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Puleo v. Chase Bank USA

May 10, 2010

FRANCIS J. PULEO, TRISH C. PULEO, ON BEHALF OF THEMSELVES AND ALL OTHER PENNSYLVANIA RESIDENTS SIMILARLY SITUATED,
v.
CHASE BANK USA, N.A, FRANCIS J. PULEO; TRISH C. PULEO, APPELLANTS



On Appeal from the District Court for the Eastern District of Pennsylvania (D.C. No. 2-07-cv-04800) District Judge: Honorable Lawrence F. Stengel.

PRECEDENTIAL

Argued February 17, 2010

Before: McKEE, Chief Judge, SLOVITER, SCIRICA, RENDELL, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, and JORDAN, Circuit Judges

OPINION OF THE COURT

FUENTES, Circuit Judge, with whom McKEE, Chief Judge, and SLOVITER, SCIRICA, SMITH, and JORDAN, Circuit Judges, join.

This case focuses on the proper boundaries between the decision-making responsibilities of courts and arbitrators. Appellants Francis and Trish Puleo ("the Puleos") brought suit challenging retroactive interest-rate increases on the account balances of their Chase Bank credit cards. Although the Chase Bank Cardmember Agreement governing their credit cards contains an Arbitration Agreement expressly barring class actions, the Puleos brought their suit in a representative capacity, arguing that the class action waiver was unconscionable. After Chase moved to compel arbitration, the Puleos urged the District Court to order the parties to arbitrate their class claims, notwithstanding the Arbitration Agreement's ban on class actions, but argued that the question of whether the class action waiver was unconscionable was a question for the arbitrator, not the court. The District Court rejected their arguments, concluding, first, that the Puleos' challenge to the enforceability of the class action waiver was a question of arbitrability for the court to decide, and, second, that the entirety of the Arbitration Agreement was enforceable.

In this appeal, the Puleos challenge only the first of these conclusions. They argue that the District Court never should have addressed the unconscionability of the class action waiver and instead should have left that issue to be decided by an arbitrator. Appellee Chase Bank takes the contrary position, arguing that it was proper for the District Court to assess the unconscionability of the class action ban because the Puleos' unconscionability challenge to the class action waiver presented a question of arbitrability for the court to decide. For the reasons that follow, we hold that the District Court properly exercised its responsibility to decide issues of arbitrability and we thus will affirm.

I.

A.

The facts in this case are straightforward and uncontested. The Puleos use credit cards issued by Chase Bank.

They argue that Chase Bank improperly increased the interest rates on their account balances, and did so retroactively. Specifically, Francis Puleo claims that in March 2006, Chase retroactively increased his interest rate from 4.99% to 29.99%, causing him to incur $267 in increased finance charges. Trish Puleo claims that in November 2005, Chase retroactively increased her interest rate from 14.74% to 25.99%, causing her to incur $162 in increased finance charges. Trish Puleo also claims that similar increases were imposed in January 2006 and January 2007, causing her to incur increased finance charges of $263 and $341, respectively.

Chase argues that such increases are permitted by the Puleos' Chase Bank Cardmember Agreements, as well as by state and federal law. The lawfulness of the retroactive interest rate increase, however, is not at issue in this appeal. Rather, this appeal focuses on the forum in which the enforceability of the class action waiver will be determined, not the substance of the Puleos' challenge to the retroactive interest rate increases.

B.

The Chase Bank Cardmember Agreement addresses a wide range of issues relative to the relationship between a bank and its credit card holders. Included in this Cardmember Agreement is a sweeping "Arbitration Agreement" that states in block lettering that "ARBITRATION REPLACES THE RIGHT TO GO TO COURT." (App. 62.) In particular, the Arbitration Agreement provides:

Either you or we may, without the other's consent, elect mandatory binding arbitration of any claim, dispute or controversy by either you or us against the other... arising from or relating in any way to the Cardmember Agreement.... This Arbitration Agreement governs all Claims, whether such Claims are based on law, statute, contract, regulation, ordinance, tort, common law, constitutional provision, or any legal theory of law such as respondeat superior, or any other legal or equitable ground and whether such Claims seek as remedies money damages, penalties, injunctions, or declaratory or equitable relief. Claims subject to the Arbitration Agreement include claims regarding the applicability of this Arbitration Agreement or the validity of the entire Cardmember agreement or any prior Cardmember agreement.

(Id. at 63.) The Arbitration Agreement also expressly bars class actions, whether as part of litigation or arbitration:

YOU WILL NOT BE ABLE TO BRING A CLASS ACTION OR OTHER REPRESENTATIVE ACTION IN COURT..., NOR WILL YOU BE ABLE TO BRING ANY CLAIM IN ARBITRATION AS A CLASS ACTION OR OTHER REPRESENTATIVE ACTION. YOU WILL NOT BE ABLE TO BE PART OF ANY CLASS ACTION OR OTHER REPRESENTATIVE ACTION BROUGHT BY ANYONE ELSE, OR BE REPRESENTED IN A CLASS ACTION OR OTHER REPRESENTATIVE ACTION.

...

Neither you nor we agree to any arbitration on a class or representative basis, and the arbitrator shall have no authority to proceed on such basis. This means that even if a class action lawsuit or other representative action, such as that in the form of a private attorney general action, is filed, any Claim between us related to the issues raised in such lawsuits will be subject to an individual arbitration claim if either you or we so elect.

(Id. at 62-63.) Finally, the Arbitration Agreement features a severability clause, which states that "if any portion of this Arbitration Agreement is deemed invalid or unenforceable, the remaining portions shall nevertheless remain in force." (Id. at 63.)

Despite the express ban on class actions, the Puleos initially brought this case as a putative class action in Pennsylvania state court on behalf of themselves and other similarly situated Chase credit card holders in Pennsylvania.*fn1

Chase removed the case to federal court on grounds of diversity. Once in federal court, Chase filed a "Motion to Compel Arbitration and Dismiss the Action," in which it sought a court order directing the Puleos "to submit their individual disputes to arbitration in accordance with their agreement with Defendant." (Id. at 43.) The Puleos opposed Chase's motion in part. They argued that, instead of enforcing the Arbitration Agreement in accordance with its express terms, the District Court should compel the parties to submit their class claims to arbitration in order for the arbitrator to determine whether or not the class action waiver was unconscionable and, therefore, unenforceable.

The District Court granted Chase's motion in its entirety. In its ruling, the Court compelled arbitration but held that the validity of the class action waiver was a "'gateway dispute'" and a "'question of arbitrability' for a court to decide."*fn2 (Id. at 3 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (additional citations omitted).) The Puleos filed this timely appeal. After the case had been argued before a panel of the Court, we elected sua sponte to rehear the matter en banc.

II.

We have jurisdiction over this appeal pursuant to 9 U.S.C. § 16(a)(3) and 28 U.S.C. § 1291. We exercise plenary review over questions regarding the validity and enforceability of an agreement to arbitrate. See Edwards v. HOVENSA, LLC, 497 F.3d 355, 357 (3d Cir. ...


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