The Eleventh Circuit has determined that a confidentiality provision in an arbitration clause was substantively unconscionable. The case involved a putative class action by David Johnson alleging that KeyBank National Association ("KeyBank") altered the order of debit card transactions to maximize their collection of overdraft fees. Johnson opened the account at issue in 2001 by signing an agreement stating that "all accounts opened under this Plan are subject to [KeyBank's] Deposit Account Agreement" (the "2001 Agreement"). The Deposit Account Agreement was a 1997 agreement with the arbitration clause at issue (the "1997 Agreement").
KeyBank moved to compel arbitration of Johnson's claims, arguing that Johnson agreed to be bound by the arbitration provision in the 1997 Agreement. The district court denied the motion, however, finding the arbitration clause to be unconscionable.
On appeal, the Eleventh Circuit first concluded that Johnson agreed to arbitrate because the 2001 Agreement expressly stated that the 2001 account was "subject to" the terms of the 1997 Agreement, including the arbitration clause. The phrase "subject to" was deemed sufficient to incorporate the 1997 Agreement into the 2001 Agreement by reference. By executing the 2001 Agreement, the court found that Johnson agreed to be bound by the arbitration provision.
The court then reversed the district court's determination that the arbitration provision was unconscionable. First, the court held that it was not procedurally unconscionable because it was not made without "meaningful choice;" that it was a contract of adhesion did not make it unconscionable per se. Second, while it was not substantively unconscionable as a whole, the court held that a confidentiality clause in the provision was unconscionable in that it required the parties to "keep confidential any decision of an arbitrator." The court agreed that by keeping the outcomes of prior arbitrations concealed, it put KeyBank, a repeat participant in the arbitration process, at an "obvious informational advantage" at the outset of a dispute. Moreover, prospective claimants would have little context in which to assess the value of their cases, which may discourage those individuals from pursuing valid claims. As such, the court severed the confidentiality clause and enforced the remainder of the arbitration provision with instructions on remand. Larsen v. Citibank FSB, No. 15-10779 (871 F.3d 1295) (11th Cir. Sept. 26, 2017).
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