A woman and her daughter have been cleared to continue their class action lawsuit against Credit One Bank over collection calls the bank placed to the daughter’s cell phone, as a panel of federal appellate judges have said the bank can’t send the matter to arbitration by claiming, under the mother’s credit card agreement, the daughter should be considered an authorized user subject to the agreement, because she once used the card to pay for smoothies at the age of 14.

On March 22, a three-judge panel of the U.S. Seventh Circuit Court of Appeals in Chicago reversed the decision of U.S. District Judge Matthew F. Kennelly, who had ruled a credit card agreement held by Judith Serrano also should impose arbitration requirements on Serrano’s daughter, identified only as A.D., shorting out the class action lawsuit in which A.D. is the named lead plaintiff.

Mark Ankcorn
Mark Ankcorn | Ankcorn Law Firm

The decision was authored by Seventh Circuit Judge Kenneth F. Ripple, with Circuit Chief Judge Diane P. Wood and Circuit Judge Michael S. Kanne concurring.

In 2014, attorneys Mark Daniel Ankcorn, of the Ankcorn Law Firm, of Orlando, Fla., and Roberto Carlos Robledo, of San Diego, Calif., filed suit in Chicago federal court on behalf of A.D., through Serrano, against Credit One Bank, asserting the bank should be made to pay for placing numerous collection calls intended for Serrano to a mobile phone owned by A.D.

According to court documents, Credit One had obtained A.D.’s number after Serrano had used her daughter’s phone on at least one occasion to contact the bank. The number was then automatically captured and attached to Serrano’s file, according to the decision.

When Serrano fell behind on her payments, Credit One then began using numbers contained in Serrano’s file to contact her and collect what was owed, including placing calls to the number associated with the phone owned by A.D.

In their class action, A.D. and Serrano assert these calls violated the federal Telephone Consumer Protection Act, as A.D. never gave consent to Credit One to contact either her or her mother at that number.

In their lawsuit, A.D.’s attorneys asked the court to expand the case to include a potentially large number of additional plaintiffs who had similarly received alleged improper collection calls from Credit One without consent.

During discovery and depositions over the case, however, Credit One claimed it learned A.D., on at least one occasion, used her mother’s credit card, purportedly to purchase smoothies. A.D. was 14 years old at the time of the purchase, according to court documents.

The bank, in a bid to end the class action, then asked the court to invoke the terms of Serrano’s credit card agreement, which requires disputes involving the credit card holder and any authorized users to be heard in arbitration, rather than in court. In its argument, Credit One asserted, since A.D. had used the card, it makes her an authorized user, and therefore, her case needed to be heard in arbitration.

Since A.D. benefited from the use of the card, the bank reasoned, she should also be subject to “a disadvantage under the contract … the burden of the arbitration clause.”

Kennelly agreed, ordering arbitration in the matter and prompting appeal.

The Seventh Circuit judges, however, rejected the reasoning put forth by Credit One.

The judges noted the card agreement specifies the multiple steps under which authorized users can be added to the account, and they said none of those steps were even attempted by either Serrano or Credit One to add A.D. as an authorized user to the account. Further, they noted the agreement requires authorized users to be at least 15 years old.

Since she could not even be an authorized user, A.D. could not be subject to arbitration under the cardholder’s agreement, nor could Credit One use the legal doctrine of estoppel to bind her to it.

“According to Credit One, ‘A.D. obtained the same type of contractual benefit as Serrano,’ which is the ability to use the credit card to make purchases,” the judges wrote. “But any ‘benefit’ that A.D. received with respect to the credit card was limited to following her mother’s directions to pick up the smoothies that her mother had ordered previously. This limited direction derived from the mother-daughter relationship.

“A.D. had no relationship, contractual or otherwise, with Credit One. She derived no direct benefit from the cardholder agreement. Her mother, not A.D., benefited from the agreement, which allowed her, not A.D., to buy the smoothies. Credit One’s position that A.D. directly benefited under the cardholder agreement and is therefore estopped from denying the application of the arbitration clause simply misapprehends the purpose and scope of the direct benefits estoppel remedy.”

The judges remanded the case to Kennelly for further proceedings.

Credit One is represented in the action by attorneys with the firms of Carlson & Messer LLP and Snell & Wilmer LLP, each of Los Angeles, and Reed Smith LLP and the Walton Law Group LLC, each of Chicago.

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Reed Smith LLP U.S. District Court for the Northern District of Illinois




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