Appeal from the Circuit Court of Cook County. Honorable Gay-Lloyd Lott, Judge Presiding.
The opinion of the court was delivered by: Justice Wolfson
This case serves as a reminder that people should read their mail - - especially when it comes from their credit card companies. At issue here is the enforceability of an arbitration clause in an amended credit card agreement.
Betty Hutcherson and Sheila Wilson filed a class action against Sears Roebuck & Company (Sears), Sears National Bank (SNB), and Allstate Insurance Company (Allstate), alleging unauthorized charges on their Sears credit cards. Sears, SNB, and Allstate filed motions to compel arbitration and stay proceedings, contending Hutcherson and Wilson accepted an amendment to the credit agreement allowing either party to compel arbitration. The trial court denied the motions. Sears, SNB, and Allstate appeal. We reverse and remand.
According to the complaint, Sears offers credit cards to its customers. In conjunction with Allstate and SNB, it also offers its customers credit insurance, called the Sears AccountCare Plan (Plan). The application for a Sears credit card includes an enrollment option for the Plan on a prepaid postage form directing that the information be sent back to Sears. The cost of the Plan is $0.96 for every $100 of outstanding balance on the card.
Both Hutcherson and Wilson applied for and received Sears credit cards. Neither applied for or requested the Plan. Both were charged for the Plan. Although both women called Sears about the charges, Sears continued to bill them for the Plan without their authorization.
The women filed a class action lawsuit seeking declaratory and injunctive relief as well as relief under the doctrines of unjust enrichment and constructive trust. They also brought a count under the Illinois Consumer Fraud and Deceptive Business Practices Act.
THE MOTIONS TO STAY THE PROCEEDINGS AND COMPEL ARBITRATION
On August 1, 2002, Sears and SNB filed a motion to stay the proceedings and compel arbitration. Allstate filed a similar motion the following day. Copies of the original credit card agreements applicable to Hutcherson's and Wilson's accounts were attached to both motions.
Both agreements contain a "Governing Law" provision, which states, in relevant part:
"This agreement and my account will be governed by and interpreted in accordance with the laws of the State of Arizona and the United States, regardless of where I live or where I use my account ***." Both agreements also contain a "Change of Terms" provision that states, "As permitted by law, SNB has the right to change any term or part of this agreement, including the rate of Finance Charge, applicable to current and future balances." Neither agreement contained an arbitration provision.
According to an affidavit in support of the motion to compel arbitration, credit card customers were sent a notification of amendments to the credit card agreement in March or April 2001. The cover letter did not mention an arbitration provision, but stated:
"The changes to the terms governing your Account will become effective 30 days from your receipt of this notice, unless you notify us in writing before that date at ***. In your written notice, *** please state that you wish to reject the new Agreement. If you so notify us, you will not be able to make additional purchases and you may pay the outstanding balance under the terms currently governing your Account."
The mailing also included a pamphlet containing the revised credit card agreement. Section 21 of the pamphlet contained an arbitration provision that read, in part:
"Any and all claims, disputes or controversies of any nature whatsoever (whether in contract, tort, arising out of statute, or otherwise) arising out of, relating to, or in connection with: (a) this Agreement; *** (e) the establishment, operating, handling or termination of the Account; (f) any transaction or attempted transaction relating to the Account; or (g) the validity, scope or enforceability of this arbitration section of this Agreement or any prior credit card agreement ***, shall be resolved, upon your election or our election, by final and binding arbitration before a single arbitrator, on an individual basis without resort to any form of class action, except that each party retains the right to seek relief in a small claims court, on an individual basis without resort to any form of class action, for claims within the scope of the jurisdiction of the small claims court."
All of section 21, including the above-quoted paragraph, was in the same font and size as the rest of the text in the pamphlet, except for the following paragraph:
"YOU UNDERSTAND AND AGREE THAT, UNDER THIS AGREEMENT, IF ARBITRATION IS CHOSEN BY YOU OR US, YOU WILL NOT HAVE THE RIGHT TO GO TO COURT (EXCEPT FOR SMALL CLAIMS COURT) ON THAT CLAIM OR TO HAVE A JURY TRIAL ON THAT CLAIM. IF ARBITRATION IS CHOSEN, YOU ALSO WILL NOT BE ABLE TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO THAT CLAIM AND YOU WILL HAVE ONLY THOSE RIGHTS THAT ARE AVAILABLE IN ARBITRATION. THE DECISION OF THE ARBITRATOR WILL BE FINAL AND BINDING EXCEPT AS PROVIDED IN THE FEDERAL ARBITRATION ACT."
The amended credit card agreement also contains a revised "Governing Law" provision, which states:
"This agreement and your Account will be governed by and interpreted in accordance with Federal law and, to the extent governed by state law, the laws of the State of Arizona, regardless of where you live or where you use the Account."
In their motions to compel arbitration, Sears, SNB, and Allstate contended the arbitration clause and the Federal Arbitration Act (FAA), 9 U.S.C.A. § 1 et seq. (West 1999) require the court to compel arbitration and stay the proceedings before it.
Hutcherson and Wilson responded that the arbitration clause was not enforceable against them. In particular, they contended the clause improperly interfered with their right to pursue certain remedies under the Illinois Consumer Fraud and Deceptive Practices Act, was unconscionable, and lacked sufficient consideration.
On January 10, 2003, the trial court denied the motion to stay the proceedings and compel arbitration, although the basis for the ruling is not entirely clear from its opinion. SNB, Sears, and Allstate filed this appeal pursuant to Supreme Court Rule 307(a)(1). 188 Ill. 2d R. 307(a)(1).
The trial court did not hold an evidentiary hearing in this case. Although in its opinion and order the court recited the facts contained in the complaint and in the motions to stay the proceedings and compel arbitration, the court did not make any factual findings. Nor are any of the relevant underlying facts in dispute. Rather, the court's decision was based on a purely legal analysis. Thus, we review the trial court's denial of the motions to stay the proceedings and compel arbitration de novo. Bass v. SMG, Inc., 328 Ill. App. 3d 492, 496, 765 N.E.2d 1079 (2002).
I. THE FEDERAL ARBITRATION ACT
Section 2 of the FAA provides an agreement to arbitrate in a contract evidencing a transaction involving commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2 (West 1999). The United States Supreme Court has said repeatedly this statute "is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765, 785 (1983); see also, e.g., PacifiCare Health Systems, Inc. v. Book, __ U.S. __, 123 S. Ct. 1531, 1536 fn. 2, 155 L. Ed. 2d 578, __ (2003) (acknowledging the existence of a presumption in favor of arbitration); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105 S. Ct. 3346, 3353, 87 L. Ed. 2d 444, 454 (1985) (the primary concern of the legislature in enacting the statute was to enforce private agreements, which requires rigorous enforcement of arbitration agreements).
Arbitration agreements are a matter of contract. AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648, 655 (1986). A party cannot be compelled to submit to arbitration a dispute that he has not agreed to submit to arbitration. AT&T Technologies, Inc., 475 U.S. at 648, 106 S. Ct. at 1418, 89 L. Ed. 2d at 655. And unless the parties "clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." AT&T Technologies, Inc., 475 U.S. at 649, 106 S. Ct. at 1418, 89 L. Ed. 2d at 656.
When deciding whether there is a valid agreement to arbitrate, "courts generally *** should apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985, 993 (1995).
Although both parties agree the FAA applies to the arbitration provision at issue here, the parties dispute which state's substantive law should be applied to the contract issues in this case. Hutcherson and Wilson contend the choice-of-law provision requires application of Arizona's conflict principles, which, in turn, requires us to use the substantive law of Alabama and Illinois. We disagree.
The "Governing Law" provisions of the original and amended credit card agreements designate Arizona law as the governing law where applicable. We find nothing in these provisions signifying an intention to apply anything other than the substantive law of Arizona to contract disputes. To interpret the choice-of-law provision here as referring to Arizona's conflict law "would introduce the uncertainties of choice of law into the proceedings and would serve to defeat the basic objectives, namely those of certainty and predictability, which the choice-of-law provision was designed ...