And the End of Small Claims Court

UPDATE: Here is Part 2.

I banked with Citibank for years. While an employee of Citigroup’s investment bank, I opened consumer bank accounts in 2007 before leaving in 2009. After a banking dispute in 2010 forced me to file a small claims court claim, Citibank removed my small claim to private arbitration against my objections and in violation of my agreements and the arbitrator’s rules.

I am sharing my story to help others. While I get into some technical detail, I hope that non-technical readers can skim past it and still understand the issue.

This is my — and only my—personal opinion.

I am not a lawyer — and that’s really the point. A lawyer shouldn’t be required to resolve every dispute with a bank.

To keep this relatively short, I will detail my underlying dispute in a forthcoming post. It is entirely possible that Citibank removed my small claims court claim to arbitration to avoid an undesirable but public outcome in small claims court — knowing full well the depth of the hole it was putting me in.

The Dispute

Citibank wrongfully charged me late fees and harmed my credit in 2010. I have always had excellent credit and have repeatedly leveraged it to take advantage of opportunities. After a lengthy but unsuccessful attempt at resolving my dispute with Citibank from 2010–2012, I filed for small claims court in Pima County, Arizona (Tucson metro) in January 2012[1].

The maximum theoretical liability to Citibank in small claims court was $2,500.

I requested “the refund of $289.50 in account fees, $50.00 in late fees, $2,060.50 in compensation for my time and efforts, and a correction to all of my credit reports.”[2]

I represented myself, or what is known in the legal world as “pro se representation.”

The Citibank Arbitration Agreement

Checking Plus Agreement, September 1, 2010. Page 4 of 6.

Checking Plus Agreement, September 1, 2010. Page 4 of 6.

I read our arbitration agreement, particularly the excerpted clauses included here, and interpreted them to mean that small claims court disputes were excluded from arbitration[3].

I filed a small claim.

Shortly after my filing, Citibank filed a motion to remove my small claim to arbitration: “Citibank affirmatively alleges that the Checking Plus Account Agreement …[is] subject to mandatory arbitration pursuant to the terms of arbitration clauses in the Agreements, and pursuant to the Federal Arbitration Act, 9 U.S.C. 2 et seq., and/or Arizona law.”[4]

Arizona Revised Statutes (“A.R.S.”) 22–504 allows either party to a small claim to unilaterally (meaning without any other party’s consent) remove it to a higher court by written request. This request is not reviewed. It is automatically and immediately granted by statute.

In its motion, Citibank simultaneously:

cited A.R.S. 22–504 to unilaterally and automatically have my small claim removed to Justice Court; and, cited the arbitration agreement’s Disputes Excluded from Arbitration clause — “…so long as the disputes remain in [small claims] court…” — to force this newfound Justice Court case into mandatory arbitration.

By unilaterally removing my small claim from small claims court, Citibank had exposed its agreement to contain a deceptive trap that does not grant a right to small claims court.

Small claims disputes are not excluded from mandatory arbitration.

Needless to say, this caught me by surprise. Why would Citibank want to make resolution more time consuming, expensive and complicated?

Why would it include this exclusion clause if it intends to always have small claims removed?

Under A.R.S. 22–512(d), attorneys can represent in Arizona small claims court. So that could not have been the issue. Frankly, even if it were an issue, Citibank cannot escape its commitments under an arbitration agreement by citing Arizona law. There are numerous examples of consumers failing to escape an arbitration agreement by citing California law. The inescapability of arbitration agreements cuts both ways.

As a non-lawyer, when I read the section Disputes Excluded from Arbitration, I don’t immediately assume that it’s a trick. I don’t read the removal clause — “…so long as the disputes remain in [small claims] court…” — and think Citibank intends to unilaterally cause small claims to no longer remain in small claims court in order to force arbitration. If that is Citibank’s intent, why even have the section in the first place?

Citibank argued in Justice Court, April 4, 2012, pages 4–5: “Mr. Dempsey contends that because he filed in Small Claims Court, his case cannot be arbitrated. The [Agreement] Arbitration Exclusions plainly say otherwise. Only cases that ‘remain’ in Small Claims Court cannot be arbitrated. Here, Citibank has transferred the case to Justice Court. Because the case did not ‘remain’ in small claims court, it must be arbitrated.” [Emphasis added]

As used in my case, the Disputes Excluded from Arbitration section proves to be unfair and deceptive. It is unlikely that any consumer will read the arbitration agreement and conclude that Citibank will block access to small claims court. Not even the AAA’s review staff seemed to draw that conclusion.

After all, Citibank cannot stop a consumer from filing a claim in any court they wish. It is only after filing that it can force a claim to arbitration. If small claims court is no different, what’s the point of including a special misleading section?

What advantages did Citibank gain?

Secrecy: arbitrations are private and small claims court is not. Extension: Citibank gets to extend its war of attrition against small claims court claimants. Arbitration is a more expensive, foreign and time-consuming process than a small claims court likely leading to a discouraged attitude of, “Oh, to Hell with it!” Procedural-Technical-Legal Morass: Small claims court is a purposely expedited hearing format. Arbitration, like regular court, is subject to all sorts of legal gamesmanship, procedure and delay. Does an unrepresented consumer have any chance against Big Law’s repeated dispositive motions?

In my experience, the arbitrator selection process takes more time than the entirety of small claims court resolution. (It took nearly seven months.)

After exhausting my ability to object in Justice Court, the judge ultimately ordered my small claim to arbitration seemingly on the basis of the removal portion of the Disputes Excluded from Arbitration clause: “The matter is stayed pending arbitration as per agreement.” … “Mr. Dempsey’s position is well-taken had the matter not been removed.”

Justice Court order compelling arbitration, October 24, 2012

Justice Court clarification on removal, November 10, 2012

If Citibank intends to arbitrate small claims court claims, why not simply say so? Why mislead customers into believing small claims court claims are excluded?

Who else is Citibank deceiving?

The Arbitrator’s Rules

Our arbitration agreement — like most others — names the American Arbitration Association (“AAA”) and JAMS (not an acronym) as my choices of arbitrator.

The AAA and JAMS have similar rules requiring consumers have access to small claims court. I ultimately chose the AAA because of its more extensive consumer documentation and its “Consumer Due Process Protocol.”[5]

Excerpt from “AAA Review of Consumer Clauses”, page 1, AAA Online Library

Excerpt from “AAA Review of Consumer Clauses”, page 1, AAA Online Library

One of the documents that the AAA provided me is called the “AAA Review of Consumer Clauses.”[6] Not only does it state that I have a “Small Claims Court Option,” it states that arbitration clauses failing to meet fairness standards contained in the AAA’s Consumer Due Process Protocol (“CDPP”) will be denied access to the AAA’s services.

So the AAA has seemingly established the CDPP as a standard for judging fairness, at a minimum.

Let’s review the CDPP.

Principle 5 and Reporter’s Comments from the AAA’s “Consumer Due Process Protocol”, page 18, AAA Online LibraryLet’s review the CDPP.

Principle 11 from the AAA’s “Consumer Due Process Protocol”, page 3, AAA Online LibraryLet’s review the CDPP.

There are two principles that appear most relevant to my experience: Principles 5 and 11.

Principle 5 requires Citibank’s arbitration agreement “make it clear that all parties retain the right to seek relief in a small claims court.”

It goes on to say, “[w]ithin the judicial system, the least expensive and most efficient alternative for resolution of claims for minor amounts of money often lies in small claims courts. These courts typically provide a convenient, less formal and relatively expeditious judicial forum for handling such disputes, and afford the benefit, where necessary, of the coercive powers of the judicial system. The Advisory Committee concluded that access to small claims tribunals is an important right of Consumers which should not be waived by a pre-dispute ADR Agreement.”

Principle 11(c) reinforces Principle 5 by requiring Citibank to give me notice of my right to small claims court.

Excellent, right? The AAA is most assuredly going to deny its services by determining Citibank’s arbitration agreement and actions fundamentally unfair and non-compliant with the CDPP.

Excerpt from “Supplementary Procedures for the Resolution of Consumer-Related Disputes”, page 4, AAA Online Library

Rule C-1(d) from the “Supplementary Procedures for the Resolution of Consumer-Related Disputes”, page 8, AAA Online Library

Just to be sure, let’s look at the AAA’s “Supplementary Procedures for the Resolution of Consumer-Related Disputes.”[7]

The introduction to the Supplementary Procedures mirrors the CDPP and Rule C-1(d) says parties can take their claims to a small claims court.

Great.

Excerpt from “Supplementary Procedures for Consumer-Related Disputes Questions and Answers”, page 1, AAA Online Library

Furthermore, a Q&A document (excerpted here) that is included with the Supplementary Procedures states that I cannot be contractually barred from small claims court[8].

By incorporating the AAA into its agreement, Citibank voluntarily waived its right to unilaterally invoke A.R.S. 22–504 to transfer a small claims court claim to Justice Court for the purpose of compelling arbitration. Invoking that waived right was to foreclose its access to the AAA’s services.

After all, the AAA’s rules are clear that consumers cannot be prohibited from seeking relief in a small claims court. I was prohibited so Citibank will suffer the consequences.

Nope.

The AAA’s Lack of Internal Controls

As a self-represented plaintiff, I was at a significant disadvantage against Citibank’s repeated appeals to technical legal and procedural arguments.

For my protection, I decided to retain counsel.

We filed an initial brief with our AAA Demand for Arbitration that summarized the underlying dispute as well as the rule-violating removal of my small claims court claim.

The AAA is supposed to perform an “intake review” of every claim to determine which arbitrator is the best fit. Apparently — and unbeknownst to us at the time — during this review process, the AAA also reviews the subject arbitration agreement and conclusively decides on rule compliance.

So, if the AAA proceeds to arbitrator selection, that means it has determined the arbitration agreement is rule compliant. And it makes this decision without requesting relevant information from the parties, disclosing its decision, or giving direction to the parties as to what it has and has not determined.

Much later, after going through a lengthy arbitrator selection process (in my view, arbitrator shopping by Citibank), when the subject of arbitrability and rule compliance finally came before the arbitrator, Citibank argued that it was not the arbitrator’s decision to make — that the AAA had already decided the issue.

We disagreed but ultimately the arbitrator ignored the issue in his decision, seemingly agreeing with Citibank’s contention that it was not his decision to make.

At the end of the day, there’s no evidence that the AAA ever truly reviewed the rule-compliance issues arising from Citibank’s treatment of my claim. It appears to have been more of a superficial rubber stamping process than a thoughtful review. And that negligence benefits both Citibank and the AAA and severely disadvantages the consumer.

The AAA has tasked itself with rule enforcement duties. It’s the mechanism by which the AAA coerces rule compliant arbitration agreements. If the AAA doesn’t perform sufficient due diligence to properly enforce its rules (whether negligently or intentionally), what’s the point of having rules? Feigning concern with fairness to impress the courts and regulators? Falsely inducing the consumer to choose the AAA over its competitors?

The Conflict of Interest

By failing to review the question, or by reviewing the question and still deciding Citibank’s arbitration agreement and actions were fair and compliant, the AAA had put their employee arbitrator in the position of having to rule against the AAA — his employer — in order to find against Citibank.

What employee is going to make a consequential ruling against his employer? It is a massive conflict of interest. Do you sacrifice your future relationship with the AAA over a rules violation by Citibank — surely one of the AAA’s largest customers as one of the world’s largest banks?

The ruling was as bizarre as one would expect under such a scenario.

Indifference Favors the Wrongdoer

During the summer 0f 2014, immediately after discovering the AAA’s abdication of duty, I wrote the professional staff at the AAA to find out why this important step in the process was negligently disregarded and not disclosed.

Why did we waste a bunch of time finding and presenting to an arbitrator when it was the AAA’s decision to make?

Why was there not a process in place to address these questions and safeguard against negligence?

Why am I piecing this together through comments by Citibank’s counsel and not clear AAA disclosures?

The AAA’s staff made artful attempts to invent disqualifying preconditions but ultimately failed to satisfy key questions.

The AAA framed it as two choices:

deny its services; or require a party’s already-removed claim to still fit small claims court jurisdiction in order to deny its services.

How the AAA gets past 1 to 2 is beyond me. Removal is supposed to cause a denial of services — not removal with a precondition that it can be returned. Otherwise a wrongdoer can always remove and bet on a consumer’s ignorance or that post-removal changes and accrued costs will exceed small claims court jurisdiction thus preventing return.

By the very order of process, a post-removal small claim has both increased expense and increased access to relief. The reasonable act of hiring an attorney post-removal prices the claim out of small claims court ($3,500 current limit in Pima County, Arizona) — especially if any work has been done.

Who is doing these reviews and what are their qualifications? Are they lawyers? Do they know state law and how it could be combined with agreement language to create non-compliant loopholes?

The AAA is seemingly creating an anti-consumer catch-22 that it has no business forming. Indeed, this artificial catch-22 contradicts the very documents that the AAA provides consumers.

Rule R-9 from “Consumer Arbitration Rules”, page 15, AAA Online Library

Notably, in September 2014, a few months after my exchange with the AAA, the AAA unveiled amended “Consumer Arbitration Rules” that included detailed procedures on how to access small claims court[9].

The new Consumer Arbitration Rules also include Rule R-1(d), which reinforces the AAA’s long held obligation to refuse to accept claims that do not “meet the due process standards contain in the Consumer Due Process Protocol.”

Rule R-1(d) from “Consumer Arbitration Rules”, page 10, AAA Online Library

While this is an important first step, it does not prevent what happened to me from happening to others.

I acted upon my right to small claims court, as one would under the new Rule R-9(a), and it was still removed to arbitration.

The AAA’s indifference favors Citibank, the wrongdoer.

The AAA must deny its services to unilaterally-removed small claims. It must not allow them to get past the intake review process.

If the AAA does not practice reasonable due diligence, many more consumers are going to be tied up for years with unnecessary and wasteful arbitration proceedings for their removed-claims.

I filed my small claims court claim in January 2012. It is March 2015 and we are still in arbitration. Small claims court would have been completed by May 2012, at the latest.

Citibank has undoubtedly spent close to if not more than one hundred thousand dollars on fighting my small claim. Its external counsel does not come cheap[10].

Ambiguity has to be interpreted against the interests of the drafting party. An impartial review of the AAA’s rules would surely lead one to conclude that the AAA was supposed to deny its services to Citibank. Not doing so effectively makes the AAA’s rules meaningless.

Is Citibank making a mockery of the AAA?

Are Citibank and the AAA in cahoots?

Is it a marriage of choice or one of convenient indifference?

I am Not a Lawyer — and Should Not Have to Be

A big motivation for sharing my experience is to protect others. The next time a consumer is subject to a similar situation, hopefully they will find my story through a Google search and be starting from a more informed position.

Why did Citibank remove my claim from a court with a maximum theoretical liability of $2,500 (at the time; it is now $3,500) when the cost of removal surely exceeded that?

How did Citibank know that the AAA would not enforce its rules?

Why did the AAA allow a unilaterally-removed small claims court claim into arbitration? Negligence? To bolster its revenues? To keep Citibank happy?

For now, I have more questions than answers. One of these days I’ll provide an update with more answers than questions.

I certainly did not seek or expect this fight. Citibank and the AAA drafted me into it. I have put more time, resources and stress into it than I will ever get back. My fight has transformed into a larger fight for the public good — a rare silver lining in this ridiculous nightmare.

It was never about the $339.50 in fees. All I ever cared about was my credit. I hoped that the mere act of filing a small claims court claim would cause Citibank to fix my credit because the cost of doing so was miniscule.

I could not have been more wrong.

Small claims court claims are not excluded from mandatory arbitration.

I am not a lawyer — and that’s really the point.