Rutherford v. Central Bank of Kansas City

• Court: District Court, W.D. Washington
• Decided: August 29, 2024
• Docket: 3:24-cv-05299
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 5 AT TACOMA 6 SAMUEL C. RUTHERFORD, III, Case No. 3:24-cv-05299-TLF 7 Plaintiff, v. ORDER DENYING MOTION TO 8 COMPEL ARBITRATION AND CENTRAL BANK OF KANSAS CITY, MOTION TO DISMISS 9 Defendants. 10

11 This case is a putative class action. This matter comes before the Court on 12 defendant Central Bank of Kansas City’s (“CBKC”) motion to compel arbitration. Dkt. 14. 13 Plaintiff opposes the motion. Dkt. 22. Pursuant to 28 U.S.C. § 636(c), Federal Rule of 14 Civil Procedure 73, and Local Rule MJR 13, the parties have consented to have this 15 matter heard by the undersigned Magistrate Judge. Dkt. 11. For the reasons stated 16 below, the Court denies the motion to compel arbitration with prejudice and denies the 17 motion to dismiss without prejudice. 18 I. BACKGROUND 19 A. General Facts 20 In 2023, Plaintiff Samuel C. Rutherford III was incarcerated in the Pierce County 21 Jail and was released on April 22, 2023. Dkt. 23, Declaration of Samuel C. Rutherford, 22 at 1 (“Rutherford Decl.”). At the time of booking, he had approximately $300 cash on 23 him, which was confiscated and deposited into an account with defendant Central Bank 24 1 of Kansas City (“CBKC”). Id. Additional money sent to him by others while he was 2 incarcerated was also deposited into this account. Id. Upon release, plaintiff’s money 3 was returned to him on a CBKC prepaid debit card. Id. at 2. 4 Plaintiff requested the return of his money in cash but was told that the prepaid

5 debit card was the only way for his funds to be returned to him. Id. at 2. A release stated 6 as follows: 7 I hereby authorize and request the return of my funds on the Numi Prestige Prepaid Mastercard and confirm receipt of the Cardholder Agreement and Fee 8 Schedule. I understand the Card is active and there may be fees associated with the use of the Card. These fees are listed in the Cardholder Agreement and Fee 9 Schedule. I further understand that I may choose not to use the Card and can request a check be mailed to me in accordance with the terms set forth in the 10 Cardholder Agreement and Fee Schedule.

11 Dkt. 16, Declaration of Brad D. Golden, Ex. 3 at 14 (“Golden Decl.”). After he signed a 12 form authorizing return of his funds on a prepaid MasterCard, plaintiff was handed the 13 prepaid debit card, and a folded Cardholder Agreement. Dkt. 23, Rutherford Decl., at 2. 14 His name had already been written on the signature block on the back of the prepaid 15 MasterCard, by someone other than himself. Dkt. 23, Rutherford Decl., at 2 and Ex. A at 16 6. Under the signature block the card stated, “By accepting, signing or using this Card, 17 you agree to the terms of the Cardholder Agreement.” Dkt. 23, Ex. A at 6; see also Dkt. 18 16, Golden Decl., Ex. 1 at 6. 19 After his release, plaintiff visited a cash machine and withdrew $494.00 from the 20 prepaid debit MasterCard that had $500.49 loaded on to it. Dkt. 16, Golden Decl., Ex. 4, 21 at 16. 22 B. Cardholder Agreement 23 24 1 The prepaid debit cards are provided through a contract between Numi Financial 2 (“Numi”), a program manager that provides prepaid card management services to 3 banks, and Pierce County that permits Numi to select and/or change the card brand, 4 issuing bank, or program manager at any time without the County’s approval. Dkt. 16,

5 Golden Decl., at 1. Here Numi partnered with CBKC. Id. Numi requires the facilities it 6 partners with to require inmates to sign a receipt requesting the card. Id. at 2. Facilities 7 are also required to provide a Cardholder Agreement and prepaid debit card to released 8 inmates. Id. 9 The Cardholder Agreement begins with a Fee Schedule. Dkt. 17, Declaration of 10 Lawrence Taft, Ex. 1 at 5 (“Taft Decl.”). Users are notified that the Card Grace Period is 11 thirty (30) days. Id. After the Fee Schedule, the first sentence of the Cardholder 12 Agreement states bolded and in all caps: “NOTICE: THIS AGREEMENT REQUIRES 13 ALL DISPUTES BE RESOLVED BY WAY OF BINDING ARBITRATION UNLESS YOU 14 OPT OUT AS DETAILED IN THE ARBITRATION SECTION BELOW.” Id. Directly below

15 this, the Cardholder Agreement states: 16 YOU CAN ALSO OBTAIN ACCESS TO YOUR FUNDS AT NO CHARGE TO YOU FROM US IF YOU COMPLETE EITHER OF THE FOLLOWING” (A) 17 TRANSFERRING THE ENTIRE AMOUNT OF YOUR FUNDS TO AN EXISTING BANK ACCOUNT BY VISITING WWW.PRESTIGELOGIN.COM; OR (B) 18 PERFORMING A BANK OVER THE COUNTER WITHDRAWAL FOR THE ENTIRE AMOUNT OF YOUR FUNDS. 19 Id. 20 Under a headline entitled “Arbitration” the Agreement states bolded in all caps: 21 ACTIVATION OR USE OF YOUR CARD ACCOUNT OR CARD CONSTITUTES 22 ACCEPTANCE OF THIS ARBITRATION INCLUDING WAIVER OF YOUR RIGHTS TO 23 CLASS ACTION. Id. at 6. 24 1 II. DISCUSSION 2 A. Motion to Compel Arbitration 3 1. Legal Standard 4 Under the Federal Arbitration Act (FAA), arbitration agreements involving

5 interstate commerce are “valid, irrevocable, and enforceable, save upon such grounds 6 as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “Section 2 of 7 the FAA creates a policy favoring enforcement of agreements to arbitrate.” Cox v. 8 Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). Arbitration agreements 9 are a matter of contract, and courts must “enforce them according to their terms.” AT&T 10 Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). As such, they may be 11 invalidated by “‘generally applicable contract defenses, such as fraud, duress, or 12 unconscionability.’” Id. (quoting Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 13 687 (1996). 14 In a motion to compel arbitration the court must determine “(1) whether a valid

15 agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses 16 the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F. 3d 1126, 17 1130 (9th Cir. 2000). If the answer to both questions is yes, the court must “enforce the 18 arbitration agreement in accordance with its terms.” Id. 19 Courts “rely on the summary judgment standard of Rule 56 of the Federal Rules 20 of Civil Procedure” on a motion to compel arbitration because “the district court’s order 21 compelling arbitration ‘is in effect a summary disposition of the issue of whether or not 22 there had been a meeting of the minds on the agreement to arbitrate.’” Hansen v. LMB 23 Mortgage Services, Inc., 1 F.4th 667, 670 (9th Cir. 2021) (quoting Par-Knit Mills, Inc. v.

24 1 Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9 (3d Cir. 1980). “Once a district court 2 concludes that there are genuine disputes of material fact as to whether the parties 3 formed an arbitration agreement, the court must proceed without delay to a trial on 4 arbitrability.” Id. at 672.

5 2. Analysis 6 • Contract Formation 7 In determining whether there is an agreement to arbitrate, courts generally must 8 apply “ordinary state-law principles that govern the formation of contracts.” First Options 9 of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Both parties agree Washington 10 law applies here. See Dkt. 14 at 7, Dkt. 22 at 7. 11 Under Washington law, a contract is formed when the parties have objectively 12 expressed mutual agreement to a contract’s material terms. Yakima County (West 13 Valley) Fire Protection Dist. No. 12 v. City of Yakima, 122 Wn.2d 371, 388 (1993). 14 “Mutual assent is gleaned from the outward manifestations and circumstances . . . [of]

15 the transaction. Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 50 (2020). Contract 16 formation also requires consideration. Keystone Land & Development Co. v. Xerox 17 Corp., 152 Wn.2d 171, 178 (2004). 18 • Mutual Assent 19 Defendant argues that plaintiff manifested mutual assent to the terms of the 20 Cardholder Agreement through a course of dealing by accepting and using the prepaid 21 debit MasterCard. Dkt. 14 at 8. Specifically, defendant argues that plaintiff had a 22 meaningful choice of whether to accept and use the prepaid debit card because plaintiff 23 was not required to use the debit card to get his money back and yet plaintiff did not

24 1 utilize any of the alternative options or opt out of the arbitration provision. Id. at 9. 2 Plaintiff responds that no assent was sought or obtained from him because he was 3 required to accept the prepaid debit card and the Cardholder Agreement as a means to 4 access his funds. Dkt. 22 at 10.

5 Plaintiff relies on Reichert v. Rapid Invs., Inc., 56 F.4th 1220 (9th Cir. 2022) and 6 contends it is similar to this case, as Reichert involved the use of prepaid debit cards 7 distributed to prisoners and involved a substantially similar agreement. 8 In Reichert, the Ninth Circuit applied Washington law and determined that neither 9 the plaintiff’s retention of the card nor his silence constituted acceptance. Id. at 1228. 10 The Court also determined that his use of the card did not constitute assent because 11 the money that the plaintiff withdrew was his own, plaintiff was issued a preactivated 12 card, there was no other way to obtain immediate use of his funds, and the defendant 13 structured its fees to begin deducting after three days regardless of use. Id. In that case, 14 the agreement specified that “acceptance and/or use” constituted assent to the terms.

15 Id. at 1227. 16 Defendant attempts to distinguish this case from Reichert based on their 17 contention regarding language that acceptance and use of the debit card constituted 18 assent. Dkt. 27 at 2, Defendant’s Reply in Support of Motion to Compel Arbitration. 19 However, defendant does not accurately quote the language of the contract in this case. 20 The Cardholder Agreement states: “ACTIVATION OR USE OF YOUR CARD 21 ACCOUNT OR CARD CONSTITUTES ACCEPTANCE OF THIS ARBITRATION.” Dkt. 22 17, Taft Decl., Ex. 1 at 6. 23

24 1 Here, it is undisputed that plaintiff was handed this card already activated; 2 someone other than himself had written his name on the signature block on the back of 3 the card; and he was told that he could not receive his money back in cash or by check, 4 but rather, this prepaid MasterCard was the only way for him to receive his funds. Dkt.

5 23, Rutherford Decl., at 2. Because per the Cardholder Agreement, activation of the 6 card constituted acceptance, plaintiff’s subsequent action in using the card to withdraw 7 his own funds does not impact the analysis. See Brown v. Stored Value Cards, 2022 8 WL 17844168 at *2 (9th Cir. Dec. 22, 2021) (“under the express terms of the Cardholder 9 Agreement, a subclass member’s ‘use’ of the card is irrelevant—assent is conditioned 10 on ‘accept[ance]’ of the card.”). 11 Similarly, the fact that plaintiff withdrew the funds rather than using one of the 12 options provided by CBKC including requesting a check, obtaining a bank teller 13 withdrawal, or opting for a card to bank account transfer, has no impact on the analysis 14 because the card was activated and language in the contract unilaterally stated that

15 once it was activated, plaintiff gave up the right to a class action and was required to 16 arbitrate, regardless of whether he used the card. Dkt. 17 at 6. 17 Defendant argues that plaintiff could have nonetheless utilized these options to 18 avoid fees, had thirty days to do so, and had utilized the card to bank transfer option in 19 the past. But plaintiff states that upon release he had no other cash and needed the 20 money loaded on the card; so he used the card to withdraw as much money as he could 21 while allowing for the fee. See Dkt. 23, Rutherford Decl., at 2-3. Defendant does not 22 dispute plaintiff’s assertions about his financial situation. Dkt. 16, Golden Decl., at 3, 23 and Ex. 4 at 16 (facts regarding plaintiff’s transaction history for April 22, 2023).

24 1 This case, therefore, is similar to Reichert where the Court held, “[w]ithdrawing 2 the money presented a more immediate way to access the funds than any alternative 3 presented in the fine print Agreement. And Moyer was under no obligation to follow an 4 alternative process, having not assented to the Agreement’s terms through retention of

5 the card.” Reichert, 56 F.4th at 1229. For the same reason, plaintiff’s action to utilize the 6 card to withdraw his funds at an ATM rather than initiating a card-to-bank transfer as he 7 had done in 2019 does not allow the Court to deduce mutual assent based on a course 8 of dealings. See Weiss v. Lonnquist, 153 Wn. App. 502, 511 (2009). 9 Defendant cites Morehouse v. PayPal Inc., No. 21-CV-4012 (RA), 2022 WL 10 912966, at *5 (S.D.N.Y. Mar. 28, 2022) and argues that plaintiff had meaningful choices 11 regarding whether to accept and use the prepaid debit card. Dkt. 14 at 8-9. However, 12 this case is distinguishable from Morehouse. The cardholder agreement in Morehouse 13 stated “IF YOU DO NOT AGREE TO THE TERMS OF THIS ARBITRATION 14 AGREEMENT, DO NOT ACTIVATE OR USE THE CARD.” Morehouse, No. 21-CV-

15 4012 (RA), 2022 WL 912966 at *3. Not only did the plaintiff in Morehouse create a user 16 account and apply for the card, but she also called a number to activate the card, and 17 acknowledged and agreed to the cardholder agreement by following telephone prompts. 18 Id. This is not analogous to this case, where plaintiff had no alternative but to receive his 19 funds on the prepaid card; and even if he utilized the other options the prepaid 20 MasterCard was activated when he received it. 21 Defendant argues that plaintiff’s conduct in not opting out of the Cardholder 22 Agreement’s arbitration agreement also manifested assent to arbitration. Dkt. 14 at 9. 23 To support this argument, defendant cites cases where courts found that a provision

24 1 providing the opportunity to opt out of an arbitration clause provided meaningful choice 2 regarding mutual assent. Id. (citing A.C. by and through Carbajal v. Nintendo of Am. 3 Inc., C20-1694 TSZ, 2021 WL 1840835, at *3 (W.D. Wash. Apr. 29, 2021); Stone v. Mid 4 Am. Bank & Trust Company, No. 2:18-CV-87-RMP, 2018 WL 4701843, at *6 (E.D.

5 Wash. Aug. 31, 2018); Reyes v. JPay, Inc., et al., No. CV 18-315-R, 2018 WL 6 10811497, at *2 (C.D. Cal. June 26, 2018); Black v. JP Morgan Chase & Co., Civil 7 Action No. 10–848, 2011 WL 3940236, at *18 (W.D. Pa. Aug. 25, 2011). 8 Plaintiff argues that these cases are inapplicable because none of these cases 9 involved an opt out provision in a contract that had not been mutually assented to by the 10 parties. Dkt. 22 at 17-18. 11 Reyes, the only case defendant cites involving a similar factual scenario where 12 the plaintiff was presented with a prepaid debit card upon release from prison, involved 13 a cardholder agreement that stated that “[u]se of this card constitutes acceptance of the 14 terms and conditions stated in the [CA].” Reyes, No CV 18-315-R, 2018 WL 10811497

15 at *1. Because, as stated above, in this case the Cardholder Agreement specified that 16 “activation or use” (emphasis added) constituted acceptance, plaintiff did not have the 17 same opportunity here to opt-out of the arbitration provision of this contract by not using 18 the card. See Reichert v. Keefe Commissary Network LLC, 542 F. Supp. 3d 1133, 1144 19 (W.D. Wash. 2021), aff'd sub nom. Reichert v. Rapid Investments, Inc., 56 F.4th 1220 20 (9th Cir. 2022). 21 In conclusion, defendant has not shown a genuine dispute of material facts on 22 the issue of mutual assent. As a matter of law, the plaintiff did not objectively manifest 23 an agreement to assent to the terms of the contract, and therefore mutual assent to

24 1 form a contract was not achieved. Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 50 2 (2020).1 Because no contract was formed, plaintiff is not bound by the arbitration 3 clause of the contract and the motion to compel arbitration is DENIED. 4 B. Motion to Dismiss

5 Defendant alternatively argues that this case should be dismissed for lack of 6 standing or based on the rule against double recovery. Dkt. 14 at 11-13. 7 Federal courts have jurisdiction over live “Cases” and “Controversies.” 8 TransUnion v. Ramirez, 594 U.S. 413, 423 (2021). A case or controversy requires 9 standing. Id. To establish standing a plaintiff must establish that they have “(1) suffered 10 an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, 11 and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. 12 Robins, 578 U.S. 330, 338 (2016) (citing Lujan v. Defenders or Wildlife, 504 U.S. 555, 13 560-61 (1992)). 14 Here defendant challenges the first element, injury in fact. “To establish injury in

15 fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected 16 interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or 17 hypothetical.’” Id. at 339 (citing Lujan at 560). Defendant argues that plaintiff is a 18 member of a settlement class in another action, Brown v. Stored Value Cards, Inc., 19 Case No 3:15-cv-01370-MO (D. Or.); defendant asserts a settlement in that case will 20 fully compensate plaintiff for the specific harms alleged here. Dkt. 14 at 11. Defendant’s 21 22 23 1 Plaintiff has not argued the arbitration clause would be unenforceable on the basis of procedural or 24 substantive unconscionability. See Burnett, at 56-63. 1 argument regarding double recovery similarly relies on plaintiff’s membership in the 2 Brown class. Id. at 12-13. 3 Plaintiff responds that although there is a proposed settlement in Brown, it is not 4 final as it has not received final court approval as required by Fed. R. Civ. P. 23(c)(2).2

5 Dkt. 22 at 20. On August 19, 2024, plaintiff informed the Court that on August 7, 2024, 6 he submitted notice that he chose to opt out of the Brown case and its settlement. Dkt. 7 31. 8 At this time, it is not clear from the record whether plaintiff’s membership in 9 Brown would now or in the future bar his recovery in this case; but it appears that 10 plaintiff’s case is not moot. See Campbell-Ewald v. Gomez, 577 U.S. 153, 165 (2016) 11 (“an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case”). 12 For this reason, the Court DENIES defendant’s motion without prejudice. 13 CONCLUSION 14 For the reasons stated herein, the motion to compel arbitration is DENIED with

15 prejudice. The motion to dismiss is DENIED without prejudice. 16 17 Dated this 29th day of August, 2024. 18 19 A 20 Theresa L. Fricke 21 United States Magistrate Judge

22 2 Plaintiff filed a surreply objecting to the defendant’s claim-splitting argument because it was raised for 23 the first time in a reply brief. Dkt. 29. Because the Court is denying the defendant’s motion to dismiss as unsupported by the record and plaintiff’s case is not moot at the current time, the plaintiff’s objection 24 discussed in their surreply is denied.