Discover Bank v. Superior Court

California Court of Appeal · Contracts

ContractsChoice of LawArbitrationUnconscionabilityClass Action Waiverchoice-of-law clauseDelaware lawCalifornia law

Facts

Christopher Boehr, a California resident, obtained a Discover Bank credit card; Discover Bank is domiciled in Delaware, and the cardholder agreement chose Delaware and federal law. In 1999 Discover added an arbitration clause barring classwide arbitration, consolidation, representative claims, and private attorney general claims. In 2001 Boehr filed a putative nationwide class action alleging breach of contract and violation of the Delaware Consumer Fraud Act based on Discover's alleged imposition of late fees and finance charges after an undisclosed 1:00 p.m. deadline on the due date. Boehr conceded that Delaware law governed his substantive claims, while arguing that other contract-related issues could be governed by California or other applicable law.

Issue

Whether the contractual Delaware choice-of-law provision should be enforced to determine the validity of the class action waiver in a cardholder agreement where the plaintiff alleges no California substantive claims and seeks relief on behalf of a putative nationwide class. If Delaware law applies, the further question is whether Delaware law treats the class action waiver as enforceable.

Rule

Under California law, contractual choice-of-law provisions are analyzed under Restatement Second of Conflict of Laws section 187(2). The court first asks whether the chosen state has a substantial relationship to the parties or transaction, or whether some other reasonable basis supports the choice; if so, the court enforces the chosen law unless it conflicts with a fundamental policy of the otherwise applicable state and that state has a materially greater interest in the issue. Unconscionability is substantive contract law, not forum procedural law, and comment b to section 187 does not create a separate 'substantial injustice' basis for invalidating a choice-of-law clause absent improper means or mistake in obtaining assent.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel, who lives in Sacramento, opened a revolving credit account with Blue Harbor Bank. The account agreement states that Maine law governs. Blue Harbor Bank is chartered and headquartered in Maine, and Maine has a statute providing that revolving credit plans issued by Maine-chartered banks to individual borrowers are governed by Maine law.

If Nina challenges a class action waiver in the agreement in a California court, what is the strongest reason the court should proceed to the later Restatement analysis rather than reject the choice-of-law clause at the threshold?

Explanation. Under Restatement section 187(2), the threshold inquiry is whether the chosen state has a substantial relationship to the parties or transaction, or another reasonable basis supports the choice. A bank’s domicile in the chosen state, plus a statute directing that such credit plans be governed by that state’s law, satisfies that threshold. The majority treated those facts as enough to move to the later fundamental-policy and materially-greater-interest inquiries. (Derived from Discover Bank v. Superior Court (n.d.).)