Case Study

AT ISSUE: In 2008, a banking customer filed a class action against Wachovia after the bank froze her account in order to comply with a state-issued garnishment.

The plaintiff claimed that her Social Security retirement benefits, which were deposited into her Wachovia checking account by direct electronic deposit, were exempt from garnishment under federal law. Bank officials said they had a valid legal order to freeze the account, with which they were obligated to comply.

SUMMARY: The bank contended that the class action was barred by the arbitration clause contained in the customer deposit agreement. This clause, which the plaintiff agreed to when she opened her account, requires customers to first attempt to settle disputes with the bank through arbitration, rather than a lawsuit.

The key to the plaintiff's case was the argument that the arbitration clause was unconscionable and unenforceable. Womble Carlyle attorneys Jim Cooley, Mark Henriques and Meredith McKee countered that the arbitration clause was, in fact, legal and valid and that the dispute should be resolved in that arena.

RESULT: The case was heard in U.S. District Court in Charlotte, N.C. The Court agreed with Wachovia that the arbitration clause was valid and granted the motion to compel arbitration. The case—Stephens v. Wachovia, 2008 WL 686214 (2008)—was later dismissed.

ABOUT THE ATTORNEYS: Jim Cooley, Mark Henriques and Meredith McKee are members of Womble Carlyle’s Consumer Finance Team. They have knowledge about use and limits of arbitration clauses in consumer contracts.

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