Arbitration and Identity Theft

by Jeff Sovern

  I was inspired by my co-blogger Paul Bland to add a problem to the consumer law casebook I've been working on with Dee Pridgen, Andy Spanogle, and Ralph Rohner about what happens when an identity thief signs an agreement providing for arbitration.  Can the impersonated consumer be forced to arbitrate?   Who decides if the consumer's signature is genuine: an arbitrator or a court?   Unfortunately, one of the downsides of writing a casebook with problems is that you have to give answers to the problems in the teacher's manual.  So what is the answer?

It seems incredible that a consumer who never agreed to arbitration would be obliged to submit to arbitration anyway.  In fact, a federal district court decision, Maranto v. Citifinancial Retail Services, Inc., 2005 WL 3369948 (W.D.La. 2005), held that when an account is allegedly opened by an identity thief, the impersonated person is not bound to arbitrate even though the agreement contains an arbitration clause. The opinion reads as if the Magistrate Judge felt that the court decides whether the consumer signed the agreement (“There is no valid agreement to arbitrate between Plaintiff and Defendant. Defendant apparently issued a credit card and opened an account in Plaintiff's name, but there is no evidence before the court that Plaintiff applied for the card or consented to the opening of the account. In fact, the allegations are that the account was opened as a result of identity theft committed by an imposter.”).

Boran v. Columbia Credit Services, Inc., --- F. Supp. 2d ---, 2006 WL 3388400 (D.Conn. 2006), relies on Maranto to come to a similar conclusion and presents the issue rather starkly.  A collector had commenced arbitration, and the consumer had argued in the arbitration that she was the victim of an identity theft and had not opened the account.  The collector then moved to stay the arbitration to investigate. After it completed its investigation, evidently concluding that the claim was not true, the stay of arbitration was lifted, and the arbitrator ruled in favor of the collector.  Rather than moving to vacate the award, the consumer filed a court proceeding.  The collector moved to dismiss or in the alternative for a stay in favor of arbitration.  The court found a

genuine issue of material fact as to the threshold issue of whether the plaintiff signed the credit card application giving rise to the arbitration clause at issue in the defendants' motion. . . . The plaintiff has provided sufficient evidence, in particular the warrant for the arrest of plaintiff's son's girlfriend with respect to the fraudulent opening of the credit card at issue in this case, to place the legitimacy of the credit card agreement and corresponding arbitration clause in issue. Although [the collector] and the NAF arbitrator apparently found the plaintiff's identity theft allegation to be unsubstantiated, neither the [collector] nor the arbitrator had the benefit of the arrest warrant and the information contained therein at the time of their inquiries. 

The court therefore denied the collector’s motions and granted the consumer’s motion for a jury trial on the issue of whether she had entered into an agreement to arbitrate. 

So far, so good.  The problem is Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (a case Paul argued).  Buckeye says the arbitrator decides whether the entire contract—as distinct from the arbitration clause itself—is enforceable.  If the consumer never signed the contract, it would be unenforceable as a whole, and so Buckeye suggests that the arbitrator decides.  Perhaps Buckeye could be distinguished on the ground that the issue there was whether the contract was illegal, and here the issue is whether there is an agreement at all, but Buckeye’s language suggests to the contrary, when it says, for example, “We reaffirm today that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. What impact Buckeye will have on the Maranto line of cases is unclear.  Incidentally, Maranto was decided before Buckeye while Boran was decided some months after Buckeye, though it doesn’t cite Buckeye

If the effect of Buckeye is to force consumers into arbitration even though they never agreed to arbitration, does that add fuel to the argument that Buckeye was wrongly decided?