Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-04765/USCOURTS-cand-3_07-cv-04765-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1391 Personal Injury

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DAVID J. LEE and DANIEL R. LLOYD,

Plaintiffs,

 v.

AMERICAN EXPRESS TRAVEL

RELATED SERVICES, et al.,

Defendants. /

No. C 07-04765 CRB

MEMORANDUM AND ORDER

This class action challenges the legality of American Express card-member

agreements. Now pending before the Court is defendants’ motion to dismiss for, among

other reasons, lack of standing. The motion presents the issue of whether a plaintiff has

standing to challenge an unconscionable term in a contract which has not, and may never,

come into play. After carefully considering the parties’ papers, including plaintiffs’ letter

brief filed in violation of the Local Rules, and having had the benefit of oral argument, the

Court finds that in the circumstances of this case, plaintiffs do not have standing as a matter

of law.

BACKGROUND

Named plaintiffs Daniel R. Lloyd and David J. Lee obtained American Express credit

cards for personal use in 2003 and 2006 respectively. Lee also obtained American Express

“gift,” “charge” and “dining” cards. Use of American Express cards requires an annual fee

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(sometimes waived for promotional purposes). According to the plaintiffs, the applicable 

fees for charge and credit cards range from $30 to $450. Complaint ¶¶ 24-26. Gift and

dining cards require a onetime payment of $3.95. Id. ¶ 27. 

The gravamen of the Complaint is that the card-member agreements contain

unconscionable arbitration provisions in violation of California consumer protection laws. In

particular, plaintiffs allege violations of the California Unfair Competition Law (“UCL”),

and the California Consumer Legal Remedies Act (“CLRA”). Plaintiffs also allege that

defendants intentionally misrepresented the unconscionability of several of the challenged

provisions and thereby fraudulently induced plaintiffs to enter into the card agreements. 

Plaintiffs contend that their fraudulent inducement claim requires the recision of the contracts

and the restitution of all fees paid. Complaint ¶ 5. With respect to their statutory causes of

action, plaintiffs allege that they are entitled to restitution, punitive damages and attorney’s

fees. Id. 

The Challenged Provisions and Plaintiffs’ Legal Theory

Plaintiffs’ unconscionability arguments essentially attack five provisions in the cardmember agreements. While there has been some minor changes in the operative language

over time, these provisions have generally read as follows: 

“If arbitration is chosen by any party with respect to a claim, neither you nor

we will have the right to litigate that claim in court or have a jury trial on that

claim. Further, you and we will not have the right to participate in a

representative capacity or as a member of any class of claimants pertaining to

any claim subject to arbitration. Except as set forth below, the arbitrator’s

decision will be final and binding.” 

“If either party elects to resolve a Claim by arbitration, that Claim shall be

arbitrated on an individual basis. There shall be no right or authority for any

Claims to be arbitrated on a class action basis.” 

“We may change the terms or add new terms to this Agreement at any time, in

accordance with applicable law. We may apply any changed or new terms to

any then-existing balances on your Account as well as to future balances.”

“Our failure to exercise any of our rights . . . or our waiver of our rights . . .

shall not constitute a waiver of such rights.” 

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“These terms and conditions . . . and all questions about their legality . . . are

governed by the laws of the State of Utah [New York with respect to gift and

dining cards]. . . and by applicable federal law.”

Complaint at ¶¶ 62-65. 

Among other theories of unconscionability, plaintiffs emphasize that the arbitration

provision includes an unconscionable class action waiver. Id. ¶¶ 66-72. According to the

plaintiffs, this violates CLRA § 1770(a)(19) which makes it unlawful to “[i]nsert[] an

unconscionable provision into a contract.” The arbitration provision is also allegedly an

“unfair practice” that “offends an established public policy” in violation of the UCL. See

Cal. Bus. & Prof. Code §§ 1670.5, 1668; Complaint ¶ 78. 

Plaintiffs also allege that defendants have for some time been aware of the

unconscionability of several of the challenged terms; and, in particular, the unconscionability

of the unilateral modifications provision, the waiver provision, and the choice of law

provision. Complaint ¶ 105. Despite this knowledge, defendants allegedly made

representations that the terms were conscionable and enforceable. According to plaintiffs,

these misstatements were made on the American Express website and in one-on-one

interactions with customers. Complaint ¶ 104.

Defendants move to dismiss on various grounds. First, they argue that plaintiffs have

not suffered an injury in fact and therefore do not have Article III standing to bring any of

their claims. They also contend that the CLRA does not apply to credit cards as a matter of

law and that the plaintiffs have failed to plead their fraud claim with the required

particularity. Finally, in a separate motion to dismiss they argue that all of plaintiffs’ claims

are preempted by federal law. Because the Court concludes that plaintiffs lack Article III

standing, this Memorandum and Order addresses only the standing issue.

Article III Standing

Defendants argue that plaintiffs lack Article III standing to bring this action; 

specifically, they contend that plaintiffs have not demonstrated “injury in fact.” “Injury in

fact” is part of the irreducible minimum of the “case and controversy requirement of Article

III.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). An “injury in fact” must be

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“concrete and particularized” as well as “actual or imminent.” Id. A generalized,

hypothetical or conjectural injury is insufficient to establish Article III standing. Id. A party

invoking federal jurisdiction bears the burden of demonstrating an injury in fact. Id. at 561. 

To establish standing at the pleading stage, “general factual allegations of injury resulting

from the defendant’s conduct may suffice.” Id. 

Defendants assert that plaintiffs have not demonstrated injury in fact because they

have not shown that the challenged arbitration provisions have been implicated in any actual

dispute or have otherwise caused plaintiffs harm; plaintiffs have made, in effect, a facial

challenge to the legality of the card agreements. Such a challenge is not tied to any actual

dispute between the parties and thus does not rest on any concrete injury that is cognizable

under the Lujan standard. Put another way, defendants argue that even if the terms of the

agreement are unconscionable and illegal, they are just “out there” and have not had any

recognizable impact on plaintiffs. 

Plaintiffs respond with the following “theory” of injury in fact:

1. When plaintiffs paid for their charge/credit cards and/or gift cards, they paid, at

least in part, for the right to mandatory arbitration of all disputes with

defendants.

2. The mandatory arbitration provision in the contracts, however, is

unconscionable and unenforceable because, among other things, it is a contract

of adhesion with a class action waiver. 

3. Plaintiffs have a fraud in the inducement claim that they would like to arbitrate;

namely, that defendants misrepresented that the card member agreements

contain conscionable terms.

4. But, in order to arbitrate their fraud claim, they would have to invoke the

unconscionable and thus unenforceable arbitration provision.

5. Seeking to enforce an unconscionable provision is illegal, against public policy

and otherwise a waste of time and money.

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6. Thus, the unconscionable arbitration provision has denied plaintiffs the value

of the right to arbitrate their fraud claim--something that they paid for in

signing a contract with a mandatory arbitration provision. 

7. Because plaintiffs did not get what they paid for, they have been injured in fact.

Plaintiffs’ injury theory is thus premised on their assertion that they want to arbitrate their

fraud claim but cannot. This theory fails for several reasons. 

First, plaintiffs’ theory rests on hypothetical assumptions about what may or may not

transpire. To accept plaintiffs’ position, the Court must first assume that plaintiffs will

actually seek to arbitrate their fraud claim. The Court must also assume that the arbitrator

will find that certain provisions of the contract, such as the class action waiver, are

unconscionable. Next, the Court must assume that as a result of that finding, or perhaps

other findings, defendants will insist that the arbitration clause is unenforceable and therefore

that the fraud claim must be litigated in court, thereby depriving plaintiffs of their right to

arbitrate. Or, if defendants do not insist on courtroom litigation, that the arbitrator will sua

sponte refuse to arbitrate the case any further even if both parties agree to arbitrate. In other

words, since plaintiffs profess to want to arbitrate their claims, their injury rests on the

assumption that defendants will thwart arbitration or the arbitrator will refuse to arbitrate

even if the parties want arbitration. These assumptions, especially the last assumption, are

questionable, and, in any event, certainly premature. As such, it is impossible to conclude

that plaintiffs have described an injury that is “imminent” within the meaning of Lujan. 

Second, as support for their injury theory, plaintiffs rely on Lozano v. AT&T Wireless

Services, Inc., 504 F.3d 718 (9th Cir. 2007). See Plaintiffs’ Opposition at 4 (“Little need be

said to refute Defendants’ legal theory and argument since a recent decision of the Ninth

Circuit–rendered several weeks after the filing of this Complaint–is dispositive of and

conclusively establishes that Plaintiffs do have the requisite “injury in fact” and thus have

standing to maintain all of their causes of action: Lozano v. AT& T Wireless Services, Inc.,

2007 U.S. App.LEXIS 22430 (9th Cir. September 20, 2007).”). Lozano, however, does not

help plaintiffs and, indeed, demonstrates that plaintiffs lack standing. 

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In Lozano, the plaintiff brought a class action in federal court under the CLRA and

UCL challenging AT&T’s practice of billing its cell phone customers for calls during a

billing period other than the billing period in which the calls were made. In other words, if a

customer had 400 free minutes a month, AT&T sometimes charged a call made during that

month to the next month; such practice made it difficult for customers to keep track of their

minutes and, in the plaintiff’s case, caused him to exceed his minutes in some months and

incur additional charges. This practice is known as “out-of-cycle billing.” Id. at 722.

AT&T responded to the complaint by moving to compel arbitration. Plaintiff opposed

the motion. The district court refused to compel arbitration on the ground that the arbitration

agreement contained an unconscionable class action waiver. Id. at 723; see also Ingle v.

Circuit City Stores, Inc., 328 F.3d 1165, 1176 n.15 (9th Cir. 2003) (holding that a unilateral

bar on class-wide arbitration is substantively unconscionable).

Plaintiff subsequently moved for class certification. Among other theories, the district

court certified a California class action “based on [AT&T’s] inclusion of an unconscionable

term in its agreement, i.e., the class action waiver.” Id. at 730. The Ninth Circuit reversed

the certification of this claim. The court noted that the district court “certified this class

pursuant to a theory that was neither pled, nor properly considered by the district court when

granting class certification.” The complaint challenged out-of-cycle billing, not the inclusion

of the class action waiver; as a result, the district court never analyzed whether a challenge to

the class action waiver satisfied the prerequisites for class certification. Id. Moreover,

because the district court “stuck in” the class action waiver class, the district court certified a

theory with no definable class. The class definition adopted by the court was based solely on

out-of-cycle billing, the original theory of the complaint:

The [class action waiver] class the district court certified under

subsection (a)(19) [of the CLRA] is wholly unrelated to this definition. 

Any class certified under subsection (a)(19) [of the CLRA] necessitates

a class definition that includes individuals who sought to bring class

actions in California, but were precluded from doing so because of the

class action waiver in AWS’s arbitration agreement, and suffered some

resulting damage.” See Wilens v. TD Waterhouse Group, Inc., 120 Cal.

App. 4th 746, 15 Cal.Rptr. 3d 271, 276-77 (Cal. Ct. App. 2003) (holding

a court may not presume damages based on the mere insertion of an

unconscionable clause in a contract).

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Id. at 730-31 (emphasis added). 

Plaintiffs contend that this latter statement means that they have standing to challenge

the unconscionable class action waiver. See Opp. at 5 (“That disposes of Defendants’ CLRA

standing argument. Just as the CLRA class members ‘who sought to bring class actions, but

were precluded from doing so because of the class action waiver, and suffered some resulting

damage’ had standing so do Plaintiffs here”). The Court does not understand how plaintiffs

read such a holding into Lozano. The quoted statement has nothing to do with standing; it is

in the context of defining a hypothetical class, and, in any event, it states that the “class

action waiver” class must have been precluded from bringing a class action “and suffered

some resulting damage.” Id. at 731 (emphasis added). The Ninth Circuit did not hold that the

class action waiver class had in fact suffered some damage; instead, the Ninth Circuit was

instructing the district court that the class members must have suffered some damage to be

part of the class. This damage must be something more than simply being precluded from

bringing a class action because the court stated that the class must have been so precluded

and have suffered some damage. This conclusion is further reinforced by the Ninth Circuit’s

citation to Wilens and the parenthetical explanation that “a court may not presume damages

based on the mere insertion of an unconscionable clause in a contract.” Id.

Here, plaintiffs have not and cannot allege any damage because they do not have a

dispute with defendants that they tried unsuccessfully to litigate as a class action. Their

dispute is merely the presence of the class action waiver which could render the arbitration

provision unenforceable, even though they may never bring a class action or any action

whatsoever, and even if defendants may not oppose arbitration, even if certain terms are

unconscionable and thus unenforceable. They ask this Court to presume damages from the

mere insertion of the allegedly unconscionable clauses in a contract. Lozano holds that such

presumption is wrong.

In their post-hearing submission, plaintiffs contend that the Lozano court “found

standing in the absence of an arbitration so that the plaintiff could maintain challenges under

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the UCL and CLRA relative to the arbitration provision.” Plaintiffs’ characterization of

Lozano is wrong. As even a cursory reading of the opinion demonstrates, the court held that

the plaintiffs had standing to challenge the out-of-cycle billing because the named plaintiff

suffered actual injury from the practice in the form of additional charges and being unable to

utilize all the monthly minutes for which the plaintiff had contracted. Id. at 731-34. Neither

the district court nor the Ninth Circuit ever addressed plaintiff’s standing to make a challenge

to the arbitration provision because, as the Ninth Circuit explained, the plaintiff did not make

such a claim; rather, the district court apparently certified such a claim even though none was

made. 

Third, even if the Court accepted that plaintiffs have demonstrated that they are barred

from arbitrating their proposed fraud claim, that bar cannot constitute an injury in fact unless

the fraud claim itself is based on some cognizable injury. Plaintiffs’ fraud claim, however, is

 --at its core--simply a claim that defendants fraudulently misrepresented that the agreements

do not contain unconscionable terms. See Complaint ¶¶ 103-07. Plaintiffs have not been

injured by this representation. Since none of those provisions has been implicated in any

dispute, the harm is simply that plaintiffs entered into agreements with unconscionable terms

that may or may not have any impact in the future. Consequently, for plaintiffs’ theory of

injury to fly, the Court must conclude that the inclusion of unconscionable terms in plaintiffs’

contract, standing alone, caused injury in fact. The Ninth Circuit in Lozano says that it does

not.

CONCLUSION

At bottom, plaintiffs’ argument is that they were damaged by the mere existence of the

allegedly unconscionable terms in their card agreements. But those terms have not been

implicated in any actual dispute between the parties. The challenged terms have not, for

instance, been invoked against plaintiffs and they have not prohibited plaintiffs from

asserting their rights. No court, state or federal, has held that a plaintiff has standing in such 

//

//

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circumstances and plaintiffs have not convinced this Court that it should be the first. 

Accordingly, defendants’ motion to dismiss for lack of standing is GRANTED.

IT IS SO ORDERED.

Dated: December 6, 2007 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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