In a case involving the enforceability of so-called “clickwrap” web-based agreements, the U.S. Court of Appeal for the Eleventh Circuit recently affirmed the denial of a defendant’s motion to compel arbitration, holding that the defendant failed to prove the existence of an agreement to arbitrate.

Because the Court found that the defendant offered no competent evidence to demonstrate the existence of a genuine issue of material fact concerning the existence of an arbitration agreement, the debt buyer’s motion to compel arbitration must be denied as a matter of law without the need for a trial.

A copy of the opinion is available at:  Link to Opinion.

The plaintiff consumer applied for a credit card issued by a Delaware bank using the Internet in November 2005. She incurred charges on the card, but failed to pay the balance in full.  The defendant debt buyer purchased the account in 2008.

In 2013, the consumer filed a Chapter 13 bankruptcy. In January 2014, the debt buyer filed a proof of claim in the bankruptcy case.

In September 2014, the consumer filed a putative class action in Georgia superior court, claiming that the debt buyer violated the federal Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim on a time-barred debt.

The debt buyer removed the case to federal court in October 2014 and then moved to compel arbitration, relying upon an arbitration clause in the cardholder agreement between the plaintiff and the debt buyer’s predecessor in interest.

The trial court denied the motion, concluding that the arbitration clause did not apply to the plaintiff’s claim. The defendant appealed.

On appeal, the Eleventh Circuit began its analysis by noting that the only evidence in the record that the plaintiff had agreed to the terms and conditions in the cardholder agreement was a declaration of an individual employed at the time with a company that maintained the bank’s credit card records that plaintiff applied for the credit card.

The Court noted that the declaration stated in conclusory terms only that the plaintiff had “accepted the terms governing her account and opened the account,” without explaining how she had done so, without explaining how the assertions were based on personal knowledge, and without providing any documents supporting the assertion.

The Court mentioned the ubiquity of so-called “clickwrap agreements,” but found that the defendant introduced no evidence “that the Internet web page or pages that [plaintiff] viewed, or upon which she applied for her [credit card], displayed or referred to any terms or conditions of the credit card she sought, much less that she was required to consent to any such terms in order to obtain her credit card.”

Although the declaration stated that a “Welcome Kit” with the cardholder agreement “would have been sent” to the plaintiff consumer, the witness did not affirmatively state that it was, in fact, sent in the company’s ordinary course of business or that the one that was sent was the same as the form attached to his declaration.  The witness also did not state that the form that was sent contained an arbitration clause that was the same as the one attached to his declaration.

The Court explained that while the Federal Arbitration Act embodies a policy favoring the enforceability of arbitration agreements and creates a “presumption of arbitrability,” “the presumption does not apply to disputes concerning whether an agreement to arbitrate has been made.”  The Court noted that “[t]he threshold question of whether an arbitration agreement exists at all is ‘simply a matter of contract’ [and] … [a]bsent such an agreement, ‘a court cannot compel the parties to settle their dispute in an arbitral forum.’”

The Eleventh Circuit then turned to the “onus of proof with respect to the existence of an agreement to arbitrate,” explaining that since the Supreme Court’s 1995 ruling in First Options of Chicago, Inc. v. Kaplan, the Eleventh Circuit “repeatedly has emphasized that ‘state law generally governs whether an enforceable contract or agreement to arbitrate exists.’”

Applying Georgia law, the Court found the declaration of the debt buyer’s witness “woefully inadequate” for three reasons. First, the Eleventh Circuit held that the debt buyer “presented no competent evidence as to what, if any, terms plaintiff agreed to when ordering her credit card [and] [i]n particular, … presented no competent evidence that she entered into any relevant arbitration agreement,” the debt buyer could not compel the plaintiff to arbitrate.

Second, the Court refused to give the debt buyer the benefit of the presumption under the so-called common law “mailbox rule” that the plaintiff received the “Welcome Kit” because the debt buyer’s witness had no personal knowledge that the kit was in fact sent and did not state that he had reviewed any records showing that the kit was sent.

Third, even if the evidence showed that a Welcome Kit was sent to the plaintiff, the Eleventh Circuit found that such evidence would not prove that “the Welcome Kit included the arbitration clause upon which [the debt buyer] relies or any relevant variant.”

The Court concluded that the debt buyer did not meet “its burden under Georgia law to prove the existence and terms of the arbitration agreement it seeks to enforce” and that the trial court correctly denied its motion to compel arbitration.

Finally, the Court rejected the debt buyer’s argument that the case should be remanded for a trial if the debt buyer failed to prove that the arbitration agreement had been agreed upon, following the Third, Eighth and Tenth Circuits in holding that the “standard for determining whether a trial is necessary to determine the existence of an arbitration agreement” is similar to the standard for summary judgment.

The Eleventh Circuit held that if there is no genuine issue of fact on whether an agreement to arbitrate was made, the Court can decide the question as a matter of law.

The Court concluded that because the “defendant offered no competent evidence to demonstrate the existence of a genuine issue of material fact concerning the existence of an arbitration agreement, its motion to compel arbitration must be denied as a matter of law without the need for a trial” and affirmed the district court’s denial of the motion to compel arbitration and stay the case, although on different grounds.