Cornell v. Desert Financial Credit Union

• Court: District Court, D. Arizona
• Decided: October 8, 2021
• Docket: 2:21-cv-00835
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Eva Cornell, No. CV-21-00835-PHX-DWL

10 Plaintiff, ORDER

11 v.

12 Desert Financial Credit Union, et al.,

13 Defendants. 14 15 In this putative class action, Eva Cornell (“Plaintiff”) alleges that Desert Financial 16 Credit Union (“Desert Financial”) violated certain federal regulations that require clear 17 disclosure of a bank’s overdraft practices. In response, Desert Financial has moved to 18 compel arbitration based on an arbitration clause that it added to its standard terms and 19 conditions several years after Plaintiff opened her account. (Doc. 11.) For the following 20 reasons, the Court will order the parties to file supplemental briefing concerning whether 21 the addition of this clause resulted in a valid contract modification. 22 BACKGROUND 23 I. Factual Background And Arbitration Agreement 24 Although Plaintiff alleges a significant number of facts in her complaint, only a few 25 are relevant to the motion to compel arbitration. The Court accordingly limits its recitation 26 to uncontested facts that bear on arbitrability and deals with disputed facts as they become 27 relevant to the Court’s analysis. 28 It is undisputed that, when Plaintiff originally opened her account with Desert 1 Financial, there was no arbitration clause in the account agreement. (Doc. 11 at 3; Doc. 2 12-3; Doc. 14 at 6.) However, when signing the relevant applications, Plaintiff agreed to 3 be bound by Desert Financial’s account terms and conditions and agreed that Desert 4 Financial “may change those terms and conditions from time to time.” (Doc. 12-1 at 2; 5 Doc. 12-2 at 2.) Plaintiff also elected to receive monthly bank statements from Desert 6 Financial via email. (Doc. 12 ¶ 7; Doc. 12-8; Doc. 12-9.) 7 It is undisputed that Desert Financial sent Plaintiff’s monthly statement for the 8 period ending on March 20, 2021 “to the primary email address it has on file for [Plaintiff].” 9 (Doc. 12 ¶ 6.)1 However, Plaintiff avows in a declaration that she did not actually review 10 that statement (or any of the other monthly statements that Desert Financial emailed to 11 her). (Doc. 18-1 ¶ 3.) At any rate, it is undisputed that the monthly statement at issue 12 included a graphic inlay that communicated the following:

13 NOTICE 14 Change-in-Terms

15 Effective February 10, 2021, Desert Financial updated its Statements of 16 Terms, Conditions, and Disclosures to change how we will resolve legal disputes related to your accounts at Desert Financial. 17

18 Please see the Dispute Resolution section of the Statement of Terms, Conditions, and Disclosures on www.desertfinancial.com/disclosures for 19 more information. 20 Visit DesertFinancial.com/Disclosures 21 22 (Doc. 12-6 at 2.) It is also undisputed that the cross-referenced website displayed Desert 23 Financial’s updated account agreement, which now includes the following arbitration 24 clause: 25

26 1 Shaun Mitchell, the regional manager of the Desert Financial branch where Plaintiff opened her account, declared under penalty of perjury that Desert Financial “sent copies of 27 the[] periodic statements to the primary email address it has on file for [Plaintiff].” (Doc. 12 at 2.) Although Plaintiff provides her own declaration avowing that she did not see the 28 statement, she does not dispute that Desert Financial sent it. (Doc. 18 at 1.) As a result, there is no dispute as to whether Desert Financial sent the statement to Plaintiff. 1 DISPUTE RESOLUTION; MANDATORY ARBITRATION. READ THIS PROVISION CAREFULLY AS IT WILL HAVE A 2 SUBSTANTIAL IMPACT ON HOW LEGAL CLAIMS YOU 3 AND THE CREDIT UNION HAVE AGAINST EACH OTHER WILL BE RESOLVED. 4

5 a. Except as expressly provided herein . . . , you agree that any controversy, dispute, or claim (‘Claim’) between you and Us that 6 arises out of or relates to [this Agreement], your account, and/or the 7 relationships of the parties hereto shall be resolved or otherwise settled by binding arbitration . . . . 8

9 * * *

10 f. THE PARTIES UNDERSTAND THAT THEY WOULD 11 HAVE HAD THE RIGHT TO LITIGATE THROUGH A COURT AND TO HAVE A JUDGE OR JURY DECIDE THEIR 12 CASE. HOWEVER, THEY UNDERSTAND AND CHOOSE TO 13 HAVE ANY CLAIMS DECIDED THROUGH AN ARBITRATION. . . . 14 * * * 15

16 h. Arbitration is not a mandatory condition of you maintaining an account with Credit Union. If you do not want to be subject to this 17 arbitration provision, YOU MAY OPT OUT of this Arbitration 18 Provision . . . .

19 (Doc. 12 ¶ 5; Doc. 12-4 at 6-7.) Finally, it is undisputed that Plaintiff never subsequently 20 opted out of the arbitration provision. 21 II. Procedural Background 22 On May 5, 2021, Plaintiff filed the complaint. (Doc. 1.) 23 On June 24, 2021, Desert Financial moved to compel arbitration. (Doc. 11.) That 24 same day, Desert Financial separately moved to dismiss under Federal Rules of Civil 25 Procedure 12(b)(1) and 12(b)(6). (Doc. 13.) 26 On July 26, 2021, Plaintiff filed responses to both motions. (Docs. 18, 19.) 27 On August 24, 2021, Desert Financial filed replies in support of both motions. 28 (Docs. 22, 23.) 1 On September 30, 2021, Plaintiff filed a notice of supplemental authority. (Doc. 2 24.) 3 On October 4, 2021, Desert Financial responded to Plaintiff’s notice. (Doc. 25.) 4 ANALYSIS 5 The FAA provides that written agreements to arbitrate disputes “shall be valid, 6 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 7 revocation of any contract.” 9 U.S.C. § 2. Thus, absent a valid contractual defense, the 8 FAA “leaves no place for the exercise of discretion by a district court, but instead mandates 9 that district courts shall direct the parties to proceed to arbitration on issues as to which an 10 arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 11 218 (1985). The district court’s role under the FAA is “limited to determining (1) whether 12 a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses 13 the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 14 (9th Cir. 2000). 15 I. Gateway Questions Of Arbitrability 16 The questions of whether a valid agreement to arbitrate exists and whether the 17 agreement encompasses the dispute at issue are sometimes called the “gateway” questions 18 of arbitrability. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). Although the 19 gateway questions are ordinarily resolved by the court, parties may agree to arbitrate one 20 or both gateway issues by including a delegation clause in the arbitration agreement: “An 21 agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the 22 party seeking arbitration asks the federal court to enforce, and the FAA operates on this 23 additional arbitration agreement just as it does on any other.” Id. at 70. The evidence of 24 the parties’ intent to delegate such issues to the arbitrator must be “clear and unmistakable.” 25 Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). 26 Desert Financial asserts that, because the gateway questions have been expressly 27 delegated to an arbitrator, this Court must compel arbitration without considering any 28 preliminary issues. According to Desert Financial, this outcome is compelled by the facts 1 that (1) the arbitration clause appearing in the current version of the Desert Financial 2 account agreement states that “all issues are for the arbitrator to decide, including . . . all 3 gateway issues of arbitrability”; and (2) that arbitration clause also requires that the parties 4 arbitrate under the American Arbitration Association’s (“AAA”) rules, which the Ninth 5 Circuit has taken to generally mean that the parties agreed to arbitrate arbitrability. (Doc. 6 11 at 5-7.) In response, Plaintiff asks the Court to retain this case until Desert Financial 7 “demonstrate[s] that [Plaintiff], at the very least, gave implied consent to the [arbitration] 8 term.” (Doc. 18 at 3.) Plaintiff also emphasizes that a “court always decides the threshold 9 issue of contract formation.” (Id.) Desert Financial largely abandons the arbitrability issue 10 in its reply. 11 Plaintiff has the better side of this issue. It may be true that the arbitration clause 12 appearing in the current version of Desert Financial’s account agreement allows an 13 arbitrator to determine the gateway questions and requires the application of AAA’s rules 14 during the arbitration, but “arbitration is a matter of contract and a party cannot be required 15 to submit to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., 16 Inc., v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers 17 of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). Plaintiff asserts there was 18 never a “[m]eeting of the [m]inds” about the arbitration agreement and she thus cannot be 19 bound by any of its terms. (Doc. 18 at 4.) The Court agrees—when, as in this case, there 20 is a legitimate dispute about whether the party opposing arbitration assented to the 21 modification of a contract to add an arbitration clause, it would be improper for a court to 22 robotically compel arbitration based on delegation principles without conducting any 23 independent analysis of the contract-modification issue. 24 The primary case on which Desert Financial relies, Brennan, does not compel a 25 different result. There, the “single issue” before the Ninth Circuit was “who—an arbitrator 26 or a judge—should decide whether the Arbitration Clause is unconscionable.” 796 F.3d 27 at 1128 (quotation marks omitted). The Brennan court took as a given that the parties had 28 formed an agreement to arbitrate. Id. at 1127-28 (“Brennan . . . signed an Employment 1 Agreement with Opus Bank . . . [he] acknowledged that section 16 of the Employment 2 Agreement (the Arbitration Clause), entitled ‘Dispute Resolution Procedures,’ was a 3 mandatory arbitration provision . . . .”) Here, Plaintiff disputes that precise issue. Brennan 4 also limited its holding “to the facts of the present case, which [involved] an arbitration 5 agreement between sophisticated parties.” Id. at 1131 (quotation marks omitted). The 6 court explicitly did not decide “the effect [if any] of incorporating AAA arbitration rules 7 into consumer contracts or into contracts of any nature between unsophisticated parties.” 8 Id. (cleaned up). Here, Desert Financial does not assert that Plaintiff is a sophisticated 9 party. 10 Desert Financial’s reliance on this Court’s ruling in Herrera v. Verra Mobility 11 Corp., 2020 WL 6781269 (D. Ariz. 2020), is misplaced for similar reasons. There, the 12 parties did not dispute the existence of an agreement to arbitrate and simply disagreed about 13 who would decide whether a given party could bring a claim under that agreement. Id. at 14 *3. 15 II. Validity Of Contract Modification 16 As noted, the district court’s role under the FAA is “limited to determining (1) 17 whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement 18 encompasses the dispute at issue.” Chiron Corp., 207 F.3d at 1130. Plaintiff seemingly 19 does not dispute that, if she validly assented to the current version of Desert Financial’s 20 account agreement, the arbitration clause within that agreement encompasses the dispute 21 at issue. Thus, it is only necessary to address whether a valid agreement to arbitrate exists. 22 If so, the Court must “direct the parties to proceed to arbitration on issues as to which an 23 arbitration agreement has been signed.” Dean Witter Reynolds, 470 U.S. at 218. 24 A. Legal Standard 25 The party seeking to compel arbitration “bears the burden of proving the existence 26 of a valid arbitration agreement by the preponderance of the evidence.” Bridge Fund Cap. 27 Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). “It is permissible 28 to consider evidence outside the pleadings when resolving a motion to compel arbitration. 1 To the extent there are conflicts in the evidence submitted by the parties, the court applies 2 a standard similar to that applicable for a motion for summary judgment.” Scott-Ortiz v. 3 CBRE Inc., 501 F. Supp. 3d 717, 721 (D. Ariz. 2020) (citations and internal quotation 4 marks omitted). If, after review of the parties’ arguments, there is a factual question about 5 the formation of the agreement to arbitrate, the Court must deny the motion and resolve the 6 dispute through an “evidentiary hearing or mini-trial.” McCarthy v. Providential Corp., 7 1994 WL 387852, *2 (N.D. Cal. 1994). 8 B. The Parties’ Arguments 9 As noted, it is undisputed that when Plaintiff opened her account with Desert 10 Financial, the account agreement did not require arbitration. Nevertheless, Desert 11 Financial asserts that “[b]efore Plaintiff filed this lawsuit, Desert Financial updated its 12 Account Agreement. Desert Financial provided notice to Plaintiff that it had ‘updated its 13 Statement of Terms, Conditions, and Disclosures to change how we will resolve legal 14 disputes related to your accounts’ and directed Plaintiff to those updated terms on Desert 15 Financial’s website.” (Id. at 2.) The agreement then stated that “[a]rbitration is not a 16 mandatory condition of you maintaining an account with Credit Union. If you do not want 17 to be subject to this arbitration provision, YOU MAY OPT OUT of this Arbitration 18 Provision.” (Id.) Desert Financial argues that because Plaintiff failed to “exercise her right 19 to opt out of the arbitration provision,” “an agreement to arbitrate between the parties” 20 exists. (Id. at 8.) 21 Plaintiff responds that there was no “[m]eeting of the [m]inds” about the arbitration 22 clause. (Doc. 18 at 4.) Because there was no arbitration clause in the account agreement 23 when Plaintiff opened her account, Plaintiff asserts that the “motion to compel turns on 24 how [Desert Financial] might have obtained Plaintiff’s consent to arbitrate, when she had 25 not previously consented to do so.” (Id.) According to Plaintiff, although Desert Financial 26 argues “that it gave Plaintiff notice of the arbitration clause on her monthly bank 27 statement,” “Plaintiff did not actually receive notice through this method.” (Id. at 6.) 28 Additionally, Plaintiff asserts that, for several reasons, Desert Financial “failed to present 1 the necessary evidence required to demonstrate Plaintiff’s implied consent to the arbitration 2 clause.” (Id.) 3 Desert Financial replies that, when Plaintiff opened her account, she agreed that 4 Desert Financial “may, at any time, change [the agreement] by providing you with the 5 appropriate notice required by law,” including “communications in electronic format,” 6 such as “disclosures, notices, [and] agreements.” (Doc. 22 at 3.) Desert Financial notes 7 that Plaintiff also agreed that communications would “be deemed to have been provided to 8 you if . . . sent to your e-mail address previously provided to Credit Union” or “made 9 available to you in electronic form on the Credit Union website.” (Id.) Given that Desert 10 Financial sent Plaintiff an electronic statement providing notice that “Desert Financial 11 updated its . . . Terms . . . to change how we will resolve legal disputes related to your 12 accounts at Desert Financial,” Desert Financial concludes that it “sent Plaintiff notice of 13 the updated [terms] in the exact manner Plaintiff agreed to receive such notice” and 14 Plaintiff accepted the terms by failing to opt out. (Id. at 4-5.) 15 C. Analysis 16 Courts look to state law to determine whether a valid agreement to arbitrate exists. 17 Davis v. Nordstrom, Inc., 755 F.3d 1089, 1093 (9th Cir. 2014). Here, the parties agree that 18 Arizona law applies. (Doc. 18 at 4; Doc. 22 at 3.) 19 The key question is whether Desert Financial validly modified its contract with 20 Plaintiff, which did not originally include an arbitration clause, to add such a clause. In 21 Arizona, “to effectively modify a contract, . . . there must be: (1) an offer to modify the 22 contract, (2) assent to or acceptance of that offer, and (3) consideration.” Demasse v. ITT 23 Corp., 984 P.2d 1138, 1144 (Ariz. 1999). “An offer has no binding effect unless and until 24 accepted by the offeree to whom the offer was directed.” Goodman v. Physical Res. Eng’g, 25 Inc., 270 P.3d 852, 855 (Ariz. Ct. App. 2011). 26 Here, the first and third elements of the modification test are not seriously 27 disputed—it is clear that Desert Financial offered to modify the terms and conditions of its 28 contractual relationship with Plaintiff, by providing notice in the March 2021 account 1 statement that it was changing those terms and conditions to add an arbitration clause, and 2 Plaintiff does not dispute that Desert Financial gave adequate consideration for the 3 proposed modification. Thus, the only disputed issue is whether Plaintiff “assent[ed] to or 4 accept[ed]” the modification offer. 5 Unfortunately, none of the cases cited by the parties provide authoritative guidance 6 on how Arizona courts would resolve this issue. In support of its claim that Plaintiff did 7 accept the modification offer, Desert Financial cites Hart v. Charter Commc’ns, Inc., 814 8 F. App’x 211 (9th Cir. 2020), Needleman v. Golden 1 Credit Union, 4747 F. Supp. 3d 1097 9 (N.D. Cal. 2020), CenTrust Mortg. Corp. v. PMI Mortg. Ins. Co., 800 P.2d 37 (Ariz. Ct. 10 App. 1990), and W. Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 796 S.E.2d 11 574 (W. Va. 2017). (Doc. 22 at 4.) In support of her claim that she did not accept the 12 modification offer, Plaintiff cites Velasquez-Reyes v. Samsung Elecs. Am., Inc., 777 F. 13 App’x 241 (9th Cir. 2019), Norcia v. Samsung Telecommunications Am., LLC, 845 F.3d 14 1279 (9th Cir. 2017), Knutson v. Sirius XM Radio Inc., 771 F.3d 559 (9th Cir. 2014), 15 Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014), Adams v. Liberty Bank, 16 2021 WL 3726007 (D. Conn. 2021), and Coleman v. Alaska USA Fed. Credit Union, 2020 17 WL 110742 (D. Alaska 2020). (Doc. 18 at 4-6; Doc. 24.) 18 The problem with the parties’ reliance on Norcia, Nguyen, Knutson, Velasquez- 19 Reyes, Needleman, and Hart is that all of those cases apply California law or its equivalent.2 20 California has a well-developed body of law concerning electronic consumer agreements, 21 and in that state “mutual assent frequently turns on whether the consumer had reasonable 22 notice of a merchant’s terms of service agreement.” Needleman, 474 F. Supp. 3d at 1103. 23 When determining whether a consumer had reasonable notice, California courts apply the 24 theories of “constructive notice” and “inquiry notice,” which may result in a finding of 25 acceptance even when a consumer does not have actual notice of a contract’s terms. Id. 26 However, the parties have not cited (and the Court has not found) any Arizona cases 27 adopting similar theories of notice in a consumer contract setting.

28 2 Nguyen applied New York law, but the Ninth Circuit found that “both California and New York law dictate the same outcome.” 763 F.3d at 1175. 1 Next, in Coleman, which applied Alaska law, it was “undisputed” that the defendant 2 did not give notice to its members before adding an arbitration provision. 2020 WL 110742 3 at * 5. Additionally, the court noted that the defendant “did not comply with the contract’s 4 specified method for modification.” Id. For these reasons, Coleman is of little utility here. 5 Plaintiff’s invocation of Adams is even more misplaced. It has nothing to do with 6 arbitration or contract formation.3 7 Finally, although CenTrust is an Arizona case that mentions the concept of “inquiry 8 notice,” it did not apply that concept to the question of contract formation (or modification), 9 let alone suggest that a consumer contract may be modified through inquiry notice— 10 instead, it simply recognized that “an insurer cannot rescind a policy because of an 11 insured’s misrepresentations if the insurer knows the true facts or has sufficient indications 12 that would put a prudent person on notice so as to induce an inquiry which, if done with 13 reasonable thoroughness, would reveal the truth.” 800 P.2d at 43 (citations and internal 14 quotation marks omitted). This discussion has little apparent relevance to the issues 15 presented here. 16 This leaves West Virginia CVS Pharmacy, which is a decision by the West Virginia 17 Supreme Court applying Arizona law. There, a group of pharmacies signed “Provider 18 Agreements” with CVS in 2004. 796 S.E.2d at 583-84. By signing these agreements, the 19 pharmacies agreed to be bound by CVS’s “Provider Manual.” Id. The Provider Manual, 20 in turn, contained a provision stating that CVS could, “[f]rom time to time, . . . amend the 21 Provider Agreement, including the Provider Manual . . . , by giving notice to Provider of 22 the terms of the amendment and specifying the date the amendment becomes effective.” 23 Id. Critically, although the Provider Manual did not contain an arbitration clause at the 24 time the pharmacies signed the Provider Agreements, CVS added such a clause in 2009. 25 Id. One question addressed in West Virginia CVS Pharmacy was whether the pharmacies 26 3 Although Plaintiff may have cited Adams primarily for the purpose of responding 27 to a separate Rule 12(b)(6) motion filed by Desert Financial, the final sentence of Plaintiff’s notice of supplemental authority states that “[t]his Court should adopt the reasoning in the 28 foregoing case and should deny Defendant’s Motion to Compel Arbitration . . . .” (Doc. 24 at 3.) 1 had validly assented to the addition of the arbitration clause, such that they could be 2 compelled to arbitrate their claims against CVS. Id. The West Virginia Supreme Court 3 decided this question in the affirmative, concluding that, “under Arizona law, the 4 arbitration agreement was incorporated by reference.” Id. The court identified two 5 Arizona cases as supporting this conclusion: (1) Capital One Bank (USA), N.A. v. Davey, 6 2013 WL 6729261 (Ariz. Ct. App. 2013); and (2) Weatherguard Roofing Co. v. D.R. Ward 7 Construction Co., 152 P.3d 1227 (Ariz. Ct. App. 2007). 8 Although West Virginia CVS Pharmacy certainly provides support for Desert 9 Financial’s position in this case, given its application of Arizona law and the close 10 similarity between its facts and the alleged contract modification here, it is not dispositive. 11 As an initial matter, “[i]n determining the law of the state for purposes of diversity, a federal 12 court is bound by the decisions of the highest state court. If the state’s highest court has 13 not decided an issue, it is the responsibility of the federal courts sitting in diversity to 14 predict how the state high court would resolve it.” Albano v. Shea Homes Ltd. P'ship, 634 15 F.3d 524, 530 (9th Cir. 2011) (citation and internal quotation marks omitted). Because 16 West Virginia CVS Pharmacy was not a decision by the Arizona Supreme Court, it does 17 not provide definitive guidance on how Arizona law would apply to the contract- 18 modification issue posed in this case. 19 Additionally, the West Virginia Supreme Court relied heavily on Capital One Bank 20 (USA), N.A. v. Davey, 2013 WL 6729261 (Ariz. Ct. App. 2013), in formulating its 21 understanding of Arizona law. The difficulty with this approach is that Capital One Bank 22 is an unpublished decision issued by the Arizona Court of Appeals in 2013. Under Arizona 23 law, such a decision is not only non-precedential—it is not even citable. See Ariz. R. Sup. 24 Ct. 111(c)(1)(C) (“Memorandum decisions of Arizona state courts are not precedential and 25 such a decision may be cited only . . . for persuasive value, but only if it was issued on or 26 after January 1, 2015.”).4

27 4 The Court also notes that Capital One Bank can be construed as containing some internal inconsistencies. On the one hand, Capital One Bank states that a contract- 28 modification offer “cannot be accepted unless the offeree actually knows of the offer’s existence.” 2013 WL 6729261 at *5 (emphasis added). This passage suggests that 1 The other Arizona decision on which the West Virginia Supreme Court relied, 2 Weatherguard Roofing Co. v. D.R. Ward Construction Co., 152 P.3d 1227 (Ariz. Ct. App. 3 2007), is a published decision, so it is fair game for purposes of assessing the status of 4 Arizona law. Air-Sea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 186 (9th Cir. 1989) 5 (“The decisions of the state’s intermediate appellate courts are data that a federal court 6 must consider in undertaking this analysis.”). Unfortunately, the Court does not read 7 Weatherguard Roofing as directly addressing the issue posed here. In Weatherguard 8 Roofing, a general contractor signed a prime contract with a client to build a residential 9 home. 152 P.3d at 1229. This contract contained an arbitration clause. Id. Later, the 10 general contractor entered into a series of separate contracts with a subcontractor to 11 perform waterproofing and other tasks. Id. at 1228. Although the subcontracts did not 12 specifically refer to arbitration, “the last page of [each] subcontract stated, ‘The attached 13 General Conditions are part of the subcontract.’” Id. at 1229. Given this backdrop, the 14 Arizona Court of Appeals concluded that the arbitration clause of the prime contract was 15 properly incorporated by reference into the subcontracts, “even if [the general contractor] 16 failed to attach a copy of the general conditions to the subcontract.” Id. at 1230. 17 Weatherguard Roofing differs from this case because the question there wasn’t 18 whether a contractual partner could modify a contract years after it was signed by adding 19 an arbitration clause and then sending notice of the modification to its counterparty— 20 instead, the issue was whether an arbitration clause that existed at the time of contract 21 formation (albeit in a different document) could be expressly incorporated into the contract 22 by reference. Accordingly, Weatherguard Roofing does not compel a ruling in Desert 23 subjective knowledge on the part of the offeree is required. On the other hand, Capital 24 One Bank goes on to hold, two sentences later, that the offeror’s modification attempt was invalid because it had “not shown that the [offeree] received the new agreement or that it 25 followed its own guidelines for supplying adequate notice of a change in terms to their customer agreement.” Id. This language suggests that subjective knowledge on the part 26 of the offeree isn’t required—instead, it may be enough for an offeror to send the proposed modification to the offeree through a communication channel to which the offeree 27 previously agreed. This seeming inconsistency is problematic here because both circumstances are present—Plaintiff claims that she never actually saw the modification 28 offer, even though it is undisputed that the offer was sent to her through a communication channel to which she consented. || Financial’s favor on the disputed contract-modification issue in this case. 2 In sum, the cases cited in the parties’ briefs do not fully address the key legal issue 3 || in this case—whether, under Arizona law, it is enough for a party seeking to modify a 4|| contact to send notice of the proposed modification to the offeree through a communication 5 || channel to which the offeree previously consented (which, it is undisputed, occurred here), || or whether the offeror must also show that the offeree had actual, subjective knowledge of || the proposed modification (which, according to Plaintiff's evidence, was absent here). 8 || Rather than attempt to resolve this issue through its own independent research, the Court will solicit supplemental briefing from the parties. 10 Accordingly, 11 IT IS ORDERED that the parties submit supplemental briefing on the issue identified above. Each party’s brief must be filed by October 22, 2021 at 5:00 p.m. and 13 || may not exceed seven pages. 14 Dated this 8th day of October, 2021. 15 16 im a 17 } t □□□ Dominic W. Lanza 18 United States District Judge 19 20 21 22 23 24 25 26 27 28

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