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Pleasants v. American Express Company: CREDIT | ARBITRATION - no error making plaintiff arbitrate Truth in Lending Act claim; class-action waiver not unconscionable;

1The Honorable Lawrence L. Piersol, United States District Judge for the
District of South Dakota, sitting by designation.
United States Court of Appeals
No. 07-3235
Chrystin Pleasants, individually and on *
behalf of all others similarly situated, *
Appellant, **
Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
American Express Company, a New *
York Corporation; American Express *
Incentive Services, a Missouri limited *
liability corporation, *
Appellees. *
Submitted: June 13, 2008
Filed: September 9, 2008
Before LOKEN, Chief Judge, COLLOTON, Circuit Judge, and PIERSOL,1 District
COLLOTON, Circuit Judge.
Chrystin Pleasants filed suit on behalf of herself and a putative class, alleging
that American Express Company and American Express Incentive Services (AEIS)
2 The Honorable Carol E. Jackson, Chief Judge, United States District Court for
the Eastern District of Missouri.
violated the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., by issuing preloaded,
stored-value cards without making the disclosures required under the TILA.
The district court2 dismissed American Express Company, without objection from
Pleasants, because it was not a creditor under TILA. AEIS moved to compel
Pleasants to arbitrate her claims on an individual basis, as provided for in the contract
between the parties. The district court granted the motion, and Pleasants appeals,
arguing that the contracts class-action waiver is unconscionable. We affirm.
In 2005 and 2006, AEIS sent Pleasants three pre-paid or pre-loaded cards in
exchange for Pleasantss participation in online surveys. The cards, which had values
of , , and , could be used to make purchases at establishments that accepted
American Express credit cards. Accompanying each card was a document entitled,
Card Terms and Conditions, which stated in relevant part:
Participant Agreement
1. Please read the following information governing this Card and
retain for your records. Please sign the Card immediately. By accepting
and retaining the Card, singing the Card or using the Card, you agree to
all the terms and conditions in this participant agreement . . . .
. . . .
. . . .
3 Pleasants claims that to the best of [her] recollection she did not receive the
Terms and Conditions page containing the arbitration provision. AEIS submitted a
copy of the complete Terms and Conditions and asserted that it sent this agreement
Initiation of Arbitration Proceeding/Selection of
Administrator. Any Claim shall be resolved, upon the election by you
or us, by arbitration pursuant to this Arbitration Provision and the code
of procedures of the national arbitration organization to which the Claim
is referred in effect at the time the Claim is filed . . . .
. . . .
Significance of Arbitration: IF ARBITRATION IS CHOSEN
Restrictions on Arbitration. If either party elects to resolve a
Claim by arbitration, that Claim shall be arbitrated on an individual
basis. There shall be no right or authority for any Claims to be arbitrated
on a class action basis or on bases involving Claims brought in a
purported representative capacity on behalf of the general public, other
Cardholders or other persons similarly situated. The arbitrators
authority to resolve Claims is limited to Claims between you and us
alone. Furthermore, Claims brought by you against us or by us against
you may not be joined or consolidated in arbitration with Claims brought
by or against someone other than you, unless otherwise agreed to in
writing by all parties.
(J.A. 49) (emphasis in original).3
with every card. The district court found that AEIS had created a presumption that
[Pleasants] received the arbitration clause, and that Pleasantss contention that she
does not remember receiving the second page of the Terms and Conditions is not
sufficient to overcome this presumption. Pleasants v. Am. Express Co., No. 4:06-
CV-1516, 2007 WL 2407010, at *3-4 (E.D. Mo. Aug. 17, 2007). Pleasants does not
challenge this conclusion on appeal.
According to Pleasants, on June 18, 2006, she used the cards to pay a bill of
at a restaurant. At the time, the three cards had a total value of .29, but the
restaurant processed one or more of the cards for more than their stored value. On
June 22, 2006, AEIS requested that Pleasants pay the difference within ten days.
A month later, AEIS sent Pleasants another letter requesting that she pay the
difference, a late fee, and a transaction fee. This demand came pursuant to
the terms and conditions of the agreement, which state that [i]f, for any reason
whatsoever, a transaction is processed despite insufficient available points on the Card
. . . you agree to reimburse us, upon request, and we reserve the right to charge a
Shortage fee of per transaction every time your use of the Card results in a
Pleasants disputed the charge, and when AEIS continued its collection efforts,
Pleasants brought this lawsuit on behalf of herself and others similarly situated,
claiming that AEIC violated the TILA and Federal Reserve Board Regulation Z, 12
C.F.R. 226 et seq. Pleasants alleged, in part, that AEIS falsely and misleadingly
represented that its preloaded, stored value Cards were not and could not be used as
credit or charge cards, when in fact [AEIS] intended to extend credit to a cardholder
if the cardholder exceeds the pre-loaded value. Pleasants sought injunctive relief,
actual and statutory damages, attorneys fees, and other costs.
AEIS moved to compel arbitration on an individual basis as provided in the
terms and conditions of the card agreement and the Federal Arbitration Act (FAA),
9 U.S.C. 1 et seq. Pleasants then filed a motion to stay the resolution of AEISs
motion to compel to allow the parties to engage in discovery related to the validity of
the arbitration clause. Among other things, Pleasants claimed that she intended to
argue that the contract was unconscionable, and that she needed to conduct discovery
as to whether studies were performed as to the readability of the arbitration clause,
how many consumers [sic] disputes have been arbitrated under the agreement, and
how many contracts exist in which [AEIS] included the arbitration clause. The
district court denied Pleasantss motion, concluding as follows:
It may very well be that, after reviewing [AEISs] motion, the court finds
that it cannot come to a conclusion without additional information. In
that event, the Court will not hesitate to order limited discovery.
However, it may also be the case that [AEISs] motion clearly shows that
the dispute must be submitted to arbitration. In that instance, no
additional information would be helpful and the cost of discovery would
prove to be unnecessary.
(J.A. 111).
Pleasants then filed her response to AEISs motion to compel, arguing that the
class-action waiver in the arbitration agreement was substantively and procedurally
unconscionable. She argued that it was substantively unconscionable because claims
of this type involve small recoveries for which consumers are unlikely to arbitrate
absent the class device, and procedurally unconscionable because AEIS had superior
bargaining power, presented the arbitration clause on a take-it-or-leave-it basis, and
did not send the agreement to Pleasants until after she had completed the surveys.
The district court concluded that the class-action waiver was not
unconscionable and compelled Pleasants to submit her claim to arbitration on an
individual basis. The court recognized that the amount in controversy was small, but
reasoned that Pleasants could vindicate her rights without the class action mechanism,
because [u]nder TILAs remedial provision, 15 U.S.C. 1640(a)(3), [Pleasants], if
successful, is entitled to the costs of the action, together with a reasonable attorneys
fee as determined by the court. Pleasants v. Am. Express Co., No. 4:06-CV-1516,
2007 WL 2407010, at *5 (E.D. Mo. Aug. 17, 2007). The court also concluded that
there was little, if any, procedural unconscionability present in this matter. Id. at *4.
The court noted that the class-action waiver was in all-caps font and found that the
conspicuous manner in which the arbitration clause was presented distinguishes this
case from those which found the clauses invalid. Id.
We review de novo the district courts decision to compel arbitration. Pro
Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 870 (8th Cir. 2004). Under the FAA,
written agreements to arbitrate are valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C.
2. State-law contract defenses, such as fraud, duress, or unconscionability, may be
applied to invalidate arbitration agreements, Doctors Assoc., Inc. v. Casarotto, 517
U.S. 681, 687 (1996), if that law arose to govern issues concerning the validity,
revocability, and enforceability of contracts generally. Id. at 686-87 (emphasis in
Pleasants argues that under Missouri law, the class-action waiver contained in
the arbitration clause is unconscionable and thus unenforceable. Missouri courts have
described an unconscionable agreement as one in which no man in his senses and not
under delusion would make, on the one hand, and as no honest and fair man would
accept on the other, or one where there is an inequality so strong, gross, and
manifest that it must be impossible to state it to one with common sense without
producing an exclamation at the inequality of it. Smith v. Kriska, 113 S.W.3d 293,
298 (Mo. Ct. App. 2003) (internal quotations omitted). Missouri law requires that for
a contract to be voided on this basis, it must be both procedurally and substantively
unconscionable, although not necessarily in equal amounts. Kansas City Urology,
P.A. v. United Healthcare Services, Nos. WD 67814, WD 67815, 2008 WL 272613,
at *6 (Mo. Ct. App. 2008). Procedural unconscionability in general is involved with
the contract formation process, and focuses on high pressure exerted on the parties,
fine print of the contract, misrepresentation, or unequal bargaining position. Whitney
v. Alltel Commcn, Inc., 173 S.W.3d 300, 308 (Mo. Ct. App. 2005) (internal
alternation and quotations omitted). Substantive unconscionability refers to an undue
harshness in the contract terms themselves. Id.
In Whitney, the Missouri Court of Appeals determined that an arbitration
provision containing a class-action waiver was unconscionable. The plaintiff,
Whitney, had been a wireless telephone customer of Alltel since 1995. Id. at 304. In
2000, Alltel sent Whitney his monthly bill with a list of terms and conditions on the
back. Id. The terms altered the parties contract and stated that a customers use of
Alltel services subsequent to receipt of the new Terms and Conditions would be
deemed to constitute acceptance of those terms. Id. One of the new terms required
the parties to arbitrate, on an individual basis, any dispute arising out of their
agreement. Id. Each party was required to bear the costs of preparing and
prosecuting its case. Id. In 2002, Whitney filed a lawsuit asserting that Alltel had
violated Missouris Merchandising Practices Act by improperly including a line item
charge of .88 per month for a Regulatory Cost Recovery Fee. Id. (internal
citation omitted). Alltel moved to compel arbitration. Id.
The Missouri Court of Appeals concluded that the arbitration clause was
substantively unconscionable, because it contained a provision which prohibited an
award of any incidental, consequential, punitive, or exemplary damages as well as
attorneys fees, and prohibited class actions and required the customer to bear the
costs of arbitration, thereby limiting Whitney and other customers to a forum where
the expense of pursuing most claims related to incorrect billing would far exceed the
amount in controversy. Id. at 313. The court noted that the costs of litigating the
dispute under this agreement would be so prohibitively expensive as to preclude, for
all practical purposes, an aggrieved party from seeking redress for a violation of the
Merchandising Practices Act. Id. at 314. The court also concluded that aspects of
procedural unconscionability were present, in that Alltel sent the arbitration clause
to Whitney on a take-it-or-leave-it basis, Alltel was in a superior bargaining position,
there was no negotiation between the parties, and the arbitration provision was in fine
print on the back side of a sheet sent to Whitney with his regular bill. Id. at 310.
Pleasants argues that the class-action waiver in this case is functionally
identical to the waiver in Whitney, and therefore unconscionable and unenforceable
under Missouri law. The decision of an intermediate state appellate court is not
binding on a federal court that seeks to determine state law, see Cotton v. Commodore
Exp., Inc., 459 F.3d 862, 864 (8th Cir. 2006), and we do not know whether the
Supreme Court of Missouri would adopt the reasoning of Whitney in its entirety. In
any event, there is at least one important difference between this case and Whitney.
The arbitration clause in this case does not limit Pleasantss remedies. Under the
TILA, a prevailing plaintiff may recover attorneys fees, costs, statutory damages (up
to ,000), and actual damages. 15 U.S.C. 1640(a)(1)-(4). The court in Whitney
relied heavily on the concern that because the arbitration clause prohibited an award
of attorneys fees or any incidental, consequential, punitive, or exemplary damages,
173 S.W.3d at 313, and because most of the disputes arising out of the contract would
involve small dollar values, any award could not possibly approach the amount that
would have to be expended in arbitrating the action. Id. at 314. In this case,
Pleasantss total recovery of attorneys fees, costs, and statutory damages of 00
would likely exceed the costs of pursuing her claim. Enforcing the agreement under
the circumstances of this case, therefore, does not lead to an unconscionable result.
Indeed, Whitney itself distinguished the circumstances of that case from decisions in
which courts have upheld class-action waivers in cases arising under the TILA.
Whitney, 173 S.W.3d at 313 nn. 9-10 (distinguishing Snowden v. CheckPoint Check
Cashing, 290 F.3d 631, 638 (4th Cir. 2002), Randolph v. Green Tree Fin. Corp, 244
F.3d 814, 818 (11th Cir. 2001), and Johnson v. West Suburban Bank, 225 F.3d 366,
373-74 (3d Cir. 2000)).
Therefore, we agree with the district court that the class-action waiver is not
substantively unconscionable under these circumstances. We further agree with the
district court that there are not strong indicia of procedural unconscionability, given
the conspicuous manner in which the class-action waiver appeared. The agreement
is thus enforceable, and the district court correctly granted the motion to compel
Pleasants to arbitrate her claim on an individual basis.
Because we conclude that the waiver is not unconscionable, Pleasantss
argument that the district court erred in denying her discovery order is without merit.
We review the district courts order for an abuse of discretion, allowing the court
great latitude in discovery matters. Executive Air Taxi Corp. v. City of Bismarck,
518 F.3d 562, 570 (8th Cir. 2008) (internal quotation omitted). Pleasants argues that
she should be allowed to conduct discovery on how many consumer disputes have
been arbitrated under the agreement, and how many contracts exist in which AEIS
included the arbitration clause. But Missouri law requires Pleasants to show that the
costs of proceeding were prohibitively expensive in her case, and whether other
consumers have elected to arbitrate claims under other contracts is not material to the
determination of Pleasantss claim. Pleasants also argues that she should have been
allowed to conduct discovery on any readability studies that AEIS may have
conducted with respect to its arbitration agreement, on the theory that some companies
draft an arbitration clause so that consumers will not understand it. [Bl. Br. 43]. This
agreement states clearly, however, that [i]f either party elects to resolve a Claim by
arbitration, that Claim shall be arbitrated on an individual basis, and we do not see
how AEISs motives or the results of a study could alter that evident clarity. This
proposed discovery, moreover, relates only to procedural unconscionability, and in
view of our conclusion that the agreement is not substantively unconscionable, and
error in limiting discovery on procedural matters was harmless.
* * *
The judgment of the district court is affirmed.


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