Bultemeyer v. Systems & Services Technologies Incorporated

Filing 18

ORDER denying 11 Motion to Stay; denying 11 Motion to Compel; denying 12 Motion to Strike. Signed by Judge David G Campbell on 9/26/2012.(NVO)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Lydia Bultemeyer, on behalf of herself and
all others similarly situated,

No. CV12-0998-PHX-DGC
ORDER

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Plaintiff,

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v.

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Systems & Services Technologies, Inc.,

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Defendant.

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Plaintiff filed a class action suit under the Fair Debt Collection Practices Act

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(“FDCPA”), 15 U.S.C. § 1692, alleging that Defendant Systems & Services

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Technologies, Inc. (“SST”), a debt-servicer for Argossy University (“AU”), violated a

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number of provisions of the FDCPA when it contacted Plaintiff and other similarly

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situated individuals regarding their debts owed to AU.

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concurrently filed a motion to stay and compel arbitration (Doc. 11) and a motion to

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strike the class allegations. Doc. 12. The motions have been fully briefed. Docs. 16, 17.

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For reasons stated below, the Court will deny both motions.

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I.

Doc. 1.

Defendant SST

Background.

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Plaintiff signed an enrollment agreement with AU in which she agreed to pay

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tuition and fees to AU as they came due. Doc. 11 at 5; see Doc. 11-1 at 3-6. The

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enrollment agreement contained an arbitration provision which stated that “any dispute or

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claim between you and AU (or any company affiliated with AU or any of its officers,

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directors, trustees employees or agents) arising out of or relating to this enrollment

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agreement . . . shall be . . . submitted to and resolved by individual and binding

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arbitration pursuant to the terms described herein.” Doc. 11 at 6; Doc. 11-1 at 5.

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Plaintiff alleges that AU assigned her alleged debt to SST for collection, and SST

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left her numerous voice mail messages and written communications in connection with

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this debt. Doc. 1, ¶¶ 12-14; 38-87. Plaintiff alleges that SST’s written correspondence

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and voice mail messages are substantially similar to those sent to an unknown number of

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other alleged AU debtors. Id., ¶¶ 86-87. Plaintiff alleges that these communications

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violated the FDCPA in four ways: (1) SST violated 15 U.S.C. § 1692d(6) because its

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callers failed to meaningfully disclose their identities (Doc. 1, ¶¶ 107-12); (2) SST

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violated Section 1692e(11) because its callers failed to disclose that the calls were from a

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debt collector (id., ¶¶ 113-16); (3) SST violated Section 1692e(10) because it used “false

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representations and deceptive practices” (id., ¶¶ 117-24); and SST violated Section

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1692e(14) because it falsely used a business or organization name other than the true

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name of its business (id., ¶¶ 125-128).

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SST asks the Court to stay this action and compel arbitration on the grounds that

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Plaintiff’s FDCPA claims are within the scope of a valid arbitration agreement between

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Plaintiff and AU. Doc. 11. SST also moves to strike Plaintiff’s class allegations on the

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grounds that Plaintiff waived the right to maintain a class action under the arbitration

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agreement. Doc. 12.

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II.

Legal Standard.

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The FAA broadly provides that written agreements to arbitrate disputes arising out

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of transactions involving interstate commerce “shall be valid, irrevocable, and

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enforceable” except upon grounds that exist at common law for the revocation of a

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contract. 9 U.S.C. ' 2. Absent a valid contract defense, the FAA “‘leaves no place for

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the exercise of discretion by a district court, but instead mandates that district courts shall

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direct the parties to proceed to arbitration on issues as to which an arbitration agreement

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has been signed.’” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th

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Cir. 2000) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985))
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(emphasis in original). The district court’s role under the FAA is “limited to determining

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(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement

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encompasses the dispute at issue.” Id.

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III.

SST’s Motion to Stay and Compel Arbitration.

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A.

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Plaintiff does not deny that she signed AU’s enrollment agreement which

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contained the agreement to arbitrate, but she argues that this does not obligate her to

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arbitrate her claims against SST, a nonsignatory to that agreement. Doc. 16 at 3-10.

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Plaintiff also argues that the Court should deny SST’s motions because the arbitration

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Agreement to Arbitrate.

agreement is substantively and procedurally unconscionable. Id. at 10-11.

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In support of her assertion that the arbitration agreement is substantively and

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procedurally unconscionable, Plaintiff cites to the terms of the enrollment agreement that

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say “Your acceptance as a student at Argosy University is conditioned upon your

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agreement to be bound by the terms of the Arbitration Agreement.” Doc. 11-1 at 6.

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Plaintiff argues that this shows that the agreement was an “adhesion contract” because

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she had no choice but to sign it if she wished to enroll. Id. at 11.

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In Broemmer v. Abortion Servs. of Phoenix, Ltd., the Arizona Supreme Court

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recognized an adhesion contract as one that is offered on a “take it or leave it basis”

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where the consumer “has no realistic choice as to its terms.” 840 P.2d 1013, 1016 (Ariz.

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1992) (quoting Wheeler v. St. Joseph Hosp., 63 Cal. App.3d 345, 356, 133 Cal. Rptr. 775,

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783 (1976)). The Arizona Supreme Court made clear, however, that adhesion alone is

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not sufficient to invalidate a contract provision. Id. The court looked additionally to

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whether the challenged provision violated the adhering party’s reasonable expectations

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and whether it was “unduly oppressive” or “unconscionable” to that party. Broemmer,

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840 P.2d at 1016 (quoting Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 171 Cal. Rptr.

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604, 611-12, 623 P.2d 165, 172-73 (1981)).

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Plaintiff has not shown that the arbitration provision violated her reasonable
expectations or that any of its terms are unduly oppressive.
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Plaintiff’s conclusory

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assertion that the arbitration provision is “unconscionable” simply because it was offered

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on a “take it or leave it” basis, without any discussion of how its terms are

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disadvantageous to her, does not support invalidating the agreement.

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Capital Management, LLC v. Sly, 820 F.Supp.2d 1011, 1021 (D. Ariz. 2011) (finding that

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a plaintiff’s “vague and conclusory [assertions of increased expense] do not support

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invalidating the arbitration clause”); Green Tree Financial Corp. v. Randolph, 531 U.S.

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79, 90-92 (2000) (finding a plaintiff’s unsupported assertions that she would not be able

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to vindicate her rights in arbitration because of prohibitive costs “too speculative to

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justify the invalidation of an arbitration agreement.”).

See Kingsley

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The remaining question is whether the arbitration agreement obligates Plaintiff to

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arbitrate its claims against nonsignatory SST. SST argues on the basis of Kingsley that

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“those who have not signed a contract containing an arbitration clause may sometimes

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benefit from it through doctrines such as assumption, agency, veil-piercing/alter ego, and

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estoppel.” Doc. 11 at 13 (quoting Kingsley, 820 F.Supp.2d at 1018) (citing Mundi v.

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Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir.2009); Zurich American Ins. Co.

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v. Watts Industries, Inc., 417 F.3d 682, 687 (7th Cir. 2005)). In addition, SST cites Ninth

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Circuit authority stating that “nonsignatories can enforce arbitration agreements as third

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party beneficiaries.” Id. (quoting Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir.

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2006)). SST argues that equitable estoppel, agency, and third-party beneficiary status all

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support SST’s right to compel arbitration in this case. Id. at 13-19.

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1.

Equitable Estoppel.

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Equitable estoppel applies when a party claiming the benefits of a contract

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simultaneously seeks to avoid the burdens of that contract. See Mundi, 555 F.3d at 1045-

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46; Kingsley, 820 F.Supp.2d at 1023. The Ninth Circuit in Mundi recognized two lines of

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cases applying equitable estoppel in the arbitration context: (1) those in which a

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nonsignatory may be held to an arbitration agreement where that party “knowingly

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exploits” or takes advantage of that agreement despite not having signed it, and (2) those

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in which a signatory may be required to arbitrate with a nonsignatory because of a close
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relationship between the parties involved and “‘the fact that the claims [a]re intertwined

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with the underlying contractual obligations.’”

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Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 199 (3d

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Cir.2001)). Mundi stated that “in light of the general principle that only those who have

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agreed to arbitrate are obliged to do so, we see no basis for extending the concept of

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equitable estoppel of third parties in an arbitration context beyond the very narrow

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confines delineated in these two lines of cases.” Id.

Id. at 1046 (quoting E.I. DuPont de

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As here, Mundi dealt with a nonsignatory defendant’s motion to compel

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arbitration. Id. at 1044. Mundi looked for guidance to Sokol Holdings, Inc. v. BMB

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Munai, Inc., 542 F.3d 354, 361 (2d Cir.2008), in which the Second Circuit “examined

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cases in which a nonsignatory was allowed to compel a signatory to arbitrate based on

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estoppel and reasoned that it was ‘essential in all of these cases that the subject matter of

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the dispute was intertwined with the contract providing for arbitration.’” Id. (quoting

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Sokol, 542 F.3d at 361).

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Mundi held that a plaintiff whose husband signed an arbitration agreement with

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Wells Fargo Bank as part of a contract for a home equity line of credit could not be

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compelled to arbitrate her claims against her husband’s credit insurer for its refusal to pay

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off the line of credit after her husband’s death. Id. at 1045, 1047. Even though payments

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for the credit insurance were added into the deceased’s monthly payments to Wells Fargo

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and Wells Fargo was the beneficiary of the insurance contract, resolution of the plaintiff’s

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failure-to-pay claims against the insurer did not require an examination of the terms of

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the underlying credit contract, and the plaintiff had not alleged collusion or misconduct

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on the part of Wells Fargo. Id. at 1047.

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Mundi discussed two other cases that provide guidance on when equitable estoppel

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applies to compel a signatory to an arbitration agreement to arbitrate his or her claims

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against a nonsignatory. Id. at 1046. In American Bankers Insurance Group, Inc. v. Long,

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453 F.3d 623, 630 (4th Cir.2006), the Fourth Circuit found that the plaintiffs who had

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signed a contract containing an arbitration clause could be compelled to arbitrate their
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claims against a nonsignatory where all of the claims depended on the terms of a

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promissory note that had been attached to and incorporated by reference into the contract.

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Conversely, in Brantley v. Republic Mortgage Insurance Co., 424 F.3d 392 (4th

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Cir.2005), the Fourth Circuit found that equitable estoppel did not apply to compel a

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plaintiff to arbitrate her Fair Credit Reporting Act claims against her mortgage insurance

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company where the plaintiff was party to an arbitration clause in her mortgage contract.

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The court found that “the plaintiffs’ claim was ‘wholly separate from any action or

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remedy for breach of the underlying mortgage contract that is governed by the arbitration

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agreement.’” Mundi, 555 F.3d at 1047 (quoting Brantley, 424 F.3d at 396). The court

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also found no allegations of collusion or misconduct on the part of the mortgage lender

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with whom the plaintiff had made the arbitration agreement. Id.

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SST argues that equitable estoppel applies in this case because Plaintiff will have

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to rely on the enrollment contract containing the arbitration agreement with AU to

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demonstrate that she was in default of her payment duties in order to prove that SST was

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acting as a debt collector subject to the FDCPA. Doc. 11 at 14. SST also argues that

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Plaintiff alleges “substantially interdependent” misconduct by AU and SST, that Plaintiff

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cannot make her claims against SST without showing how it and AU communicated with

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students who owed money to AU, and that apart from the conduct of AU in originating

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the debt, Plaintiff would not have any claims against SST. Id. at 14-15.

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SST’s arguments are unpersuasive.

Like Mundi and Bentley, in which the

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plaintiffs’ claims against their mortgage insurers would not have existed but for the

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underlying mortgage contracts, Plaintiffs claims against SST would not exist but for her

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underlying enrollment agreement with AU. As in those cases, however, this is not a

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sufficient link to show that “the subject matter of the dispute [i]s intertwined with the

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contract providing for arbitration.” Sokol, 542 F.3d at 361; See Kinglsely, 820 F.Supp.2d

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at 1025 (finding a similar “but for” argument insufficient to compel arbitration).

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It is true, as SST argues, that Plaintiff’s claims under the FDCPA depend in part

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on a showing that SST’s actions occurred after Plaintiff’s default. But this does not mean
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that resolution of Plaintiff’s claims against SST depends on the terms of Plaintiff’s

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agreement with AU. Even if evidence of Plaintiff’s alleged default is a required element

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of her claims, the substance of Plaintiff’s claims against SST depends entirely on SST’s

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alleged violations of the FDCPA, not on the enrollment agreement. Like the plaintiff’s

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claims against her mortgage insurer under the Fair Credit Reporting Act in Bentley,

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Plaintiff’s FDCPA claims are “wholly separate from any action or remedy for breach of

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the underlying . . . contract that is governed by the arbitration agreement.” 424 F.3d at

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396.

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SST’s assertion of “substantially interrelated” conduct is also without merit.

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Plaintiff’s complaint alleges that AU assigned Plaintiff’s debt to SST for collection

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(Doc. 1, ¶ 14), but the complaint goes on to allege that SST employees are not monitored,

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supervised, disciplined, or trained as AU employees, and that “[SST] is independently

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involved in all aspects of the collection process regarding [SST’s] collection of Argossy

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University accounts.” Id., ¶¶ 15-25; 27.

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SST cites to Johnston v. Arrow Financial Services, LLC, No. 06 C 0013, 2006 WL

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2710663 at *5 (N.D. Ill. Sept. 15, 2006), in which the plaintiffs argued that they only

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asserted claims against the defendant debt-collection service and not their lender, Capital

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One. The court in Johnston found that “despite [these] protestations . . ., plaintiffs do in

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fact allege interdependent and concerted misconduct by defendant and Capital One.” Id.

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But in Johnston, the plaintiffs alleged in their complaint that the defendant and Capital

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One acted together when they sent letters on Capital One letterhead and that the

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defendant “was complicit in the sending of those letters by allowing Capital One to use

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defendant’s phone number and contact information.” Id. Here, Plaintiff alleges that SST

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used AU letterhead and claimed to be calling from AU when communicating with

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Plaintiffs and others about their AU accounts (Doc. 1, ¶¶ 36, 38 passim), but Plaintiff

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makes no allegations that AU was complicit with these actions. Rather, Plaintiff alleges

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that SST maintains sole control over the letters and collection procedures and handles all

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correspondence independently from AU’s supervision or control. Id., ¶¶ 23-33.
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SST provides, without any analysis, a string of citations to cases in which courts

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have compelled a signatory to an arbitration agreement to arbitrate its claims against a

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nonsignatory. Doc. 17 at 7-8. These cases are inapposite. The Court briefly discusses

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them below as further evidence that equitable estoppel does not apply in this case.

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In Lucas v. Hertz Corp., No. C 11–01581, 2012 WL 2367617 (N.D. Cal. June 21,

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2012), the court found that nonsignatory Hertz Rental Car could compel arbitration of the

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plaintiff’s claims against it on the basis of an arbitration clause contained in a car-rental

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contract between the plaintiff and Hertz’s licensee, Costa-Rica Rental Car. 2012 WL

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2367617, at *7. But this was because the court found that the plaintiff received benefits

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from Hertz under the car rental contract, and all of the plaintiff’s claims against Hertz

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rested on the terms of that contract. Id.

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Sourcing Unlimited, Inc. v. Asimco Intern., Inc., 526 F.3d 38, 48 (1st Cir. 2008),

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similarly concluded that all of the plaintiff’s claims against a nonsignatory “ultimately

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derive from benefits it alleges are due it under the partnership Agreement” and were

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therefore subject to that agreement’s arbitration clause. SST, by contrast, does not argue

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that Plaintiff received any benefit from SST as a result of her enrollment agreement with

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AU. Nor do Plaintiff’s claims against SST rest on the terms of her enrollment agreement

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with AU.

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American Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th Cir.2006), as

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discussed above, involved the incorporation of the note that was the basis for the

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signatory’s claims into the contract containing the arbitration provision.

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incorporation of the FDCPA or any other provisions imposing obligations on SST are

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present in this case.

No such

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The remaining cases, Sanders v. Swift Transp. Co. of Arizona, LLC, 843 F.Supp.2d

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1033 (N.D. Cal. 2012); PRM Energy Systems, Inc. v. Primenergy, L.L.C., 592 F.3d 830

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(8th Cir. 2010); Griffin v. ABN Amro Mortg. Group Inc., 378 Fed. Appx. 437,2010 WL

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1976575 (5th Cir. 2010); and Ragone v. Atlantic Video at Manhattan Center, 595 F.3d

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115 (2d Cir. 2010), all rely on allegations of interdependent and concerted misconduct of
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a nonsignatory and a signatory. As discussed above, no such allegations are present in

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this case. SST’s equitable estoppel argument fails.
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Agency Relationship.

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“[N]onsignatories of arbitration agreements may be bound by the agreement under

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ordinary contract and agency principles.” Comer, 436 F.3d at 1101 (quoting Letizia v.

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Prudential Bache Securities, 802 F.2d 1185, 1187–88 (9th Cir.1986)) (internal quotation

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marks omitted). Agency theory applies “when a signatory has brought claims against

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nonsignatory agents and the agents then seek to invoke the arbitration clause against the

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signatory.” Legacy Wireless Servs. v. Human Capital, LLC, 314 F.Supp.2d 1045, 1054

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(D. Or. 2004)) (quoted in Petersen v. EMC Telecom Corp., No. CV-09-2552, 2010 WL

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2490002, at *4 (D. Ariz. June 16, 2010)) (emphasis deleted). “Independent contractors

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do not fall within the exception that non-signatory agents may be bound by an arbitration

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agreement.” Swift v. Zynga Game Network, Inc, 805 F.Supp.2d 904, 916 (N.D. Cal.

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2011).

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Agency “results from the manifestation of consent by one person to another that

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the other shall act on his behalf and subject to his control, and consent by the other so to

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act.” Restatement (First) of Agency § 1 (1933). “[T]here is not necessarily an agency

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relationship because the parties to a transaction say that there is, or contract that the

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relationship shall exist, or believe it does exist. Agency results only if there is an

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agreement for the creation of a fiduciary relationship with control by the beneficiary.” Id.

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at § 1 cmt. b (quoted in Valley Nat. Bank of Phoenix v. Milmoe, 248 P.2d 740, 743 (Ariz.

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1952)).

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SST argues that it acted as AU’s agent pursuant to an agreement that AU entered

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with its sister company, NCO Financial Systems, Inc., in which SST was designated to

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act as AU’s payment processor and given responsibility to perform some of NCO’s

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servicing duties. Doc. 11 at 17; See Decl. of Gregory R. Steven, Doc. 11-1, ¶¶ 5-7. SST

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argues that Plaintiff’s arbitration agreement with AU expressly pertains to claims against

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AU “and . . . its agents” and that this permits SST to invoke arbitration. Id. Plaintiff
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argues that no agency relationship exists because AU contracted with NCO, not SST, and

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SST presents no evidence that it was subject to AU’s control or consented to act on its

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behalf. Doc. 16 at 8.

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SST has failed to demonstrate that it entered into an agency relationship with AU

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or to rebut Plaintiff’s allegations, discussed above, that SST operated independently from

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and outside of the supervision and control of AU. SST argues on the basis of Browne v.

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Nowlin, 570 P.2d 1246, 1248 (Ariz. 1977), that Plaintiff’s allegations that it contacted

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Plaintiff, purporting to be AU, and sought to collect payments on AU’s behalf are

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sufficient under Arizona law to show implied agency. Doc. 17 at 9. But Browne dealt

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with whether a lender could deny that a title company that accepted payments on its

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behalf acted as its agent after the lender ratified the title company’s actions. 570 P.2d at

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1248. Holding a principal accountable for actions it ratified is not the same as bringing

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an implied agent within the scope of the principal’s arbitration agreement. SST has

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presented no evidence that it entered into an agency relationship with AU, that AU

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ratified its actions, or that AU exercised supervision or control over its debt collection

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practices. The Court accordingly cannot conclude that SST is entitled to invoke AU’s

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arbitration clause on an agency theory.

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3.

Third Party Beneficiary.

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Nonsignatories can enforce arbitration agreements as third party beneficiaries.

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Comer, 436 F.3d 1098, 1101 (9th Cir.2006) (citing E.I. Dupont de Nemours & Co. v.

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Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 195 (3d Cir. 2001)).

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This “requires a showing that the parties to the contract intended to benefit a third party.”

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Britton v. Co-op Banking Group, 4 F.3d 742, 745 (9th Cir. 1993) (emphasis in original);

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see also Nahom v. Blue Cross and Blue Shield of Arizona, Inc., 885 P.2d 1113, 1117-18

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(Ariz. Ct. App. 1994) (“an intention to benefit [the third party] must be indicated in the

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contract itself . . . . The contemplated benefit must be both intentional and direct . . . ,

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and ‘it must definitely appear that the parties intend to recognize the third party as the

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primary party in interest’”) (internal citations omitted).
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SST’s argument that it is entitled to invoke the arbitration provision as a third

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party beneficiary is not persuasive. There is no evidence in the contract that it was

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intended for SST’s benefit. The contract makes no mention of benefits intended for SST

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or for any class of AU affiliates to which SST may claim to be a part. Whatever benefit

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SST may derive from its role in servicing student debt is at most a byproduct of the

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contract, not its intended purpose. “‘[I]t is not enough that some benefit incidental to the

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performance of the contract may accrue to [the third party].’” Lester v. Basner, 676 F.

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Supp. 481, 484 (S.D.N.Y. 1987) (quoting Vazman v. Fidelity Int’l Bank, 418 F. Supp.

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1084, 1086 (S.D.N.Y.1976)). SST is not entitled to compel arbitration on these grounds.

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B.

Whether the Agreement Encompasses Plaintiff’s Claims.

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Having found that Plaintiff did not have an agreement to arbitrate with SST, and

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that none of SST’s alternative theories for compelling arbitration apply, the Court cannot

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conclude that Plaintiff’s FDCPA claims fall within the scope of her arbitration agreement

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with AU. The Court will deny SST’s motion to stay and compel arbitration.

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IV.

SST’s Motion to Strike Class Allegations.

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SST’s motion to strike class allegations is based solely on its argument that

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Plaintiff is bound by the waiver of class action contained in her arbitration agreement

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with AU. Doc. 12 at 4-5. Having found that Plaintiff is not bound by the arbitration

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agreement as to her FDCPA claims against SST, the Court will deny SST’s motion to

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strike class allegations.

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IT IS ORDERED:

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1.

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Defendant Systems & Services Technologies, Inc.’s motion to stay and
compel arbitration (Doc. 11) is denied.

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2.

Defendant Systems & Services Technologies, Inc.’s motion to strike class
allegations (Doc. 12) is denied.

Dated this 26th day of September, 2012.

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