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Wold v. Dell Financial Services, L.P.: US District Court : CONTRACT | ARBITRATION - shrink-wrap arbitration agreements; presumed receipt with normally accompanying papers

Thomas J. Lyons, Jr. and Trista M. Roy, Consumer Justice Center PA, Counsel for
Charles F. Webber and Christina Rieck Loukas, Faegre & Benson LLP, Counsel
for Defendant.
This case came before the Court on Defendant Dell Financial Services
(DFS) Motion to Compel Arbitration and Stay Proceedings. [Docket No. 5.]
DFS brings its motion under the Federal Arbitration Act, 9 U.S.C. 3 and 4. The
Court heard oral argument on October 31, 2008.
a. Factual Background
On July 2, 2002, Plaintiff Eric Wold purchased a Dell computer over the
telephone. (Wold Aff. 2.) According to the Complaint, in order to finance the
purchase of the computer, Wold enrolled in a consumer credit agreement with
DFS. (Compl. 4.) Wold paid off the account in full before May 10, 2004. (Id.
7.) At some point prior to May 10, 2004, DFS began reporting to the national
credit agencies that Wolds account was included in a bankruptcy. (Id. 8.)
Wold, however, has never filed for bankruptcy. (Id. 6.) On May 10, 2004,
Wold alerted DFS to the mistake and DFS stated that the account would be
correctly reported to the credit agencies immediately. (Id. 11.) Despite Wolds
continued monitoring of the situation, DFS intermittently reported the incorrect
information over the next few years. (Id. 12‐15.)
When a consumer applies over the phone for financing through DFS,
DFSs standard business practice is for the telephone representative to notify the
consumer that DFS will mail him or her the full credit agreement for the account.
(Kirkwood Decl. 4‐5.) The representative also tells the consumers that they
have 24 hours to review the agreement and reject the terms if they desire to do
so. (Id. 5) The DFS representative also, among other things, offers to fax or
email a copy of the credit agreement to the consumer. (Id.) Within 48 hours of
approving a credit application, it is DFSs policy to send a Welcome Package to
the consumer that includes a copy of the credit agreement. (Id.) The standard
agreement includes an arbitration clause that states in part:
. . . .
(Id. Ex. A.) The relevant arbitration clause provides that it survives termination
of a consumers credit account and the repayment of all amounts that he or she
owes on the account. (Id.)
b. The Dispute
The Complaint alleges two causes of action: violation of the Fair Credit
Reporting Act; and credit defamation. Wold seeks a jury trial on these two
On July 14, 2008, DFS filed a Motion to Compel Arbitration and Stay
Proceedings [Docket No. 5]. In support of its motion, DFS argues that Wold is a
party to the arbitration clause of its standard credit agreement. In response,
Wold claims that he never received the credit agreement containing the
arbitration clause and that, if he did, he would have never agreed to the terms of
the credit. Because of his claim that he did not receive and assent to the
arbitration clause of DFSs standard credit agreement, Wold argues that there is
no valid arbitration agreement between himself and DFS. In addition, Wold
argues that the arbitration agreement is unenforceable because it is
c. Legal Standard
Arbitration is a matter of contract between the parties, and a court can only
compel arbitration of claims that the parties have agreed to arbitrate. See
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995). There is a
strong federal preference toward enforcing arbitration agreements. Johnson v.
Hubbard Broad., Inc., 940 F. Supp. 1447, 1453 (D. Minn. 1996); see Moses H. Cone
Meml Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The validity of an
arbitration agreement is determined by state contract law. See Lyster v. Ryans
Family Steak Houses, Inc., 239 F.3d 943, 946 (8th Cir. 2001).
A court asked to stay proceedings and compel arbitration must ask two
questions: 1) whether an arbitration agreement exists; and 2) whether the dispute
falls within the terms of the arbitration agreement. See Gannon v. Circuit City
Stores, Inc., 262 F.3d 677, 680 (8th Cir. 2001). Once a court concludes that the
parties have reached such an agreement, the FAA compels judicial enforcement
of the arbitration agreement. Id. Wold does not challenge whether the dispute
falls within the terms of the arbitration agreement and so DFS does not address
that issue in its brief. (See Def.s Reply Mem. at 3, n.1.) In either event, the Court
finds that the dispute clearly falls within the terms of the arbitration agreement.
d. Whether an Arbitration Agreement Exists
In order to establish whether a valid arbitration agreement exists, courts
apply ordinary state law principles governing the formation of contracts. See
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). The terms of
the standard DFS arbitration agreement dictate that Utah law is to be applied to
any claims arising under the agreement. (See Kirkwood Decl. Ex. A.) Utah law
A credit agreement is binding and enforceable without any signature
by the party to be charged if:
(i) the debtor is provided with a written copy of the terms of the
(ii) the agreement provides that any use of the credit offered shall
constitute acceptance of those terms; and
(iii) after the debtor receives the agreement, the debtor, or a person
authorized by the debtor, requests funds pursuant to the credit
agreement or otherwise uses the credit offered.
Utah Code Ann. 25‐5‐4(2)(e) (2008).
Wold argues that Utah law should not apply to his claims and the
arbitration agreement is invalid because he never received the agreement. While
he does admit that he received a Welcome Package from DFS, Wold says that
the credit agreement was not included in those materials. Because of his claim
that he never received the agreement, Wold argues that he cannot be held to the
Courts routinely enforce so‐called shrinkwrap accept‐or‐return
arbitration agreements. See Seibert v. Amateur Athletic Union of U.S., Inc., 422
F. Supp. 2d 1033, 1039‐40 (D. Minn. 2006); see also Hill v. Gateway 2000, Inc., 105
F.3d 1147, 1150 (7th Cir. 1997) (finding a shrinkwrap arbitration clause to be valid
and enforceable). In Hill, the plaintiff ordered a Gateway computer over the
phone. The computer arrived with a list of terms and conditions that included
an arbitration clause providing that the terms and conditions applied unless Hill
returned the computer within thirty days. Hill kept the computer and later sued
Gateway regarding the computers performance. Gateway moved to compel
arbitration. The district court denied the motion on the ground that the
arbitration clause did not bind Hill because he did not sign it. The Seventh
Circuit Court of Appeals vacated the district courts ruling, holding that the
arbitration clause was enforceable against Hill because [a] vendor, as master of
the offer, may invite acceptance by conduct, and may propose limitations on the
kind of conduct that constitutes acceptance. A buyer may accept by performing
the acts the vendor proposes to treat as acceptance. Hill, 105 F.3d at 1149
(citations omitted).
Wold argues that the facts in Hill are distinguishable from the facts in his
case. In Hill, there was no dispute that the plaintiff received a copy of the
contract terms that included the arbitration clause. Here, Wold denies ever
having received a similar document. In addition, Wold argues that case law in
favor of enforcing accept or return agreements necessarily requires receipt of
the agreement and that Wold never received the agreement in this case.
The essence of the dispute between the two parties, then, is whether the
Court must be satisfied that Wold actually received the documents that DFS
claims it sent as a matter of business practice but that Wold claims he never
received. While Wold argues that he cannot be bound to an agreement that he
never received, the Court finds that DFS is not required to prove that Wold
actually received the credit agreement. The combination of Wolds performance
of the contract (paying off his debt to DFS) with a presumption that a properly
mailed document is received by the addressee, Davis v. U.S. Bancorp, 383 F.3d
761, 766 (8th Cir. 2004), leads this Court to find that a valid arbitration agreement
did exist between Wold and DFS. The presumption of receipt is triggered by
circumstantial evidence, including testimony by someone familiar with
company procedures and practices that the letter was sent. Id. DFS has
provided the Court with a declaration made by Stuart Kirkwood, Revenue
Services Manager for DFS, that the company has a policy of sending the credit
agreement in its welcome package. (Kirkwood Decl. 4.) And Wold himself has
admitted that he received the welcome package. (Wold Aff. 4.)
In sum, DFS has created a rebuttable presumption that Wold received the
arbitration agreement, and Wold has failed to overcome that presumption.
Denial of receipt of an agreement with an arbitration clause is not sufficient to
overcome the presumption of receipt. See Discover Bank v. Vaden, 489 F.3d 594,
607 (4th Cir. 2007); see also Pleasants v. Am. Express Co., No. 4:06‐cv‐1516, 2007
WL 2407010 at *3 (E.D. Mo. Aug. 17, 2007) (compelling arbitration where plaintiff
did not recall receiving arbitration provision but admitted to receiving other
portion of mailing customarily sent with the arbitration provision). Wold has
presented the Court with no evidence that DFS behaved differently towards him
than it does in the normal course of business towards its other debtors.
e. Unconscionability
Wold argues that, even if the Court finds that he assented to the arbitration
clause by keeping and paying for the computer, the arbitration clause is
unconscionable. (Pl.s Mem. in Opp. at 8‐9.) First, Wold argues that the contract
is substantively unconscionable because its terms are grossly unfair. Second,
Wold argues that the contract is procedurally unconscionable because it is based
on a situation where one party had superior bargaining power and presented the
contract on a take‐it or leave‐it basis. See Ronwin v. Smith Barney Harris Upham
& Co., 807 F. Supp. 87, 89 (D. Neb. 1992). In his submissions to the Court, Wold
does not adequately respond to DFSs argument that courts have routinely
rejected challenges to arbitration clauses on unconscionability grounds. See, e.g.,
Siebert v. Amateur Athletic Union of the United States, Inc., 422 F. Supp. 2d 1033
(D.Minn. 2006); Hunt v. Up North Plastics, Inc., 980 F. Supp. 1046, 1050‐51 (D.
Minn. 1997). In addition, [t]he use of a standard form contract between two
parties of admittedly unequal bargaining power does not invalidate an otherwise
valid contractual provision. To be invalid, the provision at issue must be
unconscionable. Webb v. R. Rowland & Co., 800 F.2d 803, 807 (8th Cir. 1986).
For the purposes of Wolds unconscionability argument, it makes no
difference if the Court were to apply Utah law, which DFS argues is appropriate,
or Minnesota law, which Wold argues is appropriate. Under both Utah and
Minnesota law, a contract is unconscionable if no clear‐thinking person would
make it, or if no such person would accept it. See, e.g., Kauffman Stewart, Inc. v.
Weinbrenner Shoe Co., 589 N.W.2d 499, 502 (Minn. Ct. App. 1999); Res. Mgmt.
Co. v. Weston Ranch and Livestock Co., 706 P.2d 1028, 1041 (Utah 1985). The
Court finds that the fact that arbitration agreements are preferred as a matter of
national policy creates a presumption that they are generally reasonable as a
matter of contract law. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 443 (2006).
Wold argues that the arbitration clause at issue in this case is
unconscionable because, if enforced, it would require him to take his federallyprotected
claims to arbitration rather than getting the opportunity to bring them
in a federal court. This argument overlooks the reality that courts across the
country have enforced arbitration clauses in connection with claims brought
under the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et seq. See e.g.,
Heiges v. JP Morgan Chase Bank, N.A., 521 F. Supp. 2d 641 (N.D. Ohio 2007)
(compelling arbitration of FCRA claims under arbitration clause in credit card
Even though the Court empathizes with Wolds position as a consumer
who dutifully paid off his debt to DFS and who, after paying his debt, then
received the unwelcomed reward of a negative entry on his credit report,
national policy is strongly in favor of enforcing arbitration agreements. In
addition, Wolds claim that he never received the credit agreement that included
the arbitration clause is not persuasive when balanced against both his admission
that he received the Welcome Package as well as DFSs customary business
practice of including the credit agreement in all of its welcome packages.
Accordingly, based on the files, records, and proceedings herein, IT IS
1. Defendant Dell Financial Services Motion to Compel Arbitration and Stay
Proceedings [Docket No. 5] is GRANTED. The claims in this case are
subject to arbitration under the parties agreement and shall be resolved
through arbitration at the instance of either party to this action.
2. All further proceedings in this action are STAYED pending resolution of
the claims through arbitration or other non‐judicial means.
Date: February 17, 2009 s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court


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Bystanders Witnessed This.
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        a Police Report

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