On December 19, 2023, the federal court for the Western District of Washington granted final approval to an $11.6 million settlement between Rapid Investments, Inc. and a class of prisoners released from over 1,500 lockups around the U.S., which forced them to accept return of money confiscated during their incarceration on a debit card issued by the firm. Heavy fees then ate into their balances—sometimes leaving them nothing.

The settlement follows a decision by the U.S. Court of Appeals for the Ninth Circuit that upheld the district court’s refusal to enforce the cardholder agreement which Rapid Investments attached to the cards to force the former prisoners’ disputes into individual arbitration—a “divide and conquer” strategy businesses employ to avoid expensive class-­action litigation.

The case is one of several class-­actions against debit-­release cards being pursued by PLN’s nonprofit publisher, the Human Rights Defense Center (HRDC). In another, the federal court for the District of Oregon in July 2023 certified a national class of prisoners given debit-­release cards issued by NUMI Financial, a subsidiary of Stored Value Cards, Inc. The lower court said that merely accepting the card did not constitute consent to the attached cardholder agreement by former Portland jail detainee Danica Love Brown, so the agreement’s mandatory arbitration clause was ruled unenforceable. A three-­judge panel of the Ninth Circuit—consisting of Judges Richard R. Clifton, Patrick J. Bumatay and M. Miller Baker—then affirmed that decision in December 2022. [See: PLN, Oct. 2023, p.12.]

In still another of the cases, a different panel of the same appellate court arrived at the opposite conclusion. The federal court for the Central District of California had also refused to compel arbitration under the cardholder agreement attached to a debit-­release card issued by prison financial services giant JPay, when Adam Cain was released from state prison. But like Stevenson’s Dr. Jekyll and Mr. Hyde, the Ninth Circuit panel that heard Brown’s appeal was better to the former prisoner than the panel that weighed JPay’s appeal.

Instead, Judges Carlos T. Bea, Milan D. Smith, Jr. and Lawrence J.C. VanDyke said on December 13, 2023,that lead Plaintiff Cain could have silently rejected the card agreement by withdrawing his balance before fees exhausted it; since he didn’t, he accepted the agreement, the Court held, so the arbitration clause is enforceable, and the case was remanded.

The panel apparently ignored an admission during oral argument by JPay that the card was activated when Cain got it—so there was no way he could retrieve his funds without incurring a fee. A request for rehearing before the entire Ninth Circuit en banc was denied on January 23, 2024, when the same judges who ruled the month before voted against rehearing and noted that “no judge of the court has requested a vote on it.” See: Cain v. JPay, LLC, 2023 U.S. App. LEXIS 32908 (9th Cir.); and 2024 U.S. App. LEXIS 1524 (9th Cir.).

It’s frankly hard to believe the judges who reached the opposite conclusion in Brown’s case wouldn’t want the full Court to resolve the glaring discrepancy between the two rulings. Fortunately for Jeffrey Reichert and Gary Moyer, lead plaintiffs in the Washington case, they got one of the Ninth Circuit’s Dr. Jekyll panels when their case came up.

Moyer was held at Kitsap County Jail three times between 2017 and 2018. Each time he was released, his funds were returned on a prepaid debit card issued by defendants Cache Valley Bank and Rapid Investments, Inc. He had no option to receive his funds except on the card, so he argued that the fees he was charged violated the Electronic Funds Transfer Act and Washington state law. Reichert also received his release funds on a debit card after leaving the jail.

Defendants moved to compel arbitration under the cardholder agreement, making the same argument that JPay and Stored Value made before: The agreement was attached to the debit card that Plaintiffs received, and they didn’t object to it, so they must have accepted it. The district court disagreed, finding silence did not constitute assent to an agreement under Oregon law, so the arbitration clause was unenforceable.

After Defendants appealed, the Ninth Circuit vacated the order in 2020 and remanded the case for the district court to make sure whether a contractual agreement existed between the parties. But on remand, the lower court stuck to its guns, ruling that “Moyer’s use of the card did not constitute assent to [the cardholder] contract.” Once again it denied the motion to compel arbitration. Another appeal followed.

Return to the Ninth Circuit

Taking up the case again at the Ninth Circuit, Judges Marsha S. Berzon, Morgan Christen and Frederic Block noted that the cardholder agreement specified a $2.50 weekly “maintenance” fee plus a $2.95 fee for each ATM withdrawal. Moreover, the process for avoiding fees—by receiving the card balance by check—was ambiguous and did not include a timeframe.

Under the Federal Arbitration Act, arbitration claims are a matter of contract, the Court wrote; so an arbitration clause cannot be enforced absent a contractual agreement. To determine whether an agreement exists, “federal courts ‘apply ordinary state-­law principles that govern the formation of contracts,” the Court said. Relying on Washington law, it found Moyer’s acceptance of the card did not constitute assent, nor did using the card to obtain his own money.

The Ninth Circuit went through the details that form a contract, questioning whether Moyer received “benefit” from the debit card—unlike Rapid Investments, which used the cards to “levy significant maintenance and user fees” on prisoners upon release. Finding that Moyer had not assented to receiving the card, the Court said no contract was ever formed. It therefore affirmed denial of the motion to compel arbitration on December 30, 2022. See: Reichert v. Rapid Investments, Inc., 56 F.4th 1220 (9th Cir. 2022)

Meanwhile, the parties reached a settlement agreement covering a class of prisoners given Rapid Investments’ debit cards upon release from some 1,500 jails and prisons. Under its terms, Rapid Investments agreed to pay up to $11.6 million to reimburse any fees deducted from their card balances at triple the rate charged; so, if a prisoner’s balance was debited $20 in fees, he was eligible to receive $60 under the settlement. Plus each claimant was entitled to a flat fee of $15 on top of that. The period to file claims was extended to March 1, 2024, and the first checks started going out in February 2024.

Some former prisoners were reimbursed fees charged on Rapid Investments’ cards under two other settlement agreements in Washington and Nevada; however, to the extent they recovered less than they would have under this agreement, they were eligible for payments to make up the difference.

The settlement fund was far less than the estimated $24 million total grabbed by Rapid Investments from Class members. Nevertheless, the district court was sufficiently impressed to award $3,596,000 in fees and $1,080,844.47 in reimbursed costs to be paid from the fund to Class Counsel, Seattle attorneys Chris R. Youtz, Richard E.Spoonemore and Eleanor Hamburger with Sirianni Youtz Spoonemore Hamburger, as well as HRDC. Named Plaintiffs Moyer and Reichert each received another $11,000 from the fund for their contributions to the case. See: Reichert v. Rapid Investments, Inc., USDC (W.D. Wash.), Case No. 3:17-­cv-­05848.  

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