On March 21, 2023, the Indiana Supreme Court ruled on an issue that could have a lasting impact on Indiana financial institutions and businesses that change terms of contracts upon notice to their customers.
In this case, the plaintiffs, Cliff and Wendy Decker, had a checking account with Star Financial Bank and filed a class-action complaint against the bank for collecting improper overdraft fees. Before the plaintiffs sued, Star Bank had amended its terms and conditions to include an arbitration and no-class-action addendum to their clients account agreements. Star Bank amended its terms and conditions by including in an addendum to the plaintiff’s fourteen-page monthly statement that detailed their transactions, fees and check images. The other bank customers received the change notice with their monthly statements.
The bank responded to the complaint with a motion to compel arbitration, citing the addendum that was added to the terms and conditions of the account agreement before the Deckers sued. The trial court granted the bank’s motion to compel arbitration, but the plaintiffs appealed. The court of appeals reversed and remanded for further proceedings, and the Indiana Supreme Court granted transfer.
The Supreme Court held that the bank did not have the right to add the addendum to the account agreement under the agreement’s change-of-terms clause, which stated that the bank may change “any term of the agreement”. The Court found this to be more narrow language than the power to “change this agreement”. Because the original agreement did not mention arbitration, class actions, or dispute resolution, the bank could not compel arbitration based on the addendum. The court emphasized that parties cannot be required to submit to arbitration unless they have agreed to do so and that whether parties agreed to arbitrate a dispute is a matter of contract interpretation. The court also noted that Indiana has a strong policy favoring arbitration agreements, but that policy comes with the qualification that parties must agree to arbitration.
This opinion by the Indiana Supreme Court emphasizes the importance of how the words of a contract matter. The ability to change the terms of a contract doesn’t automatically include the right to change agreements reached within the agreement. The bank’s reliance on the change of term clause will only be justified if the change addresses terms in the agreement, not the inclusion of new terms. Perhaps the bank should have acted like credit card companies act when they modify the terms of the credit agreement – send a more apparent notice and give a reasonable period for the other party to opt out of the proposed change. A customer’s failure to opt out can then be interpreted to be an acceptance of the terms that change the agreement.
Author: Caleb Patterson, Associate Attorney