The Indiana Supreme Court recently reversed the judgment of a trial court granting a credit union’s motion to compel individual arbitration and finding an enforceable agreement to arbitrate between the parties. In so ruling, the Indiana Supreme Court held that a consumer’s silence and inaction did not amount to acceptance of the arbitration agreement.

A copy of the opinion in Land v. IU Credit Union is available at: Link to Opinion.

When the consumer, who maintained at least two checking accounts with the credit union, registered for online banking for one of her accounts, she received by email an agreement permitting the credit union to modify the terms and conditions to its services and send any notice to the consumer via email. Under the terms of the notice, the consumer was deemed to have received any such notice three days after it was sent.

The credit union later sent to its customers a proposed modification to the agreement, the addendum. The terms of this addendum (1) permitted either party to require arbitration to resolve disputes without the other party’s consent and (2) prohibited members from initiating or joining a class-action lawsuit. The addendum also specified, under a heading in bold and in all-capital letters, the member’s “right to opt out” of the arbitration addendum if he or she so informed the credit union within 30 days of receiving notice. Otherwise, according to its terms, the addendum became binding on the member.

The consumer received the addendum by email and regular U.S. mail. The subject line of the email indicated only that a “New eStatement” was available “in Online Banking,” and the body mentioned nothing about the addendum. But a link in the email would have directed the consumer to her five-page monthly account statement, the first page of which referenced the addendum in bold, all-capital letters and directed her to review the updated terms “at the end of [the] statement.”

The document the consumer received by regular U.S. mail consisted of a two-page monthly account statement, the first page of which likewise noted the addendum in bold, all-capital letters and directed her to review the updated terms “included in this mailing.” The consumer claimed to have seen neither version of the addendum, and she never notified the credit union of her preference to opt out.

The consumer later filed a putative class action complaint alleging breach of contract and other related claims. The credit union moved to compel individual arbitration, which the trial court granted.

On discretionary interlocutory appeal, the appellate court reversed, holding that the credit union failed to provide reasonable notice to the consumer by either email or regular mail. The credit union petitioned for transfer, which the Indiana Supreme Court granted, thus vacating the appellate court’s opinion.

The credit union first argued on appeal that the appellate court unjustifiably adopted a heightened standard for what constitutes sufficient notice under a contract. The Indiana Supreme Court disagreed and held that the question was not whether a pure reasonableness standard always governs notice. Instead, a court will “defend the freedom of contract by enforcing parties’ agreed terms,” whether those terms call for notice by email, regular U.S. mail, or other means. See Care Grp. Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 758 (Ind. 2018). Thus, insofar as the contracting parties agreed on what constitutes effective notice, their agreement controls. But to the extent an agreement fails to define notice, the court will apply a reasonableness standard as an exercise in contract interpretation.

Here, the Indiana Supreme Court held that the agreement did not define what constitutes “written notice,” other than saying it is effective once properly mailed. Therefore, in analyzing whether the credit union complied with the agreement’s terms of notice by mail, the Court applied an “objective theory” of contract interpretation. See Akin v. Simons, 180 N.E.3d 366, 377 (Ind. Ct. App. 2021). In other words, it became a question of reasonableness for the courts to decide as a matter of law. See Indiana Farm Bureau Ins. Co. v. Harleysville Ins. Co., 965 N.E.2d 62, 68 (Ind. Ct. App. 2012).

The consumer received two notices of the addendum in the account statements sent to her from the credit union — one by email and one by regular U.S. mail. The email notice contained an inconspicuous subject line, and the body of the email itself said nothing of the addendum. However, even if the email notice did not qualify as effective notice as defined in the agreement, the Indiana Supreme Court concluded that the notice sent to her by regular U.S. mail did constitute reasonable notice.

In addition to providing the consumer with a detailed list of account transactions (both debits and credits), the Court determined that a monthly account statement provides important contact information for member service, the account’s beginning and ending balance, the total number of withdrawals, the amount of fees incurred (including overdraft fees and returned-item fees), the total dividends paid (if any), the balance due on any outstanding loans, the annual percentage rate for those loans, and the payments made toward those loans. Additionally, it may help a customer discover unauthorized transactions that require further action. Thus, the Court concluded that it made sense for the credit union to have included its proposed modification to the agreement among this information.

Turning next to the question of acceptance, the Indiana Supreme Court observed that the credit union explicitly notified the consumer that the failure to opt out of the arbitration addendum within 30 days of receiving notice would bind her to the addendum.

However, the Court held that the “mere fact that an offeror states that silence will constitute acceptance does not deprive the offeree of his privilege to remain silent without accepting.” Restatement (Second) of Contracts § 69 cmt. c. Instead, the credit union must have shown that the consumer “in remaining silent and inactive intend[ed] to accept the offer.” See id. § 69(1)(b). Under the Restatement, the “case for acceptance is strongest” when the offeree’s “reliance is definite and substantial” or when the offeree’s “intent to accept is objectively manifested though not communicated to the offeror.” Id. § 69 cmt. c.

Here, even assuming the consumer was aware of the offer to arbitrate, the Indiana Supreme Court found no evidence of her “definite and substantial” reliance on the arbitration addendum. Furthermore, the Court saw no objective manifestation of intent to accept through the consumer’s continued use of her checking accounts.

First, nothing in the agreement or the disclosure suggested that silence and continued use of the accounts would result in acceptance of any future modification to those original contracts. Cf. Heiges v. JP Morgan Chase Bank, N.A., 521 F. Supp. 2d 641, 647 (N.D. Ohio 2007). Second, nothing in the credit union’s offer to amend those original contracts conditioned continued use of the accounts on acceptance of the addendum.

Accordingly, the Indiana Supreme Court held that, although the credit union provided the consumer with reasonable notice of its offer to amend the agreement, the consumer’s subsequent silence and inaction did not amount to acceptance of the addendum. Thus, with no enforceable agreement to arbitrate, the Court reversed the trial court and remanded for further proceedings.