Liu v. TD Ameritrade, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

XUE QIN LIU,

Plaintiff, MEMORANDUM & ORDER

18-CV-6764 (NGG) (CLP)

-against-

TD AMERITRADE, INC.,

Defendant.

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiff Xue Qin Liu brings this suit against Defendant TD Amer-

itrade, Inc. alleging violations of the Electronic Fund Transfer

Act, 15 U.S.C. § 1693 et. seq., and New York General Business

Law § 349. (Compl. (Dkt. 1) ¶ 6.) Plaintiff’s claims are based on

Defendant’s failure to adequately investigate unauthorized trans-

actions on Plaintiff’s account and Defendant’s allegedly deceptive

claim that it had conducted an adequate investigation. (Id. ¶¶ 4,

50-51, 56.)

Before the court is Defendant’s motion to compel arbitration and

stay further proceedings pending the completion of arbitration.

(Not. of Mot. (“Mot.”) (Dkt. 17).) For the following reasons, De-

fendant’s motion is GRANTED PART and DENIED IN PART.

Specifically, the motion is granted insofar as it seeks to stay pro-

ceedings and compel arbitration pursuant to the original

Scottrade Brokerage Account Agreement. In all other respects,

the motion is DENIED.

BACKGROUND

A. Statement of Facts

Unless otherwise noted, the following facts are undisputed.

Where the facts are disputed, the court notes the dispute and

credits Plaintiff’s version of the facts if it is supported by the rec-

ord. See Meyer v. Uber Techs., Inc., 868 F.3d 66, 74 (2d Cir. 2017)

(“Courts deciding motions to compel . . . draw[] all reasonable

inferences in favor of the non-moving party.”).1

1. Plaintiff’s Contract with Scottrade and the Transi-

tion to TD Ameritrade

In September 2008, Plaintiff opened a bank account with Scot-

trade, Inc. (“Scottrade”) and signed the Scottrade Brokerage

Account Application. (Scottrade Brokerage Account Appl. (“Scot-

trade Appl.”) (Dkt. 17-3).) The Scottrade Application included

reference to, and was accompanied by, the Scottrade Brokerage

Account Agreement (“SBAA”). (Scottrade Appl. at 2; Decl. of C.

Derbak (Dkt. 17-2) ¶ 6.) The SBAA includes a pre-dispute arbi-

tration clause at paragraphs 28-29, and the Scottrade Application

explicitly references the SBAA’s arbitration provisions directly

above the signature line. (SBAA (Dkt. 17-4) ¶¶ 28-29; Scottrade

Appl. at 2.) The SBAA includes a Missouri choice-of law clause

and provides that arbitration proceedings will be governed by the

rules of the arbitration forum in which a claim is filed. (SBAA ¶¶

28, 35.)

In September 2017, Defendant acquired Scottrade and in Febru-

ary 2018 converted all Scottrade accounts into TD Ameritrade

accounts. (Compl. ¶ 13; TD Ameritrade-Scottrade Transition Hub

(“Transition Hub”) (Dkt. 17-11) at ECF 4.) Prior to transitioning

her account from Scottrade to TD Ameritrade, Defendant sent

Plaintiff no fewer than six emails about the transition between

January 23, 2018 and February 15, 2018. (January 23, 2018

Email Not. (“Email 1”) (Dkt. 17-5); January 24, 2018 Email Not.

(“Email 2”) (Dkt. 17-6); February 8, 2018 Email Not. (“Email 3”)

1 When quoting cases, unless otherwise noted, all citations and internal

quotation marks are omitted and all alterations are adopted.

(Dkt. 17-7); February 8, 2018 Email Not. (“Email 4”) (Dkt. 17-

8); February 15, 2018 Email Not. (“Email 5”) (Dkt. 17-9); Feb-

ruary 15, 2018 Email Not. (“Email 6”) (Dkt. 17-10).)

The first email, which Plaintiff received on January 23, 2018, in-

formed her about the transfer from Scottrade to TD Ameritrade

and stated four times that the transfer would take place “auto-

matically,” and, in large text, that “[t]here’s nothing you need to

do.” (Email 1.) This first email also included a link to the terms

and conditions that would apply to the TD Ameritrade account,

and a paragraph indicating that Plaintiff had until February 23,

2018 to opt out. (Id. at ECF 3-4.) However, it does not appear

from the record that these “terms and conditions” included any

new or modified arbitration provision. The second email, which

Plaintiff received on January 24, 2018, advised three times that

the transfer would take place “automatically,” and repeated in

large text that “[t]here’s nothing you need to do.” (Email 2.) The

second email again noted that Plaintiff had the ability to opt out

of the transfer, and this time included a link to the TD Ameritrade

Investment Management Service Agreement, which also, it ap-

pears from the record, did not include any information about

arbitration. (Id. at ECF 3.) The third email, which Plaintiff re-

ceived on on February 8, 2018, specifically advised that the

transition would be complete as of Monday, February 26, 2018,

and that Plaintiff would be unable to access her account over the

weekend prior to the transition. (Email 3.) The email also stated

that as of February 23, 2018 TD Ameritrade would no longer ac-

cept Scottrade forms and agreements and included a link to the

“form library” which contained the corresponding TD Ameritrade

forms, but did not include any information about arbitration. (Id.

at ECF 4.) Larger text further down the page highlighted links to

the TD Ameritrade website, account statement guide, and busi-

ness continuity statement. (Id. at ECF 4-5.)

The fourth email, which Plaintiff also received on February 8,

2018, repeated that the account transition would take place au-

tomatically, and included three links to the “Transition Hub” for

“important information and personalized details” about her ac-

count, including the “documents and disclosures” that would

apply to Plaintiff’s TD Ameritrade account, which, as discussed in

greater detail below, included a link to the TD Ameritrade Client

Agreement (“TDACA”). (Email 4.) The fifth email, which Plaintiff

received on February 15, 2018, again confirmed the transition

date and provided login instructions for her new account. (Email

5.) The sixth email and final email, which Plaintiff received on

February 15, 2018, again confirmed the transition date, and in-

cluded five links to the Transition Hub. (Email 6.)

The Transition Hub itself, a link to which was included only in

emails 4 and 6, included some 15 pages of information and links

pertaining to the Plaintiff’s TD Ameritrade account. (Transition

Hub at ECF 5.) The Transition Hub also included one link to the

TDACA. (Id. at ECF 12.) The TDACA contains an arbitration

clause providing that all arbitrations would be conducted pursu-

ant to the FINRA Code of Arbitration. (TDACA (Dkt. 17-12) ¶¶

12, 14.)

2. Alleged Identity Theft and T.D. Ameritrade’s Re-

sponse

In March 2018, Defendant allegedly mailed Plaintiff a debit card.

(Compl. ¶ 15.) However, Plaintiff never received the card and

alleges that someone stole it from her mail. (Id. ¶¶ 16-17.) Be-

tween March 10 and March 22, 2018, the card was used to make

$30.946.59 of transactions and withdrawals around the New

York City area, all of which Plaintiff alleges were unauthorized.

(Id. ¶¶ 18-19.) Because Plaintiff generally wrote checks to with-

draw funds or make purchases and rarely used the debit card

associated with the account, the allegedly unauthorized use of

the debit card and the purchases themselves were inconsistent

with Plaintiff’s purchasing history. (Id. ¶¶ 14, 20-21.) Addition-

ally, between March 16 and March 18, 2018, a male individual

placed multiple calls to Defendant claiming to be Plaintiff, who

is female. (Id. ¶ 23.) Defendant did not notify Plaintiff of the un-

usual account activity or suspicious phone calls. (Id. ¶¶ 22, 26.)

On March 28, 2018, Defendant called Plaintiff and informed her

that her account lacked funds. (Id. ¶ 27.) Until this point, Plaintiff

had been unaware of the unusual transactions and she formally

disputed them that same day. (Id. ¶¶ 28-29.) In a letter dated

April 9, 2018, Defendant informed Plaintiff that it had conducted

an investigation into the unauthorized transactions and deter-

mined that it was “very likely that an unauthorized party

intercepted, activated, and used [Plaintiff’s] Visa debit card be-

fore [Plaintiff] received it in the mail.” (Id. ¶¶ 30-31.) The letter

further requested that Plaintiff assist in the investigation by filing

a police report and completing an affidavit of fraud, which she

did on April 11, 2018. (Id. ¶¶ 32-33.)

In a letter dated April 11, 2018, Defendant informed Plaintiff that

its investigation “determined that an error did not occur,” that

the matter was considered resolved, and that it would not be

crediting Plaintiff’s account. (Id. ¶ 34.) Plaintiff requested docu-

mentation explaining Defendant’s decision but did not receive

any. (Id. ¶¶ 35-36.) On May 9, 2018 Plaintiff called Defendant to

inquire further, and Defendant informed her that the card had

been activated with her social security number but did not elab-

orate further. (Id. ¶¶ 37-39.) Since these events, Plaintiff has

received numerous letters from credit card companies rejecting

credit card applications that she alleges she did not fill out, fur-

thering Plaintiff’s belief that her identity was stolen. (Id. ¶ 40.)

B. Procedural History

Plaintiff filed this action on November 28, 2018 seeking damages

under the Electronic Fund Transfer Act, 15 U.S.C. § 1693 et. seq.,

and New York General Business Law § 349. (Compl.) On Febru-

ary 12, 2019 Defendant filed a request for a pre-motion

conference in anticipation of filing the instant motion. (Mot. for

Pre Mot. Conf. (Dkt. 10).) At that conference, the court directed

the parties to pursue mediation before proposing a briefing

schedule. (February 13, 2019 Order; March 6, 2019 Minute En-

try for Proceedings.) The motion was fully briefed on May 17,

2019. (See Mot.; Mem. in Supp. (“Mem.”) (Dkt. 17-1); Mem. in

Opp. (“Opp.”) (Dkt. 17-13); Reply Mem. in Further Supp. (“Re-

ply”) (Dkt. 17-14).)

LEGAL STANDARD

The Federal Arbitration Act (“FAA”) provides that written agree-

ments to arbitrate are “valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity for the revocation

of any contract.” 9 U.S.C. § 2. The FAA “is a congressional decla-

ration of a liberal federal policy favoring arbitration agreements,

notwithstanding any state substantive or procedural policies to

the contrary.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24 (1983). “This policy is founded upon a de-

sire to preserve parties’ ability to agree to arbitrate, rather than

litigate, their disputes.” Starke v. SquareTrade, Inc., 913 F.3d 279,

288 (2d Cir. 2019). Under Section 4 of the FAA, a party “ag-

grieved by the alleged failure, neglect, or refusal of another to

arbitrate under a written agreement for arbitration” may file a

motion to compel, which a court must grant “upon being satisfied

that the making of the agreement for arbitration or the failure to

comply therewith is not in issue.” 9 U.S.C. § 4; see also AT&T Mo-

bility LLC v. Concepcion, 563 U.S. 333, 354-55 (2011) (Thomas,

J., concurring). Though favored as a matter of policy, “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.”

In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113, 127 (2d

Cir. 2011).

Thus, a motion to compel arbitration requires the court to ad-

dress two issues: “(1) whether the parties have entered into a

valid agreement to arbitrate; and if so, (2) whether the dispute

at issue comes within the scope of the arbitration agreement.” Id.

at 128; see also Granite Rock Co. v. Int’l Brotherhood of Teamsters,

561 U.S. 287, 299 (2010) (“[C]ourts should order arbitration of

a dispute only where the court is satisfied that neither the for-

mation of the parties’ arbitration agreement nor (absent a valid

provision specifically committing such disputes to an arbitrator)

its enforceability or applicability to the dispute is in issue.”).

The first question “is one only a court can answer, since in the

absence of any arbitration agreement at all, questions of arbitra-

bility could hardly have been clearly and unmistakably given

over to an arbitrator.” VRG Linhas Aereas S.A. v. Matlin Patterson

Glob. Opportunities Partners II L.P., 717 F.3d 322, 325 n.2 (2d

Cir. 2013). This question is answered under state contract law.

Meyer, 868 F.3d at 73-74. In evaluating the second question,

“courts presume that the parties intend courts, not arbitrators, to

decide . . . disputes about arbitrability.” BG Grp., PLC v. Republic

of Argentina, 572 U.S. 25, 34 (2014). Thus, absent a clear dele-

gation of such authority to an arbitrator, “the question of whether

or not a dispute is arbitrable is [also] one for the court” Citigroup

Glob. Mkts. Inc. v. Abbar, 761 F.3d 268, 274 (2d Cir. 2014).

Where courts have the authority to make this determination “the

federal policy in favor of arbitration requires that any doubts con-

cerning the scope of arbitrable issues be resolved in favor of

arbitration.” Telenor Mobile Comms. AS v. Storm LLC, 584 F.3d

396, 406 (2d Cir. 2009).

In deciding a motion to compel arbitration, “the court applies a

standard similar to that applicable for a motion for summary

judgment.” Bensadoun v. Jobe-Riat, 316 F.3d 171, 175

(2d Cir. 2003); see also Wachovia Bank, Nat’l Ass’n v. VCG Special

Opportunities Master Fund, Ltd., 661 F.3d 164, 172 (2d Cir.

2011) (“If there is a genuinely disputed factual issue whose res-

olution is essential to the determination of the applicability of an

arbitration provision, a trial as to that issue will be necessary; but

where the undisputed facts in the record require the matter of

arbitrability to be decided against one side or the other as a mat-

ter of law, we may rule on the basis of that legal issue and avoid

the need for further court proceedings.”). As such, the court eval-

uates any disputes concerning whether an agreement to arbitrate

was formed to determine “whether they raise a genuine issue of

material fact that must be resolved by a fact-finder at trial.”

Schnabel v. Trilegiant Corp., 697 F.3d 110, 113 (2d Cir. 2012). In

making this determination, the court may consider “all relevant,

admissible evidence submitted by the parties and contained in

pleadings, depositions, answers to interrogatories, and admis-

sions on file, together with affidavits.” Meyer, 868 F.3d at 74.

Finally, “the party resisting arbitration bears the burden of prov-

ing that the claims at issue are unsuitable for arbitration.” Green

Tree Fin. Corp.- Ala. v. Randolph, 531 U.S. 79, 91 (2000); see also

Whitehaven S.F., LLC v. Spangler, 45 F. Supp. 3d 333, 342-43

(S.D.N.Y. 2014) (“Whether it argues that arbitration is improper

because the arbitration agreement is invalid under a defense to

contract formation, or asserts that the arbitration contract does

not encompass the claims at issue, either way, the resisting party

shoulders the burden of proving its defense.”).

DISCUSSION

Plaintiff initially disputes that an agreement to arbitrate exists at

all. (See generally Opp.) Plaintiff additionally argues that if an

agreement to arbitrate is found, this court should enforce the ar-

bitration provision contained within the original SBAA. (Id.)

Defendant, meanwhile, seeks enforcement of the TDACA’s arbi-

tration provision. (See generally Mem.)

For the following reasons, the court agrees with Defendant that

there is a valid agreement to arbitrate between the parties, but

agrees with Plaintiff that this agreement is the SBAA, not the

TDACA.

The first agreement to arbitrate which could bind the parties is

the SBAA. The SBAA contains a choice of law provision specifying

that its enforcement shall be governed by Missouri law. (SBAA ¶

35.) However, because Plaintiff disputes that the SBAA applies at

all, “[a]pplying the choice-of-law clause to resolve the contract

formation issue would presume the applicability of a provision

before its adoption by the parties has been established.” Schnabel,

697 F.3d at 119. As such, either the law of New York, where

Plaintiff resides, or Missouri, where Scottrade was formerly lo-

cated could apply. See id. However, because New York and

Missouri “apply substantially similar rules for determining

whether the parties have mutually assented to a contract,

[w]hich state’s law applies is therefore without significance.” Id;

see Meyer, 868 F.3d at 74 (noting that New York law requires

mutual manifestation of assent to form a contract); Bath Junkie

Branson, L.L.C. v. Bath Junkie, Inc., 528 F.3d 556, 561 (8th Cir.

2008) (under Missouri law, questions of contractual formation

are decided with reference to outward manifestations of assent

by parties).

When Plaintiff opened her bank account with Scottrade, she

signed the Scottrade Account Application, which plainly states

above the signature line in both English and Chinese, “[b]y sign-

ing this agreement I acknowledge that I have received, read and

agree to abide by the terms of the accompanying Brokerage Ac-

count Agreement which contains a pre-dispute arbitration clause

at paragraph 29.” (Scottrade Appl. at 2.) Paragraph 29 of the

SBAA, which accompanied the Scottrade Application, provides

that, by signing the agreement, “[y]ou agree to arbitrate any con-

troversy between you and us,” and the preceding paragraph

informs the applicant that “[a]ll parties to this agreement are giv-

ing up the right to sue each other in court . . . except as provided

by the rules of the arbitration forum in which a claim is filed.”

(SBAA ¶¶ 28-29.)

In arguing that no valid agreement exists, Plaintiff does not argue

that the Scottrade Application and SBAA itself could not amount

to an enforceable agreement to arbitrate. Instead, Plaintiff con-

tends that Defendant has not proven that the version of the SBAA

in the record is the version that accompanied the Scottrade Ap-

plication. Specifically, Plaintiff argues that Candy Derbak, the

individual who signed the declaration to which the Application

and SBAA were attached, did not become a Scottrade employee

until five years after Ms. Liu signed the Scottrade Application and

thus “has no personal knowledge of . . . which version, if any, of

the SBAA was provided to [Plaintiff].” (Opp. at 3.) While that

may be true, “qualified witnesses may make admissible state-

ments based on their review of business records.” Kernaghan v.

Forster & Garbus, LLP, No. 18-CV-0204 (SFJ), 2019 WL 981640,

at *4 (E.D.N.Y. Feb. 25, 2019); see also Fed. R. Evid. 803(6)(b).

Even a cursory review of Ms. Derbak’s declaration makes clear

that she has amply satisfied the requirements of the federal rules

applicable to business records and, as such, her testimony on this

matter is admissible. (See Decl. of C. Derbak ¶¶ 3-5.) Accordingly,

the court finds Plaintiff’s signature on the Scottrade Application

constitutes a clear and outward manifestation of her assent to be

bound by the SBAA and its arbitration provision. That provision

is therefore enforceable.

Having resolved that matter, the court turns its attention to the

second potential agreement between the parties, the TDACA. Un-

like the SBAA, Plaintiff never affirmatively signed the TDACA.

Defendant, however, contends that the emails it sent to Plaintiff

during the transition period were sufficient to put her on notice

that the transition to TD Ameritrade would be accompanied by a

new account agreement, and that Plaintiff assented to the terms

of that agreement by continuing to use her account following the

transition. (See Reply at 3-4.)

In order for Plaintiff’s silence to constitute acceptance of the

TDACA, she must have at least been on inquiry notice of its

terms. See, e.g., Arnaud v. Doctor’s Assocs., Inc., No. 18-CV-3703

(NGG), 2019 WL 4279268, at *5 (E.D.N.Y. Sept. 10, 2019). Un-

der New York law,2 this determination is made with reference to

“whether the term was obvious, or whether it was called to [the

party’s] attention.” Starke, 913 F.3d at 289. “This often turns on

whether the contract terms were presented . . . in a clear and

conspicuous way.” Id.

2 The parties do not dispute or even attempt to discern which state’s law

should apply to resolve this question, an issue which the court resolves

with reference to New York choice-of-law rules. See Curley v. AMR Corp.,

153 F.3d 5, 12 (2d Cir. 1998).

As noted, supra, Plaintiff resides in New York. Defendant is headquartered

in Nebraska, which does not appear to have a robust body of law relating

to this specific issue; the court was only able to locate a single case in which

a Nebraska court considered the enforceability of so-called “clickwrap”

agreements (although that court, relying on a Tenth Circuit decision, con-

ducted a similar inquiry to that which New York courts conduct). See Bell

v. Care.com, No. Cl. 14-4139, 2016 WL 1258333, at *2 (Neb. Dist. Ct. Mar.

22, 2016). However, New York and Nebraska both adhere to the general

underlying rule on which that inquiry is based, i.e., that contracts cannot

be formed absent mutual assent by the parties thereto. Compare Gibbons

Ranches, LLC v. Bailey, 289 Neb. 949, 953-54 (2015) with Cullinane v. Bev-

erly Enterprises-Nebraska, Inc., 300 Neb. 210, 229 (2018) with Arnav

Indust., Inc. Retirement Trust v. Brown, Raysman, Millstein, Felder & Steiner,

L.L.P., 96 N.Y.2d 300, 304-05 (2001). As such, the court has no reason to

suspect that Nebraska courts would resolve this issue differently from New

York courts and therefore applies New York law. See Int’l Bus. Mach. Corp.

v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004) (“In the absence

of substantive difference [between the law of two jurisdictions] . . . a New

York court will dispense with choice of law analysis; and if New York law

is among the relevant choices, New York courts are free to apply it.”).

In this case, the TDACA and its arbitration provision were not

sufficiently conspicuous for Plaintiff to have been on inquiry no-

tice. The account transition emails repeatedly assured Plaintiff

that the transition would occur “automatically,” and (in large

text) that “there [was] nothing [she] need[ed] to do.” (E.g.,

Email 1.) Only by navigating to the Transition Hub via a link only

present in the fourth and sixth emails, and then navigating to the

Client Agreement link once in the Transition Hub, would Plaintiff

have been able to access the TDACA. (Email 4; Transition Hub.)

Even then, however, Plaintiff would still have had no outward

indication that the TDACA contained an arbitration provision un-

til she had read to page 8 of 9, where the provision was located,

albeit in bold typeface. (See TDACA at 8.) This confusing maze

of links and forms falls far short of the “clear and reasonably con-

spicuous” notice on “uncluttered” pages that courts have

previously held sufficient to bind a party to an arbitration agree-

ment. Meyer, 868 F.3d at 78-79 (applying California law); see

also, e.g., Sgouros v. TransUnion Corp., 817 F.3d 1029, 1035-36

(7th Cir. 2016) (arbitration provision was not binding where no-

tice was not conspicuous and company’s website was “actively

mislead[ing]” (applying Illinois law)); Applebaum v. Lyft, Inc.,

263 F. Supp. 3d 454, 466-67 (S.D.N.Y. 2017) (arbitration provi-

sion in terms of service not sufficiently conspicuous where, inter

alia, means to access terms of service was unclear) (applying

New York law)). Accordingly, the court finds that Plaintiff has

not assented to the TDACA, and the SBAA remains the only en-

forceable agreement between the parties.

CONCLUSION

For the forgoing reasons, Defendant’s (Dkt. 17) Motion to Com-

pel Arbitration is GRANTED IN PART and DENIED IN PART. The

motion is granted to the extent that the court compels arbitration

in accordance with the Scottrade Brokerage Account Agreement

and further proceedings in this action are STAYED pending the

completion of arbitration. The motion is DENIED in all other re-

spects.

SO ORDERED.

Dated: Brooklyn, New York

May 4, 2020

_/s/ Nicholas G. Garaufis_

NICHOLAS G. GARAUFIS

United States District Judge