7th Circuit: Child Not Bound By Parent’s Arbitration Clause (and Indirectly, the Supreme Court is Supremely Wrong)

The Seventh Circuit recently addressed whether a child could be bound by her parent’s arbitration agreement.  See A.D. v. Credit One Bank, No. 17-1486 (7th Cir. Mar. 22, 2018) (click here for a copy of the decision).  In this case, a minor, through her mother, filed a class action complaint against Credit One Bank for repeated, harassing telephone calls made to the minor’s cellphone; the calls pertained to the mother’s delinquent credit account.  The plaintiff’s lawsuit was based on a federal statute, the Telephone Consumer Protection Act, and the Seventh Circuit held that the child was not bound to arbitrate and her class action complaint could proceed in court.  The Seventh Circuit’s reasoning demonstrates that Supreme Court precedent regarding the Federal Arbitration Act (FAA) is fundamentally flawed and collapses like a house of cards upon any serious analysis.

The Seventh Circuit reasoned that the minor was not a party to the mother’s credit card agreement with the defendant bank, which contained the arbitration clause.  Moreover, the plaintiff was not bound to her mother’s agreement on the grounds of equitable estoppel because the plaintiff child was not relying at all on the agreement to assert her claims.  Instead, the child’s right to sue arose from a federal statute, not the contract.

I completely agree with the Seventh Circuit’s rationale.  What I find interesting about this opinion is that if you expand the Seventh Circuit’s rationale to its logical conclusion, the entire Mitsubishi trilogy from the 1980s collapses like a house of cards.  The Mitsubishi trilogy held that the FAA governs statutory claims, beyond mere contractual claims.  The Seventh Circuit’s holding is that a lawsuit based on a federal statute does not arise from the contract at issue.  Expanding this rationale, one can also conclude that the FAA, by its very terms, also does not govern such situations.  The FAA’s coverage is limited to written provisions in a contract “to settle by arbitration a controversy thereafter arising out of such contract.”  Wrongful death claims, tort claims, or statutory claims that can be asserted without reference to a contract generally do not arise out of a contract.  For example, one’s right to be free from bodily harm or sexual harassment or discrimination does not arise from a contract.  The FAA, as originally drafted and intended, was solely designed for contractual disputes, not statutory disputes, and this limited scope of the FAA is based on sound policy concerns.  Statutory claims of a public interest are arguably best heard in public courts, with robust procedural protections.  However, since the 1980s through the Mitsubishi trilogy, the Supreme Court has held that the FAA governs virtually every type of claim, including statutory claims.  In its landmark Mitsubishi case from 1986, the Supreme Court conveniently (and dishonestly in my opinion) omitted the key, limiting language cited above when quoting from the FAA.  Compare 9 U.S.C. § 2 (“A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy THEREAFTER ARISING OUT OF SUCH CONTRACT. . . .”) with Mitsubishi, 473 U.S. at 625 (“The Act’s centerpiece provision makes a written agreement to arbitrate ‘in any maritime transaction or a contract evidencing a transaction involving commerce . . . valid, irrevocable, and enforceable’”) (ellipsis in original).   The Supreme Court has ignored this key limitation in the FAA that it only applies to controversies arising out of a contract, not tort or statutory claims that can be asserted without reference to a contract.  If my law students wrote such a superficial analysis skipping over the key words or limits in a statute, like the Supreme Court majority did in the Mitsubishi trilogy, my students would flunk.

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