Opinion
NOT TO BE PUBLISHED
Contra Costa County Super. Ct. No. C04-01986
RIVERA, J.
Robert C. Sam Walker (Walker) appeals from an order confirming an arbitration award in favor of Citibank (South Dakota), N.A. (Citibank). Walker, a Citibank card member, claims the trial court erred in granting Citibank’s motion to compel arbitration by applying South Dakota law. He contends the arbitration agreement is unenforceable under California law due to procedural and substantive unconscionability. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Card Agreement and Arbitration Provision
In or about 1996, Walker and Citibank entered into an agreement (the Card Agreement), whereby Citibank issued Walker a credit card. The Card Agreement contained a South Dakota choice of law provision. The Card Agreement also contained a provision permitting Citibank to amend the terms of the agreement.
In October 2001 Citibank mailed Walker a “change in terms” document in the same envelope as his monthly billing statement. On the billing statement Citibank printed in all capital letters, “Please see the enclosed change in terms notice for important information about the binding arbitration provision we are adding to your Citibank card agreement.” The new terms included an arbitration clause and class action waiver provision in bold print and all capital letters: “ARBITRATION: [¶] PLEASE READ THIS PROVISION OF THE AGREEMENT CAREFULLY. IT PROVIDES THAT ANY DISPUTE MAY BE RESOLVED BY BINDING ARBITRATION. ARBITRATION REPLACES THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY AND THE RIGHT TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING. IN ARBITRATION, A DISPUTE IS RESOLVED BY AN ARBITRATOR INSTEAD OF A JUDGE OR JURY. ARBITRATION PROCEDURES ARE SIMPLER AND MORE LIMITED THAN COURT PROCEDURES.”
The new terms also included the following explanation as to the effect of the class action waiver: “Claims and remedies sought as part of a class action, private attorney general or other representative action are subject to arbitration on an individual (non-class, non-representative) basis, and the arbitrator may award relief only on an individual (non-class, non-representative) basis.” “If you or we require arbitration of a Claim, neither you, we, nor any other person may pursue the Claim in arbitration as a class action, private attorney general action or other representative action, nor may such Claim be pursued on your or our behalf in any litigation in any court. . . .”
Also included in the agreement to arbitrate was an opt-out provision, allowing the card member to decline to accept the arbitration agreement and to continue to use his or her account under the existing terms until the end of his or her current membership year or the expiration date on the card, whichever was later. The nonacceptance instructions further advised the card member: “At that time your account will be closed and you will be able to pay off your remaining balance under your existing terms.”
In addition, the arbitration clause provided that any dispute involving the Card Agreement was to be governed by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and applicable substantive law. Walker failed to notify Citibank that he did not wish to accept the arbitration agreement.
Walker’s November 2001 statement again notified him about the amendment to the Card Agreement by stating in all capital letters on the first page: “WITHIN THE LAST 30 DAYS YOU SHOULD HAVE RECEIVED AN IMPORTANT NOTICE ABOUT ADDING BINDING ARBITRATION TO YOUR CITIBANK CARD AGREEMENT. IF YOU WOULD LIKE ANOTHER COPY PLEASE CALL THE CUSTOMER SERVICE NUMBER LISTED ABOVE.”
B. Balance Transfers
In or about October 2001, Citibank sent Walker an offer to transfer the balances he owed on other credit cards to his Citibank account in return for an interest rate of 4.9 percent until the balances were paid in full. On October 5, 2001, Walker accepted the offer and transferred $10,000 from other credit card accounts to his Citibank account.
In or about November 2001, Citibank sent Walker a second balance transfer offer. Pursuant to this offer, the transfer balances would be maintained by Citibank at a rate of 3.9 percent until the transferred balances were fully paid. On November 20, 2001, Walker accepted the offer and transferred $9,500 owed on other credit cards to his Citibank account.
C. Citibank’s Collection Action and Walker’s Cross-complaint
In April 2004, Citibank filed a collection action against Walker seeking to collect the balance owed ($28,074.26) on Walker’s credit card account. In May 2004, Walker filed an answer, in which he alleged numerous affirmative defenses, including that Citibank engaged in fraudulent conduct.
Walker also filed a cross-complaint against Citibank, individually “and on behalf of . . . the general public,” alleging Citibank “engaged in intentional, deliberate, unlawful, fraudulent, unfair, and malicious conduct” in the course of its collection efforts. The cross-complaint alleges, inter alia, that Citibank failed to advise cardholders that the promised low interest rates for transfer balances could be cancelled without notice upon the cardholder’s first late payment. The cross-complaint asserts the following causes of action: (1) fraud; (2) fraud: promise without intent to perform; (3) unfair competition (Bus. & Prof. Code, § 17200 et seq.); (4) false advertising (Bus. & Prof. Code, § 17500 et seq.); (5) violation of the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.); (6) violation of the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.); (7) declaratory relief; (8) intentional infliction of emotional distress; and (9) negligent infliction of emotional distress.
In June 2004, Citibank answered the cross-complaint. Citibank denied any wrongdoing and asserted numerous affirmative defenses, including that Walker agreed to arbitrate all of the claims asserted in the cross-complaint.
On appeal, the parties do not dispute the claims raised are within the scope of the arbitration provision. To the extent Walker argues for the first time in his reply brief that his unfair competition and false advertising claims are nonarbitrable, we decline to address such untimely claims. (See, e.g., Heiner v. Kmart Corp. (2000) 84 Cal.App.4th 335, 351; Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10.)
D. Citibank’s Motion to Compel and Subsequent Arbitration
In September 2004, Citibank filed a motion to compel Walker to arbitrate his action on an individual rather than a representative basis, citing the arbitration clause and class action waiver provision in the October 2001 change in terms document. Citibank argued there was a valid and enforceable agreement under the FAA and South Dakota law. Walker opposed the motion, arguing the choice of South Dakota law provision did not apply to his tort and statutory claims, which he claimed were unrelated to the enforcement of the Card Agreement. He further argued that he never agreed to arbitrate his claims and that under California law the arbitration provision was procedurally unconscionable because it was unilaterally imposed on a “take it or leave it” basis in a bill stuffer. Walker also asserted that the agreement was substantively unconscionable by reason of Citibank’s ability to first sue a cardholder in court and then prevent that cardholder from bringing his or her claims into court.
On February 9, 2005, the trial court found the Card Agreement contained a valid and enforceable arbitration agreement under the FAA, which encompassed the claims asserted in the cross-complaint. The court determined the Card Agreement contained a valid and enforceable South Dakota choice of law provision that controlled any enforceability or unconscionability defenses to the arbitration agreement. The court ruled that Citibank acted in compliance with South Dakota law when it amended Walker’s Card Agreement with the change in terms notice; the court noted Walker did not opt out of the arbitration agreement. Finding the arbitration agreement to be neither unenforceable nor unconscionable under South Dakota law, the trial court granted Citibank’s motion to compel and stayed the action pending completion of the arbitration process.
In May 2005, Citibank initiated arbitration before the National Arbitration Forum. Walker responded and filed a counterclaim. In April 2006, after consideration of the parties’ written submissions, the arbitrator found in favor of Citibank and awarded it $30,390.26. The arbitrator also dismissed Walker’s counterclaim with prejudice.
In August 2006, Citibank petitioned for confirmation of the award. Walker filed a declaration in opposition, again asserting that he never agreed to arbitration and that the arbitration provision was unconscionable and unenforceable. In February 2007, the trial court confirmed the arbitration award and entered judgment in favor of Citibank. This timely appeal followed.
II. DISCUSSION
A. Arbitration Principles and Standard of Review
Under federal law, an arbitration provision is “valid, irrevocable, and enforceable” except on legal or equitable grounds which properly apply to all contracts. (9 U.S.C. § 2; Perry v. Thomas (1987) 482 U.S. 483, 492, fn. 9; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98 (Armendariz).) The purpose and effect of the federal law is to encourage the arbitration of civil disputes outside the judicial forum. (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24-25 (Gilmer); Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25.) There is a liberal policy in favor of arbitration agreements under federal and state law. (Gilmer, supra, 500 U.S. at p. 25; Armendariz, supra, 24 Cal.4th at p. 97; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) “ ‘[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. [Citation.]’ ” (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 626; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 384.)
State law is applied to determine the validity of an arbitration agreement so long as the legal principles at issue are applicable to contracts generally. (Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687; see also Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 164-165 (Discover Bank).) When, as here, there are no material facts in dispute, we review the trial court’s unconscionability and choice-of-law determinations de novo. (Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099 [unconscionability determination]; NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71 [same]; see also Hughes Electronics Corp. v. Citibank Delaware (2004) 120 Cal.App.4th 251, 257 [choice of law]; Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1539, fn. 4 [same].)
B. The Class Action Waiver Is Not Unconscionable
Citing Discover Bank, supra, 36 Cal.4th 148, Walker argues that “California courts . . . have found arbitration provisions substantively unconscionable in most instances where they contain a waiver of the right to bring a class or private attorney general action.” Thus, according to Walker, the “purported waiver of his right to bring a class action or an action on behalf of the public under the private attorney general doctrine” is unenforceable as a matter of law.
We hesitate even to consider this argument because it has been waived. In the trial court, Walker failed to object to the purportedly illegal class action waiver, thereby forfeiting the issue on appeal. (See Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 236-237 [appellate court would not entertain new theory raised for first time on appeal].) On appeal, Walker only nominally addresses the legality of the class action waiver. (See Duarte v. Chino Community Hospital (1999) 72 Cal.App.4th 846, 856 [argument may be deemed waived due to inadequate briefing].)
In opposing the motion to compel arbitration, Walker argued that the choice of law and arbitration provisions did not encompass his individual tort claims. Walker did not argue the arbitration provision was unenforceable due to the class action waiver, but argued that the arbitration provision was unconscionable because it was unilaterally added by a bill stuffer and was unfairly one-sided in favor of Citibank.
Moreover, the argument is irrelevant. Notwithstanding Walker’s insertion of generic unfair competition, false advertising, and unfair debt collection claims purportedly brought “on behalf of . . . the general public,” the cross-complaint does not allege any viable class action claims.
Nevertheless, even accepting the doubtful proposition that Walker’s cross-complaint adequately pleads a representative action, we are prepared to address the merits, and may do so even on a waived argument if, as here, it involves a pure question of law. (See Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 24.)
Walker cites to Discover Bank as holding that a class action waiver is unenforceable “as a matter of law.” Not so. In Discover Bank, our Supreme Court held that a waiver of class arbitration in a consumer contract of adhesion is unconscionable under certain circumstances. (Discover Bank, supra, 36 Cal.4th at p. 153.) In reaching this conclusion, the court was careful to qualify its holding, explaining that “not . . . all class action waivers are necessarily unconscionable.” (Id. at p. 162.)
In Gentry v. Superior Court (2007) 42 Cal.4th 443, 462 (Gentry), our Supreme Court had another opportunity to declare class action waivers to be categorically unconscionable but declined to do so. Addressing the issue of class action arbitration waivers in overtime cases, the court held that such waivers should not be enforced “if a trial court determines . . . that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” (Id. at p. 450.) Thus, Gentry makes clear that a class action waiver in an arbitration agreement will be invalidated “after the proper factual showing.” (Id. at p. 466.) Here, Walker has not even attempted to establish that class litigation or arbitration would be a more effective resolution of the claims asserted in his cross-complaint than individual litigation or arbitration.
C. The Arbitration Agreement Is Not Unconscionable
Walker contends that the arbitration agreement is unenforceable due to unconscionability under California law. Citibank, on the other hand, asserts that California law is irrelevant, in view of the valid choice of South Dakota law provision. Alternately, Citibank argues that even if California law applies, the arbitration agreement is nevertheless valid and enforceable. We agree that even under California law, the arbitration agreement is not unconscionable or unenforceable.
By reason of our conclusion that the arbitration agreement is not unconscionable under California law, we need not engage in a choice of law analysis.
“Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules—legislative or judicial—operate to render it [unenforceable].’ [Citation.] ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party will not be enforced against him. [Citations.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or “unconscionable.” ’ [Citation.] . . . [C]ases have referred to both the ‘reasonable expectations’ and the ‘oppressive’ limitations as being aspects of unconscionability. [Citation.]” (Armendariz, supra, 24 Cal.4th at p. 113.)
As explained in Armendariz, “ ‘unconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining power, the latter on ‘ “overly harsh” ’ or ‘ “one-sided” ’ results. [Citation.] ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.)
Applying the above principles to this case, we conclude the arbitration agreement was not unconscionable. First, the record reflects that there was no surprise or fine print associated with the arbitration agreement. Walker’s October 2001 statement provided this notice, in all capital letters, on the first page: “PLEASE SEE THE ENCLOSED CHANGE IN TERMS NOTICE FOR IMPORTANT INFORMATION ABOUT THE BINDING ARBITRATION PROVISION WE ARE ADDING TO YOUR CITIBANK CARD AGREEMENT.” Walker’s November 2001 statement further highlighted the amendment by stating, again in all capital letters on the first page: “WITHIN THE LAST 30 DAYS YOU SHOULD HAVE RECEIVED AN IMPORTANT NOTICE ABOUT ADDING BINDING ARBITRATION TO YOUR CITIBANK CARD AGREEMENT. IF YOU WOULD LIKE ANOTHER COPY PLEASE CALL THE CUSTOMER SERVICE NUMBER LISTED ABOVE.” The change in terms notice is also prominently labeled in large, bold font and includes instructive headings for various subjects, including instructions for nonacceptance.
Relying on Discover Bank, Walker argues that the unilateral change in terms using a “bill stuffer” is unconscionable. In Discover Bank, the court concluded that “an element of procedural unconscionability is present” when “a consumer is given an amendment to its cardholder agreement in the form of a ‘bill stuffer’ that he would be deemed to accept if he did not close his account . . . .” (Discover Bank, supra, 36 Cal.4th at p. 160.) Here, although the change was made in a “bill stuffer,” Walker was given an opportunity to opt out of arbitration. By opting out of the amendment, Walker would have been permitted to use his card until it expired, at which time he would have been able to pay off his balance under the existing terms. This does not present the same take it or leave it scenario found to be procedurally unconscionable in Discover Bank. Moreover, Discover Bank does not stand for the proposition that “bill stuffer” amendments are per se unconscionable. Rather, it focuses on the take it or leave it nature of the contractual modification. (See id. at pp. 159-163.)
Walker suggests that the arbitration clause is, nonetheless, procedurally unconscionable because the opt-out feature was meaningless in his case, as he had transferred $19,500 to his Citibank card in reliance on the low interest rate offer, and if he opted out he would be forced to pay off the balance on “existing terms.” According to Walker, this means he would be “stuck paying the higher interest rate on the balance he had transferred.” Walker provides no basis for his interpretation that a higher interest rate would apply, which is contrary to the plain language of the contract.
To the extent Walker insists the opt-out provision was “meaningless” in his case, we note this may be because he made a late payment, which caused the low transfer balance interest rate to be increased. In other words, had Walker made timely payments the “existing terms” at the time he could exercise the opt-out provision would have included the low transfer balance interest rates.
Citing Gentry, Walker further argues that “an opt-out feature . . . do[es] not cure the invalidity of the arbitration provision.” Gentry does state that an arbitration agreement can have an element of procedural unconscionability notwithstanding an opt-out provision. (Gentry, supra, 42 Cal.4th at pp. 471-472.) In Gentry, however, the employer made it unmistakably clear that it wanted its employees to participate in arbitration, which put the employees under pressure not to opt out. (Ibid.) Here, there is no evidence Citibank pressured Walker not to exercise his right to opt out.
In sum, the arbitration agreement in this case is not procedurally unconscionable.
We similarly conclude that the arbitration agreement is not substantively unconscionable. Walker insists that the provision is “decidedly one-sided.” The arbitration agreement, however, allows either party, without the other party’s consent to “elect mandatory, binding arbitration for any claim, dispute, or controversy between” Citibank and a cardholder. Thus, Walker was authorized to elect arbitration following the filing of Citibank’s complaint, to the same extent that Citibank was permitted to seek arbitration following the filing of Walker’s cross-complaint. Walker nevertheless maintains that the arbitration provision effectively allows a “huge credit card company [first] to sue an account holder in court” and then, subject to the company’s predilection, prevent the cardholder from bringing his related claims into court. Even assuming arguendo that the arbitration provision has a certain “race to the courthouse” quality, in order for an arbitration provision to be unenforceable both substantive and procedural unconscionability must be present. (Armendariz, supra, 24 Cal.4th at p. 114.) Here, however, there is no procedural unconscionability. Thus, to the extent some degree of substantive unconscionability is arguably present, the arbitration agreement is nevertheless enforceable.
D. Citibank Did Not Waive Its Right to Arbitration
Walker claims that Citibank waived its right to elect arbitration by filing its complaint in state court. This claim is without merit. As an initial matter, the plain language of the arbitration provision states that “[a] party who initiates a proceeding in court may elect arbitration with respect to any Claim advanced in that proceeding by any other party.” Thus, Citibank, as the party initiating the collection action in superior court, was expressly authorized to elect arbitration following the filing of Walker’s cross-complaint.
Moreover, to establish waiver under the FAA, Walker must prove (1) Citibank’s knowledge of the right to compel arbitration, (2) acts inconsistent with that right, and (3) resulting prejudice. (See Chappel v. Laboratory Corp. of America (9th Cir. 2000) 232 F.3d 719, 724.) Waiver of a contractual right to arbitration is disfavored and “[a]ny examination of whether the right to compel arbitration has been waived must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements. [Citations.]” (Fisher v. A.G. Becker Paribas Inc. (9th Cir. 1986) 791 F.2d 691, 694.) Walker bears a “ ‘heavy burden of proof’ ” in demonstrating that Citibank has waived its arbitration rights. (Van Ness Townhouses v. Mar Industries Corp. (9th Cir. 1988) 862 F.2d 754, 758.)
Walker has established the first element of the three-pronged test used to determine whether a party has waived its right to compel arbitration under a contract. Clearly, Citibank, as the proponent of the arbitration provision, knew that it had the right to compel arbitration.
Walker, however, has failed to establish the remaining two prongs of the waiver analysis. Citibank’s election to file suit in superior court is not inconsistent with its rights to compel arbitration. The plain language of the arbitration provision allows the party initiating a proceeding in court subsequently to elect arbitration regarding any claim advanced in that proceeding by any other party.
In any event, even assuming arguendo that Citibank has acted inconsistently, Walker has failed to establish any resulting prejudice. The “ ‘prejudice that a party must suffer from arbitration itself is not enough to satisfy’ [citation]” the waiver analysis. (Bischoff v. DirecTV, Inc. (C.D.Cal. 2002) 180 F.Supp.2d 1097, 1113.) Rather, the requisite prejudice must be demonstrated from the inconsistent acts. (Ibid.) Walker has not made any such showing.
Accordingly, Walker has failed to establish that Citibank waived its right to compel arbitration.
III. DISPOSITION
The order granting the motion to compel arbitration is affirmed. Citibank is entitled to its costs on appeal.
We concur: RUVOLO, P.J., SEPULVEDA, J.