Morehouse v. Paypal, Inc.

Background

Ebony Morehouse sued PayPal Incorporated, The Bancorp Bank, and Netspend Corporation. She asserted claims under the Electronic Fund Transfer Act, the Truth in Lending Act, and the New York Deceptive Practices Act, along with a claim for negligent misrepresentation.

Morehouse alleged that she obtained and used a PayPal prepaid card for her benefit payments and other necessities. After she lost the card, she said she repeatedly tried to reach customer service but could not resolve the problem or transfer her benefit payments. She also alleged that the defendants failed to investigate the problem, did not properly disclose fees or error-resolution information, and misled her about Netspend’s role in servicing the card.

The defendants moved to compel arbitration and stay the court proceedings. They relied primarily on the Cardholder Agreement, which stated that claims relating to the agreement, the card, advertisements, statements, and card transactions would be resolved through binding arbitration.

Whether Morehouse Agreed to Arbitrate

Morehouse argued that no contract was formed because she did not receive the Cardholder Agreement and did not agree to its terms. Applying New York law to the contract-formation issue, the court rejected that argument.

The defendants presented evidence that Netspend’s regular practice was to mail the Cardholder Agreement with every new card. The court held that this regular practice created a presumption that Morehouse received the agreement. Morehouse said only that she did not believe she received inserts; she did not affirmatively deny receiving the agreement. The court found that statement insufficient to overcome the presumption.

The court also found that Morehouse assented to the agreement by activating and using the card. It held that those actions independently showed agreement to the Cardholder Agreement, even if Morehouse had not read it.

Scope of the Arbitration Agreement

The court found that the agreement’s broad language covered all of Morehouse’s claims. Her allegations concerned the defendants’ handling of the card, fee disclosures, lost-card information, Netspend’s role in customer service, and statements about those matters.

Although PayPal was not a party to the Cardholder Agreement, the court held that PayPal could compel arbitration under principles of estoppel. The court concluded that the claims against PayPal were sufficiently connected to the agreement and to the relationships among the defendants. It stated that PayPal had to follow the agreement’s terms, including its provision concerning payment of initial arbitration filing fees.

Federal Statutory Claims

The court held that Morehouse’s claims under the Truth in Lending Act and Electronic Fund Transfer Act could be arbitrated. Morehouse did not argue that Congress had created a nonwaivable right to a judicial forum for those claims, and the court found no inherent incompatibility between those statutes and arbitration of her individual claims.

Unconscionability Arguments

Morehouse argued that the agreement was unconscionable because she allegedly had no meaningful choice, arbitration costs could be prohibitive, the defendants allegedly created confusion about Netspend’s role, and the procedures for opting out were unfair.

The Cardholder Agreement delegated questions about its scope, interpretation, enforceability, and validity to the arbitrator. The court held that Morehouse’s arguments challenged the agreement generally, rather than the delegation provision specifically. It therefore declined to decide those unconscionability arguments and referred them to the arbitrator. The court also stated that Morehouse’s lack-of-choice argument failed to the extent it challenged acceptance of the delegation provision itself.

Disposition

Judge Ronnie Abrams granted the defendants’ motion to compel arbitration and stayed the case pending arbitration. The Clerk of Court was directed to terminate the motions listed at docket numbers 26 and 30. The order did not decide the merits of Morehouse’s underlying statutory or negligent-misrepresentation claims.