Background
Harold Burnett, William Cross, and Summer Cross brought a proposed class action against Blue Federal Credit Union over allegedly deficient notices following vehicle repossessions. The credit union sought to compel arbitration. The loan documents the borrowers signed did not contain an arbitration clause, so Blue relied on a two-part membership agreement whose second part contained arbitration and class-action-waiver provisions.
Cross signed Part 1 in 2018. That version allowed Blue to change membership terms but did not mention Part 2. Blue asserted that it later sent him a notice directing members to an updated agreement online or at a branch. Burnett signed a revised Part 1 in 2020 stating that he acknowledged receiving or being offered Part 2. Blue produced neither a signed Part 2 nor proof describing how either borrower actually received the arbitration terms.
The Philadelphia trial court overruled Blue’s preliminary objection and declined to compel arbitration. Blue appealed as of right, arguing that the documents established assent or at least created a factual dispute requiring an evidentiary hearing.
The Court’s Holding
The Superior Court affirmed. Judge Dubow explained that the party seeking arbitration bears the burden of proving a valid agreement. Arbitration’s favored status does not eliminate ordinary contract requirements: offer, acceptance, and consideration must still be shown in a clear and unmistakable manner.
Blue did not establish Burnett’s assent. His signature on Part 1 acknowledged that Part 2 had been received “or” offered, but an offer alone is not acceptance. Nor did the reference incorporate Part 2 by itself because a party cannot accept terms in a separate document that the party did not receive. Blue offered no signed copy, delivery affidavit, email receipt, or witness with personal knowledge of its process.
The evidence was similarly deficient for Cross. A declaration from a Blue employee described what records reflected but did not establish personal knowledge that the notice and agreement were mailed or otherwise delivered. The trial court therefore had no controverted material fact requiring discovery or an evidentiary hearing. On the existing record, Blue had failed to meet its threshold burden of proving an agreement to arbitrate.
Key Takeaways
- A party seeking arbitration must first prove that the opposing party actually agreed to the arbitration provision.
- A signature acknowledging that separate terms were received “or offered” does not establish acceptance of those terms.
- Incorporation by reference fails when there is no proof the customer received the incorporated document.
- Business records, mailing evidence, delivery receipts, or testimony from someone with personal knowledge can be critical to proving assent.
Why It Matters
Although nonprecedential, Burnett is a useful warning for lenders and other businesses that place arbitration language outside the principal signed document. The drafting may be enforceable, but deployment and recordkeeping determine whether it can be proved years later. Systems should preserve the exact terms in effect, the communication sent to each customer, the delivery method, and any click, signature, or acknowledgment demonstrating acceptance.
For class-action and commercial litigators, the decision keeps the formation question separate from the clause’s scope. Federal and Pennsylvania policies favor arbitration only after agreement is established. A motion to compel should therefore begin with admissible formation evidence. Opponents should examine disjunctive acknowledgments, missing attachments, change-in-terms language, and whether the declarant truly knows how the particular notice was delivered.
The evidentiary-hearing ruling matters at the preliminary-objection stage. A court need not hold a hearing merely because the movant asserts that notice was sent. The submitted materials must first create a genuine factual conflict. A corporate declaration based only on a review of records may fall short when no record shows delivery and the witness cannot describe the relevant system from personal knowledge. That makes early preservation of electronic and mailing evidence especially important.