A new Seventh Circuit case answers the age-old question: if a fourteen-year-old swipes her mom’s credit card to complete a smoothie purchase at the mall, is she bound to the credit card agreement?
The case, A.D. v. Credit One Bank, N.A., __ F.3d __, 2018 WL 1414907 (Mar. 22. 2018), addressed whether the lead plaintiff in a putative TCPA class action was bound to an arbitration agreement. The lead plaintiff was a teenager when the case was filed, and she alleged that the defendant bank called her cell phone multiple times to collect on her mother’s credit card debt. (A practice which is precluded by the Telephone Consumer Protection Act (TCPA).) During the course of discovery, the defendant bank realized that it had linked the teenager’s cell phone number to the mother’s credit card account when the mother used the teen’s cell phone to call the defendant. It also discovered that the teenager had completed a few smoothie purchases at the mall using her mother’s credit card. The defendant bank then made a motion to compel arbitration (and to deny class certification) based on the arbitration agreement in the mother’s cardholder agreement. The district court granted the motion, but the Seventh Circuit reversed.
On appeal, the Seventh Circuit tried to clear up any ambiguity in its previous treatment of cases regarding non-signatories. It established two analytical steps needed to resolve the arbitrability question: whether the daughter is directly bound by the arbitration agreement; and if not, whether any of the arguments for binding non-signatories apply.
With respect to whether the daughter was bound by the plain language of the arbitration agreement, the Court had no trouble concluding she was not. The arbitration agreement specifically applied to claims made by authorized users of the account. The district court had relied on one sentence in the paragraph defining “Authorized Users” of the card: “If you allow someone to use your Account, that person will be an Authorized User.” That, plus the fact that the mother had ordered smoothies, but then sent her daughter up to the counter to swipe the credit card when the smoothies were ready, led the district court to conclude the daughter was an “authorized user” bound by the cardholder agreement. The appellate court, however, noted that the full definition of Authorized User required multiple steps for someone to qualify, none of which had been completed for the teenage plaintiff. Furthermore, the cardholder agreement limited authorized users to people over fifteen, and the relevant state law also did not allow fourteen-year-olds to enter into binding contracts. Therefore, the Seventh Circuit found the “terms of the cardholder agreement do not bind” the teenage plaintiff.
With respect to the second analytical step, the Court found the principles of equitable estoppel (which can bind non-signatories to arbitration agreement) did not bind the daughter to the cardholder agreement. Critically, equitable estoppel requires the bank to prove that the teenage daughter received a “direct benefit” from the cardholder agreement. In this case, the bank’s whole argument hinged on the smoothie. [I wonder if there was testimony about how much it cost, and how delicious it was! Did it have vitamin boosters?!] And the Court was not impressed. It reasoned:
“any ‘benefit’ that [daughter] received with respect to the credit card was limited to following her mother’s directions to pick up the smoothies that her mother had ordered previously. . . Her mother,  benefited from the agreement, which allowed her, not [the daughter] to buy the smoothies.”
The Court also concluded that the class action claims did not seek benefits under the cardholder agreement, which would have been a separate basis for estoppel.
As a result, the Seventh Circuit reversed the decision to grant the motion to compel arbitration and directed the district court to reconsider its denial of the class certification as well.