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A.D. v. Credit One Bank, N.A.

United States Court of Appeals, Seventh Circuit

March 22, 2018

A.D., a minor, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
Credit One Bank, N.A., Defendant-Appellee.

          Argued November 29, 2017

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:14-cv-10106 - Matthew F. Kennelly, Judge.

          Before Wood, Chief Judge, and Ripple and Kanne, Circuit Judges.


         A.D., by and through her mother, Judith Serrano, brought this putative class action under the Telephone Consumer Protection Act. She seeks compensation for telephone calls placed by Credit One Bank, N.A. ("Credit One") to her telephone number in an effort to collect a debt that she did not owe. After discovery, Credit One moved to compel arbitration and to defeat A.D.'s motion for class certification based on a cardholder agreement between Credit One and Ms. Serrano. The district court granted Credit One's motion to compel arbitration but certified for interlocutory appeal the question whether A.D. is bound by the cardholder agreement.[1] We granted A.D.'s request for permission to appeal. See 28 U.S.C. § 1292(b).[2] We now reverse the district court's grant of Credit One's motion to compel arbitration and remand for further proceedings consistent with this opinion. A.D. is not bound by the terms of the cardholder agreement to arbitrate with Credit One, and she has not directly benefited from the cardholder agreement such that equitable principles convince us to apply the arbitration clause against her.




         In 1991, Congress amended the Communications Act of 1934 to address "the advent of automated devices that dial up to 1, 000 phone numbers an hour and play prerecorded sales pitches." Moser v. FCC, 46 F.3d 970, 972 (9th Cir. 1995). The amending statute, the Telephone Consumer Protection Act ("TCPA"), makes it unlawful to use an "automatic telephone dialing system or an artificial or prerecorded voice" to call a cell phone without "the prior express consent of the called party." 47 U.S.C. § 227(b)(1)(A). An individual who provides her cell phone number to a creditor through a credit application "reasonably evidences prior express consent … to be contacted at that number regarding the debt." Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 FCC Rcd. 559, 564 (FCC 2008). A creditor relying on the "prior express consent" exception to the TCPA has the burden of showing that "it obtained the necessary prior express consent." Id. at 565.

         The TCPA provides a private right of action for individuals to claim that their rights under the TCPA have been violated. See 47 U.S.C. § 227(b)(3). Successful plaintiffs may recover the greater of the amount of (1) actual damages or (2) $500 for each violation, meaning each phone call. Id.


         Ms. Serrano opened a credit card account with Credit One in 2003. In 2010, she used A.D.'s cell phone to access her Credit One account by calling Credit One and providing her account number and the last four digits of her social security number. Using caller ID capture software, Credit One attached A.D.'s cell phone number to Ms. Serrano's account.

         Ms. Serrano later fell behind on her credit card payments, and Credit One began calling the telephone numbers previously stored with her account in an attempt to collect the debt. In her complaint, A.D. alleges that, in the course of this collection process, Credit One repeatedly called her about her mother's debt. Specifically, A.D. alleges that she received a good number of calls from Credit One in October and November 2014.

         Upon opening her account with Credit One, Ms. Serrano had signed a standard cardholder agreement. This agreement included, among other terms, an arbitration clause and class action waiver, which stated:

Agreement to Arbitrate:
You and we agree that either you or we may, without the other's consent, require that any controversy or dispute between you and us (all of which are called "Claims"), be submitted to mandatory, binding arbitration. This arbitration provision is made pursuant to a transaction involving interstate commerce, and shall be governed by, and enforceable under, the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 1 et seq., and (to the extent State law is applicable), the State law governing this Agreement.
Claims subject to arbitration include not only Claims made directly by you, but also Claims made by anyone connected with you or claiming through you, such as a co-applicant or authorized user of your account, your agent, representative or heirs, or a trustee in bankruptcy.
If you or we require arbitration of a particular Claim, neither you, we, nor any other person may pursue the Claim in any litigation, whether as a class action, private attorney general action, other representative action or otherwise.[3]

         When A.D. first filed this action, Credit One was not aware that it had a cardholder agreement with her mother. A.D. did not state in her complaint that her mother was the probable target of Credit One's phone calls (although she was listed as A.D.'s guardian ad litem in the complaint). After eighteen months of discovery, and after reviewing its own records, Credit One finally realized that its caller ID capture system had added A.D.'s phone number to its database when Ms. Serrano used A.D.'s phone to access her account. At that point, Credit One sought to compel arbitration with A.D. based on the arbitration clause in Ms. Serrano's cardholder agreement.[4]

         The only evidence that A.D. ever used Ms. Serrano's Credit One credit card was Ms. Serrano's deposition testimony that, on at least one occasion, Ms. Serrano had preordered smoothie drinks for her daughter and herself from a stand in the local mall and had sent A.D. to pick them up. She had instructed A.D. to pay for the smoothies with her Credit One card. This transaction occurred in 2014, when A.D. was fourteen years old.

         The district court ruled with Credit One that A.D. was bound by the cardholder agreement's arbitration clause. In its view, even though A.D. had not signed the cardholder agreement, she must be considered an "Authorized User" under its terms. Therefore, continued the court, she is bound by the arbitration clause under the "direct benefits estoppel" theory. Under this theory, explained the court, a person should not receive a benefit under a contract while, at the same time, repudiating a disadvantage under the contract. The court then reasoned that the cardholder agreement had allowed A.D., when picking up the drinks ordered by her mother, to represent to the store that Credit One would pay for the purchase. She therefore had benefited from the ...

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