Last month the Seventh Circuit reversed a lower court order enforcing an arbitration agreement contained in cardholder agreement as applied against the minor daughter ("A.D.") of the cardholder, rejecting the bank's attempt to compel arbitration of the daughter's Telephone Consumer Protection Act ("TCPA") putative class action lawsuit. The trial court ruled A.D. was bound by the arbitration agreement as an "authorized user" of the card—where she, on at least one occasion, used the credit card to make a purchase as instructed by her mother—and was bound under the direct benefits estoppel theory.
First, the Seventh Circuit held A.D. was not bound by the cardholder agreement and its arbitration clause. The court emphasized the specific procedures in the cardholder agreement for designating authorized users which the parties did not follow: A.D.'s mother never notified the bank or paid an annual fee, the bank never issued a new card, and A.D. was not even old enough at the time to qualify as an authorized user. The court also found A.D. never manifested consent to be bound by the arbitration agreement, did not have legal capacity as a minor to enter into a contract, and actively disaffirmed consent by filing a lawsuit.
Second, the court concluded equitable estoppel was inapplicable and did not bind A.D. to the cardholder agreement. Any benefit A.D. received was derived from her relationship with her mother, not any relationship with the bank. Nor, the court held, did A.D.'s lawsuit center on rights or benefits under the cardholder agreement. The court rejected the bank's argument that its affirmative defense based on A.D.'s mother's consent qualified the case as one "relying" on the agreement because the bank, not A.D., bore the burden of establishing that defense. Simply put, A.D.'s lawsuit asserted rights under the TCPA and was therefore not premised on the cardholder agreement.
Because A.D. was not bound to the cardholder agreement directly as a signatory nor indirectly through estoppel, the court reversed and refused to compel arbitration.
A.D. v. Credit One Bank, N.A., No. 17-1486 (7th Cir. Mar. 22, 2018).
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