On July 16, 2024, Charleston Partners Eric Evans and Peter Siachos, alongside West Virginia Partner Brant Miller, secured a substantial victory for the federal credit union industry by effectively persuading a West Virginia state court to grant their client’s motion to compel individual arbitration in a putative class action lawsuit, effectively ending any attempt at class certification.
The firm’s client, a credit union in Colorado, was sued by one of its members who asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment claims with regard to the credit union’s overdraft fee practices. The plaintiff initially lived in Colorado where she executed a membership agreement containing arbitration and class waiver terms, including having a Colorado choice of law provision. The plaintiff subsequently moved to and filed suit in West Virginia, where the law on compelling arbitration was far less favorable for GRSM's client.
Seeking to circumvent the arbitration and choice of law provisions, the plaintiff argued her claims were exclusively based on a different contract, namely the Regulation E Opt-In form. Regulation E, codified at 12 CFR Part 1005, is a federal remedial statute enacted to protect consumers and mandates that financial institutions obtain account holders' affirmative consent before charging certain overdraft fees through a standardized form called the Opt-In form. Regulation E further mandates that the Opt-In forms be separated from the membership agreement (which contains additional overdraft terms) and does not permit additional terms in the Opt-In form, such as arbitration clauses. The court rejected the plaintiff’s argument, holding that the arbitration provision in the membership agreement still governed irrespective of which contract the plaintiff selected in the pleading.
The plaintiff also argued that the choice of law terms in the membership agreement violated West Virginia’s public policy and that the arbitration terms were both procedurally and substantively unconscionable under West Virginia law. After rejecting the plaintiff’s public policy arguments to hold that Colorado law governed, the court held that the arbitration provision was not unconscionable under Colorado law, even though the terms would arguably be unconscionable under West Virginia law. As a result, the court granted the credit union’s motion to compel the plaintiff to pursue her claims individually in arbitration, securing a significant victory. This decision not only stymied the plaintiff’s counsel’s attempts to transform a single overdraft transaction into a large class action but also established a precedent benefiting credit unions amidst the growing national landscape of class claims involving overdraft fees.