SHEPHERD et al v. E*TRADE SECURITIES LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
DONALD R. SHEPHERD, et al.,
Plaintiffs,
v.
E*TRADE SECURITIES LLC, et al.,
Defendants.
CIVIL ACTION NO. 25-1865
MEMORANDUM OPINION
Rufe, J. 	January 5, 2026
Plaintiffs Donald R. Shepherd and Ethel Shepherd opened five accounts with Defendant
E*TRADE Securities LLC (“E*Trade”), which is now operated by Defendants Morgan Stanley
and Morgan Smith Barney LLC (collectively “MSSB”). Plaintiffs filed suit alleging that
Defendants delayed or refused to effect transfers of the accounts to different institutions. By
Court order, the accounts have since been transferred,1 and the remaining claims concern
claimed losses from the restrictions on the accounts before transfer and the delay in transferring
them. Defendants have moved to compel arbitration of the dispute, which Plaintiffs oppose. The
Court held oral argument on the Motion to Compel Arbitration and Stay the Action on July 22,
2025.2
1 See Stipulation and Order [Doc. No. 12].
2 See Hr’g Tr. [Doc. No. 22].
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I. 	B ACKGROUND
A. 	Plaintiffs’ Five Accounts
Plaintiffs held a total of five accounts with Defendants.3 In or about November 1998,
Plaintiffs opened an account in both of their names (the “Joint Account”).4 In or about January
2005, Mr. Shepherd opened an account for the Ethel M. Shepherd Lifetime Trust (the “Trust
Account”).5 In or about March 2010, Mr. Shepherd opened an IRA account in his name (“Mr.
Shepherd’s IRA Account”).6 On the same day, Mrs. Shepherd opened an IRA account in her
name (“Mrs. Shepherd’s IRA Account”).7 In or about December 2023, Plaintiffs jointly opened
an account on behalf of the Shepherd Family Charitable Foundation (the “Shepherd Family
Charitable Foundation Account”).8
Defendants allege that Plaintiffs completed online account applications as to all five
accounts.9 To submit the online Account Applications, Plaintiffs clicked buttons indicating their
acceptance of a notice that read: “I UNDERSTAND THAT THIS ACCOUNT IS GOVERNED
BY THE PREDISPUTE ARBITRATION CLAUSE IN SECTION 12 OF THE E*TRADE
CUSTOMER AGREEMENT.”10 The E*Trade Customer Agreement (“Customer Agreement”)
3 Compl. ¶ 19 [Doc. No. 1-2].
4 Defs.’ Mot. Compel at 1 [Doc. No. 7-1].
5 Defs.’ Mot. Compel at 2 [Doc. No. 7-1].
6 Defs.’ Mot. Compel at 2 [Doc. No. 7-1].
7 Defs.’ Mot. Compel at 2 [Doc. No. 7-1].
8 Defs.’ Mot. Compel at 2 [Doc. No. 7-1].
9 Defs.’ Mot. Compel at 1-2 [Doc. No. 7-1]. Plaintiffs argue they did not file an online application to open the
Shepherd Family Charitable Foundation Account, and instead state that they filled out a paper application only.
10 Defs.’ Mot. Compel at 2 [Doc. No. 7-1]; see. Defs.’ Mot. Compel, Ex. B at 3 [Doc. No. 7-6]; Defs.’ Mot. Compel,
Ex. C at 3 [Doc. No. 7-7]; Defs.’ Mot. Compel, Ex. D at 3 [Doc. No. 7-8]; Defs.’ Mot. Compel, Ex. E at 3 [Doc. No.
7-9].
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was hyperlinked, in blue font, to this notice.11 Although Defendants presented evidence
establishing that Plaintiffs indicated acceptance by clicking a button online for the Trust
Account,12 Mr. Shepherd’s IRA Account,13 Mrs. Shepherd’s IRA Account,14 and the Shepherd
Family Charitable Foundation Account,15 Defendants have not established that Plaintiffs saw this
notice as to the Joint Account they opened more than 25 years ago, in November 1998.16
Plaintiffs allege that they opened the most recent account, the Shepherd Family
Charitable Foundation Account, through a paper application.17 This paper application featured
notice of an arbitration provision above the signature line where Plaintiffs signed on three
separate pages.18 The notice read: “I ACKNOWLEDGE THAT I HAVE RECEIVED AND
READ A COPY OF THE E*TRADE FROM MORGAN STANLEY CLIENT AGREEMENT
FOR SELF-DIRECTED ACCOUNTS, WHICH CONTAINS A PRE-DISPUTE ARBITATION
AGREEMENT AT SECTION 12.”19 The application included the web address (marked in blue)
where the agreement could be found online.20 Plaintiffs state that a family friend submitted the
11 See Defs.’ Mot. Compel, Ex. B at 3 [Doc. No. 7-6]; Defs.’ Mot. Compel, Ex. C at 3 [Doc. No. 7-7]; Defs.’ Mot.
Compel, Ex. D at 3 [Doc. No. 7-8]; Defs.’ Mot. Compel, Ex. E at 3 [Doc. No. 7-9].
12 See generally Defs.’ Mot. Compel, Ex. B [Doc. No. 7-6].
13 See generally Defs.’ Mot. Compel, Ex. C [Doc. No. 7-7].
14 See generally Defs.’ Mot. Compel, Ex. D [Doc. No. 7-8].
15 See generally Defs.’ Mot. Compel, Ex. E [Doc. No. 7-9].
16 See generally Defs.’ Mot. Compel, Ex. A [Doc. No. 7-5] (not including a button to click indicating acceptance of
the terms of the agreement or notice to the arbitration clause).
17 Pls.’ Opp’n Mot. Compel at 1-2 [Doc. No. 14-2]; see Pls.’ Opp’n Mot. Compel, Ex. B [Doc. No. 14-4].
18 See Pls.’ Opp’n Mot. Compel, Ex. B [Doc. No. 14-4].
19 Pls.’ Opp’n Mot. Compel, Ex. B at ECF No. 9 [Doc. No. 14-4].
20 Pls.’ Opp’n Mot. Compel, Ex. B at ECF No. 9 [Doc. No. 14-4] (“The E*TRADE from Morgan Stanley Client
Agreement for Self-Directed Accounts is available online at etrade.com/msclientagree or by calling 800-387-
2331.”).
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paper application on Plaintiffs’ behalf, and Defendants provide evidence of electronic
submission of the Shepherd Family Charitable Foundation Account Application.21
B. 	Defendants’ Acquisition and the Post-Acquisition Transfer Process
In October 2020, E*Trade was acquired by MSSB.22 Upon acquisition, a process began
to combine and incorporate the services of these entities.23 In September 2023, MSSB prepared
to transfer all client accounts, including the four accounts Plaintiffs then held with Defendants.24
As part of the transfer process, Plaintiffs were mailed a pamphlet25 that provided
information regarding the transfer process.26 The pamphlet informed Plaintiffs that their four
pre-acquisition accounts would be governed by an amended customer agreement, called the
E*TRADE from Morgan Stanley Client Agreement for Self-Directed Accounts (“Amended
Agreement”).27 The pamphlet notified Plaintiffs that “[t]here is nothing you need to do for this
Transfer to take effect.”28 However, the pamphlet detailed an opt-out process if Plaintiffs did not
wish to transfer E*Trade accounts to MSSB.29 To reject the transfer, an account holder needed to
call a number to signal an intention to opt-out and close or move the existing accounts to another
broker-dealer.30 The Amended Agreement was referenced in a section of the pamphlet titled
“Your Client Agreement and Other Disclosures,” stating: “The Self-Directed Account
21 Hr’g Tr. at 28-30 [Doc. No. 22]; Defs.’ Mot. Compel, Ex. E, Shepherd Family Charitable Foundation Customer
Agreement [Doc. No. 7-9].
22 Pls.’ Opp’n Mot. Compel at 2 [Doc. No. 14-2].
23 Pls.’ Opp’n Mot. Compel at 3 [Doc. No. 14-2].
24 Pls.’ Opp’n Mot. Compel at 3 [Doc. No. 14-2].
25 See Pls.’ Opp’n Mot. Compel, Ex. A [Doc. No. 14-3].
26 Pls.’ Opp’n Mot. Compel, Ex. B at 3 [Doc. No. 14-4].
27 Pls.’ Opp’n Mot. Compel at 3-4 [Doc. No. 14-2].
28 See Pls.’ Opp’n Mot. Compel, Ex. A at 3 [Doc. No. 14-3].
29 Pls.’ Opp’n Mot. Compel, Ex. A at 15 [Doc. No. 14-3].
30 Pls.’ Opp’n Mot. Compel, Ex. A at 15 [Doc. No. 14-3].
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Agreements are available on etrade.com and at etrade.com/mssb.”31 The Amended Agreement
contained an arbitration provision similar, if not identical, to the provision contained in the
original Customer Agreements for the accounts.32 The arbitration clause in the Amended
Agreement states, among other things, that by signing the arbitration agreement, “[a]ll parties to
this Customer Agreement are giving up the right to sue each other in court, including the right to
trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.”33
Defendants have moved to compel arbitration, arguing that Plaintiffs agreed to arbitration
through valid “clickwrap” contracts, as they notified Plaintiffs of the arbitration provisions and
claim they required Plaintiffs to acknowledge and assent to the terms by clicking an “Accepted”
button.34
Plaintiffs claim that the operable agreement at issue as to all five accounts is the
Amended Agreement, which replaced the pre-existing Customer Agreement following
Defendant E*Trade’s acquisition, and regardless, that none of the arbitration agreements in any
of the Customer Agreements are valid and enforceable.35 They argue that the arbitration
provision contained in the Amended Agreement is invalid because Plaintiffs did not assent to the
term and that the agreement is unconscionable because it constitutes a contract of adhesion and
unreasonably favors Defendants.36
31 See Pls.’ Opp’n Mot. Compel, Ex. A at 27 [Doc. No. 14-3].
32 See Pls.’ Opp’n Mot. Compel, Ex. C at 45-47 [Doc. No. 14-5].
33 Pls.’ Opp’n Mot. Compel, Ex. C at 45 [Doc. No. 14-5].
34 Defs.’ Mot. Compel at 8 [Doc. No. 7-1].
35 Pls.’ Opp’n Mot. Compel at 1, 3 [Doc. No. 14-2].
36 Pls.’ Opp’n Mot. Compel at 11-12 [Doc. No. 14-2]. Plaintiffs argued that the New York choice-of-law clause in
the agreement is unenforceable because New York “bears no substantial relationship to the parties or the contract,”
and the application of New York law “would be contrary to the public policy of Pennsylvania.” Pls.’ Opp’n Mot.
Compel at 8 [Doc. No. 14]. Accordingly, Plaintiffs argue that Pennsylvania law should apply to the interpretation of
the arbitration provision. Pls.’ Opp’n Mot. Compel at 8 [Doc. No. 14-2].
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II. 	L EGAL S TANDARD
This is a diversity case requiring the Court to evaluate the enforceability of an arbitration
agreement. There are two plausible standards of review for a motion to compel. On the first
standard, when it is clear from the face of a complaint and supporting documents that an
arbitration clause applies to the claims, then a Rule 12(b)(6) motion to dismiss standard
applies.37 On the second standard, when the complaint and supporting documents are unclear
about an agreement to arbitrate, the Court allows limited discovery and applies a summary
judgment standard.38
Here, Plaintiffs did not include the contracts or any arbitration agreements in the
Complaint or its exhibits. The text of the contracts and the arbitration clauses therein were made
available to the Court only in relation Defendants’ motion to compel arbitration. But for
Defendants’ motion to compel arbitration, the Court would not have been furnished with copies
of the contracts or otherwise been put on notice of the existence of arbitration agreements.39
Because it is not “apparent, based on the ‘face of [the] complaint, and documents relied
upon in the complaint,’ that [Plaintiffs’] claims ‘are subject to an enforceable arbitration
clause,’” the Court applies a summary judgment standard.40
37 Guidotti v. Legal Helpers Debt Resol., LLC, 716 F.3d 764, 776 (3d Cir. 2013) (quoting Somerset Consulting, LLC
v. United Cap. Lenders, LLC, 832 F. Supp. 2d 474, 482 (E.D. Pa. 2011)).
38 Id. at 776.
39 Cf. Silfee v. Automatic Data Processing, 696 F. App'x 576, 578 (3d Cir. 2017) (holding that the district court erred
in applying the summary judgment standard where “a party move[d] to compel arbitration based on an authentic
arbitration agreement that [was] attached to the complaint” (emphasis added)). The fact that the arbitration
agreement was not attached to or referenced in the Complaint is a sufficient reason to apply the summary judgment
standard. See Roman v. Prince Telecom LLC, No. 22-1348 to 49, 2023 WL 3194464, at *3 (3d Cir. May 2, 2023)
(“The District Court correctly concluded that the present motion to compel arbitration should be decided under the
summary judgment standard because none of the complaint's factual allegations allude to an arbitration agreement,
nor does the complaint rely on an arbitration agreement to state a claim.’ ” (quotation marks and citation omitted)).
40 Guidotti, 716 F.3d at 776 (quoting Somerset Consulting, 832 F. Supp. 2d at 482).
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Under Federal Rule of Civil Procedure 56, a “court shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.”41 A disputed fact is “‘material’ if proof of its existence or
nonexistence might affect the outcome of the case under applicable substantive law.”42 A dispute
as to a material fact is “‘genuine’ if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.”43 In evaluating the motion, “the court must draw all reasonable
inferences in favor of the nonmoving party, and it may not make credibility determinations or
weigh the evidence.”44
III. 	DISCUSSION
A. 	Choice of Law
As a preliminary matter, the Court must address which state’s law applies to the claims
and arbitration agreements. Because this Court’s jurisdiction is based on diversity, the conflict-
of-laws rules of the forum state, Pennsylvania, apply.45
Under Pennsylvania law, “courts generally honor the intent of the contracting parties and
enforce choice of law provisions in contracts executed by them.”46 Pennsylvania courts have
adopted section 187 of the Restatement (Second) Conflict of Laws, which honors choice-of-law
provisions “unless either (a) the chosen state has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the
41 Fed. R. Civ. P. 56(a).
42 Pricharda v. Checkr, Inc., No. 22-3180, 2022 WL 16749033, at *3 (E.D. Pa. Nov. 7, 2022) (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
43 Id. (citing Anderson, 477 U.S. at 248).
44 Guidotti, 716 F.3d at 772 (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000)).
45 Hammersmith v. TIG Ins. Co., 480 F.3d 220, 226 (3d Cir. 2007) (citing Klaxon v. Stentor Elec. Mfg. Co., 313 U.S.
487 (1941).
46 Kruzits v. Okuma Mach. Tool, 40 F.3d 52, 55 (3d Cir. 1994).
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law of the chosen state would be contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the determination of the particular
issue.”47 “Pennsylvania courts will uphold choice-of-law provisions in contracts to the extent
that the transaction bears a reasonable relation to the chosen forum.”48
In this case, three of the Customer Agreements—Mr. Shepherd’s IRA Account, Mrs.
Shepherd’s IRA Account, and the Shepherd Family Charitable Foundation Account
Agreements—contain a choice of law provision stating that New York law applies,49 and the
other two Customer Agreements—the Joint Account and the Trust Account Agreements—
contain a choice of law provision stating that California law applies.50 Defendants argue that the
Amended Agreement amended the choice of law provision to select New York law as to all
Customer Agreements.51
Plaintiffs claim that applying New York law to the arbitration agreements would be
contrary to the public policy of Pennsylvania because such an application would “eliminat[e] the
avenues for vindication of statutory protections afforded residents in their various respective
states.”52 However, Plaintiffs have not established how an inability to proceed under those
alternative state statutes is contrary to a “fundamental policy of a state which has a material
greater interest than the chosen state in the determination of the particular issue.”53
47 Gay v. CreditInform, 511 F.3d 369, 389 (3d Cir. 2007) (quoting Kruzits, 40 F.3d at 55).
48 Id. at 390 (quoting Churchill Corp. v. Third Century Inc., 578 A.2d 532, 537 (Pa. Super. Ct. 1990)).
49 Defs.’ Mot. Compel at 7 [Doc. No. 7-1]; Ex. C, Mr. Shepherd’s IRA Account Agreement, at 47 [Doc. No. 7-7];
Ex. D, Mrs. Shepherd’s IRA Account Agreement at 47 [Doc. No. 7-8]; Ex. E, Shepherd Family Charitable
Foundation Account Agreement at 55 [Doc. No. 7-9].
50 Defs.’ Mot. Compel at 7 [Doc. No. 7-1]; Ex. A, Joint Account Agreement at 10 [Doc. No. 7-5]; Ex. B, Trust
Account Agreement at 30 [Doc. No. 7-6].
51 Hr’g Tr. at 16-17 [Doc. No. 22].
52 Pls.’ Opp’n Mot. Compel at 10 [Doc. No. 14-2].
53 Gay, 511 F.3d at 389.
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Because Defendants’ principal places of business are in New York,54 there is a
reasonable basis for the parties’ choice of New York law, and the choice of law provisions will
be honored. New York law applies to Mr. Shepherd’s IRA Account, Mrs. Shepherd’s IRA
Account, and the Shepherd Family Charitable Foundation Account Agreements.
Defendants also presented evidence that there is a reasonable basis for the parties’ choice
of California law for the Joint Account and Trust Agreements. At the time the accounts were
created, Defendant E*Trade had a principal place of business in California, and the company was
founded in California.55 Because Defendant E*Trade’s principal place of business was in
California, there is a reasonable basis for the choice of law provision and California law applies
to the Joint Account and Trust Account Agreements.
Defendants argue that Mr. Shepherd’s IRA Account, Mrs. Shepherd’s IRA Account, the
Joint Account, and the Trust Account Agreements were replaced by the Amended Agreement.
Pennsylvania’s choice of law analysis applies to conflicts of substantive law.56 Amendment or
modification of a contract is an issue of substantive, not procedural, law, so Pennsylvania’s
choice of law doctrine that honors contracting parties’ intent and enforces contracted choice of
law provisions applies.57 The Court will honor the parties’ choice of law provisions as originally
contracted to determine whether the Amended Agreement is valid. Accordingly, an analysis
under New York law will decide the validity of the Amended Agreement as to Mr. Shepherd’s
IRA Account and Mrs. Shepherd’s IRA Account Agreements, and an analysis under California
54 Defs.’ Notice Removal ¶¶ 13-25 [Doc. No. 1].
55 Hr’g Tr. at 16-17 [Doc. No. 22].
56 Wilson v. Transport Ins. Co., 889 A.2d 563, 571 (Pa. Super. Ct. 2005).
57 Id. (quoting Ferraro v. McCarthy-Pascuzzo, 777 A.2d 1128, 1137 (Pa. Super. Ct. 2001) (“Substantive law is the
portion of the law which creates rights and duties of the parties to a judicial proceeding, whereas procedural law is
the set of rules which proscribe the steps by which the parties may have their respective rights and duties judicially
enforced.”).
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law will determine the validity of the Amended Agreement as to the Joint Account and Trust
Account Agreements.
1. 	Validity of the Amended Agreement Under New York Law – IRA
Accounts
Under New York law, a contract requires offer, acceptance, and “a manifestation of
mutual assent.”58 A contract may be modified, but “[f]undamental to the establishment of a
contract modification is proof of each element requisite to the formulation of a contract,
including mutual assent to its terms.”59 Modifications of written contracts may be proved
circumstantially, including by conduct of the parties.60
Here, the Amended Agreement included an offer when Defendants sent Plaintiffs a
pamphlet describing the changes and noting that a new agreement would replace the Customer
Agreements. The offer described the nature of acceptance, which would be manifested by doing
nothing and not taking steps to opt out. While silence may not always constitute acceptance,61 a
party is bound by an agreement “if its actions, gauged by an objective standard, support the
conclusion that it accepted the agreement.”62 Mutual assent was manifested by Plaintiffs not
opting out and both parties continuing to operate according to the Amended Agreement. In fact,
Plaintiffs opened a new account with Defendants after the Amended Agreement was in place,
which manifests assent to the modified contract terms as to all Agreements.
58 Starke v. SquareTrade, Inc., 913 F.3d 279, 288-89 (2d Cir. 2019) (citing Express Indus. & Terminal Corp. v. N.Y.
Dep't of Transp., 715 N.E.2d 1050, 1053 (N.Y. 1999)).
59 Beacon Terminal Corp. v. Chemprene, Inc., 429 N.Y.S.2d 715, 718 (N.Y. App. Div. 1980).
60 Id.; Lawrence M. Kamhi, M.D., P.C. v. East Coast Pain Mgmt., P.C., 112 N.Y.S.3d 189, 191 (N.Y. App. Div.
2019).
61 Diarassouba v. Urban, 892 N.Y.S.2d 410, 415 (N.Y. App. Div. 2009) (“[A] silence which breeds ambiguity
cannot constitute acceptance.”).
62 H&H Acquisition Corp. v. Financial Intranet Holdings, 669 F. Supp. 351, 359 (S.D.N.Y. 2009) (quoting Mgmt.
Recruiters of Boulder v. Nat’l Econ. Research Assocs., Inc., No. 02-3507, 2006 WL 2109478, at *4 (S.D.N.Y. July
24, 2006)).
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Plaintiffs nonetheless argue that the Amended Agreement is an invalid contract of
adhesion. “A contract of adhesion contains terms that are unfair and nonnegotiable and arises
from a disparity of bargaining power or oppressive tactics.”63 A form agreement, like the
Amended Agreement, is not automatically a contract of adhesion because “[s]uch claims are
judged by whether the party seeking to enforce the contract has used high pressure tactics or
deceptive language in the contract and whether there is inequality of bargaining power between
the parties.”64
Plaintiffs have not established that Defendants used high pressure tactics nor deceptive
language in implementing the Amended Agreement. That the contract was offered to Plaintiffs
on a take-it-or-leave-it basis does not establish that the Amended Agreement was a contract of
adhesion. The pamphlet notifying Plaintiffs of the Amended Agreement provided typed-out
website links, not just hyperlinks on printed paper, directing Plaintiffs to the Amended
Agreement. Further, the choice of law clause in the Amended Agreement is not substantively
unconscionable. Particularly as applied to the IRA Accounts, the choice of law provision
instituted no change from the original Customer Agreements.
Under New York law, the Amended Agreement is valid as applied to the choice of law
provision, and New York law applies in evaluating the validity of the arbitration clauses in Mr.
Shepherd’s IRA Account and Mrs. Shepherd’s IRA Account Agreements.
63 Love’M Sheltering, Inc. v. Cnty. of Suffolk, 824 N.Y.S.2d 98, 99 (N.Y. App. Div. 2006).
64 Sablosky v. Edward S. Gordon Co., 535 N.E.2d 643, 647 (N.Y. 1989).
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2. 	Validity of the Amended Agreement Under California Law – Joint and
Trust Accounts
Under California law, “[a] modification of a contract is a change in the obligations of a
party by a subsequent mutual agreement of the parties.”65 A written contract may be modified by
a written contract.66
Under California law, a contract of adhesion is “a standardized contract, which imposed
and drafted by the party of superior bargaining strength, relegates to the subscribing party only
the opportunity to adhere to the contract or reject it.”67 That a contract is one of adhesion does
not automatically make the contract unconscionable.68 Rather, unconscionability is a defense to
enforcement of a contract of adhesion.69 “The central issue is whether the adhesive contract is
unduly oppressive or unconscionable.”70 A contract or provision which is not within the
reasonable expectations of the adhering party is also unenforceable.71
Here, the Amended Agreement’s choice of law provision cannot be said to be outside of
the reasonable expectations of the Plaintiffs. Since agreeing to the Joint Account and Trust
Account Agreements and prior to the Amended Agreement, Plaintiffs entered into two additional
Customer Agreements which designated New York as applicable law. While the original Trust
Account and Joint Account Agreements designated California law, it was not outside of
reasonable expectations of Plaintiffs for the Amended Agreement to include the New York
65 West v. JPMorgan Chase Bank, N.A., 154 Cal. Rptr. 3d 285, 299 (Cal. Ct. App. 2019).
66 Id.; Cal. Civ. Code § 1698.
67 Neal v. State Farm Ins. Co., 10 Cal. Rptr. 781, 784 (Cal. Ct. App. 1961).
68 Graham v. Scissor-Tail, Inc., 623 P.2d 165, 172 (Cal. 1981); California Grocers Assn. v. Bank of America, 27
Cal. Rptr. 2d 396, 401-02 (Cal. Ct. App. 1994).
69 Graham, 623 P.2d at 612-13.
70 California Grocers Assn., 27 Cal. Rptr. at 401.
71 Graham, 623 P.2d at 612.
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choice of law provision after Plaintiffs’ continued use of E*Trade’s services and contracting with
E*Trade.72
A contract is substantively unconscionable if it is “overly harsh, unduly oppressive, so
one-sided as to ‘shock the conscience’, or unfairly one-sided.”73 Unconscionability is not just a
bad deal, but a contract “with terms that are unreasonably favorable to the more powerful
party.”74
Plaintiffs have not established that a choice of law clause electing New York law is
substantively unconscionable. Their claim that the selection of New York law strips Plaintiffs of
statutory protections under Pennsylvania law does not establish unconscionability, particularly as
California law previously applied to the Joint Account and Trust Account Agreements.
Accordingly, under California law, the Joint Account and Trust Account Agreements
were validly amended by the Amended Agreement, and the Amended Agreement’s choice of
New York law is valid. New York law will apply to evaluating the arbitration clauses in the Joint
Account and Trust Account Agreements.
Because the Shepherd Family Charitable Account was established after MSSB’s
acquisition of E*Trade, that Customer Agreement was not modified by the Amended Agreement.
However, the Customer Agreement applicable to the Shepherd Family Charitable Account is
identical to the Amended Agreement applicable to the remaining four accounts. It also selects
New York in its choice of law clause and New York law applies to determining the validity of its
arbitration clause.
72 See id. (holding that a contractual provision was not contrary to reasonable expectations of plaintiff when he had
been party to many other contracts with other parties belonging to a common association).
73 Sanchez v. Valencia Holding Co., LLC, 353 P.3d 741., 748 (Cal. 2015) (internal citations and quotations omitted).
74 Id. (quoting 8 Williston on Contracts (4th ed. 2010) § 18.10, p. 91).
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B. 	Arbitration Provisions
Section 2 of the Federal Arbitration Act (FAA) provides that arbitration agreements
“shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.”75 Through its enactment of the FAA, Congress “expressed a
strong federal policy in favor of resolving disputes through arbitration.”76 Arbitration, however,
“is strictly a matter of contract.”77
To determine whether a party may be compelled to arbitrate, a court must decide whether
“a valid agreement to arbitrate exists” and whether “the particular dispute falls within the scope
of the agreement.”78 The FAA “instructs courts to refer to principles of applicable state law when
determining the existence and scope of an agreement to arbitrate.”79
Here, only the first issue is in dispute. If the agreements to arbitrate are valid, then the
dispute clearly falls within the scope of the agreement. The parties dispute whether the
arbitration agreements are valid, and as discussed, this Court will apply New York state law in
determining the validity of arbitration agreements as applied to all five Accounts. This Court also
must give “due regard . . . to the federal policy favoring arbitration, and ambiguities as to the
scope of the arbitration clause itself resolved in favor of arbitration.”80 Therefore, “as with any
other contract, the parties’ intentions control, but those intentions are generously construed as to
issues of arbitrability.”81
75 9 U.S.C. § 2.
76 Flintkote Co. v. Aviva PLC, 769 F.3d 215, 219 (3d Cir. 2014) (quoting Century Indem. Co. v. Certain
Underwriters at Lloyd’s, London, 584 F.3d 513, 522 (3d Cir. 2009)).
77 Id. at 220 (quoting Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d 435, 444 (3d Cir. 1999)).
78 Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005).
79 Id. (citing Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475 (1989)).
80 Volt Info., 489 U.S. at 475-76.
81 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)).
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Under New York law, a contract requires offer, acceptance, and “a manifestation
of mutual assent.”82 New York law permits a “clickwrap” agreement where a party clicks
a button to indicate agreement but does not necessarily view the full contact’s terms, and
binds parties to the contract, so long as the signatory is given a “sufficient opportunity to
read the . . . agreement, as assents thereto after being provided with an unambiguous
method of accepting or declining the offer.”83
When “an offeree does not have actual notice of certain contract terms, he is nonetheless
bound by such terms if he is on inquiry notice of them and assents to them through conduct that a
reasonable person would understand to constitute assent.”84 New York law directs courts to look
to whether the term was obvious and whether it was called to the offeree’s attention in
determining whether an offeree is on inquiry notice.85 To determine whether an offeree has
inquiry notice of contract terms, New York law assesses whether the term was called to the
offeree’s attention in a “clear and conspicuous way.”86 These principles also apply to web-based
contracts.87
1. 	The Trust Account, Mr. Shepherd’s IRA Account, and Mrs. Shepherd’s
IRA Account
The original Trust Account, Mr. Shepherd’s IRA Account, and Mrs. Shepherd’s IRA
Account Agreements included arbitration agreements, which stated:
82 Starke, 913 F.3d at 288-89 (2d Cir. 2019) (citing Express Indus. & Terminal Corp. v. N.Y. Dep’t of Transp., 715
N.E.2d 1050, 1053 (N.Y. 1999).
83 Scotti v. Tough Mudder Inc., 97 N.Y.S.3d 825, 832 (N.Y. Sup. Ct. 2019) (quoting Serrano v. Cablevision Sys.
Corp., 863 F. Supp. 2d 157, 164 (E.D.N.Y. 2012)).
84 Starke, 913 F.3d at 289 (citing Schnabel, 697 F.3d at 118 (emphasis in original)).
85 Id.
86 Id. (citing Gildor v. USPS, 179 F. App'x 756, 759-60 (2d Cir. 2006); Arthur Philip Export Corp. v. Leathertone,
Inc., 87 N.Y.S.2d 665, 667 (N.Y. App. Div. 1949)).
87 Id. (citing Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004); Specht v. Netscape Commc’ns
Corp., 306 F.3d 17, 31; Resorb Networks, Inc. v. YouNow.com, 30 N.Y.S.3d 506, 511 (N.Y. Sup. Ct. 2016)).
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I agree to resolve by binding arbitration any controversy that may arise between
[E*TRADE] and me relating in any way to my relationship with [E*TRADE], any
Account held with [E*TRADE], or any service provided by [E*TRADE] to me.
This arbitration agreement includes any controversy involving transactions of any
kind made on my behalf by or through [E*TRADE], or the performance,
construction or breach of this [customer agreement] or any other written agreement
between [E*TRADE] and me. . . . I make this arbitration agreement on behalf of
myself and my heirs, administrators, representatives, executors, successors, assigns
and together with all other persons claiming a legal or beneficial interest in my
Account. . . . This arbitration provision will be enforced and interpreted exclusively
in accordance with applicable federal laws of the United States, including the
Federal Arbitration Act.88
Defendants claim that in submitting Account Applications to establish these accounts, Plaintiffs
clicked buttons indicating their acceptance.89 In accepting terms to submit the Account
Application, Plaintiffs clicked a button marked “CONTINUE,” indicating acknowledgement
that:
I am of legal age to contract. I acknowledge that I have received, read, and agree to
be bound by the terms and conditions as currently set forth in the E*TRADE
Securities 	Customer 	Agreement 	as 	amended 	from 	time 	to 	time 	. 	. 	. 	I
UNDERSTAND 	THAT 	THIS 	ACCOUNT 	IS 	GOVERNED 	BY 	THE
PREDISPUTE ARBITRATION CLAUSE IN SECTION 12 OF THE E*TRADE
CUSTOMER AGREEMENT.90
Part of the terms agreed to by clicking “CONTINUE” include a statement certifying that
certain information in the application form is accurate under penalty of perjury. The
terms are listed under a heading titled “Account Agreement.”
In this original agreement, the arbitration term was called to Plaintiffs’ attention
in a clear and conspicuous way. The sentence about the Arbitration Clause is in capital
letters, is set off in a shorter paragraph, is under a heading titled “Account Agreement,”
88 Defs.’ Mot. Compel, Ex. B § 8 [Doc. No 7-6], Ex. C. § 8 [Doc. No. 7-7], Ex. D § 8 [Doc. No. 7-8].
89 Defs.’ Mot. Compel at 2 [Doc. No. 7-1].
90 Defs.’ Mot. Compel, Ex. B at 2 [Doc. No 7-6], Ex. C. at 2 [Doc. No. 7-7], Ex. D at 2 [Doc. No. 7-8].
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and includes a hyperlink to the Customer Agreement.91 While the term does not explicitly
state that the arbitration is binding, it clearly draws attention to the existence of an
arbitration term, which Plaintiffs could have read in its entirety.92 Defendants did not
need to detail the full arbitration agreement on the application in order to place Plaintiffs
on inquiry notice of the arbitration agreement.93
Plaintiffs claim the arbitration agreement in the Amended Agreement, which
replaced the original agreements, is invalid.
First the Plaintiffs argue the arbitration agreement in the Amended Agreement
lacks meaningful mutual assent. As discussed above, the Amended Agreement was a
valid modification to the contract under New York law. Plaintiffs continued operating
according to the Amended Agreement and opened a new account with Defendants after
the Amended Agreement was implemented. Plaintiffs also manifested assent to the
Amended Agreement by the terms of the pamphlet, which directed Plaintiffs to take no
action if they assented to the Amended Agreement.
Second, Plaintiffs argue the arbitration agreement in the Amended Agreement is
procedurally and substantively unconscionable. A contract is unconscionable under New
York law when it is “so grossly unreasonable or unconscionable in the light of the mores
and business practices of the time as to be unenforceable according to its literal terms.”94
91 Defs.’ Mot. Compel, Ex. B at 2 [Doc. No 7-6], Ex. C. at 2 [Doc. No. 7-7], Ex. D at 2 [Doc. No. 7-8].
92 Cf. Starke, 913 F.3d at 292.
93 Id.
94 Gillman v. Chase Manhattan Bank, N.A. 73 N.Y.2d 1, 10 (N.Y. 1988) (quotation marks omitted).
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Generally, there must be a showing of both procedural and substantive
unconscionability.95
As discussed above, the Amended Agreement was not a contract of adhesion
under New York law, nor was it procedurally unconscionable just because it was offered
on a take-it-or-leave-it basis. “It is beyond dispute that, under New York law, ‘arbitration
agreements are enforceable despite an inequality in bargaining power.’ ”96 Yet, “[w]hile
inequality in bargaining power . . . is not alone sufficient to hold arbitration agreements
unenforceable, such inequality, when coupled with high pressure tactics that coerce
acceptance of onerous terms, may be sufficient to show that [the signatory] lacked a
meaningful choice.”97 Plaintiffs have not shown that Defendants used high pressure
tactics, coercion, or deception in procuring their agreement to the Amended Agreement.
They do not allege they were provided insufficient time to read the Amended Agreement,
that they were not permitted to review the Agreement with an attorney, or that they were
otherwise “coerced or pressured into signing the Agreement without reading it or that the
Agreement was induced by fraud or entered into under duress.”98 Plaintiffs contend that
the pamphlet did not attach the entire terms of the Amended Agreement and that it
provided hyperlinks printed on physical paper, and thus they did not have an opportunity
to properly assent to the Agreement. However, the pamphlet not only provided a
95 Id.
96 Nayal v. HIP Network Servs. IPA, Inc., 620 F. Supp. 2d 566, 572 (S.D.N.Y. 2009) (quoting Tsadilas v. Providian
Nat’l Bank, 786 N.Y.S.2d 478, 481 (N.Y. App. Div. 2004)) (alteration omitted).
97 Brennan v. Bally Total Fitness, 198 F. Supp. 2d 377, 382 (S.D.N.Y. 2002) (citation omitted).
98 Ciago v. Ameriquest Mortg. Co. 295 F. Supp. 2sd 324, 329 (S.D.N.Y. 2003); see also Gillman, 73 N.Y.2d at 11
(“The focus [of procedural unconscionability] is on such matters as . . . whether deceptive or high-pressure tactics
were employed, the use of fine print in the contract, the experience and education of the party claiming
unconscionability, and whether there was a disparity in bargaining power.”).
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hyperlink but typed-out web addresses for the Amended Agreement and Plaintiffs had
sufficient time to identify and review the Amended Agreement.
The arbitration term is not substantively unconscionable. The term equally binds
both Plaintiffs and Defendants to arbitration. Plaintiffs’ claims that arbitration removes
their right to Pennsylvania statutory protections fail. Even if Plaintiffs litigated their case
in court, New York law would still apply. The assignment of a case to arbitration does
not impact the applicable law. Plaintiffs argue the arbitration clause is unconscionable
because it calls to apply the Financial Industry Regulatory Authority (“FINRA”) rules for
arbitration, and Defendants are members of FINRA.99 Plaintiffs are unable to cite any
case law supporting the proposition that arbitration with FINRA rules with members of
FINRA is unconscionable. Thus, they are essentially arguing that all arbitration involving
FINRA members is unconscionable. This argument fails.
Further, the arbitration clause in the Amended Agreement is the same as in the
original Customer Agreements. It is not substantively unconscionable for the Amended
Contract to retain a term from the original agreements, of which Plaintiffs had adequate
inquiry notice. This Court is not persuaded that Plaintiffs have established substantive
unconscionability. There is no genuine issue of material fact as to the enforceability and
validity of the arbitration agreements in the Trust Account, Mr. Shepherd’s IRA Account,
and Mrs. Shepherd’s IRA Account Agreements.
2. 	The Shepherd Family Charitable Foundation Account
After E*Trade was acquired by MSSB and the Amended Agreement took effect,
Plaintiffs opened the Shepherd Family Charitable Foundation Account. Plaintiffs claim they
99 Pls.’ Resp. Opp’n Mot. Compel at 16-17 [Doc. No. 14-2].
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completed the application to open this account on paper and did not submit an online
application.100 The paper application included a bolded notification that the Account’s Customer
Agreement contained an arbitration provision.101 The full Customer Agreement was not
appended to the paper application. Filling out that paper application did not require clicking an
accept or continue button to acknowledge its terms.
However, after Plaintiffs filled out the paper application, a family friend—who was listed
on the account as the responsible person—submitted the paper application to E*Trade on behalf
of Plaintiffs, with their consent and approval.102 Defendants presented evidence that an online
application was submitted for the Shepherd Family Charitable Foundation Account, which
included clicking a button acknowledging the terms of the application, and Plaintiffs did not
present testimony or any evidence from the family friend to rebut that evidence.103 The evidence
before the Court establishes that Plaintiffs, or a representative of the Plaintiffs, completed both a
paper and online application to open the Shepherd Family Charitable Foundation Account.
The paper application provided prominent bolded notice directly above the signature line
that states “I UNDERSTAND THAT THIS ACCOUNT IS GOVERNED BY A PRE-DISPUTE
ARBITRATION CLAUSE. I ACKNOWLEDGE THAT I HAVE RECEIVED AND READ A
COPY OF THE E*TRADE FROM MORGAN STANLEY CLIENT AGREEMENT FOR
SELF-DIRECTED ACCOUNTS WHICH CONTAINS A PRE-DISPUTE ARBITRATION
100 Pls.’ Resp. Opp’n Mot. Compel at 6 [Doc. No. 14-2].
101 Pls.’ Resp. Opp’n Mot. Compel at 6 [Doc. No. 14-2]; Ex. B, Shepherd Family Charitable Trust Account Paper
Application at ECF Nos. 8, 9, 12 [Doc. No. 14-4].
102 Hr’g Tr. at 28-30 [Doc. No. 22].
103 Defs.’ Mot. Compel, Ex. E, Shepherd Family Charitable Foundation Customer Agreement [Doc. No. 7-9].
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AGREEMENT AT SECTION 12.”104 This term provides a reasonably prudent offeree inquiry
notice of the arbitration term. While the exact term of the arbitration agreement is not included in
the notice, the notice does direct the offeree to the appropriate section and agreement containing
the arbitration agreement and provides a web address for the full client agreement.
Additionally, in completing the online application, Plaintiffs, or someone on their behalf,
clicked a button acknowledging notice of the account agreement, which included a hyperlink to
the Customer Agreement and noted the section of the agreement containing the arbitration
clause. This hyperlink is sufficient to provide assent to the clickwrap agreement given the
provided inquiry notice of the arbitration term.105
There is no genuine issue of material fact regarding the validity and enforceability of the
arbitration agreement in the Shepherd Family Charitable Foundation Account Agreement.
3. 	The Joint Account
For the Joint Account, which Plaintiffs opened in 1998, Defendants did not provide
evidence of any online “clickwrap” agreement or other acknowledgment specifically providing
inquiry notice of the arbitration agreement contained in the Joint Account Agreement.106 The
Customer Agreement itself does include arbitration provisions, specified in the table of contents
of the Customer Agreement and bolded, which states that arbitration is final and binding,
discloses discovery limitations and potential arbitrator’s connections with the securities industry,
and states “You agree to arbitrate any controversy between you and E*Trade . . . arising out or
relating in any way to your Account.”107
104 Pls.’ Resp. Opp’n Mot. Compel, Ex. B, Shepherd Family Charitable Trust Account Paper Application at ECF No.
8 [Doc. No. 14-4].
105 Starke, 913 F.3d at 291-92.
106 Defs.’ Mot. Compel, Ex. A, Joint Account Agreement at 2-3 [Doc. No. 7-5].
107 Defs.’ Mot. Compel, Ex. A, Joint Account Agreement at 9 [Doc. No. 7-5].
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While there is not sufficient evidence to show that Plaintiffs were on inquiry notice of the
arbitration agreement at the time of opening the Joint Account, the later Customer Agreements
included arbitration provisions that state “I agree to resolve by binding arbitration any
controversy that may arise between E*TRADE Securities or its affiliates and me relating in any
way to my relationship with E*TRADE Securities, any Account held with E*TRADE Securities,
or any service provided by E*TRADE Securities to me.”108 The later Customer Agreements
listed in their first sentence in the arbitration section that all accounts with E*Trade were
governed by binding arbitration.
New York law requires mutual assent to the terms of an agreement, which can be
evidenced by a party’s conduct that a reasonable person would understand to constitute assent.109
Here, Plaintiffs proceeded to open four additional accounts with Defendants for which they did
have inquiry notice of an arbitration agreement. Plaintiffs did not challenge the Joint Account
Customer Agreement once they received inquiry notice of the arbitration agreements in their
following accounts. Plaintiffs continued to use and open new accounts with Defendants for over
twenty years, which manifests their assent and continued assent to the contract terms.
Further, the Amended Agreement validly modified the Joint Account Agreement. As
discussed, the Amended Agreement was not procedurally or substantively unconscionable. The
Amended Agreement does not become substantively unconscionable as it modifies the Joint
Account Agreement. There were no inappropriate bargaining tactics or pressure applied to
Plaintiffs to induce them to agree to the Amended Agreement. The arbitration term, of which
108 Defs.’ Mot. Compel, Ex. B § 8 [Doc. No 7-6], Ex. C. § 8 [Doc. No. 7-7], Ex. D § 8 [Doc. No. 7-8].
109 Scotti., 97 N.Y.S.3d at 833 (citing Schnabel, 697 F.3d at 118 (emphasis in original)).
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Plaintiffs had been on inquiry notice for the Trust Account, Mr. Shepherd’s IRA Account, and
Mrs. Shepherd’s IRA Account Agreements, was not altered by the Amended Agreement.
Because this Court must generously construe parties’ intentions as it relates to issues of
arbitrability,110 it finds that given Plaintiffs’ inquiry notice of the arbitration agreements in the
later four Customer Agreements, the broad language of the arbitration agreements applying them
to all E*Trade Accounts, and Plaintiffs’ continued use of all five accounts according to the
Customer Agreements since 1998, there is no genuine issue of material fact as to the validity and
enforceability of the arbitration agreement in the Joint Account Agreement.
IV. 	CONCLUSION
Because the Court finds that the arbitration agreements are valid and enforceable as
applied to all five account agreements—the Joint Account, the Trust Account, Mr. Shepherd’s
IRA Account, Mrs. Shepherd’s IRA Account, and the Shepherd Family Charitable Foundation
Account Agreements, Defendants’ Motion to Compel Arbitration and Stay the Action will be
granted. An order will be entered.
110 Mitsubishi Motors Corp., 473 U.S. at 626.
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