A federal judge from the S.D.N.Y. recently held that Citibank’s arbitration clauses in connection with checking and savings accounts were unenforceable. See Hirsch v. Citibank, N.A., No. 12-CIV-1124 (S.D.N.Y. June 10, 2014) (click here for a copy of the decision). The court’s lengthy discussion, which is an excellent case study on how corporations implement arbitration policies, provides valuable guidance for both plaintiff’s attorneys and corporate counsel. This opinion reveals some flaws or pitfalls in Citibank’s attempts to implement a binding arbitration plan. Future plaintiffs who are trying to avoid the enforcement of an arbitration clause can examine whether their facts involve similar defects, and corporate counsel will want to avoid these defects in the future. As explained below, Citibank’s failures involved a lack of clear disclosures and poor record-keeping.
Customers who open up a checking or savings account with Citibank sign only one document at the time of opening the account, a signature card. After signing the signature card, a customer is supposed to receive a welcome kit with a variety of account-related documents, including disclosures, a Client Manual, starter checks, general literature, and other offers. Citibank’s arbitration clause appears in the Client Manual.
Citibank argued it was Citibank’s policy to provide a Client Manual to every customer, but the plaintiffs denied ever receiving it. Ultimately, the court refused to compel arbitration because Citibank could not prove the plaintiffs had ever received a Client Manual. The court discussed several flaws in Citibank’s implementation of its arbitration plan, including the following:
1) The signature card fails to specifically reference the Client Manual. Instead, the signature card vaguely states that by signing, the customer “agree[s] to be bound by any agreement governing any account in the title indicated on this card.”
2) Through the signature card, a customer does not acknowledge which documents are contained and received in the Welcome Kit.
3) Citibank did not maintain records that customers received arbitration agreements. During depositions, some Citibank employees mentioned a “customer care checklist,” which would tend to show that certain documents, including the Client Manual containing the arbitration clause, were provided to a customer, but Citibank’s use of such checklists was not consistent. The court distinguished a case involving Merrill Lynch where a Merrill Lynch mailing facility retained records of mailouts, which would give rise to a strong presumption a customer received an arbitration clause. (Interestingly, footnote 11 of the opinion suggests that stronger presumptions regarding the customers’ receipt of arbitration clauses would apply if the arbitration documents would have been mailed to Citibank’s customers instead of handed over in a face-to-face transaction.)
4) Even if a customer had received a Client Manual, the Client Manual did not provide reasonable notice until page 5 that the manual is an agreement governing the account. , Furthermore, even if the Client Manual were clear that it represents an agreement between the parties, the fact that Client Manuals were not given to a customer until after the customer signed the signature card undermines the argument that a customer received sufficient, reasonable notice of the arbitration agreement. The court pointed out that because of this timing issue, the parties did not bargain for an arbitration clause before their apparent assent.
In sum, clearer disclosures and better corporate record-keeping could have changed the result of this case.