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Parm v. Bluestem Brands, Inc.

United States District Court, D. Minnesota

March 30, 2017

JESSICA PARM, Plaintiff,
v.
BLUESTEM BRANDS, INC., Defendant. SARA ARCE, ANNE BOWERS, and NENA OSORIO, Plaintiffs,
v.
BLUESTEM BRANDS, INC., Defendant.

          Charles D. Moore and Melissa W. Wolchansky, HALUNEN LAW, and Jeffrey D. Kaliel, TYCKO & ZAVAREEI LLP, for plaintiffs.

          Aaron D. Van Oort, Erin L. Hoffman, and Aaron Knoll, FAEGRE BAKER DANIELS LLP, for defendant.

          MEMORANDUM OPINION AND ORDER ON REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE DATED JANUARY 10, 2017

          JOHN R. TUNHEIM Chief Judge

         Plaintiffs Jessica Parm, Sarah Arce, Anne Bowers, and Nena Osorio (collectively, “Plaintiffs”) are consumers who purchased goods from Defendant Bluestem Brands, Inc. (“Bluestem”) through a catalog and online retailer Bluestem operates that goes by the name of “Fingerhut.” Plaintiffs challenge the legality of a number of Bluestem's practices related to pricing of goods and the interest rates and disclosures regarding private-label revolving credit accounts. Arguing that arbitration provisions found in the terms and conditions governing the private-label revolving credit accounts are applicable to all of Plaintiffs' claims, Bluestem moves to compel arbitration and to dismiss Plaintiffs' claims without prejudice, or in the alternative, to stay Plaintiffs' claims pending arbitration.

         The Court will grant Bluestem's motion in part because the Court finds that some of Plaintiffs' claims arise out of or relate to the applicable credit agreements and/or Plaintiffs' relationship with the banks providing the credit. However, the Court will deny Bluestem's motion as to Plaintiffs' claims alleging that Bluestem's pricing scheme is unlawful, since Bluestem sets the prices for goods it sells wholly unrelated to the credit agreements - between Plaintiffs and the banks providing the credit - that contain the arbitration provisions.

         BACKGROUND

         I. FACTUAL BACKGROUND

         A. Bluestem and the Banks

         Bluestem, which does business under a number of names - including “Fingerhut” - is a consumer retail business incorporated in Delaware with its principal place of business in Minnesota. (Parm Decl. of Erik Svensen in Supp. of Def.'s Consol. Mot. (“Svensen Decl.”) ¶ 4, June 17, 2016, Docket No. 76.)[1] Fingerhut “provide[s] a mix of retail and payment options to customers across the United States through direct mail and Internet shopping channels.” (Id.)

         Financing is available through a partnership between Fingerhut and a third-party bank, which allows customers to pay for their purchases from Fingerhut with private-label revolving credit accounts.[2] (Id. ¶¶ 5-6.) The offers for credit are made available on Fingerhut's website and in Fingerhut catalogs; customers may apply for a revolving credit account on Fingerhut's website or over the phone. (Id. ¶ 5; Parm App. to Def.'s Mem. of Law in Supp. of Consol. Mot. (“App.”) at 112-13, 270, 324-31, 462-63, June 17, 2016, Docket No. 75.) Prior to mid-2012, Bluestem partnered with MetaBank, an FDIC-insured bank headquartered in South Dakota, to offer credit to Fingerhut customers. (Svensen Decl. ¶ 6.) Bluestem subsequently switched its financing partner from MetaBank to WebBank, [3] an FDIC-insured bank headquartered in Utah, and on July 1, 2012, WebBank purchased all Fingerhut credit accounts from MetaBank. (Id.¶¶ 5-6.) At all relevant times, the Banks lent money to consumers and collected interest on credit balances from consumers. (Id. ; App. at 504-11; Parm Decl. of Melissa W. Wolchansky (“Wolchansky Decl.”), Ex. 5 at BLUESTEM000820-27, July 15, 2016, Docket No. 83.)

         Bluestem, through a contract with the Banks, “serviced” the revolving credit accounts, meaning that Bluestem communicated with consumers, advertised and made the offers of credit to consumers, accepted consumers' credit applications, reviewed those applications to determine whether the consumers met the underwriting criteria, sent out bills to consumers, accepted payment from consumers, and dealt with all disputes with consumers. (Svensen Decl. ¶¶ 5-6; App. at 105-06, 504-11, 545-51; Wolchansky Decl., Ex. 5 at BLUESTEM000820-27.) Bluestem retained control of selecting merchandise sold on Fingerhut's website and in its catalogs, setting prices, and selling that merchandise. (App. at 106-07.)

         As part of Bluestem's agreement with the Banks, at all relevant times Bluestem agreed to offer and promote a “debt waiver product, ” known as SafeLine Account Protection (“SafeLine”), on the Banks' behalf. (Id. at 510-11, 586-92, 596-99; Wolchansky Decl., Ex. 5 at BLUESTEM000821-22.) For a monthly fee charged to an account-holder's revolving credit account, an account-holder enrolled in SafeLine becomes eligible for suppression of the credit account in the event of unemployment or disability and waiver of the entire outstanding balance in the event of death. (Id. at 586-87.)

         Fingerhut's catalogs and website list prices for goods in two ways: (1) a total price, and (2) a monthly payment. (See, e.g., Parm Compl. ¶ 20, Aug. 27, 2015, Docket No. 1; Arce Compl. ¶¶ 23-24, Oct. 14, 2015, Docket No. 1; App. at 273-385.) A sample Fingerhut catalog from July 2013 states that any given advertised monthly price “includes interest and assumes you have a Fingerhut Credit Account issued by [the Banks] and will vary depending on your account balance and other factors.” (App. at 274.)

         B. Credit Agreements

         At all relevant times, the Banks' revolving credit accounts have been governed by credit agreements between the applicable Bank (MetaBank before 2012, WebBank after 2012) and the account-holder. (Id. at 1-8.) Each credit agreement provided that it would go into effect at the time the account-holder's first transaction was posted to their account. (Id. at 1, 3, 5, 7.)

         The terms of the credit agreements have evolved over time. The earliest relevant agreement is the MetaBank Fingerhut Credit Account Agreement (the “2010 Agreement”), which became effective in August 2010. (Id. at 7-8.) The credit agreement was updated first in 2012, when MetaBank sold all of its accounts to WebBank; the new agreement, titled the WebBank Fingerhut Credit Account Agreement (the “2012 Agreement”), became generally effective July 1, 2012. (Id. at 3-4.) The agreement was updated again on March 7, 2013 (the “2013 Agreement”) and June 25, 2014 (the “2014 Agreement”).[4] (Id. at 1-2, 5-6.) Each of the credit agreements contains an arbitration provision as well as a provision permitting the Banks to unilaterally change terms at any time. (Id. at 1-8.)

         C. Fingerhut Terms of Use

         Separate from the credit agreements, Fingerhut's website has Terms of Use, which are “the terms on which [a consumer] may purchase products and services through [the Fingerhut website].” (Wolchansky Decl., Ex. 1 at 56:5-15.) The Terms of Use state:

Your Use of This Website and Fingerhut Affiliated Websites is Governed by These Terms of Use . . .
Your use of this website or other Fingerhut affiliated websites (collectively, the “Site”) constitutes your agreement to follow these Terms of Use and to be bound by them. . . .
Use of This Site
By using this Site and accepting these Terms of Use, you certify that you are 18 years of age or older. . . . By confirming your purchases at the end of the checkout process, you are agreeing to accept and pay for the items purchased.

(Id., Ex. 2 at 12-13.) The Terms of Use do not mention arbitration. (Id.)

         D. Plaintiffs' Revolving Credit Accounts

         Plaintiffs Parm, Arce, Bower, and Osorio are citizens of Georgia, California, Texas, and Florida, respectively. Each Plaintiff was at one time a Fingerhut customer who utilized a revolving credit account from WebBank and/or MetaBank to pay for their Fingerhut purchases.

         1. Parm and Bowers

         On August 23, 2010, Parm applied for and was approved for a credit account from MetaBank on Fingerhut's website. (App. at 22, 27-28, 38-39.) On January 23, 2011, Bowers also applied for a credit account on Fingerhut's website. (Svensen Decl. ¶ 7.)

         Parm's and Bowers's applications were approved based on MetaBank's criteria. (Id. ¶¶ 7-8.) As part of the application process, Parm and Bowers selected a box indicating that they accepted the applicable terms. (App. at 112-13.) Subsequently, Bluestem sent Parm and Bowers a Welcome Packet in the mail, including a paper copy of the 2010 Agreement. (Id. at 181-92.)

         MetaBank sold Parm's and Bowers's credit accounts to WebBank in 2012. To notify Parm and Bowers of the change, Bluestem sent a letter in the mail. (Id. at 69-70, 233-35.) The letter did not mention any new terms and conditions nor did it mention arbitration.[5] (Id. at 233.) While Bluestem posted a link in the footer of the Fingerhut website to the “Revolving Fingerhut Credit Account Terms and Conditions” on October 24, 2012, (Svensen Decl. ¶ 11), Bluestem did not send a hard copy of the 2012 Agreement to Parm or Bowers.

         In December 2012, before the 2013 Agreement went into effect, Bluestem sent Bowers a document titled “Important Changes to Your Account Terms, ” as a second page to her monthly billing statement. (App. at 236-37.) This document discussed only changes in the interest rate and late fees and contained no mention of arbitration. (Id.) Bluestem did not send a similar notice to Parm.

         Before the 2014 Agreement went into effect, Bluestem sent Parm a written notice with her monthly billing statement in April 2014 that highlighted “Important Changes to Your Account Terms.” (Id. at 477.) This document listed only changes in late fees, returned payment fees, and minimum monthly payments, and it stated: “You do not have the right to reject these changes to your Account.” (Id.) In May 2014, Bluestem sent Bowers a letter informing her of “changes and updates related to [her] account.” (Id. at 478.) The letter provided Bowers with a new account number. (Id.) It also stated: “Enclosed are the Fingerhut Privacy Policy, the WebBank Privacy Policy, and changes to your WebBank/Fingerhut Credit Account. Please review this important information and note any changes that may affect your account. If you have any questions, more information is available on www.fingerhut.com.” (Id.)[6]

         Parm and Bowers made their first purchases on Fingerhut's website using their revolving credit accounts on August 23, 2010 and January 23, 2011, respectively. (Id. at 33, 38-39, 128-29; Svensen Decl. ¶ 7.) Subsequently, Parm and Bowers made numerous purchases on Fingerhut's website, using their revolving credit accounts, until Parm made her last purchase in June 2014 and Bowers made her last purchase in July 2015. (App. at 193-227, 479-91; Svensen Decl. ¶¶ 9-10, 14-15.)

         2. Arce

         On June 27, 2013, Arce applied for revolving credit account over the phone after receiving a Fingerhut catalog that included a prescreened offer of credit as well as a summary of credit disclosures that explained that the applicable terms and conditions would include an arbitration provision. (App. at 325-26, 389, 425.) During the phone call, Arce verbally agreed to “the summary disclosures of the credit terms as stated in the catalog.” (Id. at 393.) Arce also provided verbal consent to be enrolled in SafeLine. (Id. at 396-99.)

         After Arce placed her first order - during the same call in which she applied for the credit account - Bluestem sent her a Welcome Packet containing the 2013 Agreement. (Id. at 400-04, 417-24.) Subsequently, Arce made a number of purchases from Fingerhut over the phone until she made her last purchase in January 2015. (Id. at 494-99.)

         3. Osorio

         On August 28, 2014, Osorio applied for a credit account on Fingerhut's website. (Id. at 435-37, 472.) At the bottom of the application, there was a section titled “Fingerhut Credit Terms & Conditions.” (Id. at 463.) Below that was a link titled “Print Fingerhut Terms & Conditions.” (Id.) The print link brought Osorio to a webpage with a summary of some terms of the 2014 Agreement. (See Wolchansky Decl., Ex. 11.) The summary stated, among other things, that a full version of the terms and conditions would be provided. (Id., Ex. 10 at 39-41.) Arce selected a box indicating that she accepted the applicable terms. Osorio's application was approved based on WebBank's criteria, and Bluestem subsequently mailed Osorio a Welcome Packet containing a paper copy of the 2014 Agreement. (App. at 464-72.) Osorio subsequently made purchases on Fingerhut's website using her revolving credit account, with her latest purchase taking place in July 2015. (Svensen Decl. ¶ 13; App. at 473-76.)

         II. PROCEDURAL HISTORY

         Parm filed her class-action complaint in this District on August 27, 2015. (Parm Compl., Aug. 27, 2015, Docket No. 1.) Arce, Bowers, and Osorio filed their class-action complaint in the Central District of California on October 14, 2015. (Arce Compl., Oct. 14, 2015, Docket No. 1.) Plaintiffs seek monetary damages, restitution, declaratory and injunctive relief, and attorney fees and costs on behalf of themselves and those similarly situated. (Parm Compl. at 24-25; Arce Compl. at 39.) Plaintiffs claim that Bluestem has violated a number of statutes, including state laws governing usury and deceptive trade practices and the Truth in Lending Act, 15 U.S.C. § 1601 et seq., based on the allegation that Bluestem charges finance charges that exceed maximum statutory limits and that Bluestem did not properly disclose to Plaintiffs. (Parm Compl. ¶¶ 49-77, 88-104; Arce Compl. ¶¶ 66-115, 151-83.) In support, Plaintiffs allege that when they purchased goods from Fingerhut, the prices for goods advertised on Fingerhut's website and in its catalogs were inflated, and that this inflated price included a hidden finance or interest charge.[7] (E.g., Parm Compl. ¶¶ 52, 58; Arce Compl. ¶¶ 110, 180.) In addition, Plaintiffs assert common-law unjust enrichment claims. (Parm Compl. ¶¶ 78-87; Arce Compl. ¶¶ 184-93.) Lastly, Arce asserts that the operation of SafeLine violates California's Auto-Renewal Law, Cal. Bus. & Prof. Code § 17600 et seq., and California's Unfair Competition Law. (Arce Compl. ¶¶ 116-50.)

         In March 2016, Arce v. Bluestem Brands, Inc. was transferred to this District. (See Arce Min. Order Granting Def.'s Mot. to Transfer, Mar. 10, 2016, Docket No. 35.) On April 15, 2016, United States Magistrate Judge Becky R. Thorson issued a scheduling order setting out a timeline for consolidated proceedings ...


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