Velazquez v. Midland Funding, LLC
Filing
48
MEMORANDUM DECISION AND ORDER denying 33 Motion for Protective Order; granting 17 Motion to Amend/Correct Complaint; denying 24 Motion to Stay and Compel Arbitration. The Court will issue a separate notice setting this matter for a telephonic status conference to establish new case management deadlines. The parties are directed to meet and confer in advance of the same. Signed by Judge Candy W. Dale. (klw)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
RAMON VELAZQUEZ,
Case No. 1:18-cv-00043-CWD
Plaintiff,
v.
MIDLAND FUNDING, LLC, a
Delaware limited liability company,
MEMORANDUM DECISION AND
ORDER
RE: DKT. 17, 24, 33
Defendant.
INTRODUCTION
Before the Court are Plaintiff’s motion to amend the complaint, Defendant’s
motion to stay this matter and to compel arbitration, and Defendant’s motion for
protective order. (Dkt. 17, 24, 33.) The parties filed responsive briefing, and the Court
conducted a hearing on October 17, 2018, during which the parties appeared and
presented their arguments. Thereafter, the Court provided an opportunity for Defendant
MEMORANDUM DECISION AND ORDER - 1
to supplement the record. 1 For the reasons that follow, the Court will grant Plaintiff’s
motion to amend, deny Defendant’s motion to stay and compel arbitration, and deny
Defendant’s motion for protective order.
FACTUAL BACKGROUND 2
Plaintiff claims that Midland Credit Management, Inc., which acted at the
direction of or under the control of Defendant, filed a collection action against Plaintiff in
Canyon County, Idaho, on May 16, 2017. The state court complaint alleged Defendant
owned a debt incurred by Plaintiff with Citibank, N.A., and alleged Plaintiff owed
Defendant the sum of $1,074.80. During discovery in this matter, Plaintiff learned
Citibank originally owned the debt, and had charged off Plaintiff’s account in the amount
of $1,074.80 prior to selling the debt now owned by Defendant. The parties negotiated a
settlement of the state court collection action, with Plaintiff paying Defendant 50% of the
alleged debt, in the amount of $537.40. Defendant then dismissed the collection action
with prejudice.
After the collection action was dismissed, Plaintiff asserts that Citibank informed
him he had a credit on his account for debt protection fees and related finance charges
previously billed in error, in the amount of $88.11. Plaintiff alleges that Midland Credit
knew or should have known of Citibank’s error when it filed the collection action, yet it
Defendant did so, which prompted a motion to strike. The Court reviewed the supplemental
materials and granted the motion to strike. (See Dkt. 40, 42, 44, and 47.)
1
The facts are taken from the Amended Complaint and proposed second amended complaint, and
are taken as true only for purposes of the pending motions.
2
MEMORANDUM DECISION AND ORDER - 2
continued its efforts to recover the entire sum of $1,074.80 inclusive of the erroneously
billed $88.11. Plaintiff contends that Midland Credit knew or should have known that the
$1,074.80 incorrectly included the $88.11 because, in July of 2015, Citibank entered into
a Consent Order with the Consumer Financial Protection Bureau in which Citibank
admitted to overcharging consumers and agreed as part of the order to credit these
amounts. Plaintiff asserts that Midland Credit and Defendant would have known about
these forgiven amounts as part of the asset purchase agreement it entered into with
Citibank, which occurred in 2016, after entry of the Consent Order in July of 2015.
Plaintiff further alleges that, despite his settlement agreement with Defendant for
him to pay the amount of $537.40 exclusive of attorney fees and costs, Defendant issued
a 1099-C to the Internal Revenue Service for $758.40, causing Plaintiff to pay income tax
on an inflated debt forgiveness amount of $758.40. Plaintiff alleges that the difference
between the settlement amount and the amount reported on the 1099-C constitutes
Midland Funding’s court filing fees and process server fees, which were included
wrongfully in the total amount reported according to the terms of the parties’ settlement
agreement.
DISCUSSION
Plaintiff’s complaint against Defendant Midland Funding LLC included one count
for misrepresentation under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et.
seq., and one count for abuse of process. Prior to Defendant filing an answer to the
complaint, Plaintiff filed an amended complaint on February 12, 2018. (Dkt. 4.) The
MEMORANDUM DECISION AND ORDER - 3
amended complaint contains three counts of misrepresentation asserted against Defendant
pursuant to the FDCPA, and one count for abuse of process.
Defendant filed its answer on March 6, 2018, and the Court conducted a
scheduling conference with the parties on April 12, 2018. Pursuant to the Court’s case
management order, the deadline to file a motion to join parties and amend pleadings was
July 2, 2018. 3 (Dkt. 14.) Plaintiff filed a motion to amend the first amended complaint on
June 29, 2018. (Dkt. 17.) The proposed second amended complaint does not materially
alter the general allegations asserted against Defendant as set forth in the first amended
complaint.
The proposed second amended complaint requests the following three substantive
changes: 1) adding Midland Credit Management, Inc., as a defendant; 2) proposing this
case be converted from a claim on behalf of an individual into a class action on behalf of
two proposed classes; and 3) deleting one of the three causes of action for
misrepresentation asserted under the Fair Debt Collection Practices Act. 4 Defendant does
not oppose the addition of Midland Credit Management, Inc., as a defendant, or the
deletion of one of the three causes of action under the FDCPA, and concedes amendment
is proper under Fed. Rule Civ. P. 15. However, Defendant argues the proposed
amendment to convert this matter to a class action is made in bad faith and would be both
3
This deadline excludes the filing of a motion to add a claim for punitive damages.
The two counts asserting violation of the FDCPA allege misrepresentation on the grounds that
Defendants sought payment of $1,074.80 that included an overcharge of $88.11 by Citibank, and later
overstated the amount of debt forgiven by including $221 in collection costs. The count asserting abuse of
process alleges Defendant Midland Funding willfully misrepresented the amount of debt owed.
4
MEMORANDUM DECISION AND ORDER - 4
prejudicial and futile. Accordingly, Defendant asserts that, regardless of the propriety of
the other two proposed amendments, the motion should be denied because the request to
add class claims is improper under Rule 15.
Additionally, Defendant filed a motion to compel arbitration. 5 In opposition to
Defendant’s motion to compel arbitration, Plaintiff asserts that Defendant has not
established the parties had a valid, existing agreement to arbitrate; and, even if valid,
Plaintiff claims Defendant waived its right to enforce arbitration by pursuing litigation in
state court and waiting to assert its right to compel arbitration until late in this action.
According to Plaintiff, Defendant is precluded from enforcing the arbitration provision of
the card agreement even if it is deemed valid by the Court.
Also related to the two motions is Defendant’s motion for a protective order. In
support of its motion to compel arbitration, Defendant produced a copy of what it claims
is the governing card agreement containing the arbitration clause, but Defendant did not
provide a copy of the asset purchase agreement whereby Defendant claims it acquired
from Citibank the right to enforce the underlying card agreement. Rather than provide the
same in response to Plaintiff’s request for production, Defendant filed a motion for
protective order.
During the hearing, however, the Court noted that the terms of the asset purchase
agreement transferring Citibank’s accounts and receivables to Defendant, which accounts
The arbitration provision contains a clause indicating that claims brought as part of a class
action can be arbitrated only on an individual basis.
5
MEMORANDUM DECISION AND ORDER - 5
and receivables purportedly included Plaintiff’s account, appeared integral to deciding
the motion to compel arbitration. The Court provided Defendant the option of filing the
agreement under seal with the Court. If not filed, the Court indicated a ruling on the
motion to compel arbitration would be made based on the record to date. Defendant
elected to file the Purchase and Sale Agreement under seal, together with a related
Assignment and Release attached to Ms. Taylor’s declaration as Exhibit B. (Dkt. 41, 42,
47.) Accordingly, the motion for protective order (Dkt. 33) will be denied in its entirety. 6
Below, the Court will analyze the motion to amend first, followed by the motion to
stay and compel arbitration.
1.
Motion to Amend Complaint
A.
Rule 15 Standard
Federal Rule of Civil Procedure 15(a) provides that, once a responsive pleading
has been served, a party may amend its pleading “only with the opposing party’s written
consent or the court’s leave. The court should freely give leave when justice so requires.”
Fed. R. Civ. P. 15(a)(2). The Court of Appeals for the Ninth Circuit recognizes that “the
underlying purpose of Rule 15 [is] to facilitate [a] decision on the merits, rather than on
the pleadings or technicalities,” and, therefore, “Rule 15's policy of favoring amendments
to pleadings should be applied with extreme liberality.” Chudacoff v. University Med.
The motion for protective order sought an order staying all discovery pending a decision on
Defendant’s motion to stay and compel arbitration and preventing production of the asset purchase
agreement.
6
MEMORANDUM DECISION AND ORDER - 6
Cent. of Southern Nev., 649 F.3d 1143, 1152 (9th Cir. 2011) (quoting United States v.
Webb, 655 F.2d 977, 979 (9th Cir. 1981)).
The decision whether to grant or deny a motion to amend under Rule 15(a)
rests in the sole discretion of the trial court. The factors that are commonly used to
determine the propriety of a motion for leave to amend are: 1) undue delay, bad faith or
dilatory motive on the part of the movant; 2) repeated failure to cure deficiencies by
amendments previously allowed; 3) undue prejudice to the opposing party by virtue of
allowance of the amendment; and 4) futility of amendment. C.F. ex rel. Farnan v.
Capistrano Unified Sch. Dist., 654 F.3d 975, 985 n. 5 (9th Cir. 2011) (citing Foman v.
Davis, 371 U.S. 178, 182 (1962)).
However, “[t]hese factors . . . are not of equal weight in that delay, by itself, is
insufficient to justify denial of leave to amend.” Webb, 655 F.2d at 979 (“The mere fact
that an amendment is offered late in the case is . . . not enough to bar it.”); Bowles v.
Beade, 198 F.3d 752, 758 (9th Cir. 1999). “Only where prejudice is shown or the movant
acts in bad faith are courts protecting the judicial system or other litigants when they
deny leave to amend a pleading.” Webb, 655 F.2d at 980 (citation omitted). The Ninth
Circuit has held that, although all these factors are relevant to consider when ruling on a
motion for leave to amend, the “crucial factor is the resulting prejudice to the opposing
party.” Howey v. United States, 481 F.2d 1187, 1189 (9th Cir. 1973). Prejudice is the
touchstone of the inquiry under Rule 15(a). Eminence Capital, LLC v. Aspeon, Inc., 316
F.3d 1048, 1052 (9th Cir. 2003). Ultimately, “[u]nless undue prejudice to the opposing
MEMORANDUM DECISION AND ORDER - 7
party will result, a trial judge should ordinarily permit a party to amend its complaint.”
Howey, 481 F.2d at 1190.
B.
Analysis
(1)
Undue Delay, Bad Faith, or Dilatory Motive
Defendant contends Plaintiff’s representation that the class claims were not known
until certain discovery was conducted in this case is not true, as the class claims should
have been well known due to the public nature of the Citibank consent order, and the fact
that nothing was learned during Defendant’s deposition that was not already apparent
from that consent order. Accordingly, Defendant asserts that, because the factual basis for
the class claims should have been known, the filing of the proposed amended complaint
on the eve of the deadline is in bad faith or was pursued with undue delay.
When faced with a similar argument in Willnerd v. Sybase, Inc., the Court noted
that Rule 15(a) is “very liberal,” and “all inferences [are] in favor of granting the
motion.” Willnerd, No. CV 09–500–S–BLW, 2010 WL 2643316 at *1 (D. Idaho June 29,
2010) (citing William O. Gilley Enterprises, Inc. v. Atlantic Richfield Co., 588 F.3d 659,
669 n.8 (9th Cir. 2009) (citation omitted)). The Court explained that, for the factors of
bad faith, undue delay, or unfair prejudice, it “need only look to the agreed Case
Management Order entered following a telephone scheduling conference attended by
both parties.” Willnerd, 2010 WL 2643316, at *1. Because the plaintiff had filed the
MEMORANDUM DECISION AND ORDER - 8
motion to amend by the agreed upon deadline, 7 the Court found neither bad faith, unfair
prejudice, or undue delay. Id.
The Court finds the same here. Plaintiff filed the motion to amend prior to the
agreed upon deadline for doing so. Under the circumstances, and under Willnerd, the
Court finds neither bad faith nor undue delay.
Defendant’s reliance upon Fidelity Fin. Corp. v. Fed. Home Loan Bank of San
Francisco, 792 F.2d 1432, 1438 (9th Cir. 1986), for the proposition that the motion
should be denied when the factual bases of the claims were known prior to previous
amendments, is misplaced. There, the plaintiff sought leave to file a fourth amended
complaint after the court had announced its decision to grant summary judgment for the
defendant. The court denied the motion to amend, finding that the new claims merely
restated earlier claims and that permitting amendment would be prejudicial. 792 F.2d at
1438. Upon review, the Court of Appeals for the Ninth Circuit agreed, finding that the
plaintiff was merely “restating its prior claims under new labels” when the factual bases
of the claims were known to the plaintiff long before. Id. Further, given the posture of the
case, the court found also that the defendant would be prejudiced if the motion to amend
was granted. Id.
Such is not the case here. First, the posture of this case is quite different than in
Fidelity, because dispositive motions have not been filed, and Plaintiff filed the motion to
amend prior to the agreed upon and Court imposed deadline. And second, Defendant’s
7
The deadline in Willnerd was April 26, 2010. The motion to amend was filed that same date.
MEMORANDUM DECISION AND ORDER - 9
argument that the factual bases of the claims based upon the consent order cuts both
ways---the consent order and its terms would have been equally available to Midland
Credit and Defendant, and the complaint alleges also that Defendant should have known
of the amounts Citibank forgave under the terms of the asset purchase agreement. 8 Last,
it appears disingenuous for Defendant to argue that the proposed addition of Midland
Credit as a defendant is not undertaken in bad faith or with undue delay, yet the class
claims are.
(2)
Futility
Defendant next argues Plaintiff’s proposed amendment to assert class claims is
futile. Plaintiff’s proposed second amended complaint defines two classes as follows:
The First Class consists of (a) all individuals in Idaho (b) to
whom Midland Funding or Midland Credit (c) filed a
complaint against (d) which included an amount sought
which included amounts Citibank overcharged the individual
(e) which complaint was filed within the one (1) year period
immediately preceding the filing of this complaint.
The Second Class consists of (a) all individuals in Idaho (b)
to whom Midland Funding or Midland Credit (c) issued a
1099-C to (d) which included amounts for court costs and
service fees which were not allowed by contract or statute (e)
which 1099-C was mailed to the consumer within the one (1)
year period immediately preceding the filing of this
complaint.
Defendant entered into the asset purchase agreement with Citibank in 2016, after the July 2015
Consent Order was entered between Citibank and the Consumer Finance Protection Bureau.
8
MEMORANDUM DECISION AND ORDER - 10
Defendant raises two objections. First, Defendant contends the allegations related
to the classes proposed by Plaintiff do not provide sufficient information suggesting that
a class actually exists. Second, Defendant asserts the definitions of the two classes
impermissibly require a determination of the merits prior to ensuring the existence of a
class. Defendant explains that, because the classes are defined as either individuals whom
Defendant or Midland Credit “impermissibly” sued for amounts charged off by Citibank,
or to whom Defendant or Midland Credit mailed 1099-C’s that included costs and service
fees not allowed by contract or statute, the class definitions erroneously require a finding
of liability. Plaintiff argues that the facts concerning the individuals comprising the two
classes have been adequately pled, and any deficiencies concerning the class descriptions
can be remediated at the time class certification is sought.
An amendment is considered futile if “no set of facts can be proved under the
amendment to the pleadings that would constitute a valid and sufficient claim or
defense.” Arbon Valley Solar LLC v. Thomas & Betts Corp., No. 4:16-CV-00070-DCN,
2017 WL 5613009, at *3 (D. Idaho Nov. 21, 2017) (quoting Missouri ex rel. Koster v.
Harris, 847 F.3d 646, 656 (9th Cir. 2017), in turn quoting Miller v. Rykoff–Sexton, Inc.,
845 F.2d 209, 214 (9th Cir. 1988)). “When a motion to amend is opposed on the grounds
that amendment would be futile, the standard of review in considering the motion is akin
to that undertaken by a court in determining the sufficiency of a complaint which is
challenged for failure to state a claim under the Federal Rules of Civil Procedure, Rule
12(b)(6).” Doe v. Nevada, 356 F. Supp. 2d 1123, 1125 (D. Nev. 2004). “A Rule 12(b)(6)
MEMORANDUM DECISION AND ORDER - 11
dismissal may be based on either a ‘lack of a cognizable legal theory’ or ‘the absence of
sufficient facts alleged under a cognizable legal theory.’” Johnson v. Riverside
Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (citation omitted).
A complaint “does not need detailed factual allegations,” but it must set forth
“more than labels and conclusions, and a formulaic recitation of the elements.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must also contain sufficient
factual matter to “state a claim to relief that is plausible on its face.” Id. at 570. Finally, in
considering a Rule 12(b)(6) motion, the Court must view the “complaint in the light most
favorable to” the claimant and “accept[ ] all well-pleaded factual allegations as true, as
well as any reasonable inference drawn from them.” Johnson, 534 F.3d at 1122.
The Court finds the factual allegations have been adequately plead and are
sufficiently detailed to provide notice to Defendant and Midland Credit as to the claims
against them, including the class claims. Plaintiff alleges that Defendants misrepresented
the amounts owed by Citibank cardholders like Plaintiff and later misrepresented the debt
forgiveness amounts in 1099-C’s issued to debtors upon resolution of underlying debt
collection actions. The allegations in the proposed second amended complaint do not
differ materially from those asserted in the first amended complaint or in the initial
complaint. Plaintiff simply seeks to expand the same factual assertions applicable to his
situation to individuals similarly situated. Defendant has not moved to dismiss the first
amended complaint on the grounds of factual deficiency under Rule 8 or Rule 12(b)(6).
Defendant has therefore not carried its burden to demonstrate how the facts as pled in the
MEMORANDUM DECISION AND ORDER - 12
proposed second amended complaint fail to state class claims under the FDCPA and
under state law for abuse of process on behalf of those similarly situated to Plaintiff.
Turning to the second argument, the Court finds that it is not appropriate to
address the adequacy of the class descriptions in the context of a motion to amend
asserted under Rule 15. District courts have broad discretion to control the class
certification process. Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 942 (9th
Cir. 2009). Often, the pleadings alone will not resolve the question of class certification
and some discovery will be warranted. Id. “[T]he parties' pleadings alone are often not
sufficient to establish whether class certification is proper, and the district court will need
to go beyond the pleadings and permit some discovery and/or an evidentiary hearing to
determine whether a class may be certified.” Mills v. Foremost Ins. Co., 511 F.3d 1300,
1309 & n. 14 (11th Cir. 2008).
The cases relied upon by Defendant do not provide authority to the contrary, as
they were all decided upon a motion for class certification under Fed. Rule Civ. P. 23(c)
or stand for a different proposition. Defendants rely first upon Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 177-78 (1974). There, the trial court interpreted Rule 23 to
require a preliminary hearing on the merits of the case as part of the determination
whether a suit may be maintained as a class action. The Supreme Court of the United
States disagreed with the trial court’s procedure, finding nothing in the language of Rule
23 gave the court the authority to conduct a preliminary inquiry into the merits of a suit to
determine whether it may be maintained as a class action. Id. The Supreme Court noted
MEMORANDUM DECISION AND ORDER - 13
that the inquiry for the trial court under Rule 23 is whether the requirements of the rule
are met, and nothing within the rule authorized a merits hearing. Accordingly, Eisen does
not support Defendant’s contention here. Rather, Eisen examined the propriety of holding
a preliminary hearing on the merits as part of the class certification process, and
expressly repudiated that procedure. 7AA Arthur R. Miller, Mary Kane, FED. PRAC. &
PROC. Civ. § 1785 (3d ed. 2005).
And the courts in both Forman v. Data Transfer, 164 F.R.D. 407 (E.D. Pa. 1995),
and Metcalf v. Edelman, 64 F.R.D. 407 (N.D. Ill. 1974), determined the merits of a
motion for class certification under Rule 23, not a motion to amend the complaint under
Rule 15. Defendant is correct that both courts found the class definitions proposed by the
plaintiffs failed because the definitions of the class prompted a legal conclusion. Forman,
164 F.R.D. at 403; Metcalf, 64 F.R.D. at 409. However, the procedural posture of the two
cases was more advanced, and the motions were decided under Rule 23.
The Court has flexibility in determining the timing of certification, which may
vary depending upon the circumstances of the case. Fed. Rule Civ. P. 23(c)(1)(A) states
that the court must “at an early practicable time…determine by order whether to certify
the action as a class action.” The reference to an early practicable time “recognizes that
there may be many valid reasons justifying the deferral of the initial certification
decision,” such as the preference to file a summary judgment motion as to the individual
plaintiff or the need for further discovery. FED. PRAC. & PROC. Civ. § 1785.3. However,
“[a]s a practical matter, the court’s determination under subdivision (c)(1) usually should
MEMORANDUM DECISION AND ORDER - 14
be predicated on more information than the complaint itself affords.” Id. See also Coll. Of
Dental Surgeons of Puerto Rico v. Connecticut Gen. Life Ins. Co., 585 F.3d 33, 40 (1st
Cir. 2009) (“A complaint that contains class-type allegations historically has been
assumed to assert a class action before formal class certification.”). Class composition,
including compliance with Rule 23, is not the issue at the inception of a class action, and
satisfaction of Rule 23’s requirements is not before the Court at this time—that is a
question for the Court at the class certification stage. See id., 585 F.3d at 41-42.
Additionally, the Court has the inherent power to change its decision later. See
Fed. Rule Civ. P. 23(c)(1)(C) (court orders that grant or deny class certification “may be
altered or amended before final judgment.”). This includes the ability to alter the class
description. Fed. Prac. & Proc. Civ. § 1785.4. Here, it appears from the face of the
proposed second amended complaint that there may be others similarly situated to
Plaintiff, and that Plaintiff may be able to identify other members of the class or classes
he claims to represent.
Because this matter is in early stages of development, the Court finds it would be
inappropriate to rule at this time that the case should not proceed as a class action,
especially given the opportunity exists to amend the class descriptions at the close of
discovery. 9 Should the Court reach the question of certifying a class, and later find that
Plaintiff has not or cannot adequately identify a class or classes which he can properly
The discovery deadline imposed by the Case Management Order was November 9, 2018. (Dkt.
14.) The motion to amend was filed in advance of the deadline.
9
MEMORANDUM DECISION AND ORDER - 15
represent, the Court may reconsider its preliminary decision to allow the case to proceed
as a class action. Louisiana Ed. Ass'n v. Calcasieu Par. Sch. Bd., 76 F.R.D. 629, 631
(W.D. La. 1977). 10
Plaintiff’s motion to amend the complaint will be granted.
2.
Motion to Stay and Compel Arbitration
Defendant contends all the proposed claims stated in the Amended Complaint and
the proposed second amended complaint are subject to a valid and binding arbitration
agreement imposed by Citibank in its cardholder agreement with Plaintiff. According to
William Peck, the Document Control Officer and custodian of records, Citibank
employed various quality assurance controls regarding welcome letters, card agreements,
notices and inserts (including change-in-terms notices) intended to be included in
periodic billing statements and other mailings to Citibank cardmembers. Peck Decl. (Dkt.
24-2.) Billing statements were prepared each month with the appropriate notices or
inserts included with the statements.
Mr. Peck testifies in his declaration that a review of Plaintiff’s account with
Citibank, ending in 058, revealed Plaintiff opened a Best Buy Credit Card Account with
Citibank on or about May 9, 2011. Mr. Peck next declares that Plaintiff’s account was
subject to a written card agreement, as amended from time to time, setting forth the
The Court notes also that dismissals without leave to amend are improper unless it is beyond
doubt that the complaint could not be saved by any amendment. See Johnson v. CACH, LLC, No. 1:16CV-00383-BLW, 2016 WL 7330571, at *2 (D. Idaho Dec. 16, 2016). Here, the Court can conceive of
other ways to define the two proposed classes that may resolve Defendant’s objection.
10
MEMORANDUM DECISION AND ORDER - 16
applicable terms and conditions for the account. Attached as Exhibit 1 to Mr. Peck’s
declaration is a copy of a card agreement that Mr. Peck indicates Citibank mailed to
Plaintiff in connection with the account, bearing a copyright date of 2015. Mr. Peck
further indicates that it was Citibank’s regular business practice to send a new card
agreement to customers at the time of the opening of an account, and that Citibank does
not have records of any returned mail for Plaintiff’s account.
Defendant acquired the Citibank Best Buy Fresh Flow accounts, which included
Plaintiff’s account, through an assignment from Atlantic Credit in February of 2016.
Citibank initially sold these accounts to Atlantic Credit in April of 2014 pursuant to a
purchase and sale agreement. According to the terms of the parties’ April 2014 Purchase
and Sale Agreement, Citibank sold “all right, title and interest of [Citibank] in and to the
Accounts,” defined as Citibank’s “accounts and receivables charged off prior to the
applicable Closing Date” and referred to as the Best Buy Fresh Flow accounts. Citibank
agreed also that it would transfer all “right title and interest in and to the Accounts and
Buyer will assume, with respect to each Account, all of [Citibank’s] rights,
responsibilities, and obligations that arise as a result of Buyer’s purchase of the
Accounts.” In February of 2016, Atlantic thereafter assigned to Midland Funding, LLC,
“all of Assignor’s right, title and interest” in the April 2014 Purchase and Sale Agreement
to Defendant. (Dkt. 41-1 at 3.)
Separately, and as part of the same transaction, Citibank executed a Bill of Sale
and Assignment dated July 26, 2016, wherein Citibank sold “all rights, title and interest
MEMORANDUM DECISION AND ORDER - 17
in the Accounts to Midland Funding LLC” under the attached Bill of Sale and Affidavit
of Sale of Account. (Dkt. 24-2 at 14.) The Bill of Sale and Assignment indicates Citibank
agreed to “transfer, sell, assign, convey, grant, bargain, set over and deliver to Midland
Funding LLC,” the “Accounts described in Exhibit 1 and the final electronic file.”
Exhibit 1 to the Bill of Sale and Assignment reflects that the “Best Buy Fresh Flow”
accounts were transferred and delivered by Citibank to Midland Funding, LLC. And
finally, the Affidavit of Sale reflects that Citibank “sold a pool of charged-off
accounts…by a Forward Flow Purchase and Sale Agreement and a Bill of Sale to
Midland Funding LLC,” and that as part of the sale, “certain electronic records were
transferred on individual accounts” to Midland Funding LLC.
The 2015 Best Buy Credit Card Agreement in the record (Dkt. 24-2) contains an
arbitration clause, prefaced by language in all capital letters, which states in relevant part:
THIS SECTION PROVIDES THAT DISPUTES MAY BE
RESOLVED BY BINDING ARBITRATION.
ARBITRATION REPLACES THE RIGHT TO GO TO
COURT, HAVE A JURY TRIAL OR INITIATE OR
PARTICIPATE IN A CLASS ACTION….
Following the prefatory language, the Agreement explains what constitutes “covered
claims” under the Agreement:
You or we may arbitrate any claim, dispute or controversy
between you and us arising out of or related to your account,
a previous related account or our relationship (called
“Claims”)….Except as stated below, all Claims are subject to
arbitration…This also includes Claims made by or against
anyone connected with us or you or claiming through us or
you.
MEMORANDUM DECISION AND ORDER - 18
(Dkt. 24-2 at 8.) The Agreement contains also an exception to the arbitration clause,
which states:
Claims brought as part of a class action, private attorney
general or other representative action can be arbitrated only
on an individual basis. The arbitrator has no authority to
arbitrate any claim on a class or representative basis…If
arbitration is chosen by any party, neither you nor we may
pursue a Claim as part of a class action or other representative
action.
(Dkt. 24-2 at 9.)
The arbitration provision further contains an anti-waiver clause, specifying that
“[a]rbitration may be requested at any time, even where there is a pending lawsuit, unless
a trial has begun, or a final judgment entered. Neither you nor we waive the right to
arbitrate by filing or serving a complaint, answer, counterclaim, motion, or discovery in a
court lawsuit.” And finally, the cardmember agreement provides that “[Citibank] may
assign any or all of our rights and obligations under this Agreement to a third party.”
Defendant asserts that, because this lawsuit arises out of or relates to Plaintiff’s
account with Citibank, the arbitration clause contained in the 2015 Card Agreement
applies and should be enforced by the Court under the Federal Arbitration Act, 9 U.S.C.
§§ 2-4.
Plaintiff submitted an affidavit admitting he opened a credit card account with
Best Buy in 2011, but indicating that he does not recall receiving a card agreement in the
mail, and he does not recognize the card agreement attached to Mr. Peck’s declaration
and referenced above. Further, Plaintiff testifies that he did not initiate or authorize any
MEMORANDUM DECISION AND ORDER - 19
purchases on his Best Buy account between January 1, 2015, and when the account was
charged off. (Dkt. 34.)
However, in the Amended Complaint and proposed amended complaint, Plaintiff
acknowledges Defendant owned a debt incurred by Plaintiff with Citibank in the amount
of $1,074.80, which Citibank charged off in July of 2016. The Amended Complaint
references an “original agreement” between Citibank and Plaintiff, quoting a provision
pertaining to “Collection Costs.” Plaintiff attaches a refund letter dated March 29, 2017,
that he received from “Best Buy,” referencing his account ending in 058, which he claims
originated from Citibank. (Dkt. 4-1.) The letter informed Plaintiff he was due a refund of
$88.11 in collection costs charged in error.
A.
Applicable Law
Enforcement of an arbitration clause is governed by the Federal Arbitration Act. 9
U.S. C. §§ 1, et seq. The Federal Arbitration Act states,
A written provision in ... a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of
such contract or transaction, or the refusal to perform the whole or any part
thereof, or an agreement in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction, or refusal, shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.
9 U.S.C. § 2. The Supreme Court of the United States has noted that the purpose of the
FAA is “to ensure the enforcement of arbitration agreements according to their terms so
as to facilitate streamlined proceedings.” AT&T Mobility LLC v. Concepcion, 563 U.S.
333, 344 (2011). The Supreme Court held in ATT that there is a “liberal federal policy
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favoring arbitration” and a “fundamental principle that arbitration is a matter of contract.”
Id. at 339 (internal citations omitted). The Supreme Court requires that “courts must
place arbitration agreements on an equal footing with other contracts and enforce them
according to their terms.” Id. (quoted in Johnson, 2016 WL 7330571 at *3).
The Court’s role under the FAA is limited to determining: (1) whether a valid
agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the
dispute at issue. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th
Cir. 2000) (citing 9 U.S.C. § 4). The party seeking to compel arbitration has the burden of
proving each requirement. Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323
(9th Cir. 2015). If the Court answers yes to each of the above questions, the FAA requires
that the Court enforce the arbitration agreement in accordance with its terms. Chiron
Corp., 207 F.3d at 1130.
“[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit.” United Steelworkers of Am.
v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960). State contract law controls
whether the parties have agreed to arbitrate. Knutson v. Sirius XM Radio Inc., 771 F.3d
559, 565 (9th Cir 2014). There must be a meeting of the minds to form a contract
evidenced by a manifestation of intent to contract which takes the form of an offer and
acceptance. Rouse v. Household Fin. Corp., 156 P.3d 569, 571 (Idaho 2007). Whether
there is a meeting of the minds is a factual question. Mendes Bros. Dairy v. Farmers
Nat’l Bank, 725 P.2d 535, 537 (Idaho Ct. App. 1986). See also P.O. Ventures, Inc. v.
MEMORANDUM DECISION AND ORDER - 21
Loucks Family Irrevocable Trust, 159 P. 2d 870 (Idaho 2007) (“Formation of a contract
is generally a question of fact fort the trier of fact to resolve.”). If there are “any doubts”
concerning the scope of arbitrability, a court should resolve the dispute in favor of
arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626
(1985).
B.
Validity of the Agreement to Arbitrate
Plaintiff disputes that there is a valid agreement to arbitrate, and alternatively
argues that, if there was one, Midland waived its right to arbitrate by suing Plaintiff in
state court for recovery of the debt. Plaintiff makes four arguments attacking the validity
of the card agreement—and by implication the arbitration provision—Defendant asserts
applies here: (1) that there is no evidence of Plaintiff’s acceptance of the terms of the card
agreement; (2) the agreement does not apply to Plaintiff’s account; (3) Midland Funding
was not assigned the right to enforce the agreement, only the right to collect a debt; and
(4) that Mr. Peck’s assertion that Plaintiff’s account is subject to an arbitration agreement
is a legal conclusion.
i. Acceptance of the 2015 Card Agreement
Plaintiff contends he does not recall receiving a card agreement in the mail in
2011, and consequently there is no evidence that a valid agreement between Plaintiff and
Defendant exists. Even assuming he received such a mailing and acknowledging that
proof of a cardholder’s use of a card is sufficient to prove the existence of an agreement,
Plaintiff argues there is no evidence he used the Best Buy credit card either after opening
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it, or after January 2015, to incur the debt at issue. See Funderburke v. Midland Funding,
LLC, No. 12-2221-JAR/DJW, 2013 WL 394198 *5 (D. Kan. Feb. 1, 2013) (“Evidence of
a cardholder's use of the card is sufficient to prove the existence of an agreement.”).
Plaintiff contends the lack of evidence showing he personally assented to the 2015 Card
Agreement by use of the card is fatal to Defendant’s claim.
Defendant argues that Plaintiff’s claim under the FDCPA presupposes a valid
agreement for a credit card, citing to paragraphs 9, 11, 13, 14-17, 27, 30, 36, 44-45, 4849, 51, 53-55, and 57 in Plaintiff’s Amended Complaint. (Dkt. 4.) These paragraphs
acknowledge that Plaintiff had a contractual relationship with Citibank, incurred a debt
primarily for personal, family, or household purposes, and reference a letter he received
from Citibank/Best Buy regarding a refund for collection costs for the same account
referenced by Mr. Peck – the Best Buy Account ending in 058.
Plaintiff advances a hypertechnical argument in response to Defendant’s failure to
submit evidence of use of the credit card Citibank purportedly issued to Plaintiff.
Evidence in the record establishes Plaintiff was the account holder for a Best Buy credit
card account ending in 058 issued by Citibank. And, Citibank’s records custodian
declares Citibank mailed a copy of the 2015 Card Agreement to Plaintiff, and that
Citibank’s records reveal Plaintiff’s credit card account with Citibank ending in 058 was
sold to Defendant for collection purposes. Plaintiff claims Defendant wrongly included
the $88.11 in the $1,074.80 Defendant sought in the state court collection action arising
out of Plaintiff’s use of the credit card. Based upon these assertions, Plaintiff has not
MEMORANDUM DECISION AND ORDER - 23
plausibly denied that he had a contractual relationship with Citibank arising out of the use
of his Best Buy credit card.
As for Plaintiff’s claim that Defendant must show use after 2015, which is the
copyright date on the 2015 Card Agreement, the plain language of the 2015 Card
Agreement does not require use after that date to bind cardholders. The 2015 Card
Agreement notified Plaintiff that the Card Agreement “is your contract with us.” It
required no affirmative act of assent to its terms by use of the card. The 2015 Card
Agreement states also that Citibank could change the terms of the agreement from time to
time and that the agreement was binding unless the cardholder closed his account within
30 days after receiving the card and had not used or authorized use of the card. However,
even if the cardholder closed the account without using the card, thereby terminating the
agreement, by its terms the arbitration provision was severable from the other applicable
provisions of the agreement, and would survive termination of the account, unless the
arbitration clause was rejected in writing.
Plaintiff does not assert that he cancelled his Best Buy credit account ending in
058 at any time or rejected the arbitration clause; nor does he refute that Citibank mailed
the 2015 Card Agreement to him. See Schikore v. BankAmerica Supplemental Ret. Plan,
269 F.3d 956, 961 (9th Cir. 2001) (“The mailbox rule provides that the proper and timely
mailing of a document raises a rebuttable presumption that the document has been
received by the addressee in the usual time.”). Based upon the evidence in the record, the
Court concludes Plaintiff received the 2015 Card Agreement and did not reject its terms,
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and therefore accepted the account’s terms and conditions, including the arbitration
provision. However, this conclusion does not end the Court’s inquiry.
ii. Assignment
Next, Plaintiff argues Defendant has not provided evidence establishing that it
acquired the right to arbitrate under the 2015 Card Agreement’s arbitration provision –
only that Defendant acquired the right to enforce a debt. At the time the briefing was
submitted, and the Court conducted the hearing, a copy of the 2014 Purchase and Sale
Agreement whereby Defendant acquired Citibank’s charged off accounts was not part of
the record. Plaintiff argues that review of the terms of the 2014 Purchase and Sale
Agreement is necessary to determine what rights Citibank and its assignee, Atlantic, sold
to Defendant. The Court agrees, given that the 2016 Bill of Sale and Assignment from
Citibank to Defendant indicated that the sale of the Best Buy Fresh Flow accounts was
subject to the terms and conditions of the 2014 Purchase and Sale Agreement.
Now that the 2014 Purchase and Sale Agreement is in the record, the Court has
reviewed its terms together with the terms of the 2015 Card Agreement and the February
2016 Assignment and Release between Defendant, Atlantic, and Citibank. As explained
below, the Court finds Defendant did not acquire the right to enforce the arbitration
provision in the 2015 Card Agreement.
Defendant purchased Atlantic’s rights as they existed in 2014, and therefore
Defendant does not have the right to enforce the arbitration clause in the 2015 Card
Agreement issued by Citibank to Plaintiff. Starting with the 2016 Assignment and
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Release, effective February 19, 2016, Defendant acquired Atlantic’s “right, title, and
interest in and to [the 2014 Purchase and Sale Agreement]…pursuant to Section 12.5” of
the agreement. Section 12.5 of the 2014 Purchase and Sale Agreement prohibited either
Citibank or Atlantic from assigning “this Agreement or any of its rights in this
Agreement without the other’s prior written consent….” In turn, Citibank executed a Bill
of Sale and Assignment dated July 26, 2016, agreeing to “transfer, sell, assign, convey,
grant, bargain, set over and deliver to [Midland Funding LLC], and to [Midland Funding
LLC’s] successors and assigns, the Accounts described in Exhibit 1 and the final
electronic file” “subject to the terms and conditions of the Purchase and Sale Agreement
dated April 30, 2014.” The accounts transferred from Citibank to Defendant were
described as the Best Buy Fresh Flow Accounts, with a cut-off date of July 4, 2016.
The terms of the 2014 Purchase and Sale Agreement between Citibank and
Atlantic indicated the buyer purchased Citibank’s “right title and interest of Bank in and
to the Accounts.” Accounts in turn are defined as Citibank’s “accounts and receivables
charged off prior to the applicable Closing Date….” Upon the closing date, Citibank
agreed to transfer “a data file listing the Accounts,” and to transfer “all Bank’s right, title
and interest in and to the Accounts and Buyer will assume, with respect to each account,
all of Bank’s rights, responsibilities, and obligations that arise as a result of Buyer’s
purchase of the Accounts.”
While the remaining documents indicate Defendant received records pertaining to
Plaintiff’s Best Buy credit card account ending in 058 as part of the pool of charged off
MEMORANDUM DECISION AND ORDER - 26
accounts sold, it is not clear whether these records included the 2015 Card Agreement.
Rather, the Affidavit of Sale executed by Citibank in July of 2016 indicates “certain
electronic records were transferred on individual accounts to the debt buyer,” while Mr.
Peck’s declaration indicated Citibank mailed the 2015 Card Agreement to Plaintiff. “The
general rule is that an assignee steps into the shoes of the assignor upon assignment of the
interest and takes the assignment subject to the defenses assertable against the assignor.”
Travelers Indem. Co. of Am. v. Kendrick Bros. Roofing, No. 1:10-CV-00604-BLW, 2013
WL 6681240, at *2 (D. Idaho Dec. 18, 2013) (quoting 6A C.J.S. Assignments § 132).
Here, this means Defendant stepped into Atlantic’s shoes, not Citibank’s, and the sale in
2016 was subject to the terms of the 2014 Purchase and Sale Agreement, which was
executed prior to the issuance by Citibank of the 2015 Card Agreement. Defendant has
not provided the Court with any card agreement in existence prior to April 30, 2014. 11
Next, the 2015 Card Agreement issued by Citibank to Plaintiff does not appear to
contemplate that purchasers of the accounts or Citibank’s assigns are entitled to compel
arbitration. The arbitration provision indicates that “you” or “we,” defined as Citibank,
may arbitrate claims arising out of “our relationship.” The Agreement extends the
arbitration provision to “Claims made by or against anyone connected with us,…such
as…employee, agent, representative or an affiliated/parent/subsidiary company.”
Defendant has no such relationship with Citibank or with Plaintiff, and it stretches the
Even if there was a prior agreement containing an arbitration clause, for the reasons explained
later in this memorandum, the dispute likely would not fall within the scope of the arbitration provision.
Further, the terms of the 2015 Card Agreement would supplant any previous card agreement.
11
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language of the agreement to argue that Defendant has a relationship with Plaintiff
arising from the 2015 Card Agreement. At the time Citibank mailed the 2015 Card
Agreement to Plaintiff, Citibank had already assigned certain rights to Atlantic via the
2014 Purchase and Sale Agreement. Citibank certainly knew it had executed the
assignment in 2014. Yet, the language of the 2015 Card Agreement, which was mailed
directly by Citibank to Plaintiff, does not contemplate that Citibank’s assigns, or prior or
future purchasers of its accounts such as Atlantic and Defendant, would be entitled to
invoke the arbitration provision in the 2015 Card Agreement.
The Court contrasts the language of the 2015 Card Agreement’s arbitration
provision with the language in the arbitration provision the Court examined in Johnson v.
CACH, LLC, No. 1:16-cv-383-BLW, 2016 WL 7330571 at *3 (D. Idaho Dec. 16, 2016).
There, the Court found that the debt purchaser, who was assigned the right to collect a
debt, acquired also the right to enforce the terms of the arbitration provision. In that case,
however, the arbitration provision defined “we” and “us” as the bank’s “parent,
subsidiaries, affiliates, licenses, predecessors, successors, assigns, and any purchaser of
your account, and all of their officers, directors, employees, agents and assigns or any and
all of them.” Johnson 2016 WL 7330571, at *3.
In contrast here, the arbitration clause in the 2015 Card Agreement does not
extend to Citibank’s predecessors, successors, assigns, or purchasers of its accounts, nor
does it extend further to secondary purchasers, such as Defendant here, who acquired its
rights through an assignment from Atlantic. See also Mason v. Midland Funding, LLC,
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No. 1:16-CV-02867-LMM-RGV, 2018 WL 3702462, at *16 (N.D. Ga. May 25, 2018)
(finding defendant was entitled to enforce the arbitration provision in the card agreement
when the language defined “we,” “us,” and “our” as including “any assignees of any of
[Bank’s] rights, any merchant from which you purchased goods or services using your
Account, as well their respective affiliates, servicers, employees, agents, and further
assigns.”).
Under the unambiguous language of the 2014 Purchase and Sale Agreement,
construed together with the 2015 Card Agreement and the 2016 Bill of Sale and
Assignment, Defendant did not acquire the right to arbitrate the issues presented in the
instant case. The Court therefore finds it unnecessary to consider Plaintiff’s other
arguments concerning waiver or his objection to Mr. Peck’s declaration.
Further, even if Defendant had acquired the right under the 2015 Card Agreement
to compel arbitration, the Court finds the arbitration clause does not encompass the
disputes at issue here, as explained below.
C.
Whether the Agreement Encompasses the Dispute
Defendant argues that Plaintiff’s individual claims and proposed class claims
“arise out of Plaintiff’s relationship related to the 2015 Card Agreement and fall within
the arbitration clause.” Although Plaintiff did not directly address the second prong of the
Court’s inquiry, the Court must address whether Defendant carried its burden, as the
issue of arbitrability is for the Court to decide unless the parties stipulate or clearly
provide otherwise in their agreement. AT&T Tech., Inc. v. Communications Workers of
MEMORANDUM DECISION AND ORDER - 29
Am., 475 U.S. 643, 648-49 (1986) (holding that the “question of arbitrability…is
undeniably an issue for judicial determination.”); Walkwell Int’l, Inc. v. DJO Global,
Inc., No. 1:17-cv-00270-EJL-REB, 2017 WL 5490840, at *4 (D. Idaho Nov. 15, 2017). 12
The Court finds the present dispute does not fall within the terms of the arbitration
clause. Although broadly worded, covered claims subject to arbitration are limited to
claims “arising out of or related to your account…or our relationship….” The claims
alleged in this case are not a dispute concerning Plaintiff’s account. Rather, this is a
dispute regarding Defendant’s debt collection practices. Defendant asserts it acquired the
right to collect money from Plaintiff through its purchase of charged off accounts from
Atlantic, who in turn had purchased the accounts from Citibank. Plaintiff alleges
Defendant improperly collected debt protection fees and related finance charges that were
the subject of a consent order between Citibank and the Consumer Finance Protection
Bureau, and then, upon settling the collection action, wrongfully reported the amount of
debt forgiven. Plaintiff’s FDCPA claims and abuse of process claim involve the Midland
Defendants’ debt collection practices.
While the Court acknowledges Defendant would not have had a basis to file its
collection action had Plaintiff not had an account with Citibank, the dispute here does not
specifically arise out of or relate to Plaintiff’s account. Plaintiff has not denied the debt
Although Plaintiff did not directly challenge Defendant’s contention that the arbitration
provision in the 2015 Cardholder Agreement encompasses Plaintiff’s claims, Plaintiff did not concede the
issue.
12
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existed for purposes of this action, and objects instead to Defendant’s alleged knowing
misrepresentation of the amount owed and the amount reportedly forgiven.
Moreover, as explained above, Citibank issued the 2015 Card Agreement directly
to Plaintiff in 2015. The language of the arbitration clause limited its applicability to
claims arising out of “our relationship,” and did not extend to Citibank’s predecessors,
assigns, or future assigns.
CONCLUSION
Defendant, as the one seeking to compel arbitration, has not established that it
acquired the right to demand arbitration pursuant to the 2015 Card Agreement, which was
issued by Citibank to Plaintiff in the intervening period between the 2014 sale of the
charged off accounts to Atlantic and the later 2016 sale of the same accounts subject to
the terms of the 2014 agreement to Defendant. Nothing contained within the 2016 sale
documents indicated Defendant acquired anything more than what Atlantic purchased in
2014. Further, upon issuance of the 2015 Card Agreement, Citibank did not include its
predecessors, or its assigns within the ambit of the arbitration provision in the 2015 Card
Agreement. Even if Citibank had included language extending the right to compel
arbitration to its assigns or future assigns, the arbitration clause does not encompass the
dispute at issue, which concerns Defendant’s debt collection practices and not the
account itself.
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For the reasons explained herein, the Court will deny Defendant’s motion to
compel arbitration, and will grant Plaintiff’s motion to amend the complaint. In addition,
the Court will deny Defendant’s motion for protective order in its entirety.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED:
1)
Plaintiff’s Motion to Amend Complaint (Dkt. 17) is GRANTED.
2)
Defendant’s Motion to Compel Arbitration (Dkt. 24) is DENIED.
3)
Defendant’s Motion for Protective Order (Dkt. 33) is DENIED.
4)
The Court will issue a separate notice setting this matter for a telephonic
status conference to establish new case management deadlines. The parties
are directed to meet and confer in advance of the same.
DATED: December 10, 2018
_________________________
Honorable Candy W. Dale
United States Magistrate Judge
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