Unilateral “Change-Any-Term” Clauses Can Defeat Arbitration Formation Under Maryland Law

Case: Tiffany Johnson; Tracy I. Crider v. Continental Finance Company, LLC; Continental Purchasing, LLC (Nos. 23-2047, 23-2049)
Court: United States Court of Appeals for the Fourth Circuit
Date: March 11, 2025
Disposition: Affirmed (denial of motion to compel arbitration)

1. Introduction

This published Fourth Circuit decision addresses when a federal court must decide whether an arbitration agreement exists at all, and when a “change-in-terms” clause makes arbitration promises illusory under Maryland contract law.

Parties and posture. Continental Finance Company, LLC and Continental Purchasing, LLC (“Continental”) marketed and serviced high-interest credit card accounts for Maryland consumers Tiffany Johnson and Tracy Crider. Johnson and Crider filed separate Maryland class actions alleging violations of Maryland usury laws, including allegations that Continental used a “rent-a-bank” arrangement to evade state interest-rate limits. Continental removed to federal court and moved to compel arbitration based on the cardholder agreements’ arbitration and delegation language.

Key issues. The appeal presented three gateway questions:

• Who decides illusoriness/formation? Court or arbitrator, despite a delegation clause?
• Choice of law at formation stage. Can the agreement’s Utah/Missouri choice-of-law clause govern the question whether the agreement to arbitrate was formed?
• Merits under Maryland law. Does a clause allowing Continental to “change any term” in its “sole discretion” with only “notice . . . required by law” render arbitration illusory (and thus unsupported by consideration)?

2. Summary of the Opinion

The Fourth Circuit affirmed the denial of arbitration on all grounds:

• Formation is for courts. An illusoriness challenge that negates consideration presents a contract-formation dispute that courts must decide under FAA § 4 before compelling arbitration.
• Choice-of-law clause cannot bootstrap formation. The court refused to apply the contract’s Utah/Missouri choice-of-law provision because it presupposes a validly formed contract; formation must be determined first under Maryland choice-of-law rules.
• Arbitration was illusory under Maryland law. The “change any term” clause, exercisable in Continental’s “sole discretion” with only whatever “notice . . . required by law,” was so one-sided and unconstrained that it allowed Continental to escape its arbitration obligations at will, defeating consideration under Maryland precedent, particularly Cheek v. United Healthcare of Mid-Atlantic, Inc.

3. Analysis

3.1 Precedents Cited

(A) Federal arbitration “who decides” doctrine: formation vs. validity

• Coinbase, Inc. v. Suski (602 U.S. 143 (2024)) framed the threshold inquiry: “What have these parties agreed to?” The Fourth Circuit used it to reinforce that arbitration authority flows only from consent.
• Rent-A-Center, W., Inc. v. Jackson (561 U.S. 63 (2010)) supported the court’s refusal to enforce the delegation clause before confirming the existence of an agreement: delegation provisions are “an additional, antecedent agreement” that itself requires formation.
• AT&T Tech., Inc. v. Comm'cs Workers of Am. (475 U.S. 643 (1986)) supplied the foundational principle: arbitrators derive authority only because parties agreed in advance to arbitrate.
• Prima Paint Corp. v. Flood & Conklin Manufacturing Co. (388 U.S. 395 (1967)) and Buckeye Check Cashing, Inc. v. Cardegna (546 U.S. 440 (2006)) were invoked by Continental for severability. The Fourth Circuit distinguished them as addressing validity challenges to a formed contract, not formation disputes that negate assent or consideration.
• Granite Rock Co. v. International Brotherhood of Teamsters (561 U.S. 287 (2010)) was the decision’s fulcrum: “where the dispute at issue concerns contract formation, the dispute is generally for the courts to decide.” The panel treated it as dispositive against sending illusoriness/consideration formation questions to an arbitrator.
• Fourth Circuit applications: Berkeley County School District v. Hub International Ltd. (944 F.3d 225 (4th Cir. 2019)) (authority to bind as formation question for courts) and Rowland v. Sandy Morris Financial & Estate Planning Services, LLC (993 F.3d 253 (4th Cir. 2021)) (no meeting of minds as formation question for courts).
• The opinion distinguished Amos v. Amazon Logistics, Inc. (74 F.4th 591 (4th Cir. 2 02 3)) as (in substance) a validity/unconscionability argument rather than a true formation challenge.

(B) Choice-of-law and contract formation

• Klaxon Co. v. Stentor Mfg. Co. (313 U.S. 487 (1941)) required application of Maryland choice-of-law rules.
• Continental relied on Jackson v. Pasadena Receivables, Inc. (921 A.2d 799 (Md. 2007)) for enforcing choice-of-law clauses on “validity.” The Fourth Circuit limited Jackson to cases where the contract’s existence is not disputed, emphasizing the formation/validity divide.
• The court cited Realogy Holdings Corp. v. Jongebloed (957 F.3d 523 (5th Cir. 2020)) for the proposition that courts do not resort to contractual choice-of-law clauses to decide the preliminary formation question.
• Under Maryland’s lex loci contractus approach—place where the “last act” occurs—the court applied Konover Prop. Tr., Inc. v. WHE Assocs., Inc. (790 A.2d 720 (Md. App. 2002)) and Francis v. Allstate Ins. Co. (709 F.3d 362 (4th Cir. 2013)) to conclude Maryland law governed because acceptance/use occurred in Maryland.

(C) Maryland law on illusory promises and unilateral modification of arbitration

• Cheek v. United Healthcare of Mid-Atlantic, Inc. (835 A.2d 656 (Md. 2003)) was treated as controlling: unilateral power to “alter, amend, modify, or revoke” arbitration “at its sole and absolute discretion” made the employer’s promise “entirely illusory,” defeating consideration for arbitration.
• Holloman v. Circuit City Stores, Inc. (894 A.2d 547 (Md. 2006)) was distinguished. There, modification was limited (once per year on a fixed date) and required 30 days’ written notice; those constraints created binding obligation.
• DIRECTV, Inc. v. Mattingly (829 A.2d 626 (Md. 2003)) was used to rebut the dissent’s “implicit rejection right” theory: the right to cancel in DIRECTV existed because the contract expressly provided it in the change clause, alongside detailed written notice describing the change and effective date—unlike the sparse “notice . . . required by law” language here.
• The panel also relied on the general Maryland interpretive principle (as stated in Coady v. Nationwide Motor Sales Corp. (32 F.4th 288 (4th Cir. 2022))) that contracts are construed as a whole—undercutting Continental’s attempt to ignore the change-in-terms clause when evaluating the arbitration provision.

(D) Substantive background: Maryland “rent-a-bank” and de facto lender theory

• While not decided on the merits here, the opinion situates the disputes in alleged usury evasion and cites CashCall, Inc. v. Md. Comm'r of Fin. Regul. (139 A.3d 990 (Md. 2016)) for the proposition that an assignee/partner in a “rent-a-bank” scheme may be the “de facto lender” subject to Maryland usury limits.

3.2 Legal Reasoning

(A) The court’s threshold move: formation must be judicially confirmed

The panel rooted its analysis in FAA § 4’s text: a court may compel arbitration only after being “satisfied that the making of the agreement for arbitration . . . is not in issue.” If consideration is missing because promises are illusory, there is no “making” of the arbitration agreement to enforce. This makes illusoriness—when argued as a lack of consideration—a formation question that cannot be delegated away by a clause inside the very agreement whose existence is contested.

(B) Delegation clause cannot “self-validate”

Continental relied on the delegation language (“[a]ll issues of arbitrability must be arbitrated”). The court’s answer was structural: because the delegation clause sits within the same container contract, enforcing it assumes what must first be proven—formation. This is the “cart before the horse” problem the panel considered fatal.

(C) Severability doctrine does not displace formation review

Continental’s severability argument depended on treating illusoriness as a validity issue under Prima Paint/Buckeye. The court rejected that characterization and emphasized:

• Validity challenges presume a contract exists but argue it is unenforceable (or contains unenforceable provisions).
• Formation challenges deny one of the elements necessary for a contract to exist (assent/consideration), leaving “nothing to enforce.”

Granite Rock Co. v. International Brotherhood of Teamsters was cited to anchor this distinction and to require courts to decide formation and applicability of the specific arbitration clause being enforced.

(D) Choice-of-law clause cannot be used to decide whether the contract exists

On choice of law, the court treated Continental’s argument as circular: the clause selecting Utah/Missouri law is itself a term in the disputed contract. Enforcing it would presuppose formation. Under Maryland conflicts rules, Maryland law applied because the agreement was “made” where the plaintiffs accepted and used the cards (Maryland).

(E) Why the “notice required by law” clause did not save arbitration

The majority’s core holding on illusoriness turned on the breadth and indeterminacy of the unilateral modification power:

• Continental could “change any term” in its “sole discretion.”
• The only procedural check—“notice . . . required by law”—was read as committing Continental merely to whatever minimal notice external law already requires, not to advance notice, detailed notice, or any meaningful limitation.
• “Notice” was deemed too vague to constrain the modifying party; the record example that Continental posted an updated agreement on its website illustrated that notice could be after-the-fact and practically ineffective.

The majority further rejected the dissent’s reliance on the account-termination provision as a meaningful constraint, because the same change-in-terms clause purportedly empowered Continental to change “any term,” including termination rights.

(F) The concurrence and dissent sharpen the doctrinal stakes

3.3 Impact

• Stronger judicial gatekeeping for “illusory promise” defenses. In the Fourth Circuit, when a party frames the issue as lack of consideration/illusory promise (a formation defect), courts must resolve it before any delegation clause can operate.
• Limits on “notice” as a saving construction under Maryland law. The decision signals that “notice . . . required by law,” without express advance notice, timing limits, or meaningful constraints, may be insufficient to avoid Cheek-style illusoriness—particularly where the drafter reserves “sole discretion” to change “any term.”
• Drafting consequences for lenders and consumer contracts. For agreements governed by Maryland law (or made in Maryland), drafters seeking enforceable arbitration provisions will likely need more concrete constraints on unilateral modification (e.g., advance written notice, fixed effective dates, limits on frequency, and a non-modifiable arbitration commitment for a defined period), paralleling features the court highlighted in Holloman.
• Choice-of-law clauses may not control the formation fight. Parties cannot assume an out-of-state choice-of-law clause will govern whether arbitration was formed when formation is itself disputed; Maryland lex loci principles may pull the dispute back into Maryland law.
• Procedural leverage in “rent-a-bank” litigation. Although the merits of the usury/rent-a-bank allegations were not adjudicated, the decision makes it harder for defendants to divert such claims into arbitration via agreements whose change-in-terms architecture undermines arbitral consideration under Maryland law.

4. Complex Concepts Simplified

• Delegation clause. A term saying the arbitrator, not the court, decides “arbitrability” (e.g., scope, enforceability). This case holds delegation cannot decide whether the arbitration agreement was ever formed.
• Severability (from Prima Paint/Buckeye). If a contract exists, an arbitration clause can be treated as severable from other contract terms; validity attacks on the overall deal may be for the arbitrator. But severability does not apply where the argument is that no contract (or no arbitration agreement) was formed.
• Formation vs. validity. Formation asks: “Did the parties make a contract?” (assent + consideration). Validity asks: “Even if they did, should the law enforce it?” (e.g., illegality, fraud).
• Illusory promise / lack of consideration. If one party can change the deal at will and avoid obligations, its “promise” may be no promise at all. Without a real exchange, there is no consideration and no enforceable contract (or arbitration agreement).
• “Rent-a-bank” scheme. A non-bank lender uses a bank’s federal preemption to originate loans at rates a state would otherwise cap, then the non-bank takes the loan back. Maryland’s “de facto lender” concept (cited from CashCall, Inc. v. Md. Comm'r of Fin. Regul.) can treat the non-bank as the real lender for usury purposes.

5. Conclusion

The Fourth Circuit’s decision establishes (for disputes applying Maryland formation principles) a clear rule with practical bite: courts—not arbitrators—must decide whether an arbitration agreement was formed when the challenge is that a unilateral “change any term” clause renders the promise to arbitrate illusory. The court further held that a contractual choice-of-law clause cannot be used to decide that antecedent formation question, and it read Maryland precedent—especially Cheek v. United Healthcare of Mid-Atlantic, Inc.—to invalidate arbitration where the drafter retains sweeping “sole discretion” to revise any term with only amorphous “notice . . . required by law.” In consumer finance contracting, the opinion pushes drafters toward concrete, enforceable limits on unilateral modification if they want arbitration provisions to survive Maryland’s consideration doctrine.