IN RE: Mark FRANKEL

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Supreme Court, Appellate Division, Second Department, New York.

IN RE: Mark FRANKEL, etc., appellant, v. CITICORP INSURANCE SERVICES, INC., et al., respondents, et al., defendants.

Decided: November 30, 2010

PETER B. SKELOS, J.P., CHERYL E. CHAMBERS, L. PRISCILLA HALL, and PLUMMER E. LOTT, JJ. Harry I Katz, P.C. (Shayne, Dachs, Corker, Sauer & Dachs, LLP, Mineola, N.Y. [Norman H. Dachs], of counsel), for appellant. Stroock & Stroock & Lavan LLP, New York, N.Y. (Julia B. Strickland [pro hac vice] and Joseph E. Strauss of counsel), for respondents.

In 1987, the plaintiff, Mark Frankel (hereinafter the plaintiff), opened a credit card account with the defendant Citibank (South Dakota) N.A. (hereinafter Citibank), subject to a written agreement which provided, among other things, that Citibank could unilaterally change any of the terms of the agreement at any time.   About 14 years later, Citibank allegedly mailed the plaintiff a notice that it was changing the terms of the agreement by adding terms which provided that any dispute between the parties would be subject to mandatory, binding arbitration on an individual (non-class, non-representative) basis.   These new terms (hereinafter the arbitration change-in-terms) dictated that if the plaintiff did not agree to the new terms, his account would be closed.

The plaintiff enrolled in a “Voluntary Flight Insurance Program” which automatically billed him the sum of $13 for flight insurance whenever he purchased airplane tickets with his credit card.   Thereafter, he was consistently billed for flight insurance whenever he made any type of travel-related transaction (e.g., cancelled trips, ticket upgrades, and travel agent fees).   The plaintiff was erroneously billed in this manner on about 10 occasions, and the record indicates that Citibank continued to impose these erroneous charges despite having knowledge of their impropriety.

The plaintiff commenced this putative class action on behalf of himself and all others who have been erroneously charged for flight insurance.   The plaintiff alleged that this pattern of erroneous billing was calculated to elicit small sums of money from a large number of consumers, amounting to significant aggregate revenue for the defendants.

Approximately two months after service of the summons and verified complaint, the defendants Citicorp Insurance Services, Inc., and Citibank (hereinafter together the respondents) moved to compel arbitration and stay the action pending arbitration on the ground that the plaintiff's claims were subject to arbitration under the arbitration change-in-terms.   The plaintiff opposed the motion and cross-moved to permanently stay arbitration or, in effect, in the alternative, to temporarily stay arbitration pending a framed-issue hearing.   The plaintiff contended, among other things, that (1) the respondents failed to demonstrate that they had given him notice of the arbitration change-in-terms;  (2) the alleged agreement to arbitrate was unconscionable and exculpatory;  (3) the South Dakota choice-of-law provision in the subject contract was unenforceable;  and (4) the motion was premature as discovery was needed.

The Supreme Court determined that the respondents had demonstrated that the action was subject to a valid agreement to arbitrate and that there was no basis to order discovery.   Accordingly, the Supreme Court granted the motion, denied the cross motion, and directed the parties to proceed to arbitration of the plaintiff's claims on an individual (non-class) basis.   The plaintiff appeals, contending, among other things, that the respondents failed to demonstrate that he agreed to the arbitration change-in-terms, that the South Dakota choice-of-law provision is unenforceable, and that the arbitration change-in-terms are unconscionable.   We modify.

Pursuant to CPLR article 75, “[a] party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration” (CPLR 7503 [a] ).  “If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action” (id.).

 “In order to compel a party to arbitrate pursuant to a contractual agreement there must be ‘no substantial question [as to] whether a valid agreement was made or complied with’ ” (Manos v. Interbank of N.Y., 202 A.D.2d 403, 403, 608 N.Y.S.2d 691, quoting CPLR 7503[a];  see Matter of Cassone, 63 N.Y.2d 756, 758, 480 N.Y.S.2d 317, 469 N.E.2d 835).   “In the event such question is raised, it is for the court to adjudicate” (Manos v. Interbank of N.Y., 202 A.D.2d at 403, 608 N.Y.S.2d 691;  see Matter of Schreiber v. K–Sea Transp. Corp., 9 N.Y.3d 331, 340, 849 N.Y.S.2d 194, 879 N.E.2d 733;  Matter of Eagle Ins. Co. v. Lucia, 33 A.D.3d 552, 555, 824 N.Y.S.2d 9;  O'Brien v. Bache Halsey Stuart Shields, 80 A.D.2d 846, 846, 444 N.Y.S.2d 469;  Rose v. Merrill Lynch, Pierce, Fenner & Smith, 57 A.D.2d 553, 553, 393 N.Y.S.2d 72).   In some cases, it may be appropriate to afford discovery or require disclosure in order to resolve the questions raised (see Matter of Brady v. Williams Capital Group, L.P., 14 N.Y.3d 459, 902 N.Y.S.2d 1, 928 N.E.2d 383;  Hayes v. County Bank, 286 A.D.2d 371, 371, 728 N.Y.S.2d 709;  Matter of Welton Becket Assoc. v. LLJV Dev. Corp., 193 A.D.2d 478, 478, 598 N.Y.S.2d 710).

 In this case, the respondents failed to demonstrate that the parties agreed to arbitrate because the evidence was insufficient to establish that the respondents “deliver[ed] or mail[ed]” the arbitration change-in-terms to the plaintiff (Personal Property Law § 413[11][e] ).   The affidavit of the senior vice-president of the respondents' servicing company was insufficient to demonstrate personal knowledge of actual mailing (see Mid City Constr. Co., Inc. v. Sirius Am. Ins. Co., 70 A.D.3d 789, 790, 894 N.Y.S.2d 113;  New York & Presbyt. Hosp. v. Allstate Ins. Co., 29 A.D.3d 547, 547–548, 814 N.Y.S.2d 687).   Moreover, her claims that Citibank “caused to be mailed” the arbitration change-in-terms and that Citibank's records “reflected” that the 2002 credit card agreement had been mailed to the plaintiff were conclusory and otherwise insufficient to establish “office practice ․ geared so as to ensure the likelihood that [the documents were] always properly addressed and mailed” (Nassau Ins. Co. v. Murray, 46 N.Y.2d 828, 830, 414 N.Y.S.2d 117, 386 N.E.2d 1085;  see Lenchner v. Chasin, 57 A.D.3d 623, 624, 869 N.Y.S.2d 196;   Hospital for Joint Diseases v. Nationwide Mut. Ins. Co., 284 A.D.2d 374, 375, 726 N.Y.S.2d 443;  Tracy v. William Penn Life Ins. Co. of N.Y., 234 A.D.2d 745, 748, 650 N.Y.S.2d 907;  Matter of Merendino v. Village of Pawling, 152 A.D.2d 762, 763, 543 N.Y.S.2d 541;  Anzalone v. State Farm Mut. Ins. Co., 92 A.D.2d 238, 240, 459 N.Y.S.2d 850;  cf. Schmiemann v. State Farm Fire & Cas. Co., 13 A.D.3d 514, 515, 786 N.Y.S.2d 572;  Badio v. Liberty Mut. Fire Ins. Co., 12 A.D.3d 229, 230, 785 N.Y.S.2d 52).   Accordingly, there is a “substantial question” as to whether the parties ever made a valid arbitration agreement (CPLR 7503[a] ).

 The respondents similarly failed to establish the existence of the alleged choice-of-law provision.   Assuming, however, that the existence of a binding choice-of-law provision is established by sufficient proof of mailing (see Personal Property Law § 413[11][e] ), New York choice-of-law principles must be used to determine whether and to what extent the South Dakota choice-of-law provision should be applied to this controversy (see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629, 825 N.Y.S.2d 692, 859 N.E.2d 498;  Tanges v. Heidelberg N. Am., 93 N.Y.2d 48, 54, 687 N.Y.S.2d 604, 710 N.E.2d 250;  Padula v. Lilarn Props. Corp., 84 N.Y.2d 519, 520, 620 N.Y.S.2d 310, 644 N.E.2d 1001;  Matter of Istim, Inc. v. Chemical Bank, 78 N.Y.2d 342, 346–347, 575 N.Y.S.2d 796, 581 N.E.2d 1042;  Education Resources Inst., Inc. v. Piazza, 17 A.D.3d 513, 513–514, 794 N.Y.S.2d 65;  see also Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477, cert. denied 316 U.S. 685, 62 S.Ct. 1284, 86 L.Ed. 1757;  2004 Stuart Moldaw Trust v. XE L.I.F.E., LLC, 374 Fed.Appx. 78, 80 [2d Cir.] ).

 We note that New York courts will generally enforce a clear and unambiguous choice-of-law clause contained in an agreement so as to give effect to the parties' intent (see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d at 629, 825 N.Y.S.2d 692, 859 N.E.2d 498;  Millennium Falcon Corp. v. WRD Sales, Inc., 46 A.D.3d 862, 863, 848 N.Y.S.2d 707;  see generally Greenfield v. Philles Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 780 N.E.2d 166;  19A N.Y. Jur. Conflict of Laws § 33).

However, “under common-law rules matters of procedure are governed by the law of the forum” (Martin v. Dierck Equip. Co., 43 N.Y.2d 583, 588, 403 N.Y.S.2d 185, 374 N.E.2d 97;  see Tanges v. Heidelberg N. Am., 93 N.Y.2d at 53, 687 N.Y.S.2d 604, 710 N.E.2d 250;  Kilberg v. Northeast Airlines, 9 N.Y.2d 34, 41, 211 N.Y.S.2d 133, 172 N.E.2d 526;  Education Resources Inst., Inc. v. Piazza, 17 A.D.3d 513, 513, 794 N.Y.S.2d 65;  see also Restatement [Second] of Conflict of Laws § 122).  “On the other hand, matters of substantive law fall within the course charted by choice of law analysis” (Tanges v. Heidelberg N. Am., 93 N.Y.2d at 53, 687 N.Y.S.2d 604, 710 N.E.2d 250;  see Oltarsh v. Aetna Ins. Co., 15 N.Y.2d 111, 115, 256 N.Y.S.2d 577, 204 N.E.2d 622;  Millennium Falcon Corp. v. WRD Sales, Inc., 46 A.D.3d at 863, 848 N.Y.S.2d 707).

  “New York courts therefore apply contractual choice of law clauses only to substantive issues” (Education Resources Inst., Inc. v. Piazza, 17 A.D.3d at 513, 794 N.Y.S.2d 65;  see Sears, Roebuck & Co. v. Enco Assoc., 43 N.Y.2d 389, 397, 401 N.Y.S.2d 767, 372 N.E.2d 555;  Melcher v. Apollo Med. Fund Mgt. L.L.C., 25 A.D.3d 482, 483, 808 N.Y.S.2d 207).   Significantly, “the law of the forum normally determines for itself whether a given question is one of substance or procedure” (Tanges v. Heidelberg N. Am., 93 N.Y.2d at 54, 687 N.Y.S.2d 604, 710 N.E.2d 250 [internal quotation marks omitted];  see Kilberg v. Northeast Airlines, 9 N.Y.2d at 41, 211 N.Y.S.2d 133, 172 N.E.2d 526;  Lauterbach v. Fleischer, 16 A.D.2d 701, 702, 227 N.Y.S.2d 726;  see also Restatement [Second] of Conflict of Laws § 7).

 Even when agreements direct the application of foreign substantive law, New York courts may decline to enforce choice-of-law provisions if the chosen law does not bear a reasonable relationship to the parties or the transaction (see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d at 629, 825 N.Y.S.2d 692, 859 N.E.2d 498;  Friedman v. Roman, 65 A.D.3d 1187, 1188, 885 N.Y.S.2d 740;  Restatement [Second] of Conflict of Laws § 187[2][a];  19A N.Y. Jur Conflict of Laws § 34), or where the chosen law violates “some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal” (Loucks v. Standard Oil Co. of N.Y., 224 N.Y. 99, 111, 120 N.E. 198;  see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629, 825 N.Y.S.2d 692, 859 N.E.2d 498;  Cooney v. Osgood Mach., 81 N.Y.2d 66, 78, 595 N.Y.S.2d 919, 612 N.E.2d 277;  Restatement [Second] of Conflict of Laws § 187[2][b];  19A N.Y. Jur. Conflict of Laws § 35).

 Neither of these exceptions is applicable here.   The record demonstrates that there is a reasonable relationship between the parties and the State of South Dakota (see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 23 A.D.3d 639, 642, 804 N.Y.S.2d 805, revd. on other grounds, 7 N.Y.3d 624, 825 N.Y.S.2d 692, 859 N.E.2d 498;  see also Hageman v. Home Depot U.S.A., Inc., 45 A.D.3d 732, 734, 846 N.Y.S.2d 305;  Finucane v. Interior Constr. Corp., 264 A.D.2d 618, 620, 695 N.Y.S.2d 322), and the plaintiff failed to sustain his “heavy burden” of demonstrating that the laws of South Dakota are “truly obnoxious” to the laws of this state (Cooney v. Osgood Mach., 81 N.Y.2d 66, 78, 595 N.Y.S.2d 919, 612 N.E.2d 277 [internal quotation marks omitted];  see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d at 627, 825 N.Y.S.2d 692, 859 N.E.2d 498;  Finucane v. Interior Constr. Corp., 264 A.D.2d 618, 621, 695 N.Y.S.2d 322).

 Moreover, contrary to the plaintiff's contention, the type size requirements of CPLR 4544 may not be invoked to bar admission of either the arbitration change-in-terms or the choice-of-law provision itself.   Although CPLR 4544 is statutorily cast as a procedural rule of evidence (see Restatement [Second] of Conflict of Laws § 138), we recognize that “[o]n occasion, a rule phrased in terms of evidence may in fact be a rule of substantive law” (Restatement [Second] of Conflict of Laws § 138, Comment c), and under such circumstances it “fall[s] within the course charted by choice of law analysis” (Tanges v. Heidelberg N. Am., 93 N.Y.2d 48, 53, 687 N.Y.S.2d 604, 710 N.E.2d 250).   In this regard, “[a]lthough [CPLR 4544] speaks in terms of the admissibility in evidence of such a contract, the underlying purpose of this ‘consumer’ legislation is to prevent draftsmen of small, illegibly printed clauses from enforcing them” (Matter of Filippazzo v. Garden State Brickface Co., 120 A.D.2d 663, 665, 502 N.Y.S.2d 258;  see Schiffman v. Hann Auto Trust, 56 A.D.3d 650, 651, 871 N.Y.S.2d 161;  Lonner v. Simon Prop. Group, Inc., 57 A.D.3d 100, 107, 866 N.Y.S.2d 239).   Accordingly, in the context of a choice-of-law analysis, the provisions of CPLR 4544 should be regarded as a substantive, formal, contractual requirement rather than a procedural rule of the forum (see Restatement [Second] of Conflict of Laws § 138, Comment c;  accord. Lerner v. Karageorgis Lines, 66 N.Y.2d 479, 485, 497 N.Y.S.2d 894, 488 N.E.2d 824;  Matter of Rederi [Dow Chem. Co.], 25 N.Y.2d 576, 581, 307 N.Y.S.2d 660, 255 N.E.2d 774, cert. denied 398 U.S. 939, 90 S.Ct. 1844, 26 L.Ed.2d 272;  see also Restatement [Second] of Conflict of Laws § 187, Comment b;  but see Mickle v. Christie's, Inc., 214 F.Supp.2d 430, 432).   Since the alleged choice-of-law provision in this case provides for the application of South Dakota law, the substantive laws of that state must be applied and the substantive laws of New York, including for these purposes CPLR 4544, have no application.   However, the size of the typeface in the arbitration change-in-terms may nevertheless be relevant to the issue of unconscionability as a matter of substantive South Dakota law.

 Turning to the applicable substantive law under the alleged choice-of-law provision, we conclude that there is a substantial question as to whether the arbitration change-in-terms are unconscionable under South Dakota law.  “[W]hile § 2 of the [Federal Arbitration Act] preempts state law which treats arbitration agreements differently from any other contracts, it also ‘preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate’ ” (Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 46, quoting Cook Chocolate Co. v. Salomon, Inc., 684 F.Supp. 1177, 1182;  see 9 USC § 2;  Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444;   Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426;   Southland Corp. v. Keating, 465 U.S. 1, 16 n. 11, 104 S.Ct. 852, 79 L.Ed.2d 1;  Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270).

The plaintiff contends that the arbitration change-in-terms are unconscionable because they were unilaterally imposed by Citibank, and because they explicitly preclude him from bringing or participating in a class action, which effectively deprives him of any forum given the small amount of damages he has personally sustained (see Homa v. American Express Co., 558 F.3d 225, 233;  Skirchak v. Dynamics Research Corp., 508 F.3d 49, 59;  Dale v. Comcast Corp., 498 F.3d 1216, 1224;  Shroyer v. New Cingular Wireless Serv., 498 F.3d 976, 984;  Coneff v. AT & T Corp., 620 F.Supp.2d 1248, 1260;  Caban v. J.P. Morgan Chase & Co., 606 F.Supp.2d 1361, 1372;  Feeney v. Dell, 454 Mass. 192, 908 N.E.2d 753, 767;  Woods v. QC Fin. Serv., 280 S.W.3d 90, 100;  Fiser v. Dell Computer Corp., 144 N.M. 464, 188 P.3d 1215;  Scott v. Cingular Wireless, 160 Wash.2d 843, 161 P.3d 1000, 1008;  Discover Bank v. Superior Ct., 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100, 1109;  cf. Stolt–Nielsen S.A. v. AnimalFeeds Intl. Corp., –––U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605;  Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038).   Although the parties disagree as to the likely cost required to proceed with arbitration, the record remains relatively undeveloped on this issue (cf. Brower v. Gateway 2000, 246 A.D.2d 246, 255, 676 N.Y.S.2d 569;  Matter of Teleserve Sys. [MCI Telecom. Corp.], 230 A.D.2d 585, 593–594, 659 N.Y.S.2d 659).

The Supreme Court of South Dakota has stated that “ ‘[u]nconscionability’ is not susceptible of description” inasmuch as “[i]t is not a concept, but a determination to be made in light of a variety of factors not unifiable into a formula” (Johnson v. John Deere, Co., 306 N.W.2d 231, 236 [S.D.] ).   However, “[t]he South Dakota Supreme Court has distinguished between procedural unconscionability and substantive unconscionability” (Braun v. E.I. du Pont De Nemours & Co., 2006 WL 290552, *7, 2006 U.S. Dist LEXIS 37431, *22;  see Nygaard v. Sioux Valley Hosp. & Health Sys., 731 N.W.2d 184, 194–195 [S.D.];  Johnson v. John Deere, Co., 306 N.W.2d 231, 237 [S.D.] ).

 Under South Dakota law, procedural unconscionability “deals with the process of making the contract, including a meaningful choice” (Johnson v. John Deere, Co., 306 N.W.2d at 237, citing Leff, Unconscionability and The Code—The Emperor's New Clause, 115 U. Pa. L. Rev. 485 [1967];  see Nygaard v. Sioux Valley Hosp. & Health Sys., 731 N.W.2d at 194–195;  accord. Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10, 537 N.Y.S.2d 787, 534 N.E.2d 824).   Substantive unconscionability “deals with the overly harsh or one-sided terms” (Johnson v. John Deere, Co., 306 N.W.2d 231, 237, citing Leff, Unconscionability and The Code—The Emperor's New Clause, 115 U. Pa. L. Rev. 485 [1967];  see Nygaard v. Sioux Valley Hosp. & Health Sys., 731 N.W.2d at 194–195;  accord. Sablosky v. Gordon Co., 73 N.Y.2d 133, 138, 538 N.Y.S.2d 513, 535 N.E.2d 643).

 For purposes of evaluating procedural unconscionability, the parties' “background, experience, and business acumen” are relevant considerations (Johnson v. John Deere, Co., 306 N.W.2d at 238).   In addition, “a great deal of emphasis” must be placed on any “disparity in bargaining power” (Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d 241, 244 [S.D.] ).   Moreover, “economic inequality” may be a factor which precludes the parties from “dealing at arms length” and which may result in unfair bargaining power (id.).

The Supreme Court of South Dakota has also engaged in an analysis of whether the services or products for which the parties contracted are available from alternative sources (see Mobile Elec. Serv. v. FirsTel, Inc., 649 N.W.2d 603, 606 [S.D.];  Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d at 244).   Such analysis bears on whether a party had a meaningful choice to accept or reject a particular agreement (see Mobile Elec. Serv. v. FirsTel, Inc., 649 N.W.2d at 606;  Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d at 244).

The Supreme Court of South Dakota has noted that “the bulk of successful cases ․ deal with the unprotected and unsuspecting consumers in the market for consumer goods, often the victims of sharp practices:  the over-priced stereos, the unreasonably favorable security devices, the illiterate buyer, and the fine-printed clauses” (Johnson v. John Deere, Co., 306 N.W.2d at 237).   Although a “standardized and preprinted” contract is not necessarily “[an] unenforceable ․ contract of adhesion” (Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d at 245), the Supreme Court of South Dakota has indicated that it “will declare an arbitration clause unenforceable ‘when the remedies available in [that forum] are so inadequate that enforcement would be fundamentally unfair’ ” (Nature's 10 Jewelers v. Gunderson, 648 N.W.2d 804, 811 [S.D.] [Konenkamp, J., dissenting], quoting Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1297, cert. denied 525 U.S. 1093, 119 S.Ct. 851, 142 L.Ed.2d 704).

In this regard, the Supreme Court of South Dakota has repeatedly recognized that “[o]ne-sided agreements whereby one party is left without a remedy for another party's breach are oppressive and should be declared unconscionable” (Durham v. Ciba–Geigy Corp., 315 N.W.2d 696, 700 [S.D.], citing United States Leasing Corp. v. Franklin Plaza Apts., 65 Misc.2d 1082, 319 N.Y.S.2d 531;  see Mobile Elec. Serv. v. FirsTel, Inc., 649 N.W.2d at 606).   This sentiment is rooted in the Constitution of South Dakota which provides that “every man for an injury done him in his property, person or reputation, shall have remedy by due course of law, and right and justice, administered without denial or delay” (S.D. Const. art. VI, § 20;  see Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d at 245).

Bearing these principles in mind, we conclude that under the circumstances present here, there is a substantial question as to whether the arbitration change-in-terms are procedurally and substantively unconscionable under South Dakota law (see Mobile Elec. Serv. v. FirsTel, Inc., 649 N.W.2d at 606;  Durham v. Ciba–Geigy Corp., 315 N.W.2d at 700;  Rozebooom v. Northwestern Bell Tel. Co., 358 N.W.2d at 245;  see also Braun v. E.I. du Pont De Nemours & Co., 2006 WL 290552, *8, 2006 U.S. Dist LEXIS 37431, *25;  accord. Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 [noting that the power to invalidate arbitration agreements under general principles of contract law “gives States a method for protecting consumers against unfair pressure to agree to a contract with an unwanted arbitration provision”] ).

Since there is a substantial question as to whether the arbitration agreement is enforceable under South Dakota law, the Supreme Court erred in granting the respondents' motion, inter alia, to compel arbitration, and it should have granted that branch of the plaintiff's cross motion which was, in effect, to temporarily stay arbitration pending a framed-issue hearing (see CPLR 7503[a];  Matter of Schreiber v. K–Sea Transp. Corp., 9 N.Y.3d at 340, 849 N.Y.S.2d 194, 879 N.E.2d 733;  Matter of Cassone, 63 N.Y.2d at 758, 480 N.Y.S.2d 317, 469 N.E.2d 835;  Matter of Eagle Ins. Co. v. Lucia, 33 A.D.3d at 555, 824 N.Y.S.2d 9;  Manos v. Interbank of N.Y., 202 A.D.2d at 403, 608 N.Y.S.2d 691;  O'Brien v. Bache Halsey Stuart Shields, 80 A.D.2d at 846, 444 N.Y.S.2d 469;  Rose v. Merrill Lynch, Pierce, Fenner & Smith, 57 A.D.2d at 553, 393 N.Y.S.2d 72;  accord. Matter of State of New York v. Avco Fin. Serv. of N.Y., 50 N.Y.2d 383, 389–390, 429 N.Y.S.2d 181, 406 N.E.2d 1075;  Gendot Assoc., Inc. v. Kaufold, 56 A.D.3d 421, 424, 866 N.Y.S.2d 361;  Master Lease Corp. v. Manhattan Limousine, 177 A.D.2d 85, 87, 580 N.Y.S.2d 952;  Davidovits v. De Jesus Realty Corp., 100 A.D.2d 924, 925, 474 N.Y.S.2d 808;  State of New York v. Wolowitz, 96 A.D.2d 47, 69, 468 N.Y.S.2d 131).

At the hearing, if the respondents adequately demonstrate that the plaintiff agreed to both the choice-of-law provision and the arbitration change-in-terms, the burden of proving that the arbitration change-in-terms are unconscionable is on the plaintiff (see Matter of Schreiber v. K–Sea Transp. Corp., 9 N.Y.3d at 340, 849 N.Y.S.2d 194, 879 N.E.2d 733;  see also Green Tree Financial Corp.-Ala.v. Randolph, 531 U.S. 79, 91–92, 121 S.Ct. 513, 148 L.Ed.2d 373).   The parties' evidence should address factors relevant to unconscionability under South Dakota law, including the extent to which the plaintiff had a meaningful choice to reject the arbitration change-in-terms and the availability of similar credit devices that are free of terms that serve to prohibit class actions (see generally Hayes v. County Bank, 26 A.D.3d 465, 466–467, 811 N.Y.S.2d 741;  State of New York v. Wolowitz, 96 A.D.2d 47, 70, 468 N.Y.S.2d 131).   The parties should also address the costs of prosecuting the plaintiff's claim on an individual basis, including anticipated fees for experts and attorneys, the availability of attorneys willing to undertake such a claim, and the corresponding costs likely incurred if the matter proceeded on a class-wide basis (see generally In re Am. Express Merchants' Litigation, 554 F.3d 300, 304;  Scott v. Cingular Wireless, 160 Wash.2d 843, 161 P.3d 1000, 1008).

The parties' remaining contentions either have been rendered academic or are without merit.

Accordingly, the order is modified, on the law, (1) by deleting the provision thereof granting the motion of the defendants Citicorp Insurance Services, Inc., and Citibank to compel arbitration and stay the action pending arbitration, and substituting therefor a provision denying the motion, and (2) by deleting the provision thereof denying that branch of the plaintiff's cross motion which was, in effect, to temporarily stay arbitration pending a framed-issue hearing, and substituting therefor a provision granting that branch of the cross motion;  as so modified, the order is affirmed, and the matter is remitted to the Supreme Court, Queens County, for a framed-issue hearing in accordance herewith.

ORDERED that the order is modified, on the law, (1) by deleting the provision thereof granting the motion of the defendants Citicorp Insurance Services, Inc., and Citibank (South Dakota) N.A., to compel arbitration and stay the action pending arbitration and substituting therefor a provision denying the motion, and (2) by deleting the provision thereof denying that branch of the plaintiff's cross motion which was, in effect, to temporarily stay arbitration pending a framed-issue hearing, and substituting therefor a provision granting that branch of the cross motion;  as so modified, the order is affirmed, with costs to the plaintiff, and the matter is remitted to the Supreme Court, Queens County, for a framed-issue hearing in accordance herewith.

HALL, J.

SKELOS, J.P., CHAMBERS and LOTT, JJ., concur.

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