CREDIT UNION. ALL CHANGES ARE EFFECTIVE AS OF APRIL 26, 2021.

¶ 8. The Arbitration Clause, in turn, detailed the terms of the added provision and the opt-out procedure. Section 35.a. provided, in pertinent part, that

[e]xcept if you opt-out as provided in subsection (C) below, either you or us may elect, without the other's consent, to require that any dispute between us concerning your Membership, your accounts, or the services or products related to your accounts and Membership be resolved by binding arbitration, except for those disputes specifically excluded below.

Section 35.b. further provided, in pertinent part: "Unless prohibited by applicable law, arbitration will be solely brought in your individual capacity and be solely between you and us. Neither you nor we have the right to participate in a class action in court or arbitration, either as a class representative or class member." The Arbitration Clause explained that "[i]f you agree to be bound by the above Arbitration and Class Action Waiver Agreement, then no action is needed on your part." It also included the procedure for opting out:

If you do not agree to be bound by this Arbitration and Class Action Waiver Agreement, you must send us written notice that you want to opt out of this provision of your Account Agreement within 60 days of account opening or within 60 days of receiving this notice, whichever is sooner.

¶ 9. Pruett asserts that he never agreed to the Arbitration Clause. He averred, by affidavit, that he had "never before seen or read the Arbitration Documents" and that he had "never signed or seen or heard anything about arbitration from [WCU], and [he] never agreed to arbitration with" WCU.⁵ Accordingly, it is undisputed that Pruett took no action to opt out of the Arbitration Clause.

¶ 10. On September 15, 2021, WCU filed its motion seeking to compel this class action litigation to individual arbitration and stay court proceedings based on the Arbitration Clause. As the circuit court observed, "WCU's [m]otion attempts to apply the April 2021 Arbitration Clause retroactively to the fees in [Pruett's class action] [c]omplaint that were assessed and collected in 2017, 2018, and 2020, to require [Pruett] to arbitrate his claims for actions that occurred prior to the existence of the Arbitration Clause."

¶ 11. Pruett opposed the motion, arguing that WCU had failed to meet its burden to show that a valid arbitration agreement was ever formed. Specifically, Pruett argued that the Arbitration Clause was not a valid agreement to arbitrate for numerous reasons, including that: (1) "at the time of the transactions WCU's agreement with customers did not contain an arbitration clause or any other restriction on [Pruett's] ability to file a class action in this [c]ourt"; (2) "WCU never had authority under the original agreement to unilaterally add a wholly new term" because the "Notice of Amendments" clause uses "change" not "add"; (3) "the duty of good faith and fair dealing...