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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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Lydia Bultemeyer, on behalf of herself and all others similarly situated, No. CV12-0998-PHX-DGC ORDER 10 Plaintiff, 11 v. 12 Systems & Services Technologies, Inc., 13 Defendant. 14 15 Plaintiff filed a class action suit under the Fair Debt Collection Practices Act 16 (“FDCPA”), 15 U.S.C. § 1692, alleging that Defendant Systems & Services 17 Technologies, Inc. (“SST”), a debt-servicer for Argossy University (“AU”), violated a 18 number of provisions of the FDCPA when it contacted Plaintiff and other similarly 19 situated individuals regarding their debts owed to AU. 20 concurrently filed a motion to stay and compel arbitration (Doc. 11) and a motion to 21 strike the class allegations. Doc. 12. The motions have been fully briefed. Docs. 16, 17. 22 For reasons stated below, the Court will deny both motions. 23 I. Doc. 1. Defendant SST Background. 24 Plaintiff signed an enrollment agreement with AU in which she agreed to pay 25 tuition and fees to AU as they came due. Doc. 11 at 5; see Doc. 11-1 at 3-6. The 26 enrollment agreement contained an arbitration provision which stated that “any dispute or 27 claim between you and AU (or any company affiliated with AU or any of its officers, 28 directors, trustees employees or agents) arising out of or relating to this enrollment 1 agreement . . . shall be . . . submitted to and resolved by individual and binding 2 arbitration pursuant to the terms described herein.” Doc. 11 at 6; Doc. 11-1 at 5. 3 Plaintiff alleges that AU assigned her alleged debt to SST for collection, and SST 4 left her numerous voice mail messages and written communications in connection with 5 this debt. Doc. 1, ¶¶ 12-14; 38-87. Plaintiff alleges that SST’s written correspondence 6 and voice mail messages are substantially similar to those sent to an unknown number of 7 other alleged AU debtors. Id., ¶¶ 86-87. Plaintiff alleges that these communications 8 violated the FDCPA in four ways: (1) SST violated 15 U.S.C. § 1692d(6) because its 9 callers failed to meaningfully disclose their identities (Doc. 1, ¶¶ 107-12); (2) SST 10 violated Section 1692e(11) because its callers failed to disclose that the calls were from a 11 debt collector (id., ¶¶ 113-16); (3) SST violated Section 1692e(10) because it used “false 12 representations and deceptive practices” (id., ¶¶ 117-24); and SST violated Section 13 1692e(14) because it falsely used a business or organization name other than the true 14 name of its business (id., ¶¶ 125-128). 15 SST asks the Court to stay this action and compel arbitration on the grounds that 16 Plaintiff’s FDCPA claims are within the scope of a valid arbitration agreement between 17 Plaintiff and AU. Doc. 11. SST also moves to strike Plaintiff’s class allegations on the 18 grounds that Plaintiff waived the right to maintain a class action under the arbitration 19 agreement. Doc. 12. 20 II. Legal Standard. 21 The FAA broadly provides that written agreements to arbitrate disputes arising out 22 of transactions involving interstate commerce “shall be valid, irrevocable, and 23 enforceable” except upon grounds that exist at common law for the revocation of a 24 contract. 9 U.S.C. ' 2. Absent a valid contract defense, the FAA “‘leaves no place for 25 the exercise of discretion by a district court, but instead mandates that district courts shall 26 direct the parties to proceed to arbitration on issues as to which an arbitration agreement 27 has been signed.’” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 28 Cir. 2000) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)) -2- 1 (emphasis in original). The district court’s role under the FAA is “limited to determining 2 (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement 3 encompasses the dispute at issue.” Id. 4 III. SST’s Motion to Stay and Compel Arbitration. 5 A. 6 Plaintiff does not deny that she signed AU’s enrollment agreement which 7 contained the agreement to arbitrate, but she argues that this does not obligate her to 8 arbitrate her claims against SST, a nonsignatory to that agreement. Doc. 16 at 3-10. 9 Plaintiff also argues that the Court should deny SST’s motions because the arbitration 10 Agreement to Arbitrate. agreement is substantively and procedurally unconscionable. Id. at 10-11. 11 In support of her assertion that the arbitration agreement is substantively and 12 procedurally unconscionable, Plaintiff cites to the terms of the enrollment agreement that 13 say “Your acceptance as a student at Argosy University is conditioned upon your 14 agreement to be bound by the terms of the Arbitration Agreement.” Doc. 11-1 at 6. 15 Plaintiff argues that this shows that the agreement was an “adhesion contract” because 16 she had no choice but to sign it if she wished to enroll. Id. at 11. 17 In Broemmer v. Abortion Servs. of Phoenix, Ltd., the Arizona Supreme Court 18 recognized an adhesion contract as one that is offered on a “take it or leave it basis” 19 where the consumer “has no realistic choice as to its terms.” 840 P.2d 1013, 1016 (Ariz. 20 1992) (quoting Wheeler v. St. Joseph Hosp., 63 Cal. App.3d 345, 356, 133 Cal. Rptr. 775, 21 783 (1976)). The Arizona Supreme Court made clear, however, that adhesion alone is 22 not sufficient to invalidate a contract provision. Id. The court looked additionally to 23 whether the challenged provision violated the adhering party’s reasonable expectations 24 and whether it was “unduly oppressive” or “unconscionable” to that party. Broemmer, 25 840 P.2d at 1016 (quoting Graham v. Scissor-Tail, Inc., 28 Cal.3d 807, 171 Cal. Rptr. 26 604, 611-12, 623 P.2d 165, 172-73 (1981)). 27 28 Plaintiff has not shown that the arbitration provision violated her reasonable expectations or that any of its terms are unduly oppressive. -3- Plaintiff’s conclusory 1 assertion that the arbitration provision is “unconscionable” simply because it was offered 2 on a “take it or leave it” basis, without any discussion of how its terms are 3 disadvantageous to her, does not support invalidating the agreement. 4 Capital Management, LLC v. Sly, 820 F.Supp.2d 1011, 1021 (D. Ariz. 2011) (finding that 5 a plaintiff’s “vague and conclusory [assertions of increased expense] do not support 6 invalidating the arbitration clause”); Green Tree Financial Corp. v. Randolph, 531 U.S. 7 79, 90-92 (2000) (finding a plaintiff’s unsupported assertions that she would not be able 8 to vindicate her rights in arbitration because of prohibitive costs “too speculative to 9 justify the invalidation of an arbitration agreement.”). See Kingsley 10 The remaining question is whether the arbitration agreement obligates Plaintiff to 11 arbitrate its claims against nonsignatory SST. SST argues on the basis of Kingsley that 12 “those who have not signed a contract containing an arbitration clause may sometimes 13 benefit from it through doctrines such as assumption, agency, veil-piercing/alter ego, and 14 estoppel.” Doc. 11 at 13 (quoting Kingsley, 820 F.Supp.2d at 1018) (citing Mundi v. 15 Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir.2009); Zurich American Ins. Co. 16 v. Watts Industries, Inc., 417 F.3d 682, 687 (7th Cir. 2005)). In addition, SST cites Ninth 17 Circuit authority stating that “nonsignatories can enforce arbitration agreements as third 18 party beneficiaries.” Id. (quoting Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 19 2006)). SST argues that equitable estoppel, agency, and third-party beneficiary status all 20 support SST’s right to compel arbitration in this case. Id. at 13-19. 21 1. Equitable Estoppel. 22 Equitable estoppel applies when a party claiming the benefits of a contract 23 simultaneously seeks to avoid the burdens of that contract. See Mundi, 555 F.3d at 1045- 24 46; Kingsley, 820 F.Supp.2d at 1023. The Ninth Circuit in Mundi recognized two lines of 25 cases applying equitable estoppel in the arbitration context: (1) those in which a 26 nonsignatory may be held to an arbitration agreement where that party “knowingly 27 exploits” or takes advantage of that agreement despite not having signed it, and (2) those 28 in which a signatory may be required to arbitrate with a nonsignatory because of a close -4- 1 relationship between the parties involved and “‘the fact that the claims [a]re intertwined 2 with the underlying contractual obligations.’” 3 Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 199 (3d 4 Cir.2001)). Mundi stated that “in light of the general principle that only those who have 5 agreed to arbitrate are obliged to do so, we see no basis for extending the concept of 6 equitable estoppel of third parties in an arbitration context beyond the very narrow 7 confines delineated in these two lines of cases.” Id. Id. at 1046 (quoting E.I. DuPont de 8 As here, Mundi dealt with a nonsignatory defendant’s motion to compel 9 arbitration. Id. at 1044. Mundi looked for guidance to Sokol Holdings, Inc. v. BMB 10 Munai, Inc., 542 F.3d 354, 361 (2d Cir.2008), in which the Second Circuit “examined 11 cases in which a nonsignatory was allowed to compel a signatory to arbitrate based on 12 estoppel and reasoned that it was ‘essential in all of these cases that the subject matter of 13 the dispute was intertwined with the contract providing for arbitration.’” Id. (quoting 14 Sokol, 542 F.3d at 361). 15 Mundi held that a plaintiff whose husband signed an arbitration agreement with 16 Wells Fargo Bank as part of a contract for a home equity line of credit could not be 17 compelled to arbitrate her claims against her husband’s credit insurer for its refusal to pay 18 off the line of credit after her husband’s death. Id. at 1045, 1047. Even though payments 19 for the credit insurance were added into the deceased’s monthly payments to Wells Fargo 20 and Wells Fargo was the beneficiary of the insurance contract, resolution of the plaintiff’s 21 failure-to-pay claims against the insurer did not require an examination of the terms of 22 the underlying credit contract, and the plaintiff had not alleged collusion or misconduct 23 on the part of Wells Fargo. Id. at 1047. 24 Mundi discussed two other cases that provide guidance on when equitable estoppel 25 applies to compel a signatory to an arbitration agreement to arbitrate his or her claims 26 against a nonsignatory. Id. at 1046. In American Bankers Insurance Group, Inc. v. Long, 27 453 F.3d 623, 630 (4th Cir.2006), the Fourth Circuit found that the plaintiffs who had 28 signed a contract containing an arbitration clause could be compelled to arbitrate their -5- 1 claims against a nonsignatory where all of the claims depended on the terms of a 2 promissory note that had been attached to and incorporated by reference into the contract. 3 Conversely, in Brantley v. Republic Mortgage Insurance Co., 424 F.3d 392 (4th 4 Cir.2005), the Fourth Circuit found that equitable estoppel did not apply to compel a 5 plaintiff to arbitrate her Fair Credit Reporting Act claims against her mortgage insurance 6 company where the plaintiff was party to an arbitration clause in her mortgage contract. 7 The court found that “the plaintiffs’ claim was ‘wholly separate from any action or 8 remedy for breach of the underlying mortgage contract that is governed by the arbitration 9 agreement.’” Mundi, 555 F.3d at 1047 (quoting Brantley, 424 F.3d at 396). The court 10 also found no allegations of collusion or misconduct on the part of the mortgage lender 11 with whom the plaintiff had made the arbitration agreement. Id. 12 SST argues that equitable estoppel applies in this case because Plaintiff will have 13 to rely on the enrollment contract containing the arbitration agreement with AU to 14 demonstrate that she was in default of her payment duties in order to prove that SST was 15 acting as a debt collector subject to the FDCPA. Doc. 11 at 14. SST also argues that 16 Plaintiff alleges “substantially interdependent” misconduct by AU and SST, that Plaintiff 17 cannot make her claims against SST without showing how it and AU communicated with 18 students who owed money to AU, and that apart from the conduct of AU in originating 19 the debt, Plaintiff would not have any claims against SST. Id. at 14-15. 20 SST’s arguments are unpersuasive. Like Mundi and Bentley, in which the 21 plaintiffs’ claims against their mortgage insurers would not have existed but for the 22 underlying mortgage contracts, Plaintiffs claims against SST would not exist but for her 23 underlying enrollment agreement with AU. As in those cases, however, this is not a 24 sufficient link to show that “the subject matter of the dispute [i]s intertwined with the 25 contract providing for arbitration.” Sokol, 542 F.3d at 361; See Kinglsely, 820 F.Supp.2d 26 at 1025 (finding a similar “but for” argument insufficient to compel arbitration). 27 It is true, as SST argues, that Plaintiff’s claims under the FDCPA depend in part 28 on a showing that SST’s actions occurred after Plaintiff’s default. But this does not mean -6- 1 that resolution of Plaintiff’s claims against SST depends on the terms of Plaintiff’s 2 agreement with AU. Even if evidence of Plaintiff’s alleged default is a required element 3 of her claims, the substance of Plaintiff’s claims against SST depends entirely on SST’s 4 alleged violations of the FDCPA, not on the enrollment agreement. Like the plaintiff’s 5 claims against her mortgage insurer under the Fair Credit Reporting Act in Bentley, 6 Plaintiff’s FDCPA claims are “wholly separate from any action or remedy for breach of 7 the underlying . . . contract that is governed by the arbitration agreement.” 424 F.3d at 8 396. 9 SST’s assertion of “substantially interrelated” conduct is also without merit. 10 Plaintiff’s complaint alleges that AU assigned Plaintiff’s debt to SST for collection 11 (Doc. 1, ¶ 14), but the complaint goes on to allege that SST employees are not monitored, 12 supervised, disciplined, or trained as AU employees, and that “[SST] is independently 13 involved in all aspects of the collection process regarding [SST’s] collection of Argossy 14 University accounts.” Id., ¶¶ 15-25; 27. 15 SST cites to Johnston v. Arrow Financial Services, LLC, No. 06 C 0013, 2006 WL 16 2710663 at *5 (N.D. Ill. Sept. 15, 2006), in which the plaintiffs argued that they only 17 asserted claims against the defendant debt-collection service and not their lender, Capital 18 One. The court in Johnston found that “despite [these] protestations . . ., plaintiffs do in 19 fact allege interdependent and concerted misconduct by defendant and Capital One.” Id. 20 But in Johnston, the plaintiffs alleged in their complaint that the defendant and Capital 21 One acted together when they sent letters on Capital One letterhead and that the 22 defendant “was complicit in the sending of those letters by allowing Capital One to use 23 defendant’s phone number and contact information.” Id. Here, Plaintiff alleges that SST 24 used AU letterhead and claimed to be calling from AU when communicating with 25 Plaintiffs and others about their AU accounts (Doc. 1, ¶¶ 36, 38 passim), but Plaintiff 26 makes no allegations that AU was complicit with these actions. Rather, Plaintiff alleges 27 that SST maintains sole control over the letters and collection procedures and handles all 28 correspondence independently from AU’s supervision or control. Id., ¶¶ 23-33. -7- 1 SST provides, without any analysis, a string of citations to cases in which courts 2 have compelled a signatory to an arbitration agreement to arbitrate its claims against a 3 nonsignatory. Doc. 17 at 7-8. These cases are inapposite. The Court briefly discusses 4 them below as further evidence that equitable estoppel does not apply in this case. 5 In Lucas v. Hertz Corp., No. C 11–01581, 2012 WL 2367617 (N.D. Cal. June 21, 6 2012), the court found that nonsignatory Hertz Rental Car could compel arbitration of the 7 plaintiff’s claims against it on the basis of an arbitration clause contained in a car-rental 8 contract between the plaintiff and Hertz’s licensee, Costa-Rica Rental Car. 2012 WL 9 2367617, at *7. But this was because the court found that the plaintiff received benefits 10 from Hertz under the car rental contract, and all of the plaintiff’s claims against Hertz 11 rested on the terms of that contract. Id. 12 Sourcing Unlimited, Inc. v. Asimco Intern., Inc., 526 F.3d 38, 48 (1st Cir. 2008), 13 similarly concluded that all of the plaintiff’s claims against a nonsignatory “ultimately 14 derive from benefits it alleges are due it under the partnership Agreement” and were 15 therefore subject to that agreement’s arbitration clause. SST, by contrast, does not argue 16 that Plaintiff received any benefit from SST as a result of her enrollment agreement with 17 AU. Nor do Plaintiff’s claims against SST rest on the terms of her enrollment agreement 18 with AU. 19 American Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 627 (4th Cir.2006), as 20 discussed above, involved the incorporation of the note that was the basis for the 21 signatory’s claims into the contract containing the arbitration provision. 22 incorporation of the FDCPA or any other provisions imposing obligations on SST are 23 present in this case. No such 24 The remaining cases, Sanders v. Swift Transp. Co. of Arizona, LLC, 843 F.Supp.2d 25 1033 (N.D. Cal. 2012); PRM Energy Systems, Inc. v. Primenergy, L.L.C., 592 F.3d 830 26 (8th Cir. 2010); Griffin v. ABN Amro Mortg. Group Inc., 378 Fed. Appx. 437,2010 WL 27 1976575 (5th Cir. 2010); and Ragone v. Atlantic Video at Manhattan Center, 595 F.3d 28 115 (2d Cir. 2010), all rely on allegations of interdependent and concerted misconduct of -8- 1 a nonsignatory and a signatory. As discussed above, no such allegations are present in 2 this case. SST’s equitable estoppel argument fails. 2. 3 Agency Relationship. 4 “[N]onsignatories of arbitration agreements may be bound by the agreement under 5 ordinary contract and agency principles.” Comer, 436 F.3d at 1101 (quoting Letizia v. 6 Prudential Bache Securities, 802 F.2d 1185, 1187–88 (9th Cir.1986)) (internal quotation 7 marks omitted). Agency theory applies “when a signatory has brought claims against 8 nonsignatory agents and the agents then seek to invoke the arbitration clause against the 9 signatory.” Legacy Wireless Servs. v. Human Capital, LLC, 314 F.Supp.2d 1045, 1054 10 (D. Or. 2004)) (quoted in Petersen v. EMC Telecom Corp., No. CV-09-2552, 2010 WL 11 2490002, at *4 (D. Ariz. June 16, 2010)) (emphasis deleted). “Independent contractors 12 do not fall within the exception that non-signatory agents may be bound by an arbitration 13 agreement.” Swift v. Zynga Game Network, Inc, 805 F.Supp.2d 904, 916 (N.D. Cal. 14 2011). 15 Agency “results from the manifestation of consent by one person to another that 16 the other shall act on his behalf and subject to his control, and consent by the other so to 17 act.” Restatement (First) of Agency § 1 (1933). “[T]here is not necessarily an agency 18 relationship because the parties to a transaction say that there is, or contract that the 19 relationship shall exist, or believe it does exist. Agency results only if there is an 20 agreement for the creation of a fiduciary relationship with control by the beneficiary.” Id. 21 at § 1 cmt. b (quoted in Valley Nat. Bank of Phoenix v. Milmoe, 248 P.2d 740, 743 (Ariz. 22 1952)). 23 SST argues that it acted as AU’s agent pursuant to an agreement that AU entered 24 with its sister company, NCO Financial Systems, Inc., in which SST was designated to 25 act as AU’s payment processor and given responsibility to perform some of NCO’s 26 servicing duties. Doc. 11 at 17; See Decl. of Gregory R. Steven, Doc. 11-1, ¶¶ 5-7. SST 27 argues that Plaintiff’s arbitration agreement with AU expressly pertains to claims against 28 AU “and . . . its agents” and that this permits SST to invoke arbitration. Id. Plaintiff -9- 1 argues that no agency relationship exists because AU contracted with NCO, not SST, and 2 SST presents no evidence that it was subject to AU’s control or consented to act on its 3 behalf. Doc. 16 at 8. 4 SST has failed to demonstrate that it entered into an agency relationship with AU 5 or to rebut Plaintiff’s allegations, discussed above, that SST operated independently from 6 and outside of the supervision and control of AU. SST argues on the basis of Browne v. 7 Nowlin, 570 P.2d 1246, 1248 (Ariz. 1977), that Plaintiff’s allegations that it contacted 8 Plaintiff, purporting to be AU, and sought to collect payments on AU’s behalf are 9 sufficient under Arizona law to show implied agency. Doc. 17 at 9. But Browne dealt 10 with whether a lender could deny that a title company that accepted payments on its 11 behalf acted as its agent after the lender ratified the title company’s actions. 570 P.2d at 12 1248. Holding a principal accountable for actions it ratified is not the same as bringing 13 an implied agent within the scope of the principal’s arbitration agreement. SST has 14 presented no evidence that it entered into an agency relationship with AU, that AU 15 ratified its actions, or that AU exercised supervision or control over its debt collection 16 practices. The Court accordingly cannot conclude that SST is entitled to invoke AU’s 17 arbitration clause on an agency theory. 18 3. Third Party Beneficiary. 19 Nonsignatories can enforce arbitration agreements as third party beneficiaries. 20 Comer, 436 F.3d 1098, 1101 (9th Cir.2006) (citing E.I. Dupont de Nemours & Co. v. 21 Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 195 (3d Cir. 2001)). 22 This “requires a showing that the parties to the contract intended to benefit a third party.” 23 Britton v. Co-op Banking Group, 4 F.3d 742, 745 (9th Cir. 1993) (emphasis in original); 24 see also Nahom v. Blue Cross and Blue Shield of Arizona, Inc., 885 P.2d 1113, 1117-18 25 (Ariz. Ct. App. 1994) (“an intention to benefit [the third party] must be indicated in the 26 contract itself . . . . The contemplated benefit must be both intentional and direct . . . , 27 and ‘it must definitely appear that the parties intend to recognize the third party as the 28 primary party in interest’”) (internal citations omitted). - 10 - 1 SST’s argument that it is entitled to invoke the arbitration provision as a third 2 party beneficiary is not persuasive. There is no evidence in the contract that it was 3 intended for SST’s benefit. The contract makes no mention of benefits intended for SST 4 or for any class of AU affiliates to which SST may claim to be a part. Whatever benefit 5 SST may derive from its role in servicing student debt is at most a byproduct of the 6 contract, not its intended purpose. “‘[I]t is not enough that some benefit incidental to the 7 performance of the contract may accrue to [the third party].’” Lester v. Basner, 676 F. 8 Supp. 481, 484 (S.D.N.Y. 1987) (quoting Vazman v. Fidelity Int’l Bank, 418 F. Supp. 9 1084, 1086 (S.D.N.Y.1976)). SST is not entitled to compel arbitration on these grounds. 10 B. Whether the Agreement Encompasses Plaintiff’s Claims. 11 Having found that Plaintiff did not have an agreement to arbitrate with SST, and 12 that none of SST’s alternative theories for compelling arbitration apply, the Court cannot 13 conclude that Plaintiff’s FDCPA claims fall within the scope of her arbitration agreement 14 with AU. The Court will deny SST’s motion to stay and compel arbitration. 15 IV. SST’s Motion to Strike Class Allegations. 16 SST’s motion to strike class allegations is based solely on its argument that 17 Plaintiff is bound by the waiver of class action contained in her arbitration agreement 18 with AU. Doc. 12 at 4-5. Having found that Plaintiff is not bound by the arbitration 19 agreement as to her FDCPA claims against SST, the Court will deny SST’s motion to 20 strike class allegations. 21 IT IS ORDERED: 22 1. 23 Defendant Systems & Services Technologies, Inc.’s motion to stay and compel arbitration (Doc. 11) is denied. 24 25 26 27 28 - 11 - 1 2 3 2. Defendant Systems & Services Technologies, Inc.’s motion to strike class allegations (Doc. 12) is denied. Dated this 26th day of September, 2012. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 12 -

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