Bandler v. Charter One Bank, No. 451-7-03 Rdcv (Coh en, J., Aug. 2, 2010) [The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] STATE OF VERMONT SUPERIOR COURT CIVIL DIVISION Rutland Unit Docket No. 451-7-03 Rdc v
MICHAEL BANDLER, and MICHAEL BANDLER & COMPANY, INC., Plaintiffs

v. CHARTER ONE BANK n/k/a CITIZEN’S BANK,

Defendant

DECISION ON DEFENDANT’S MOTION TO DISMISS ARBITRATO R’S CLAUSE CONSTRUCTION AWARD, FILED MAY 19, 2010 This case is about allegedly improper bank account fees charged by defendant Citizen’s Bank. After plaintiff Michael Bandler bro ught his claim in this Court, he was ordered him to go to arbitration with the defendant , in accordance with the bank account agreement. At arbitration, the plaintiff sought to certify a class of plaintiffs, and the arbitrator found that the bank account agreement su pported class arbitration. The defendant now challenges the arbitrator’s clause co nstruction decision. A hearing on the matter was held on July 1, 2010. Plaintiff Michael Bandler was represented by Robert P. McClallen, Esq. Defendant Charter One Bank n/k/a Citizen’s Bank was represented by Tavian M. Mayer, Esq. 

### BACKGROUND In March 2003, Michael Bandler, on behalf of Micha el Bandler & Company, Inc., opened a business bank account with Charter One Ban k. He also opened a personal account. Mr. Bandler executed an account agreement with Charter One for each account.2

The Deposit Account Agreement, for both the persona l and business accounts, contains general provisions that include a dispute resolutio n arbitration clause. It states:

Dispute Resolution-Arbitration . In the unlikely event of a dispute, the Bank wants to resolve the dispute fair ly and quickly. In most cases, a problem can be resolved i n a branch, by telephone, or by writing to our Consumer Affairs office at [address redacted], Cleveland, OH 44101- 3111. You and I agree that should any dispute or controversy arise, you and I will first attempt to resolve the dispute informally and promptly through good faith negotiations. In the event that the dispute is not clearly resolved by informal negotiations, any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administer ed by the American Arbitration Association under its Commerci al Arbitration Rules, and judgment on the award render ed by the Arbitrator(s) may be entered in any court havin g jurisdiction thereof. Any statute of limitations wh ich would otherwise be applicable shall apply. Nothing herein shall preclude or limit the Bank’s right of set-off. Arbi tration shall be final and binding on both parties, and bot h parties waive their right to seek remedies in court, includ ing the right to a jury trial. In the event that multiple claims are asserted, som e of which are held not subject to these provisions rega rding arbitration, you and I agree, to the extent allowed by law, to stay the proceedings of the claims not subject to t hese provisions until all other claims are resolved in a ccordance with these provisions. In the event that I, notwith standing the provisions of this section, file a lawsuit with respect to any claim against you, prior to the appointment of an arbitrator, I agree, to the extent allowed by law, to stay the proceedings until my claim(s) are resolved in accor dance with these provisions. In the event the claims are asserted against multiple parties, some of whom are not subj ect to these provisions regarding arbitration, you and I a gree, to the extent allowed by law, to sever the claims subj ect to these provisions and resolve them in accordance her ewith. Nothing shall preclude either you or me from seekin g equitable relief in the event an arbitrator is not yet appointed, or if the arbitrator is not legally empo wered to grant the relief requested.3 In July 2003, Michael Bandler and Michael Bandler & Company, Inc. brought an action against Charter One in this Court, arising o ut of the opening of the bank accounts. Mr. Bandler made various claims against Charter One , including allegations of false representations, misleading advertising, imposition of sorting charges, and improper overdraft fees and sustained overdraft fees leading to charges being incurred. On November 12, 2003, the Court issued a Final Jud gment Order in which it determined that the parties had agreed to arbitrate in the account agreement, the “Account Rules and Regulations.” In November 2004, the plain tiffs proceeded to arbitration before the American Arbitration Association (AAA). The plaintiffs then sought to amend their arbitrati on demand in order to bring the arbitration both individually and on behalf of two classes: (1) “Persons who have opened accounts with Charter One in Vermont, since Charter One began advertising ‘Free Checking’ and have incurred charges.”; and (2) “Per sons who have opened accounts with Charter One in Vermont, executing agreements which provide for: modification at will by Charter One; no requirement of direct notice of changes; and, have been subjected to changes which resulted in charges such as sorting a nd continuing overdraft charges.” On September 3, 2006, the arbitrator issued an orde r entitled “Class Action, Clause Construction Partial, Final Arbitration Awar d.” In this order, the arbitrator determined that the arbitration was governed by AAA ’s Supplementary Rules for Class Arbitrations, that the arbitrator had the authority to address the issue of class arbitration, and that class action arbitration was permitted und er the bank account agreement. In coming to the conclusion that the account agreement supported class action arbitration, the arbitrator relied extensively on the case of Green Tree Financial Corp. v. Bazzle , 5394

U.S. 444 (2003). Following the arbitrator’s class action arbitration order, the Supreme Court of the United States granted certiorari to another class a ction arbitration case, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , 548 F.3d 85 (2d Cir. 2008), cert. granted , 129 S.Ct. 2793 (June 15, 2009). The arbitrator then stayed the arb itration proceeding, recognizing that “in the interest of cost efficiency . . . the outco me of Stolt-Nielsen could well have a significant impact on the future conduct of this ar bitration.” Decision on Motion to Stay, August 17, 2009. On April 27, 2010, the Supreme Court issued its opi nion in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , 130 S.Ct. 1758 (2010). On May 19, Charter One fil ed the instant motion to dismiss the arbitrator’s clause c onstruction award. Charter One argues that (1) only the Court, not the arbitrator, has th e authority to decide whether class arbitration is appropriate, and (2) that under the account agreement there is no contractual basis for class arbitration. The Court need not add ress the first argument, as the second is dispositive of the motion. 

### DISCUSSION The arbitrator proceeded with the clause construct ion award analysis under Section 3 of the AAA’s Supplementary Rules for Clas s Arbitrations. That section provides in pertinent part that:

[T]he arbitrator shall determine as a threshold mat ter, in a reasoned, partial final award on the construction o f the arbitration clause, whether the applicable arbitrat ion clause permits the arbitration to proceed on behalf of or against a class (the "Clause Construction Award"). The arbitr ator shall stay all proceedings following the issuance o f the Clause Construction Award for a period of at least 30 days to permit any party to move a court of competent5 jurisdiction to confirm or to vacate the Clause Con struction Award . . . If any party informs the arbitrator wit hin the period provided that it has sought judicial review, the arbitrator may stay further proceedings, or some pa rt of them, until the arbitrator is informed of the rulin g of the court. The arbitrator stayed the proceedings pending the resolution of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. , and after resolution of Stolt-Nielsen the defendant sought review of the clause construction award order in th is Court. The defendant seeks review in the same manner as the petitioner did in Stolt- Nielsen , following the arbitrator’s issuance of the clause construction award in accord ance with Rule 3 of the Supplemental Rules Class Arbitrations. Stolt-Nielsen , 130 S.Ct. at 1765-66. Thus, the issue of whether the parties agreed to class arbitration is ripe for review. 1 Here, the defendant contends that the decision of t he arbitrator must be vacated, but in order to obtain that relief, it “must clear a high hurdle.” Stolt-Nielsen , 130 S.Ct. at 1768. It is not enough for the defendant “to show t hat the panel committed an error-or even a serious error.” Id . It is only when arbitrators stray from interpreta tion and application of the agreement and effectively dispen se their own brand of industrial justice that their decisions may be unenforceable. Id . In that situation, an arbitration decision may be vacated on the ground that the arbitrator ex ceeded his or her powers, for the task of an arbitrator is to interpret and enforce a cont ract, not to make public policy. See Id

. (citing Federal Arbitration Act, 9 U.S.C. § 10(a)(4 )); see also 12 V.S.A. § 5677(a)(3) (under Vermont Arbitration Act, a court shall vacat e an award where the arbitrators

1 The Vermont Arbitration Act, 12 V.S.A. § 5677(c), requires that an application to vacate an award be made within 30 days after delivery of a copy of the award to the applicant, except that if predicated upon corruption, fraud or other undue means, it may be m ade within 30 days after such grounds are known or should have been known. The parties have not raised this issue, either in the pleadings or at the hear ing on July 1, 2010. Thus, the Court considers any argumen t as to this issue waived.6

exceeded their powers). In this case, as in Stolt-Nielsen , the Court must conclude that what the arbitrator did was simply to impose his ow n view of sound policy regarding class arbitration. See Stolt-Nielsen , 130 S.Ct. at 1767-68.
In Stolt-Nielsen , the Court found that “instead of identifying and applying a rule of decision derived from the FAA or either maritime or New York law, the arbitration panel imposed its own policy choice and thus exceed ed its powers.” 130 S.Ct. at 1770. Here, similarly, the arbitrator did not identify an d apply a rule of decision derived from the Vermont Arbitration Act or other Vermont law. F urthermore, rather than analyzing whether the parties actually agreed to class arbitr ation, the arbitrator put the onus on Charter One to prove that class arbitration was pre cluded. The arbitrator dismissed Charter One’s argument tha t because the deposit account agreement repeatedly referred to the depositor in t he singular and the arbitration clause referred specifically to “both parties,” class arbi tration was not contemplated by the parties. The arbitrator found that the contract la nguage did not expressly forbid, and, was in fact wholly consistent with class arbitration. F urthermore, the arbitrator found that even if the contract language was not wholly consis tent with class arbitration, the contract was ambiguous and the arbitrator would construe any ambiguity in a manner permitting class arbitration. This Court cannot read the arbitrator’s decision a s anything other than a nonlegally supported policy choice. The arbitrator fir st relied on Green Tree Financial Corp. v. Bazzle , 539 U.S. 444 (2003), for the proposition that tha t the “meaning of the language [of the contract] should be referred to an arbitrat or who would have discretion to interpret it as either permitting or forbidding class arbitra tions.” See Arbitrator’s Decision, p. 5.7

However, the arbitrator did not analyze the contrac t language beyond concluding that the arbitration clause in Green Tree was more contrary to class arbitration than the ar bitration clause in the present case. Arbitrator’s Decision, p.5 n.4. The arbitrator concluded that references to the depositor and the bank in the sin gular could be read as consistent with class arbitration because “a class action is a quas i-procedural mechanism for amalgamating a series of individual claims, each of which remains an individual claim even after it is brought under the umbrella of a cl ass action.” Id . The arbitrator cited no law for this conclusion, and the Court can only rea d it as a policy choice by the arbitrator to allow class arbitration unless class arbitration is expressly precluded in a contract. The Court must also read the arbitrator’s conclusio n that the contract was ambiguous, and that the arbitrator would construe a ny ambiguity in a manner permitting class arbitration, as nothing more than a policy ch oice. The arbitrator supported its conclusion that class arbitration was appropriate b y citing federal law which found that federal policy favored arbitration and that ambigui ties as to the scope of arbitration would be resolved in favor of arbitration. See Id . (citing Volt Information Systems, Inc. v. Board of Trustees of Leland Stanford Junior University , 489 U.S. 468, 476 (1989)). However, the issue here is not whether arbitration in genera l was supported under the contract, but whether class arbitration was supported. Furthermore, the arbitrator cited black letter law for the proposition that ambiguities in a contract are construed against the drafter, in this case Charter One. Arbitrator’s Decision, p. 5-6. However, he never co nducted any analysis as to whether the contract was actually ambiguous. Apparently the arbitrator concluded that mere silence in the account agreement as to class arbitr ation equaled ambiguity in the contract.8 The arbitrator’s final rational supporting his deci sion further reveals its true nature as a policy choice. The arbitrator wrote, “it is si gnificant that when depositors signed the Deposit Account Agreements containing the Arbitrati on Clauses, they could not possibly have understood that the vague language of those Cl auses constituted a waiver of any right to participate in a class action.” Arbitrator ’s Decision, p. 6. Beyond the fact that the arbitrator never analyzed any of the so-called “vag ue” clauses in the agreement, it was also error to make the assumption that agreements s upport class arbitration unless otherwise waived. The arbitrator cited no law for t he proposition that a right to class arbitration exists unless otherwise waived. Again, this was a policy choice. Here, the arbitrator strayed from interpretation an d application of the agreement and effectively dispensed his own brand of industri al justice. Stolt-Nielsen , 130 S.Ct. at 1768. The arbitration decision is therefore vacated on the ground that the arbitrator exceeded his powers, “for the task of an arbitrator is to interpret and enforce a contract, not to make public policy.” Id . (citing 9 U.S.C. § 10(a)(4)); see also 12 V.S.A. § 5677(a)(3) (a court shall vacate an award where t he arbitrators exceeded their powers). As a result, the Court must either direct a reheari ng by the arbitrator or decide the question that was originally referred to the arbitr ator. Stolt-Nielsen , 130 S.Ct. at 1770 (citing 9 U.S.C. § 10(b)); see also 12 V.S.A. § 567 7(d) (if court vacates the award because the arbitrators exceeded their powers, the court may order a rehearing before the arbitrators who made the award or their successors) . Because the Court concludes that there can be only one possible outcome on the facts before it, the Court sees no need to direct a rehearing by the arbitrator. See Stolt-Nielsen , 130 S.Ct. at 1770. The interpretation of an arbitration agreement is g enerally a matter of state law.9

Stolt-Nielsen , 130 S.Ct. at 1773. The Vermont Supreme Court has stated that “[i]n deciding whether parties agreed to arbitrate a matt er, we apply the ordinary rules of contract interpretation.” State v. Phillip Morris USA, Inc. , 2008 VT 11, ¶ 13, 183 Vt. 176. The Court interprets contracts to give effect to th e parties' intent, which it presumes is reflected in the contract's language when that lang uage is clear. R&G Properties, Inc. V. Column Financial, Inc. , 2008 VT 113, ¶ 17, 184 Vt. 494. The Court also st rives to “give effect to every part of the instrument and form a h armonious whole from the parts.” Id

. Where the terms of an agreement are plain and unamb iguous, they will be given effect and enforced in accordance with their langua ge. O’Connell-Starkey v. Starkey , 2007 VT 128, ¶ 8, 183 Vt. 10. An ambiguity in a con tract exists when a writing in and of itself supports a different interpretation from tha t which appears when it is read in light of the surrounding circumstances, and both interpretat ions are reasonable. Dep’t of Corr. v. Matrix Health Systems, P.C. , 2008 VT 32, ¶ 12, 183 Vt. 348. Here, only one interpretation is reasonable and amb iguity does not exist. Under the general provisions of the deposit account agree ment, the terms “I,” “me,” “my” and “our” refer to the depositor (whether joint or indi vidual), and the terms “you,” and “your” refer to the Bank. The agreement goes on to repeate dly refer to the depositor in the singular. There is never any referral to plural par ties or to class arbitration. The Court will not read a term into an agreement un less it arises by necessary implication. Field v. Costa , 2008 VT 75, ¶ 17, 184 Vt. 230. And, the Court doe s “not insert terms into an agreement by implication unles s the implication arises from the language employed or is indispensable to effectuate the intention of the parties .” Id

. (emphasis in original). Here, class arbitration is not “ indispensable to effectuate the10

intention of the parties .” To the contrary, class arbitration is at odds wi th the intention of the parties under the agreement. The dispute resolu tion-arbitration section of the agreement states: “You and I agree that should any dispute or controversy arise, you and I will first attempt to resolve the dispute informall y and promptly through good faith negotiations.” Class arbitration would not effectua te the intention of the parties because they intended that the first step in any dispute wo uld be to attempt to resolve the dispute informally through good faith negotiations. A class certification would essentially skip this first step in the dispute resolution process t hat the parties agreed to. Thus, not only is there no agreement between the parties as to class arbitration, but class arbitration is actually contradictory to the intentions of the par ties under the deposit account agreement. The Supreme Court’s analysis in Stolt-Nielsen is equally instructive. The Federal Arbitration Act imposes certain rules of fundamenta l importance, “including the basic precept that arbitration is a matter of consent, no t coercion.” Stolt-Nielsen , 130 S.Ct. at 1773 (quoting Volt Information Sciences, Inc. v. Board of Trustee s of Leland Stanford
Junior Univ. , 489 U.S. 468, 479 (1989)) (internal quotations om itted). The Court has said on numerous occasions that “the central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced accord ing to the their terms.” Stolt Nielsen , 130 S.Ct. at 1773 (citations omitted). When constru ing an arbitration agreement or an arbitration clause, “courts and arbitrators must gi ve effect to the contractual rights and expectations of the parties[,]” and the “parties in tentions control.” Id . at 1773-74 (internal quotations omitted). After analyzing various principles regarding the FA A, the Supreme Court11

concluded that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do
so.” Stolt-Nielsen , 130 S.Ct. at 1775 (emphasis in original). Here, a s in Stolt-Nielsen , the arbitrator viewed the arbitration agreement from th e standpoint of whether the parties intended to preclude class arbitration, rather than whether they agreed to class arbitration.
See Id . (critical point, in the view of the arbitration p anel, was that petitioners did not establish that the parties to the agreements intend ed to preclude arbitration). This is evident from the arbitrator’s conclusion that when the depositors signed the deposit account agreement, “they could not possibly have un derstood that the vague language of those Clauses constituted a waiver of any right par ticipate in a class action.” Arbitrator’s Decision at p. 6. This Court, like the Stolt-Nielsen Court, finds the arbitrator’s conclusion to be “fundamentally at war” with the principle tha t arbitration is a matter of consent. See 130 S.Ct. at 1775. While “procedural” questions which grow out of the dispute and bear on its final disposition are presumptively for an arbitrator to decide, “[a]n implicit agreement to authorize class-action arbitration . . . is not a t erm that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate. Th is is so because class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.” Id . The differences between bilateral and class-action arbi tration “are too great for arbitrators to presume . . . that the parties’ mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in cl ass proceedings.” Id . at 1776. The question is whether “the parties agreed to authorize class arbitration.” Id

.12

(emphasis in original). As this Court concluded abo ve, the parties did not agree to class arbitration under the deposit account agreement. An d, reading class arbitration into the agreement would actually defeat the intention of th e parties. Thus, the arbitration shall proceed as a bilateral arbitration. 

### ORDER (1) Defendant Charter One’s Motion to Dismiss Arbit rator’s Clause Construction Award, filed May 19, 2010, is GRANTED. (2) The arbitrator’s Class Action, Clause Construc tion Partial, Final Arbitration Award is VACATED. (3) The arbitration shall proceed as a bilateral ar bitration.
Dated at Rutland, Vermont this _____ day of ______ __________, 2010.

____________________ Hon. William Cohen Superior Court Judge