Shron v. LendingClub Corporation

Background

Marina Shron brought this putative class action against LendingClub Corporation based on a $35,000 personal loan she accepted in 2018. She alleged that LendingClub deducted a $2,100 origination fee despite representing that there would be no hidden fees, and that it charged interest exceeding 25%. Her claims included alleged violations of New York General Business Law §§ 349 and 350 and the Truth in Lending Act, as well as breach of contract, fraud, and unjust enrichment.

LendingClub moved under the Federal Arbitration Act to compel arbitration and stay the court case. LendingClub argued that Shron had agreed to arbitration provisions when obtaining a 2015 loan and again when applying for the 2018 loan. Shron disputed that she had entered into those agreements, stating that the copies submitted by LendingClub did not contain identifying information showing that she had agreed to them. She also declared that she never saw or read the agreements or their arbitration provisions.

Legal Standard

To compel arbitration, the court must determine whether a valid arbitration agreement exists and whether it covers the claims at issue. The party seeking arbitration must prove the agreement’s existence by a preponderance of the evidence, meaning that the evidence must show that the agreement was more likely than not formed.

Under New York law, contract formation requires mutual assent, or a meeting of the minds. When a person denies having actual notice of contract terms, the court examines whether a reasonably careful user would have been placed on inquiry notice. For an online agreement, that depends on whether the website made the terms sufficiently clear and noticeable and whether the user’s assent was unambiguous.

Choice of Law

The parties proposed different states’ laws. Shron relied on New York law, while LendingClub relied on Delaware and Utah law based on provisions in the loan agreements. The court first determined that it could not apply those choice-of-law provisions before deciding whether the parties had entered into the agreements containing them.

Applying New York’s “center of gravity” test, the court concluded that New York had the most significant relationship to the contract-formation dispute. The opinion stated that Shron was a New York citizen, LendingClub was domiciled in California and Delaware, and all or a substantial part of the alleged events or omissions occurred in New York. The court therefore applied New York law to determine whether the arbitration agreements were formed.

Analysis

LendingClub submitted a declaration describing its usual online loan-application process. According to that declaration, applicants had to check a box and click a button accepting linked agreements before proceeding. LendingClub also submitted screenshots showing language stating that clicking constituted an electronic signature and acceptance of a “Loan Agreement,” “Borrower Membership Agreement,” or “Borrower Agreement.”

The court treated these as “clickwrap” agreements, meaning online agreements in which a user must click an acceptance button but may not be required to read the linked terms. The court found that Shron’s declaration raised a genuine question about whether she had notice of the arbitration provisions. LendingClub bore the ultimate burden of proving that she had sufficient notice to establish mutual assent.

The court concluded that Shron did not receive actual notice because she stated that she was unaware of the arbitration agreements and LendingClub provided no evidence that she actually saw or read the arbitration provisions. The court then considered whether the website nevertheless gave her inquiry notice.

The court found that the website interfaces used for both the 2015 and 2018 loan applications did not provide the required notice. The interfaces referred to accepting loan-related agreements but did not alert users that clicking the box and proceeding could affect their legal rights and remedies, including the right to sue in court. The requirement to check a box and click “Next” did not, by itself, establish inquiry notice because the page did not explain the legal significance of that action.

Disposition

The court held that neither the 2015 nor the 2018 loan-application process provided Shron with sufficient inquiry notice of the arbitration provisions. LendingClub therefore failed to prove by a preponderance of the evidence that a valid arbitration agreement existed.

The court denied LendingClub’s motion to compel arbitration and stay the action. It also directed the parties to appear for a telephonic initial pretrial conference, submit a joint letter and proposed case-management plan, and directed the Clerk of Court to terminate the motion at ECF No. 11.