Kaufman v. American Express Travel Related Services Co., Inc., United States District Court, No. 07 C 1707, 2008 WL 687224 (March 7, 2008).
You know the spot: some famous star of stage and screen walks you through one of his or her crazy days, explaining to you at the end that what gets them through all this is their trusty American Express card. Ellen in a meeting full of animals, Tina Fey choosing which flute is funnier (all enviable tasks, though not as exciting as CAFA). Let us let Wes Anderson set the tone for this one:
This case doesn’t involve adoring fans, writing dialogue, or stray pigeons, though. Instead of Wes Anderson, this cardholder is one humble Saul Kaufman (no relation, we’re guessing, to Andy) who bought a $50 American Express gift card at his local CVS Pharmacy. The outside of the package stated certain conditions for the card and also included a statement that the enclosed Cardholder Agreement (on the inside of the package) contained additional information. Inside the package were two additional disclosures: an insert with information and a six-page leaflet that included an arbitration provision and choice-of-law clause.
After using the card twice, Mr. Kaufman tried to use the balance ($13.30) on another purchase, but was unable to because of restrictions on “split tender” transactions (where a customer pays cash for the balance that exceeds what remains on the card). Mr. Kaufman alleged that he only learned about these restrictions after he read the leaflet included on the inside of the card’s packaging. Then he filed a class action alleging breach of contract, unjust enrichment and statutory fraud. American Express removed the case to federal court under CAFA and moved to compel arbitration and stay proceedings based on language included in the cardmember agreement contained in the leaflet.
Although Mr. Kaufman apparently did not have a problem with being in federal court and filed no motion to remand, the court independently considered the issue of jurisdiction. It required American Express to prove to a “reasonable probability” that it had jurisdiction over the matter. As diversity existed, the main consideration was the issue of amount in controversy. The court was satisfied by American Express’s affidavit from its Vice President of Finance in which he stated that for the relevant time period, the company’s national revenue from purchase fees on gift cards totaled more than $5 million, and so did the monthly service fees it collected on gift cards. Since the plaintiff did not oppose the removal, the court accepted these facts as true and found jurisdiction proper. This cardholder’s story does not end there, though…there’s still arbitration to consider.
While American Express did secure federal jurisdiction, it did not persuade the court that the arbitration language contained inside the packaging was binding. Because the case was removed under CAFA–part of the diversity jurisdiction statute–the court applied Illinois state law (the law of the state in which it sits) to decide the choice-of-law issue and determined that Illinois law applied to the issue of contract formation.
Mr. Kaufman argued that the contract was formed at the time of purchase (before he read the inserts inside the packaging) and that, therefore, American Express added the arbitration agreement after the contract was finalized and it was not part of the contract. The court ultimately accepted this because it was unclear that Mr. Kaufman received “effective notice” of the terms of the cardholder agreement and because American Express did not provide explicit notice of the opportunity to reject the additional terms contained on the inside of the packaging and return the gift card if they were unacceptable. Because the court concluded that the contract was formed at the time of the sale and purchase, the arbitration agreement was not part of the contract and the action moved forward in the court, rather than in an arbitral forum.
Moral of the story: My life, my card, my fine print. Of note for all you out there following arbitration issues in addition to CAFA, though, this one’s not over yet; the action has been stayed pending American Express’s appeal to the Seventh Circuit, so stay tuned.