Grant v. Capital Management Services, L.P. et al

Filing 57

ORDER: The Motion to Compel Arbitration and Dismiss Case (Doc. 35 ) filed by Defendant Capital Management Services, L.P. and the Motion for Rule 11 Sanctions (Doc. 43 ) filed by Plaintiff Wade Grant are DENIED. Signed by Judge William Q. Hayes on 6/12/2012. (mdc)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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WADE GRANT, on behalf of himself, all
other persons similarly situated and the
general public,

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ORDER

Plaintiff,
vs.
CAPITAL MANAGEMENT SERVICES,
L.P.,
Defendant.
HAYES, Judge:

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CASE NO. 10cv2471 WQH (BGS)

The matters before the Court are the Motion to Compel Arbitration and Dismiss Case
(ECF No. 35) filed by Defendant Capital Management Services, L.P. and the Motion for Rule
11 Sanctions (ECF No. 43) filed by Plaintiff Wade Grant.
I.

Background
On September 17, 2010, Plaintiff initiated this action by filing a Complaint in the

Superior Court of California for the County of San Diego. (ECF No. 1 at 1). Plaintiff brings
the Complaint on behalf of himself and “all other similarly situated [individuals] defined as
all persons within California who received any telephone call from Defendant to said person’s
cellular telephone through the use of any automated telephone dialing system or an artificial
or prerecorded voice, within the four years prior to filing of this Complaint.” Id. at 8. The
Complaint asserts three claims: (1) negligent violations of the Telephone Consumer Protection
Act 47 U.S.C. § 227 et seq.; (2) knowing and/or willful violations of the Telephone Consumer
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10cv2471 WQH (BGS)

1 Protection Act 47 U.S.C. § 227 et seq.; and (3) unlawful, fraudulent and unfair business acts
2 and practices in violation of California Business & Professions Code § 17200 et seq.
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On December 1, 2010, Defendant filed a Notice of Removal of Action Under Class

4 Action Fairness Act. On December 7, 2010, Defendant filed an Answer.
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On April 11, 2011, this Court issued an order of remand. Defendant appealed the

6 order of remand. On September 27, 2011, the Court of Appeals for the Ninth Circuit
7 reversed the order of remand.
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On November 18, 2011, the Magistrate Judge held an early neutral evaluation

9 conference. On December 28, 2011, the parties filed a joint discovery plan. On January 6,
10 2012, the Magistrate Judge issued a case management conference order.
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On January 20, 2012, Defendant filed the Motion to Compel Arbitration and

12 Dismiss Case. (ECF No. 35).
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On March 6, 2012, Plaintiff filed the Motion for Rule 11 Sanctions. (ECF No. 43).

14 II.

Discussion

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A.

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Defendant seeks to compel arbitration of Plaintiff’s claims on the grounds that a

Motion to Compel Arbitration

17 master account agreement between Plaintiff and Washington Mutual Bank, as well as an
18 account disclosures and regulations which is incorporated into the master account
19 agreement, contain an arbitration provision. Defendant contends that “while [the language
20 of the arbitration provision could be interpreted to indicate that class actions will not be
21 arbitrated]... [that] is inconsistent with the intent of the parties expressed in the agreement,
22 the thrust of the surrounding language of the agreement, and the strong federal policy
23 favoring arbitration.” (ECF No. 44 at 6). Defendant contends that it has standing to
24 enforce the master account agreement and the account disclosures and regulations on the
25 grounds that it acted as the agent for the successor in interest to Washington Mutual Bank
26 when it made the calls at issue to Plaintiff. Defendant contends that it sought arbitration
27 shortly after it became aware of the arbitration agreement between Plaintiff and
28 Washington Mutual Bank.
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10cv2471 WQH (BGS)

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Plaintiff contends that the master account agreement expressly provides that some

2 claims will not be subject to arbitration. Plaintiff contends that the account disclosure and
3 regulations document expressly exempts class action cases from the arbitration provision.
4 Plaintiff contends that the express language of the contracts define the contract terms and
5 that consideration of intent and policy is not necessary. Plaintiff contends that Defendant
6 does not have standing to enforce a contractual provision between Plaintiff and Washington
7 Mutual Bank on the grounds that Defendant is an independent contractor, not an agent, for
8 any successor in interest to Washington Mutual Bank. Plaintiff contends that Defendant
9 has waived its right to seek arbitration on the grounds that it has litigated this case for over
10 sixteen months.
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The Federal Arbitration Act (“FAA”) “was enacted ... in response to widespread

12 judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 131 S.Ct.
13 1740, 1745 (2011) (citation omitted). Section 2 of the FAA states: “A written provision in
14 any ... contract evidencing a transaction involving commerce to settle by arbitration a
15 controversy thereafter arising out of such contract or transaction ... shall be valid,
16 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
17 revocation of any contract.” 9 U.S.C. § 2. The Supreme Court has described Section 2 “as
18 reflecting both a liberal federal policy favoring arbitration and the fundamental principle
19 that arbitration is a matter of contract.” Concepcion, 131 S. Ct. at 1745 (quotations
20 omitted). “In line with these principles, courts must place arbitration agreements on an
21 equal footing with other contracts, and enforce them according to their terms.” Id. at 174522 46 (citations omitted).
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“Because the FAA mandates that district courts shall direct the parties to proceed to

24 arbitration on issues as to which an arbitration agreement has been signed, the FAA limits
25 courts’ involvement to determining (1) whether a valid agreement to arbitrate exists and, if
26 it does, (2) whether the agreement encompasses the dispute at issue.” Cox v. Ocean View
27 Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (emphasis in original; quotation omitted).
28 “If the response is affirmative on both counts, then the [FAA] requires the court to enforce
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1 the arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic
2 Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); see also 9 U.S.C. § 4.
3

Defendant has submitted a copy of the master account agreement between Plaintiff

4 and Washington Mutual Bank which states: “Most disputes arising under the Agreement
5 related to accounts or services hereunder are subject to mandatory binding arbitration.
6 Right to trial by a judge or jury are waived hereby.”1 (ECF No. 35-4 at 63). Defendant has
7 submitted the account disclosures and regulations which states:
We strive to remedy our customers’ problems and disputes as we
can.... We believe that the arbitration procedure described below has
the potential to resolve any dispute between the Bank and our
customers....

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The Bank and you elect to be bound by the Federal
Arbitration Act. Except as set forth below, the parties must arbitrate
any dispute or controversy concerning your deposit account and
safebox relationships with us... including without limit debit/ATM
cards, checks, ... or other related services, WHEN EITHER party
requests that the matter be submitted to arbitration.... YOU AND
WE ARE WAVING THE RIGHT TO HAVE OUR DISPUTE
HEARD BEFORE A JUDGE OR JURY....

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Except as set forth below, a dispute involving one deposit
account or safebox relationship, or two or more deposit account
and/or safebox relationships with at least one common owner, is
eligible for arbitration hereunder and, if arbitration is requested, will
be decided under the Commercial Arbitration Rules.... Actions
eligible for small claims court, class actions, or actions filed on
behalf of the general public under applicable state statutes are not
eligible for arbitration.

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(ECF No. 35-4 at 70-71).
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The master account agreement expressly provides that some claims are not subject
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to arbitration by stating that “[m]ost disputes arising under the Agreement ... are subject to
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mandatory binding arbitration.” (ECF No. 35-4 at 63). The account disclosures and
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regulations expressly provide that: “Actions eligible for small claims court, class actions,
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or actions filed on behalf of the general public under applicable state statutes are not
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eligible for arbitration.” Id. at 70. In this case, Plaintiff has filed class action claims.
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Plaintiff objects to Defendant’s evidence on the grounds that it is not properly
28 authenticated. The Court presumes the evidence is properly authenticated for purposes of this
order.
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1 Accordingly, the Complaint is not subject to arbitration under the express terms of the
2 master account agreement and the account disclosures and regulations. The Motion to
3 Compel Arbitration is DENIED.2
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B.

Motion for Sanctions

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Plaintiff seeks sanctions pursuant to Federal Rule of Civil Procedure 11 on the

6 grounds that the Motion to Compel arbitration was not warranted by existing law and was
7 presented for the improper purpose of harassing Plaintiff, causing delay, or increasing
8 costs.
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Defendant contends that the Motion to Compel Arbitration is not frivolous.

10 Defendant has submitted the Declaration of Andrew Steinheimer who states that the
11 Motion to Compel Arbitration was not brought for any improper purpose.
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Federal Rule of Civil Procedure 11 provides that:

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By presenting to the court a pleading, written motion, or other
paper—whether by signing, filing, submitting, or later advocating it—an
attorney or unrepresented party certifies that to the best of the person's
knowledge, information, and belief, formed after an inquiry reasonable under
the circumstances:

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(1) it is not being presented for any improper purpose, such as to harass,
cause unnecessary delay, or needlessly increase the cost of litigation;

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(2) the claims, defenses, and other legal contentions are warranted by existing
law or by a nonfrivolous argument for extending, modifying, or reversing
existing law or for establishing new law;

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(3) the factual contentions have evidentiary support or, if specifically so
identified, will likely have evidentiary support after a reasonable opportunity
for further investigation or discovery....

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If, after notice and a reasonable opportunity to respond, the court determines
that Rule 11(b) has been violated, the court may impose an appropriate
sanction on any attorney, law firm, or party that violated the rule or is
responsible for the violation....

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The standard to determine whether Rule 11 has been violated is objective

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The Court does not reach the issue of whether Defendant has standing to enforce the
master account agreement and the account disclosures and regulations because the Court has
28 concluded that the master account agreement and the account disclosures and regulations do
not compel arbitration of Plaintiff’s Complaint.
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1 reasonableness, or “reasonableness under the circumstances.” Advisory Committee Notes
2 to Fed. R. Civ. Proc. 11; Business Guides, Inc. v. Chromatic Communications Enterprises,
3 Inc., 498 U.S. 533, 550-551, 111 S.Ct. 922, 933 (1991). The Ninth Circuit “recognize[s]
4 that a motion to dismiss under rule 11 should not be frequently granted.” Rhinehart, 638
5 F.2d at 1171. “Rule 11 is an extraordinary remedy, one to be exercised with extreme
6 caution.” Operating Engineers Pension Trust v. A-C Company, 859 F.2d 1336, 1345 (9th
7 Cir. 1988).
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Although the Motion to Compel Arbitration was not granted, the Court does not find

9 that it warrants the extraordinary remedy of sanctions pursuant to Rule 11. The Motion for
10 Rule 11 Sanctions is DENIED.
11 III.

Conclusion

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IT IS HEREBY ORDERED that the Motion to Compel Arbitration and Dismiss

13 Case (ECF No. 35) filed by Defendant Capital Management Services, L.P. and the Motion
14 for Rule 11 Sanctions (ECF No. 43) filed by Plaintiff Wade Grant are DENIED.
15 DATED: June 12, 2012
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WILLIAM Q. HAYES
United States District Judge

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