The recipient of a shopping mall gift card filed a putative nationwide class action against the issuer to recover an $8 service charge that had been imposed after 12 months of non-use. The issuer moved to enforce an arbitration provision (in the gift card agreement which was enclosed in the gift card packaging) which required the claimant to pay all filing, administrative and hearing fees for her claims and to pursue her claims only on an individual basis. The gift card agreement provided that any use of the gift card constituted consent to all of the agreement's terms.
The court denied the motion, finding the arbitration clause to be unconscionable under Missouri law. First, the court refused to enforce the New York choice of law provision in the gift card agreement because New York law was contrary to the fundamental policy of Missouri. Second, the court applied Missouri law and held the arbitration clause was both procedurally and substantively unconscionable. The arbitration clause was procedurally unconscionable because it was in "fine print;" purchasers could not negotiate the terms of the arbitration clause and had to "take it or leave it;" and the ultimate user of the gift card was likely not even present when the card was purchased. Substantive unconscionability was demonstrated because Missouri courts had previously invalidated arbitration clauses that require a consumer to bear all of the costs of arbitrating their claims. Moreover, prohibiting class treatment of relatively small claims that would be economically infeasible to prosecute individually would deprive consumers of a remedy. Therefore, the court allowed the case to proceed as a putative nationwide class action. Not surprisingly, the issuer has filed an appeal which has yet to be resolved.
There appears to be no slowdown in the popularity of gift cards among consumers, franchisors and retailers of all kinds, and state legislators. In short order, gift cards have become commonplace and almost 70% of the states have moved to regulate their sale and use. As plaintiffs' class action counsel begin to realize the potential of gift card suits, an increase in litigation likely will follow.