On December 19, 2006, the Appellate Department of the Santa Clara County Superior Court handed down its opinion in MBNA America Bank, N.A. v. Gorman, ___ Cal.App.4th Supp. ___ (Dec. 12, 2006). On January 2, 2007, the court ordered the opinion published, and on February 13, 2007, the opinion was posted online along with the rest of the published appellate opinions. Because it is an opinion of a Superior Court's appellate department, it will appear in the Supplement to the Official Reports. Published Superior Court Appellate Division opinions are relatively rare. It seems that the operators of the appellate courts' website had to add an "Appellate Division" category to its pulldown menu in order to accommodate this case.
In any event, in this case, MBNA America Bank commenced an arbitration proceeding against one of its card holders, Mr. Gorman. After obtaining an arbitration award, the bank filed a petition in the trial court to confirm the award. Mr. Gorman opposed the petition by arguing that “under Badie v. Bank of America (1998) 67 Cal.App.4th 779, ‘a mailed insert or “bill stuffer” cannot serve as a waiver of the procedural right of trial by jury or as a basis for enforcement of an ADR clause by a unilaterally issued change in the original agreement.’” The trial court found this argument persuasive, and denied the petition to confirm the arbitration award. Slip op. at 2. Mr. Gorman then moved for attorneys' fees and costs. The trial court granted the motion and awarded over $23,000. The bank appealed. Id.
The Appellate Division affirmed the attorneys' fees award, holding that the award was proper both under the attorneys' fees provision in the credit card contract (which Civil Code section 1717 made reciprocal) and under the private attorney general doctrine of Code of Civil Procedure section 1021.5. Slip op. at 3-8. In reaching the latter conclusion, the Appellate Division determined that Mr. Gorman vindicated "an important public right" by obtaining a ruling that "bill stuffer inserts were not an enforceable means of waiving the procedural right of trial by jury," thus protecting that constitutionally-protected right. Id. at 6. Mr. Gorman also conferred a "significant public benefit" because the order he obtained "should effectively deter [the bank] from [enforcing the arbitration agreement] at least with regard to customers similarly situated to [Mr. Gorman]." Id. at 7. Finally, the court determined that the burden on Mr. Gorman of challenging the arbitration provision was disproportionate to his individual stake in the outcome, because even though the bank said it planned to sue Mr. Gorman in court to recover the debt, Mr. Gorman incurred attorneys' fees that were three times as high as the debt amount. Id. at 7-8.
The Appellate Division also affirmed the amount of the fees award, finding it reasonable, and further held that Mr. Gorman would be entitled to recover his attorneys' fees incurred on appeal. Id. at 11. While challenges to unconscionable arbitration clauses come up quite often in class action litigation, this decision certainly provides an incentive for credit card holders and other consumers to challenge such clauses even in individual actions.