## Facts

- Bank of America issued credit cards under standardized agreements containing a change-of-terms provision allowing the bank to “change” or “add to” terms upon notice to cardholders.
- The original credit card agreements addressed economic and operational terms (e.g., interest, fees) and did not mention arbitration, judicial reference, or any dispute-resolution method.
- Beginning in 1992, the bank sent “bill stuffer” inserts with monthly statements announcing an ADR clause requiring disputes to be resolved by binding arbitration and/or judicial reference.
- The insert stated that continued use of the account after an effective date would constitute acceptance of the ADR provision.
- Individual cardholders and consumer organizations sued for declaratory and injunctive relief, alleging the ADR clause was invalid and asserting statutory claims under the Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA).
- After a 17-day bench trial, the trial court entered judgment for the bank, finding the change-of-terms clause authorized the ADR addition and the ADR provision was enforceable.

## Issues

1. Whether a broadly worded change-of-terms provision in a credit card agreement authorizes a bank to unilaterally add an ADR clause waiving access to court and jury trial through mailed notice and continued card use.
2. Whether customers gave “clear and unmistakable” consent to waive judicial forum and jury trial rights when the ADR clause was added by bill stuffer rather than express assent.
3. Whether imposing ADR through the change-of-terms clause was limited by the implied covenant of good faith and fair dealing and the parties’ reasonable expectations at contract formation.

## Decision

- The Court of Appeal reversed in substantial part.
- As to the individual credit-card plaintiffs, the court held the ADR clause was not a valid part of their contracts and could not be enforced against them.
- The court construed the change-of-terms provision as permitting changes within the parties’ reasonable expectations (primarily economic/operational terms), not the unilateral addition of a new dispute-resolution system.
- The court held that waiver of the right to a judicial forum and civil jury trial required clear and unmistakable agreement, which was not shown by the bill stuffer notice coupled with continued card use.
- Although the bank invoked California’s policy favoring arbitration, the court held that arbitration remains a matter of contract and policy cannot supply assent where contract formation requirements are not met.

## Legal Principles

- A unilateral change-of-terms clause is interpreted in light of the parties’ reasonable expectations at contract formation; general language authorizing changes or additions does not automatically permit qualitatively different, non-economic terms.
- Arbitration and similar ADR mechanisms require contractual agreement; courts will not compel arbitration absent a valid agreement to arbitrate.
- Waiver of the right to a judicial forum and civil jury trial must be clear and unmistakable; constructive acceptance through silence or continued use may be insufficient when the original contract is silent on ADR.
- The implied covenant of good faith and fair dealing limits discretionary contractual powers and bars exercises that frustrate the other party’s reasonable expectations or render the agreement effectively one-sided.

## Conclusion

The court held that Bank of America could not use a general change-of-terms provision to impose a new ADR regime on existing credit-card customers through bill stuffers and implied acceptance; absent clear, affirmative consent, the ADR clause was not part of the individual plaintiffs’ contracts and was unenforceable against them.


Badie v. Bank of Am., 67 Cal. App. 4th 779, 79 Cal. Rptr. 2d 273 (Ct. App. 1998)