9th Circuit Remands Class Arbitration Waiver
The Ninth Circuit last week addressed choice of law considerations in the context of a class wide arbitration waiver. In Hoffman v. Citibank (South Dakota), N.A., the Ninth Circuit held that the district court's analysis of California choice of law was flawed, and remanded for the district court to re-analyze whether California or South Dakota law applies to the class arbitration waiver.
In Hoffman, Citibank issued a credit card to Hoffman in 1994 which contained a choice of law provision favoring South Dakota law. In a mailing in 2001, Citibank gave Hoffman notice of a change in the arbitration provision of the cardholder agreement, including a waiver of class arbitration. Hoffman did not object and continued to use the card.
Hoffman later sued Citibank, alleging that Citibank had improperly retroactively increased cardholders' interest rates, among other things. Citibank removed the case to federal court and moved to compel arbitration. The district court applied South Dakota law pursuant to the choice of law provision. Holding that the class arbitration waiver was not unconscionable under South Dakota law, the district court granted Citibank's motion to compel arbitration of plaintiff's claims on an individual basis. Hoffman moved to certify the ruling for immediate appeal. The district court granted the motion and the Ninth Circuit granted Hoffman's petition to be heard.
On appeal, the Ninth Circuit held that the district court did not properly analyze the choice of law question, which appeared to be dispositive of the arbitration issue. The arbitration provision appeared to be enforceable under South Dakota law, but the Ninth Circuit strongly suggested that if California law were to apply, the class arbitration waiver could be held substantively and procedurally unconscionable and unenforceable and, therefore, contrary to a fundamental policy of California.
Specifically, the Ninth Circuit remanded with instructions for the district court to consider the second step of the California choice of law analysis: "whether the enforceability of this class arbitration waiver under South Dakota law is contrary to a fundamental policy of California" against unconscionable class arbitration waivers.
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