Canteen v. Charlotte Metro Credit Union
Not yet reported (2024)
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Rule of Law:
A party may unilaterally amend a contract pursuant to a pre-existing change-of-terms provision if the amendment complies with the implied covenant of good faith and fair dealing. This covenant is satisfied when the new term is within the 'universe of terms' of the original agreement, meaning it relates to a subject matter reasonably contemplated by the parties at the time of formation.
Facts:
- In 2014, Pamela Phillips opened a checking account with Charlotte Metro Credit Union (CMCU) and entered into a membership agreement.
- The agreement contained a 'Notice of Amendments' clause, which stated CMCU could 'change the terms of this Agreement' upon providing notice to the member.
- The agreement also included a 'Governing Law' provision, which functioned as a forum-selection clause, specifying that any legal action regarding the agreement would be brought in the county where CMCU's main office is located.
- Phillips agreed to receive electronic statements and communications from CMCU.
- In 2020, a separate class action, to which Phillips was not a party, was filed against CMCU regarding the assessment of overdraft fees.
- In January 2021, CMCU amended its membership agreement to require mandatory arbitration for certain disputes and to waive members' rights to file class actions.
- CMCU sent three separate emails to Phillips in January, February, and March 2021, notifying her of the new Arbitration Amendment and informing her that she had 30 days to opt out.
- Phillips did not opt out of the Arbitration Amendment.
Procedural Posture:
- Pamela Phillips filed a class action complaint against Charlotte Metro Credit Union (CMCU) in the Superior Court, Mecklenburg County, a trial court of first instance.
- CMCU filed a motion to stay the action and compel arbitration.
- The trial court denied CMCU's motion.
- CMCU, as appellant, appealed the trial court's interlocutory order to the North Carolina Court of Appeals, an intermediate appellate court.
- A divided panel of the Court of Appeals reversed the trial court's order.
- Phillips, as appellant, appealed to the Supreme Court of North Carolina, the state's highest court, based on the dissent in the Court of Appeals.
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Issue:
Does a credit union's unilateral addition of an arbitration clause and class action waiver to a membership agreement, pursuant to a general change-of-terms provision, violate the implied covenant of good faith and fair dealing or render the contract illusory when the original agreement contained a forum-selection clause?
Opinions:
Majority - Justice Berger
No. A unilateral amendment adding an arbitration clause does not violate the implied covenant of good faith and fair dealing or render the contract illusory when the original contract contained a related term, such as a forum-selection clause. The implied covenant of good faith and fair dealing limits a party's power to unilaterally modify a contract; any change must fall within the 'universe of terms' of the original agreement, meaning it must relate to a subject reasonably contemplated by the parties at formation. An arbitration clause is a specialized type of forum-selection clause. Here, the original agreement's 'Governing Law' provision was a forum-selection clause that addressed the forum for dispute resolution. Therefore, the subsequent Arbitration Amendment was within the same universe of terms, satisfied the covenant of good faith, and did not render the contract illusory. Phillips's mutual assent was given in 2014 when she agreed to the change-of-terms provision, which permitted modification upon notice rather than requiring new consent for each change.
Dissenting - Justice Riggs
Yes. The unilateral addition of the arbitration clause violates North Carolina contract law because it renders the contract illusory and breaches the implied covenant of good faith and fair dealing. The materially unrestrained modification provision allows CMCU to unbind itself from arbitration at will, making its promise to arbitrate illusory. The implied covenant should preclude a party from retroactively imposing terms that recapture opportunities forgone at contracting, such as the constitutional right to a jury trial. An ordinary consumer would not foresee that a simple forum-selection clause could be used to justify a complete waiver of their right to go to court and participate in a class action. Furthermore, the notice provided was insufficient, and the opt-out language was ambiguous and arguably impossible for Phillips to satisfy, meaning there was no knowing and voluntary waiver of her constitutional rights.
Analysis:
This decision solidifies North Carolina's approach to unilateral contract modifications in consumer agreements, aligning it with jurisdictions that use the 'universe of terms' framework. The ruling establishes that the presence of a forum-selection clause in an original agreement makes a subsequent, unilaterally added arbitration clause reasonably foreseeable and thus compliant with the duty of good faith. This provides businesses a clearer path to update terms without renegotiation, but it may diminish consumer protections against unforeseen changes that waive fundamental rights like jury trials. Future legal challenges will likely focus on what other original contract terms are sufficient to bring a later modification within the 'universe of terms' and thus render it enforceable.
