Background
Three California businesses filed a class action challenging Bank of America’s overdraft fees. Each plaintiff signed a standard Deposit Agreement containing Dispute Resolution Provisions that offered three options: binding arbitration, a bench trial, or judicial reference under California Code of Civil Procedure Section six hundred thirty-eight. After the bank removed the case to federal court and moved to compel arbitration, the plaintiffs moved to compel judicial reference. The district court granted the bank’s motion and denied the plaintiffs’ motion, finding the contract language unambiguous.
The court’s reasoning
The Ninth Circuit reviewed the contract interpretation de novo under California law. The court determined that the limiting clause stating ‘If neither you nor we decide to compel arbitration’ applies to both bench trials and judicial reference. The court found that judicial reference is an exception to the bench trial pathway, not an exception to the right to arbitrate. The court noted that reading the contract otherwise would render the right to arbitrate meaningless in California state courts. The court concluded that the bank’s interpretation was the most natural reading of the agreement.
the agreement compels only one result: that either party has the right to compel arbitration
What it means going forward
The ruling confirms that businesses with similar deposit agreements must resolve disputes through arbitration rather than judicial reference when the bank exercises its right to compel arbitration.
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