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Maryland High Court Rules that Bank Cannot Compel Arbitration

Maryland’s highest court ruled unanimously on March 8 that the plaintiffs in TLPJ’s national class action lawsuit against Chevy Chase Bank cannot be deprived of their constitutional right to a jury trial and their right to bring a class action.

TLPJ filed Wells v. Chevy Chase in February 1999, charging that the bank breached its contracts with credit cardholders by unilaterally raising interest rates above a promised 24 percent ceiling, and imposing new and higher fees. The company’s agreement with its customers provided that it would "never" charge more than 24 percent, but the company did so anyway. In May 1999, Chevy Chase filed a motion to halt the litigation and instead force the cardholders into arbitration.

In August 1999, the trial court compelled the plaintiffs into arbitration, but TLPJ appealed the ruling to Maryland’s Court of Appeals. In the March 8 ruling, that Court reversed the trial court and held that the terms of the cardholder contract that Chevy Chase drafted made it clear that the plaintiffs did not agree that they could be forced to arbitrate these claims. The court held that the cardholders could choose to arbitrate their claims if they wished, but that they could not be compelled to arbitrate in a case like this one where they had chosen to go to court instead.

"The decision is a real victory for consumers, particularly credit cardholders, who will now have their day in court instead of a one-sided arbitration process to which they never agreed," stated TLPJ Staff Attorney F. Paul Bland, Jr., lead counsel on the arbitration issue, who argued the case in Annapolis, Maryland, on November 6, 2000.

Chevy Chase also attempted to evade litigation by arguing that the high court could not hear the appeal because the consumers’ right to their day in court was preempted by the Federal Arbitration Act (FAA).

"The Court rightly rejected Chevy Chase’s argument that the Court couldn’t even hear our appeal," said John T. Ward of Baltimore’s Ward, Kershaw and Minton, who is lead counsel in the case. "The Court recognized that state laws protecting consumer rights are only wiped away by federal law in a narrow set of circumstances, and that Maryland’s general pro-consumer procedures are still valid."

Under the FAA, consumers generally cannot appeal a court order to compel arbitration until a final decision is issued in the case. But the Court ruled that consumers can immediately appeal a Maryland court order requiring arbitration -- as happened in this case -- even before the arbitration process begins.

In addition to arguing that the contract language showed that their clients had not agreed to arbitrate their claims, TLPJ introduced evidence in the trial court which shows that the contract clause supposedly mandating arbitration was communicated to class members in a manner designed to insure that they did not notice it. The evidence also shows that Chevy Chase knew, or should have known, that its communications were completely ineffective. TLPJ submitted undisputed evidence showing that class members injured by Chevy Chase’s conduct would not be willing to arbitrate against Chevy Chase because, among other things, they would run the serious risk of having to pay the company’s attorneys’ fees -- which are probably quite large.

"The evidence shows that, if the cardholders had been forced to submit their claims to this arbitration system, few, if any, of the hundreds of thousands of class members would have any realistic prospect of a remedy," said Bland.

The case will now return to the trial court in Baltimore.

In addition to Ward and Bland, TLPJ’s legal team in this case includes co-counsel Michael P. Malakoff of Malakoff Doyle & Finberg, P.C., in Pittsburgh and TLPJ Consumer Rights Fellow Michael J. Quirk.

To read more about this case use this link.

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