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July 7, 2003


The opinion of the court was delivered by: WILLIAM PAULEY, District Judge.


This action consolidates for centralized pretrial proceedings more than twenty putative class actions filed in this Court or transferred here by the Judicial Panel on Multidistrict Litigation. The underlying complaints challenge alleged foreign currency conversion policies by VISA and MasterCard, the two largest credit card networks, and their member banks, including Citigroup, Inc., Bank of America Corporation, Bank One Corporation, J.P. Morgan Chase & Company, Providian Financial Corp., and Household International, Inc. A Revised Consolidated Amended Class Action Complaint ("Complaint" or "Compl.") asserts violations of the Sherman Act, 15 U.S.C. § 1 et seq., arising out of alleged price-fixing conspiracies by and

[265 F. Supp.2d 391]

      among VISA, MasterCard, their member banks, and Diners Club concerning foreign currency conversion fees. The Complaint also asserts claims for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., in the banks' disclosures to their customers. The defendants move to dismiss the Complaint. In addition, some defendants move to compel arbitration. For the following reasons, the motion to dismiss is denied in part and granted in part, and the motion to compel arbitration is granted.


  On a motion to dismiss, the allegations in the Complaint are accepted as true.

  There are various payment alternatives in the consumer payment card industry. One involves payment vehicles known as "general purpose cards." They enable consumers to purchase goods or services from a merchant without directly accessing or reserving funds at the time of the purchase. (Compl. ¶¶ 7, 81.) There are two primary types of general purpose cards: "credit cards" and "charge cards." Holders of credit cards receive a line of credit from the credit card issuer (generally a bank), and are permitted to charge purchases to their credit cards. Then, they may elect to pay the entire amount due within a fixed period of time, or alternatively pay a portion of the amount and finance the remainder over time. (Compl. ¶¶ 8, 81.) In contrast, holders of charge cards are required to pay the entire amount due within a set number of days after receiving a monthly billing statement. (Compl. ¶¶ 9, 81.)

  A general purpose card transaction includes several different parties: (1) the consumer cardholder; (2) the third-party merchant who accepts the card as payment for goods and/or services; (3) the network association or corporation that owns and operates the network processing the transactions; (4) the bank that issues the card to the consumer; and (5) the bank that contracts with the merchant to accept the card. (Compl. ¶¶ 79, 82.) A typical transaction entails the following:
a merchant accepts a credit card from a customer for the provision of goods and services. The merchant then presents the card transaction data to an "acquirer," typically a bank, for verification and processing. The acquirer presents the transaction data to the association which, in turn, contacts the issuer to check the cardholder's credit line. The issuer then indicates to the association that it authorizes or denies the transaction. The association relays the message to the merchant's acquirer, who then relays the message to the merchant. If the transaction is authorized, the merchant will submit a request for payment to the acquirer, which relays the request, via the association, to the issuer. The issuer pays the acquirer; [and finally] the acquirer pays the merchant and retains a percentage of the purchase price for its services which is shared with the issuer.
(Compl. ¶ 83.)

 A. VISA and MasterCard Associations

  VISA and MasterCard are the two largest general purpose card networks in the world. (Compl. ¶ 86.) Those networks are owned by defendants VISA U.S.A., Inc. ("VISA U.S.A.") and VISA International Service Association ("VISA International") (collectively "VISA"), and defendant MasterCard International, Incorporated ("MasterCard"), respectively. VISA and MasterCard are joint ventures or membership associations owned and operated by their member banks. (Compl. ¶¶ 35, 38, 90.) Their networks execute transactions that use one of their affiliated general

[265 F. Supp.2d 392]

      purpose cards. (Compl. ¶ 79.) In turn, member banks are authorized to issue VISA and MasterCard branded general purpose cards. They are also granted rights similar to those of a shareholder in a corporation, including the right to vote for a board of directors, participate in the governance of the association, and receive dividends. (Compl. ¶¶ 35, 38, 92.)

  The memberships of the VISA and MasterCard associations are virtually identical reflecting a ninety-five percent (95%) overlap. (Compl. ¶ 94.) All the defendants in this action, either directly or through a subsidiary or affiliate, are members of both VISA and MasterCard, and issue some type of general purpose card. (Compl. ¶¶ 13, 92.) Defendant Citigroup, Inc. ("Citigroup") issues Citibank VISA and MasterCard credit cards, AT & T Universal VISA and MasterCard credit cards, and Diners Club charge cards. (Compl. ¶ 41.) Citigroup issues its Citibank cards through its wholly-owned subsidiary defendant Citibank (South Dakota) N.A. ("Citibank (South Dakota)"). (Compl. ¶¶ 41-42.) The AT & T Universal credit cards are issued through Citigroup's wholly-owned subsidiaries defendants Universal Financial Corp. and Universal Bank, N.A. Citigroup's Diners Club charge cards are issued through its wholly-owned subsidiary Citibank (South Dakota), and Citibank (South Dakota)'s wholly-owned subsidiary defendant Citicorp Diners Club, Inc. ("Diners Club"). (Compl. ¶¶ 41, 43-44, 47-48.)

  Defendant Bank of America Corporation ("BOA Corp.") issues its VISA and MasterCard credit cards through its wholly-owned subsidiary defendant Bank of America, N.A. (USA) ("BOA"). (Compl. ¶¶ 49-50.) Defendant Bank One Corporation ("Bank One") issues its VISA and MasterCard credit cards through its subsidiary defendant First USA Bank, N.A. ("First USA"). (Compl. ¶¶ 54-55.) Defendant J.P. Morgan Chase & Co. ("J.P. Morgan Chase") issues its VISA and MasterCard credit cards through its wholly-owned subsidiaries defendant Chase Manhattan Bank USA, N.A. and defendant The Chase Manhattan Bank. (Compl. ¶¶ 59-60.) Defendant Providian Financial Corp. ("Providian") issues its VISA and MasterCard credit cards through its wholly-owned subsidiaries defendant Providian National Bank and defendant Providian Bank. (Compl. ¶¶ 64-65.) Defendant Household International, Inc. ("House-hold") issues its VISA and MasterCard credit cards through its wholly-owned subsidiary defendant Household Finance Corporation. (Compl. ¶¶ 66-68.) Defendant MBNA Corporation ("MBNA Corp.") issues its VISA and MasterCard credit cards through its wholly-owned subsidiary defendant MBNA America Bank, N.A. ("MBNA"). (Compl. ¶¶ 70-71.) Collectively these defendants and their subsidiaries and affiliates are referred to as the "Issuing Banks." (Compl. ¶¶ 13, 84.)

  Both VISA and MasterCard are controlled by a select group of their member banks, which include the Issuing Banks. (Compl. ¶ 91.) These banks established control by concurrent service on the board of directors and/or important committees of either or both associations. (Compl. ¶ 91.) In fact, plaintiffs allege that nearly all of the largest card-issuing member banks have had or currently have a representative of their bank on the board of directors or an important policy-influencing committee of both VISA and MasterCard. (Compl. ¶ 95.) For example, in 1996 seventeen of the twenty-seven banks on MasterCard's Business Committee also had a representative on VISA's Marketing Advisors Committee. Also, twelve of the twenty-one banks with a representative on VISA's board of directors had a representative on MasterCard's Business Committee.

[265 F. Supp.2d 393]

      (Compl. ¶ 95.) In sum, as of year-end 1996, nineteen banks, including defendants J.P. Morgan Chase, Citigroup, and BOA, had a representative on the board of directors of either VISA or MasterCard and a representative on at least one important committee of the other association. (Compl. ¶ 96.)

  Further, the members of VISA and MasterCard are allocated voting and dissolution rights in relation to the total dollar volume of transactions that member transmits through the particular association. The top ten issuers of VISA and MasterCard cards account for a substantial majority of the total volume of credit card purchases. The Issuing Banks are seven of the top ten issuers of VISA and MasterCard credit cards. In the third quarter of 2001, the seven Issuing Banks accounted for $347 billion in receivables compared to $114 billion for the other forty-three issuers that make up the top fifty issuers of VISA and MasterCard cards. (Compl. ¶ 93.)

  In effect, plaintiffs allege, the Issuing Banks control both VISA and MasterCard. (Compl. ¶¶ 74, 95.) As an illustration of this so-called "dual governance," plaintiffs quote MasterCard's Executive Vice President and General Counsel in a 1992 letter to the Department of Justice, as follows: "when one board acts with respect to a matter, the results of those actions are disseminated to the members which are members in both organizations. As a result, each of the associations is a fishbowl and officers and board members are aware of what the other is doing, much more so than in the normal corporate environment." (Compl. ¶ 97.)

 B. The Currency Conversion Fees

  VISA and MasterCard's electronic networks and settlement systems serve as clearinghouses for general purpose card transactions in foreign countries using cards issued by their member banks. (Compl. ¶ 99.) This allows cardholders from the United States to purchase goods or services in foreign countries in that country's currency. (Compl. ¶ 99.) That amount is then converted to U.S. dollars by the respective network and billed to the United States cardholder in U.S. dollars. The prevailing conversion rate for the applicable foreign currency is applied to the cardholders' transactions. (Compl. ¶¶ 79, 85.)

  As part of the conversion, cardholders are charged a currency conversion fee ranging from at least one percent (1%) to at most three percent three percent (3%) of the cost of the purchase. (Compl. ¶¶ 1, 12, 102.) However, plaintiffs allege that this fee is charged whether or not currency is actually converted or exchanged. (Compl. ¶ 12, 100.) More specifically, plaintiffs allege that the procedure VISA and MasterCard use to process all foreign currency transactions, sometimes referred to as "netting out," often leads to the bulk of foreign currency transactions being conducted without an actual purchase or sale of any foreign currency. (Compl. ¶ 100.) Plaintiffs offer the following example: "if 100 U.S. VISA cardholders in France charge U.S. $10,000 in French francs in goods on March 26, 2001, and 100 French VISA cardholders in the U.S. spend the equivalent of U.S. $10,000 on the same day, defendant VISA does not actually convert any currency." (Compl. ¶ 100.) VISA and MasterCard automatically impose this currency conversion fee on the cardholder at the network level. (Compl. ¶ 99.)

  There are two tranches of currency conversion fees charged by VISA and MasterCard. The first, which plaintiffs label the "first tier" fee, is charged by VISA and MasterCard at an identical 1% of the purchase

[265 F. Supp.2d 394]

      price. (Compl. ¶ 102.) This 1% first tier fee is paid by the cardholder and retained by the respective associations. (Compl. ¶¶ 102, 107.) The "second tier" fee is "typically" two percent (2%), and is often charged on top of the 1% first tier fee. (Compl. ¶ 102.) This 2% second tier fee is automatically charged by the network, paid by the cardholder, and retained by the cardholder's issuing bank, (Compl. ¶¶ 99, 102.)

 1. First Tier Fee

  In the 1980's VISA and MasterCard began to impose the first tier fee, and made it payable by the cardholders, not the member banks. (Compl. ¶¶ 103, 104.) Plaintiffs contend that although the member banks generally compete against each other on many price terms, such as interest rates, annual fees, and services charged through VISA and MasterCard, they colluded to charge a floor price of 1% as a first tier currency conversion fee. (Compl. ¶ 106.) Plaintiffs specifically allege that VISA, MasterCard, and their member banks horizontally fixed the amount of this first tier fee, both within and between the associations. (Compl. ¶ 105.)

  The first tier fee has been extremely profitable to VISA and MasterCard. (Compl. ¶ 107.) Plaintiffs claim that there is no nexus between any purported transaction cost to the VISA or MasterCard networks, or the value of the transaction itself, and the imposition of the first tier fee. The first tier fee is far higher than the nominal transaction cost incurred by the associations. (Compl. ¶ 108.)

  The Complaint alleges that the common control of VISA and MasterCard by the largest member banks, and the common issuance of VISA and MasterCard branded cards by those same banks provides the inter-association communication necessary to fix and maintain the fee. (Compl. ¶ 109.) Indeed, plaintiffs assert that VISA communicated its intent to set the price of its currency conversion fee at 1% "in a manner calculated to reach MasterCard well in advance of implementation." (Compl. ¶ 110.) Specifically, plaintiffs allege that it was no more than four months prior to implementation of the 1% first tier fee that VISA first communicated its intentions to MasterCard. (Compl. ¶ 110.) On learning of VISA's plans, the Complaint alleges that MasterCard abandoned its plan to impose a currency conversion fee of twenty-five (25) basis points and instead imposed a 1% fee. (Compl. ¶ 110.)

  Plaintiffs contend that this first tier fee is neither necessary to the operation of the VISA and MasterCard networks, nor facilitates a service or product that would not otherwise exist. According to the Complaint, the fee does not enhance price competition for foreign currency transactions; rather it eliminates it. (Compl. ¶ 111.) Moreover, the fee is not a cost-shifting device among VISA or MasterCard member banks. (Compl. ¶ 113.) As such, plaintiffs allege that its anti-competitive effect outweighs any pro-competitive benefit. (Compl. ¶ 112.)

  Further, plaintiffs allege that the first tier fee is an artificial price floor that restrains trade because the member banks of VISA and MasterCard do not compete against each other within a network, and VISA and MasterCard themselves do not compete against each other. This results in an anti-competitive restraint of trade that harms consumers and sets an artificially high fixed first tier fee. (Compl. ¶ 114.) Plaintiffs also contend that competition among the member banks is critical because each bank issues both VISA and MasterCard branded cards. This competition, however, is undermined by the defendants' collusion to set a fixed price for their currency conversion fees.

[265 F. Supp.2d 395]

      (Compl. ¶ 115.) Lastly, plaintiffs allege that this agreement among the defendants causes VISA and MasterCard to act as an organizational vehicle for violations of the law, and not as an efficiency-enhancing joint venture. (Compl. ¶ 116.)

 2. Second Tier Fee

  According to the Complaint, the second tier fee, which "is almost pure profit to the Issuing Banks," is imposed on top of the first tier floor fixed by VISA, MasterCard, and their members. (Compl. ¶¶ 117-18.) "Typically," that second tier fee represents 2% of the foreign currency transaction. (Compl. ¶ 102.) The Complaint asserts that often, the rate is more than 2% of the purchase price because it is calculated based on the total amount of the foreign currency transaction including the 1% first tier fee. (Compl. ¶ 128.) According to plaintiffs, the Issuing Banks incur no expense in connection with the second tier fee because it is VISA and MasterCard at the network level that convert the foreign currency. (Compl. ¶ 118.)

  Plaintiffs allege that VISA and MasterCard aided and abetted their respective member banks' collection of the second tier fees by adding that fee to a cardholders' charge during the conversion process. Plaintiffs also contend that VISA and MasterCard modified their procedures to enable imposition of the second tier fee. (Compl. ¶ 118.)

  The Complaint asserts that absent collusion in the market, imposition of second tier fees would be against the economic self-interest of each Issuing Bank. (Compl. ¶ 119.) Thus, plaintiffs contend that the Issuing Banks would lose some of their best customers to banks that did not impose the 2% second tier fee were it not for an agreement to act in concert and the attendant concealment of that fee. (Compl. ¶ 119.)

  Finally, the Complaint alleges a steady decline in costs occasioned by rapid technological innovations, as well as a decrease in fraud rates, since the imposition of these currency conversion fees. Nevertheless, fees for foreign exchange services have increased dramatically. According to plaintiffs, the reason for such an anomalous scenario is that the fees were set collusively and free competition has been restrained. (Compl. ¶ 120.)

 3. Diners Club

  Diners Club is another general purpose card electronic network and settlement system that processes Diners Club card transactions. (Compl. ¶ 121.) Unlike VISA and MasterCard, it is not a joint venture or member association. The Diners Club network is owned and operated by defendant Citicorp Diners Club, Inc. ("Diners Club"), which issues the Diners Club charge card. (Compl. ¶¶ 48, 121.) The Diners Club network permits U.S. cardholders to make purchases in foreign countries in that nation's currency while being billed for those foreign transactions in U.S. dollars. (Compl. ¶ 121.)

  Like VISA and MasterCard, Diners Club imposes a currency conversion fee on its cardholders' foreign currency transactions. According to the Complaint, Diners Club formerly charged a 1% fee on foreign currency transactions, but then increased that fee to 2% "in line with the recent proliferation" of second tier fees. (Compl. ¶ 122.) Plaintiffs allege that Diners Club "imposed [this 2% fee] . . . under the price-fixed `umbrella' created by their participation in the conspiracy with the VISA and MasterCard Associations and other member banks." (Compl. ¶ 122.)

  Further, plaintiffs allege that Diners Club is an active and integral part of the conspiracy to impose currency conversion

[265 F. Supp.2d 396]

      fees. (Compl. ¶ 123.) The Complaint asserts that Diners Club's parent companies' substantial involvement in the VISA and MasterCard associations facilitates its participation in the price-fixing agreements. (Compl. ¶ 123.) Lastly, Diners Club's fee is alleged to be against its economic self-interest absent an agreement with the other Citibank defendants, VISA, and MasterCard. (Compl. ¶ 124.)

 C. Non-Disclosures of the Currency Conversion Fees

  In substance, plaintiffs allege that VISA and MasterCard, together with their member banks, and Diners Club failed to disclose adequately the existence and amount of their currency conversion fees to their cardholders on the monthly billing statements or the solicitations and applications for the general purpose cards. (Compl. ¶¶ 125, 126.) According to the Complaint, the failure to disclose the currency conversion fees in solicitations is aggravated by the fact that the solicitations are the primary source of information to prospective cardholders about fees, finance charges, and card features. (Compl. ¶ 126.) Moreover, some of defendants' monthly statements report a foreign currency transaction without revealing a fee by simply listing the amount of the charge in the foreign currency and the corresponding amount in U.S. dollars. Still other statements identify a "rate" and fail to disclose the addition of currency conversion fees or the date of the conversion. (Compl. ¶ 127.)

  The Complaint also alleges that the monthly statements hindered a cardholder's ability to corroborate the conversion rate utilized on a specific transaction. For example, neither the base exchange rate nor the date of the conversion were disclosed. Further, plaintiffs assert that the statements failed to itemize separately the actual base currency conversion rate, the first tier fees, or the second tier fees. (Compl. ¶ 128.)

  According to the Complaint, the only place currency conversion fees were even partially disclosed was in the cardmember agreement or the initial disclosure statement, which were sent to cardholders when they received their cards. (Compl. ¶ 129.) The Complaint alleges that these "partial disclosures" obscured the fees and violated the disclosure requirements of the Truth in Lending Act ("TILA"). (Compl. ¶ 129.) Plaintiffs further allege that the defendants conspired through their memberships in the VISA and MasterCard associations to withhold disclosure of the currency conversion fees in solicitations and billing statements, and confusingly disclosed the fees in cardholder agreements. (Compl. ¶ 130.)

  Based on these allegations, plaintiffs bring five claims: (I) antitrust violations under Section One of the Sherman Act against all defendants; (II) antitrust violations under Section One of the Sherman Act against VISA and the Issuing Bank defendants; (III) antitrust violations under Section One of the Sherman Act against MasterCard and the Issuing Bank defendants; (IV) violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq., against all defendants; and (V) violations of South Dakota Consumer Protection Statutes against defendant Citibank (South Dakota).

  Counts I through III assert two different theories of conspiracy. Count I alleges the first conspiracy theory — an "inter-association" conspiracy between and among Diners Club, VISA (together with its members), and MasterCard (together with its members), to fix currency conversion fees charged to cardholders of "no less than 1% of the transaction amount and frequently more." (Compl. ¶¶ 150, 154.)

[265 F. Supp.2d 397]


  Counts II and III advance the second conspiracy theory — two separate "intra-association" conspiracies whereby VISA and MasterCard each are claimed to have conspired separately with their respective member banks to fix currency conversion fees charged to cardholders of "no less than 1% of the transaction amount" and "to facilitate and encourage institution — and collection — of second tier currency conversion surcharges." (Compl. ¶¶ 157-58.)

  Count IV alleges that defendants failed to properly disclose the currency conversion fees on purchases made in foreign currencies in violation of TILA disclosure requirements and the regulations promulgated thereunder in Federal Reserve Board Regulation Z, 12 C.F.R. § 226. (Compl. ¶¶ 170-71.) Plaintiffs allege that defendants VISA and MasterCard are liable for the TILA violations because they acted as agents of the Issuing Bank defendants within the meaning of TILA and Regulation Z. (Compl. ¶¶ 172-73.) Finally, plaintiffs assert that VISA and MasterCard are liable for the TILA violations because they and their member banks conspired to violate TILA, and because VISA. and MasterCard aided and abetted their member banks' violations of TILA. (Compl. ¶¶ 174, 176.)

  Defendants move to dismiss Counts I through IV for failure to state a claim on which relief may be granted. Defendants First USA, BOA, and MBNA, and their respective parent corporations join in the omnibus motion to dismiss and also move to stay the claims against them by their respective cardholders and refer those claims to arbitration. Lastly, defendants argue that the time to answer or otherwise move on the fifth cause of action is tolled by their motion to dismiss since all of the factual allegations in the Complaint are subject to the motion. Plaintiffs do not contest defendants' tolling argument, and this Court adopts it.

  For the following reasons, the motion to dismiss is denied in part and granted in part, and the motion to compel arbitration is granted.


 I. Motion to Compel Arbitration

  Defendants First USA; Bank One; BOA; BOA Corp.; MBNA; and MBNA Corp. move to stay all claims against them by their respective cardholders and compel arbitration of those claims pursuant to their cardmember agreements.

  Defendants First USA, BOA, and MBNA issue First USA, Bank of America, and MBNA credit cards, respectively. Defendants Bank One, BOA Corp., and MBNA Corp. are the parent companies of defendants First USA, BOA, and MBNA, respectively, and do not issue credit cards. (Decl. of Janet Z. Hernandez dated March 11, 2002, ¶ 2; Decl. of Kimberly S. Gensler dated March 18, 2002, ¶ 3; Decl. of Deborah L. Fisher dated March 19, 2002, ("Fisher Decl.") 42.) When First USA, BOA, and MBNA send credit cards to their cardholders, they forward a cardholder agreement setting forth the terms of the cardholders' account. The cardholder agreement warns that any use of the credit card constitutes acceptance of the terms of the cardholder agreement. (Fisher Decl. ¶ 6; Decl. of Donna Barrett dated March 7, 2002, ("Barrett Decl.") ¶¶ 4-5; Decl. of Suzan R. Uhlig dated March 18, 2002, ("Uhlig Decl.") ¶ 9 (advising that cardholder's silence constitutes acceptance of the terms).)

  Although plaintiffs do not specifically allege in their Complaint which plaintiffs are cardmembers of which defendant, the parties agree on the following: (1) plaintiff Caran Ruga is the only named plaintiff to

[265 F. Supp.2d 398]

      have held a First USA credit card during the relevant time period; (2) plaintiff Robert Ross*fn1 is the only named plaintiff to have held a BOA credit card during the relevant time period; and (3) "none of the named plaintiffs have used an MBNA credit card to make purchases in a foreign country." (Letter from plaintiffs' counsel to counsel for MBNA dated Feb. 19, 2002, cited in Defs.' Mot. to Compel Arb. at 7 n. 2.)

  Plaintiffs acknowledge that none of the plaintiffs have an arbitration agreement with MBNA. (Pls.' Opp. to Mot. to Compel. Arb. at 1.) Thus, without an MBNA cardmember as a named plaintiff, there is no need to analyze whether any MBNA cardmember's claims belong in arbitration. Further, the fact that there are no named plaintiffs that are cardmembers of MBNA limits any possible TILA claims against MBNA to claims of secondary liability.

  The First USA cardholder agreement sent to plaintiff Ruga provides that "[a]ny use of your Card or Account confirms your acceptance of the terms and conditions of this Agreement." (Barrett Decl. ¶ 5.) Plaintiff Ruga accepted the terms of the cardholder agreement by using her First USA credit card. (Barrett Decl. ¶ 5.)

  Plaintiff Ruga's cardholder agreement contains an arbitration clause that was typical of all First USA cardholder agreements, which states:
Arbitration: Any claim, dispute or controversy ("Claim") by either you or us against the other, or against the employees, agents or assigns of the other, arising from or relating in any way to this Agreement or your Account, including Claims regarding the applicability of this arbitration clause or the validity of the entire Agreement, shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure in effect at the time the Claim is filed. . . . Any arbitration hearing at which you appear will take place at a location within the federal judicial district that includes your billing address at the time the Claim is filed. This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1-16. Judgement upon any arbitration award may be entered in any court having jurisdiction.
This arbitration agreement applies to all Claims now in existence or that may arise in the future except for Claims by or against any unaffiliated third party to whom ownership of your Account may be assigned after default (unless that party elects to arbitrate). Nothing in this Agreement shall be construed to prevent any party's use of (or advancement of any Claims, defenses, or offsets in) bankruptcy or repossession, replevin, judicial foreclosure or any prejudgment or provisional remedy relating to any collateral, security or property interests for contractual debts now or hereafter owed by either party to the other under this Agreement.

[265 F. Supp.2d 399]

      PROVIDED ABOVE, ALL CLAIMS MUST NOW BE RESOLVED THROUGH ARBITRATION. (Barrett Decl. Ex. 1.) Plaintiff Ruga's cardholder agreement also contained a choice of law provision selecting Delaware law and federal law where applicable. (Barrett Decl. Ex. 1.)

  Plaintiff Ross was a BOA cardholder prior to BOA's inclusion of an arbitration clause in its cardholder agreement. In February 2000, plaintiff Ross received a document titled, "Important Notice Regarding Your Account" ("Important Notice"), with his monthly account statement. The Important Notice advised him of certain changes in the cardholder agreement governing his account, and included a copy of the amended agreement. (Uhlig Decl. ¶ 7.) The Important Notice also informed plaintiff Ross that these modifications to the agreement would become effective unless he wrote to BOA by March 25, 2000, and requested that his account be closed. Plaintiff Ross never took that initiative. (Uhlig Decl. ¶¶ 9-10.)

  Among the changes to the BOA cardholder agreement was the addition of an arbitration clause. (Uhlig Decl. ¶ 8 & Ex. 2.) The Important Notice described the changes to the cardholder agreement and included the following: "Any claim, dispute or controversy with us, Bank of America Corporation or our affiliates, or certain other persons will be resolved by arbitration, as set forth in the Agreement. (Refer to Section 7.19.)" (Uhlig Decl. Ex. 2.) Section 7.19 of the amended cardholder agreement, as included in the Important Notice, provided:
7.19 Arbitration. Any dispute, claim, or controversy ("Claim") by or between you and us (including each other's employees, agents or assigns) arising out of or relating to this Agreement, your Account, or the validity or scope of any provision of this Agreement, including the arbitration clause shall, upon election by either you or us, be resolved by binding arbitration.
Arbitration shall take place before a single arbitrator on an individual basis without resort to any form of class action. Arbitration may be selected at any time unless a judgement has been rendered or the other party would suffer substantial prejudice by the delay in demanding arbitration.
Arbitration, including selection of an arbitrator, shall be conducted in accordance with the rules for arbitration of financial services disputes of JAMS. . . . If JAMS is unable or unwilling to serve as the provider of arbitration, we may substitute another national arbitration organization with similar procedures. This arbitration section of this Agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1-16. Judgment upon arbitration may be entered in any court having jurisdiction.
Arbitration shall be conducted in the federal judicial district in which your billing address is located at the time the claim is filed. If we request arbitration, we will advance applicable JAMS fees and expenses. If the arbitrator rules in favor of one party against the other, the other party shall pay all reasonable attorneys' fees and costs of the action on behalf of both parties (including any fees and expenses paid by one party on behalf of the other) unless the arbitrator or court decides such an award would cause a substantial injustice based on the facts and legal arguments set forth in the action.

[265 F. Supp.2d 400]

      HAVING A RIGHT OR OPPORTUNITY TO LITIGATE CLAIMS THROUGH COURT, OR TO PARTICIPATE OR BE REPRESENTED IN LITIGATION FILED IN COURT BY OTHERS. EXCEPT AS OTHERWISE PROVIDED ABOVE, ALL CLAIMS MUST BE RESOLVED THROUGH ARBITRATION IF YOU OR WE ELECT TO ARBITRATE. (Uhlig Decl. Ex. 2.) Plaintiff Ross's cardholder agreement also contained a choice of law provision selecting Arizona law and federal law where applicable. (Uhlig Decl. Ex. 2, § 7.18.)

  When a contract contains a written arbitration clause and concerns a transaction involving commerce, the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. (2003), governs. 9 U.S.C. § 2. The FAA establishes a liberal policy in favor of arbitration as a means to reduce the costliness and delays of litigation. See Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 664 (2d Cir. 1997) (Pollack J., by designation); see also Oldroyd v. Elmira Savings Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998) ("There is a strong federal policy favoring arbitration as an alternative means of dispute resolution.").

  It is well settled that arbitration is contractual in nature, and "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf, 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)); accord Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588, 591, 154 L.Ed.2d 491 (2002). In accord with the strong policy favoring arbitration, federal courts read arbitration clauses as broadly as possible, and "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); accord ACE Capital Re Overseas Ltd. v. Central United Life Ins. Co., 307 F.3d 24, 29 (2d Cir. 2002); Oldroyd, 134 F.3d at 76; Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995). Indeed, arbitration must be compelled "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers, 363 U.S. at 582-83, 80 S.Ct. 1347; accord David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 248 (2d Cir. 1991); Collins & Aikman, 58 F.3d at 19.

  Section Two of the FAA provides that written agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 3 of the FAA provides that the court must stay any suit or proceeding until arbitration has been completed if the action concerns "any issue referable to arbitration" under a written agreement for such arbitration. 9 U.S.C. § 3; accord Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); McMahan Secs. Co. L.P. v. Forum Capital Mkts., L.P., 35 F.3d 82, 85 (2d Cir. 1994). The FAA "leaves no place for the exercise of discretion by a district court but instead mandates that district courts shall direct the parties to proceed to arbitration on issues [on] which an arbitration agreement has been signed." E.G.L. Gem Lab, Ltd. v. Gem Quality Inst., Inc., No. 97-7102(LAK), 1998 WL 314767, at *2 (S.D.N.Y. Jun.15, 1998) (quoting Byrd, 470 U.S. at 218, 105 S.Ct. 1238).

[265 F. Supp.2d 401]


  This Court must analyze four factors in considering a motion to compel arbitration:
first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.
Oldroyd, 134 F.3d at 75-76; accord Campaniello Imports, 117 F.3d at 665; Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987).

  There is no dispute about the existence of an arbitration clause in both plaintiffs Ruga and Ross's cardholder agreements, and that both plaintiffs agreed to it.*fn2 However, there is a dispute as to who can compel arbitration. Defendants Bank One and BOA Corp. argue that plaintiffs Ruga and Ross's claims against Bank One and BOA Corp. should be referred to arbitration, despite the fact that neither of them are signatories to the arbitration agreements. Since "whether an entity is a party to the arbitration agreement also is included within the broader issue of whether the parties agreed to arbitrate," the Court will address the non-signatories issue first. Smith/Enron Cogeneration Ltd,. P'ship, Inc. v. Smith Cogeneration Int'l, 198 F.3d 88, 95 (2d Cir. 1999).

 A. Non-Signatories

  The First USA and BOA arbitration agreements are agreements between the cardholders and First USA and BOA, respectively. Plaintiffs however, allege claims against First USA and BOA, as well as Bank One and BOA Corp., the parent companies of First USA and BOA, respectively. Defendants argue that plaintiffs should be compelled to arbitrate the claims against the parent companies as well as those against First USA and BOA.

  Although "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit," Howsam, 123 S.Ct. at 591 (quoting United Steelworkers, 363 U.S. at 582, 80 S.Ct. 1347), an obligation to arbitrate may not be limited to signatories to the agreement containing the arbitration provision.

  A non-signatory may be bound to an arbitration agreement under ordinary principles of contract and agency. See Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995); Orange Chicken, L.L.C. v. Nambe Mills, Inc., No. 00 Civ. 4730(AGS), 2000 WL 1858556, at *4-5 (S.D.N.Y. Dec.19, 2000); Fluor Daniel Intercontinental, Inc. v. Gen. Elec. Co., No. 98 Civ. 7181(WHP), 1999 WL 637236, at *6 (S.D.N.Y. Aug.20, 1999). The Second Circuit has recognized five theories for binding non-signatories to

[265 F. Supp.2d 402]

      arbitration agreements: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter-ego; and 5) estoppel. See Smith/Enron Cogeneration, 198 F.3d at 97; Thomson-CSF, 64 F.3d at 776; Massen v. Cliff, No. 02 Cir. 9282(HBP), 2003 WL 2012404, at *3 (S.D.N.Y. May 1, 2003); Fluor Daniel, 1999 WL 637236, at *6. Defendants argue that the plaintiffs are estopped from avoiding arbitration with Bank One and BOA Corp.*fn3

  Courts have bound non-signatories to arbitration agreements under an estoppel theory. Under one branch of this theory, when a non-signatory receives a direct benefit under the agreement containing the arbitration clause, it cannot avoid arbitration merely because it never signed the agreement. This branch of the estoppel theory is inapplicable here because it is the non-signatory who is trying to compel arbitration from a party. See Fluor Daniel, 1999 WL 637236, at *6.

  Under an alternative estoppel theory recognized by several circuits, courts have been willing to estop a signatory from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to arbitrate are intertwined with the contract. See Choctaw Gen. Ltd. P'ship v. Am. Home Assurance Co., 271 F.3d 403, 406 (2d Cir. 2001); Thomson-CSF, 64 F.3d at 779; Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757-58 (11th Cir. 1993); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988); McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344 (11th Cir. 1984); Massen, 2003 WL 2012404, at *4; Chase Mortgage Co.-West v. Bankers Trust Co., No. 00 Civ. 8150(MBM), 2001 WL 547224, at *2 (S.D.N.Y. May 23, 2001); Fluor Daniel, 1999 WL 637236, at *6. Thus, a signatory can be required to arbitrate with a non-signatory at the non-signatory's insistence because of "the close relationship between the entities involved, . . . [and] the relationship of the alleged wrongs to the non-signatory's obligations and duties in the contract . . . and [the fact that] the claims were `intimately founded in and intertwined with the underlying contract obligations.'" Sunkist, 10 F.3d at 757-58 (quoting Hughes Masonry Co. v. Greater Clark County School Bldg. Corp., 659 F.2d 836, 841 (7th Cir. 1981)); accord Choctaw, 271 F.3d at 406; Fluor Daniel, 1999 WL 637236, at *6.

  Whether the claims are intertwined such that a signatory is estopped from avoiding arbitration with a non-signatory, the court must determine: (1) whether the signatory's claims arise under the "subject matter" of the underlying agreement; and (2) whether there is a "close relationship" between the signatory and the non-signatory. Chase Mortgage, 2001 WL 547224, at *2-3; accord Choctaw, 271 F.3d at 406; Massen, 2003 WL 2012404, at *4; Orange Chicken, 2000 WL 1858556, at *5; Fluor Daniel, 1999 WL 637236, at *6.

  There are several principled grounds for finding estoppel in this action. First, the alleged wrongs by Bank One and BOA Corp. are "intimately founded in and intertwined with" the underlying agreement between First USA and BOA and their respective cardholders. Bank One and BOA Corp. are being sued for their respective subsidiaries' TILA violations and conspiracy to fix the prices of currency conversion fees. Both of these claims are derivative in nature in that the alleged

[265 F. Supp.2d 403]

      wrongdoers are First USA and BOA, and not Bank One and BOA Corp. Further, plaintiffs' claims against Bank One and BOA Corp. arise from the cardholder agreements. Specifically, it was plaintiffs' credit cards, which are the subject matter of the cardholder agreements, that were allegedly unlawfully charged fixed currency conversion fees. Also, the documents provided in connection with plaintiffs' credit card accounts were allegedly violative of the disclosure obligations in TILA. Effectively, the claims against Bank One and BOA Corp. are the same as those lodged against First USA and BOA, respectively. As such, they arise under the "subject matter" of the agreement. See Chase Mortgage, 2001 WL 547224, at *2; Fluor Daniel, 1999 WL 637236, at *6.

  Plaintiffs insist that they are not suing the parent companies merely based on their subsidiaries' actions, but that they also allege that the parent companies were active participants in the conspiracy. This contention, however, does not change the outcome of the analysis. Any participation by Bank One and BOA Corp. in the alleged conspiracy necessarily revolves around their respective subsidiaries' issuance of credit cards. Those credit cards and their respective accounts are at the heart of the underlying contract containing the arbitration agreement. Therefore, this Court finds that even the allegations that ...

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