Achey v. BMO Harris Bank, N.A.
Filing
60
MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 8/19/2014: Civil case terminated. Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CHRISTINA ACHEY, on Behalf of
Herself and All Others
Similarly Situated,
Case No. 13 C 7675
Plaintiff,
Hon. Harry D. Leinenweber
v.
BMO HARRIS BANK, N.A.,
Defendant.
MEMORANDUM OPINION AND ORDER
Plaintiff Christina Achey (“Achey”) brings this putative class
action
on
behalf
of
herself
and
other
similarly
situated
individuals, alleging that Defendant BMO Harris Bank, N.A. (“BMO”)
assisted various online payday lenders in the collection of debts
in states where payday loans are illegal. Achey asserts claims for
violations
of
the
Federal
Racketeer
Influenced
and
Corrupt
Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) & (d), assumpsit,
unjust enrichment, and aiding and abetting under Pennsylvania state
lending and usury laws.
BMO has moved to compel Achey to arbitrate
her claims in accordance with the arbitration provision contained
within the loan agreements she signed.
For the reasons stated
herein, the Court finds that Achey’s claims against BMO fall within
the scope of that arbitration provision.
I.
BACKGROUND
A payday loan is a small, unsecured short-term loan that
ordinarily becomes due on the borrower’s next payday.
Typically,
these loans feature exceptionally steep interest rates that often
translate to more than 400% annually. Many states have taken steps
to eliminate payday lending, either by outlawing the practice
entirely or by limiting the feasibility of such loans by imposing
strict interest rate caps on lenders.
In an effort to circumvent
these bans, some payday lenders have moved their operations to
offshore havens or Native-American reservations while continuing to
offer payday loans via the internet to consumers in states where
such loans are illegal.
To facilitate the transfer of loan proceeds to customers’ bank
accounts and the debiting of their accounts for amounts due at the
conclusion
of
the
loan
term,
online
payday
lenders
rely
on
Originating Depository Financial Institutions (“ODFIs”), which are
banks that
function
as
middlemen
between the
lender
and
the
Automatic Clearing House network (“ACH”), an electronic payment
system that processes direct credit and debit transactions.
Once
the account holder authorizes a transaction with the lender, the
ODFI bank transmits that authorization through the ACH system to
the account holder’s bank, which, in turn, posts the appropriate
credit or debit to the customer’s account.
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Achey is a citizen of Pennsylvania, which is one of several
states that have outlawed payday lending.
On October 11, 2012,
Achey applied for and received a $200 payday loan (the “2012 Loan”)
from MNE Services, Inc. (“MNE”), a lending entity owned by the
Miami Tribe of Oklahoma that offers loans through a website called
ameriloan.com. The following year, on July 10, 2013, Achey applied
for and received an additional payday loan from MNE in the amount
of $350 (the “2013 Loan”).
The nominal annual interest rate for
these loans was 730% and 476%, respectively.
BMO is one of several ODFI banks that originate ACH debits and
credits on behalf of various lenders.
According to Achey, BMO is
the ODFI responsible for originating debit entries on her account
in connection with her 2012 and 2013 Loans.
Achey alleges that BMO
was aware of the fact that it was assisting MNE in the collection
of usurious or unlawful loans through its role as an ODFI on those
transactions and that its conduct thus violated federal and state
laws.
For both the 2012 and 2013 Loans, Achey completed an online
application and signed an electronic loan agreement (collectively,
the “Loan Documents”).
Although Achey did not attach the Loan
Documents to her complaint, BMO provided the Court with copies that
it
obtained
from
AMG Services,
Inc.
(“AMG”),
a
company
that
services MNE’s accounts and maintains records of MNE customer loan
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agreements.
(See, Decl. of Natalie C. Dempsey, sworn to on
Dec. 23, 2013 (“Dempsey Decl.”), ¶ 17 and Exs. 9-10, ECF No. 30-5).
The Loan Documents for both loans contain an arbitration
provision that requires Achey to arbitrate “any dispute” concerning
her loans. The term “dispute,” which the provision specifies is to
be accorded its “broadest possible meaning,” encompasses, among
other things, (1) all claims, disputes, or controversies arising
from or relating directly or indirectly to the signing of the loan
agreement, including the validity and scope of the arbitration
provision itself, (2) any claim, dispute, or controversy relating
to the interpretation, applicability, enforceability, or formation
of the loan agreement, (3) any federal or state law claims arising
from or relating to the loan agreement, (4) all claims asserted
against MNE or its agents, consultants, servicers, employees,
directors, officers, shareholders, parents, subsidiaries, or any
“affiliated
parties,”
collectively
as
which
“related
the
third
Loan
Documents
parties,”
and
(5)
refer
all
to
claims
asserted as a representative or member of a class against MNE or
any related third parties.
letters:
“YOU
ARE
The provision further states in bold
WAIVING
YOUR
RIGHT
TO
FILE
LAWSUIT . . . AGAINST [MNE] OR RELATED THIRD PARTIES.”
A
(The
wording of the 2012 Loan’s arbitration provision differs slightly
from that of the 2013 Loan, but the variance is not material).
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The arbitration provision requires that all proceedings be
conducted in the county of the consumer’s residence and provides
that any arbitration fees be reimbursed to the consumer, regardless
of the outcome.
The provision also allows the consumer to recover
her reasonable attorneys’ fees in the event that she prevails.
Finally, the provision permits consumers to opt-out of arbitration
by submitting a written request via e-mail within a short period of
time after entering into the loan agreement.
According to MNE’s
records, Achey did not opt out of the arbitration agreement for
either the 2012 or 2013 Loans.
(Dempsey Decl. ¶¶ 22-23).
At least eight other putative class actions asserting nearly
identical claims against BMO have been filed in separate district
courts across the country.
See, Moss v. BMO Harris Bank, N.A.,
No. 13-cv-5438 (E.D.N.Y. Sept. 30, 2013); Graham v. BMO Harris
Bank, N.A., No. 13-cv-1460 (D. Conn. Oct. 4, 2013); Parm v. BMO
Harris Bank, N.A., No. 13-cv-3326 (N.D. Ga. Oct. 4, 2013); Dillon
v. BMO Harris Bank, N.A., No. 13-cv-897 (M.D.N.C. Oct. 8, 2013);
Booth v. BMO Harris Bank, N.A., No. 13-cv-5968 (E.D. Pa. Oct. 11,
2013); Elder v. BMO Harris Bank, N.A., No. 13-cv-3043 (D. Md.
Oct. 11, 2013); Gunson v. BMO Harris Bank, N.A., No. 13-cv-62321
(S.D. Fla. Oct. 23, 2013); Riley v. BMO Harris Bank, N.A., No. 13cv-1677 (D.D.C. Oct. 28, 2013).
In each of these copycat actions,
BMO has moved to compel arbitration for the same reasons it
advances here.
Of the six courts that have ruled on these motions,
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all but one have compelled arbitration.
Having considered the
authorities cited by the parties together with the pleadings in
this case, the Court joins the majority and finds that the Loan
Documents require Achey to arbitrate her claims against BMO.
II.
The
Federal
LEGAL STANDARD
Arbitration
Act
(“FAA”)
provides
that
an
arbitration clause “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.
Thus, the FAA obliges
courts to stay proceedings and compel arbitration when a claim is
referable
to
arbitrate.
arbitration
pursuant
to
a
valid
agreement
to
Van Tassell v. United Mktg. Grp., LLC., 795 F. Supp. 2d
770, 786 (N.D. Ill. 2011).
A party seeking to compel arbitration must show that:
(1) a
written agreement to arbitrate exists, (2) the dispute at issue is
within the scope of that agreement, and (3) the other party has
refused
to
Industries,
arbitrate.
Inc.,
417
Zurich
F.3d
682,
American
687
Ins.
(7th
Co.
Cir.
v.
2005).
Watts
In
determining whether the parties agreed to arbitrate their claims,
courts generally “apply ordinary state-law principles that govern
the formation of contracts.”
First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 944 (1995).
However, “due regard must be
given to the federal policy favoring arbitration, and ambiguities
as to the scope of the arbitration clause itself [must be] resolved
- 6 -
in favor of arbitration.”
Volt Information Sciences, Inc. v. Bd.
of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989).
III.
A.
ANALYSIS
Admissibility of the Loan Documents
At the outset, there is some dispute over whether the Loan
Documents submitted by BMO are properly before the Court.
In
evaluating motions at the pleadings stage, courts ordinarily are
limited to the four corners of the complaint. Documents outside of
the complaint may be considered, however, if they are referred to
in the pleadings and are central to the claims at issue.
Citidel
Grp. Ltd. v. Wash. Reg’l Med. Ctr., 692 F.3d 580, 591 (7th Cir.
2012).
Although the Loan Documents were not attached to Achey’s
complaint, they are referred to throughout her pleadings and are
integral to her claims in this action.
Indeed, it is difficult to
imagine how Achey could proceed without the Loan Documents, since
they are the sole basis for her claim that the 2012 and 2013 Loans
were usurious.
Despite their obvious significance, Achey contends that the
Loan Documents should not be considered because they were “not
properly authenticated and are therefore inadmissible hearsay.”
(Pl.’s Mem. in Opp. to BMO’s Mot. to Compel (“Pl.’s Opp. Mem.”) at
5, ECF No. 40).
With regard to the authenticity of the Loan
Documents, however, the Federal Rules of Evidence require only a
threshold showing that the documents are what they are claimed to
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be.
FED. R. EVID. 901(a).
Establishing this foundation is not
rigorous; ordinarily, the showing may be made through testimony or
a sworn affidavit by a witness with knowledge.
901(b)(1).
See, FED. R. EVID.
“The party offering the evidence is not required to
rule out all possibilities inconsistent with authenticity, or to
prove beyond any doubt that the evidence is what it purports to
be.”
Boim v. Quranic Literary Inst., 340 F. Supp. 2d 885, 915
(N.D. Ill. 2004).
As proof of the Loan Documents’ authenticity, BMO relies upon
the declaration of Natalie Dempsey, a project manager at AMG, who
asserts that she has firsthand knowledge of MNE’s loan agreements
through her employment at AMG and that she is familiar with AMG’s
record-keeping
systems
for
(Dempsey Decl. ¶¶ 1-3).
MNE
customer
account
information.
Based upon her experience with MNE’s
customer records, Ms. Dempsey attests that the Loan Documents
submitted by BMO are “true and correct” copies of Achey’s 2012 and
2013 loan agreements.
(Id. ¶¶ 18-19).
Under the standards
articulated by the Federal Rules, this evidence is sufficient to
establish the authenticity of the Loan Documents.
Indeed, just
last month, a comparable declaration tendered by Ms. Dempsey was
approved to authenticate similar loan agreements in a related
payday lending case.
No.
See, Labajo v. First Int’l Bank & Trust,
5:14-cv-627-VAP-DTB
(C.D.
Cal.
chambers, ECF No. 33).
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July
9,
2014)
(order
in
As for Achey’s contention that the Loan Documents are hearsay,
they plainly are admissible pursuant to the business records
exception
set
forth
in
Rule
803(6)
of
the
Federal
Rules
of
Evidence. A document containing otherwise inadmissible hearsay may
be admitted as a business record upon a showing that such records
“are kept in the course of regularly conducted business activity,
and that it was the regular practice of that business activity to
make records, as shown by the testimony of the custodian or
otherwise qualified witness.” Collins v. Kibort, 143 F.3d 331, 337
(7th Cir. 1998) (internal quotation marks and brackets omitted).
Ms. Dempsey’s declaration confirms that AMG, as MNE’s servicing
company, maintains customer loan agreements “in its ordinary course
of business.”
(Dempsey Decl. ¶ 17).
Ms. Dempsey is competent to
supply this foundational information because she had access to and
is familiar with MNE customer loan agreements through her position
as a project manager at AMG.
(Id. ¶ 3).
Accordingly, the Loan
Documents may be considered as business records free of any hearsay
concerns.
Achey’s citation to Dillon v. BMO Harris Bank, N.A., No. 13cv-897, 2014 WL 911950 (M.D.N.C. Mar. 10, 2014), the sole related
payday lender case to deny BMO’s motion for arbitration, does not
compel a different result.
In Dillon, the district court refused
to order arbitration because BMO and certain other ODFI defendants
simply submitted the plaintiff’s loan documents without presenting
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any evidence as to their authenticity.
Id. at *2. The court found
it significant that no witness was proffered to “affirm[] that the
documents were found in the business records of the lender or
otherwise establish[] the authenticity of the documents.” Id. For
that reason, the court determined that the defendants had “failed
to show the existence of an agreement to arbitrate.”
Id. at *3.
In contrast to Dillon, there is ample evidence demonstrating
the authenticity of the Loan Documents submitted in this case.
Because Ms. Dempsey’s sworn declaration provides a credible basis
for concluding that the Loan Documents are genuine, the Court finds
that BMO has established to a sufficient degree of certainty the
existence of an agreement to arbitrate.
B.
Although
“traditional
agreement]
to
Enforcement of the Arbitration Agreement
BMO
is
not
principles
be
a
of
signatory
state
enforced
by
or
law
to
the
permit
against
Loan
an
Documents,
[arbitration
nonparties
to
the
[agreement] through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party beneficiary theories,
waiver and estoppel.”
Arthur Andersen LLP v. Carlisle, 556 U.S.
624, 632 (2009) (quotation marks omitted). BMO contends that it is
entitled
to
enforce
the
arbitration
agreement
because
(1)
principles of equitable estoppel bar Achey from denying BMO the
right to seek arbitration, and (2) BMO is a third-party beneficiary
to the arbitration agreement.
- 10 -
As an initial matter, there appears to be some confusion over
the applicable law in this case.
Although Achey seeks relief
primarily under Pennsylvania law and both parties cite Pennsylvania
and Third Circuit cases on the issue of the enforceability of the
arbitration provision, Achey also suggests that tribal law may be
relevant because the Loan Documents provide that the 2012 and 2013
Loans are governed by the laws of the Miami Tribe of Oklahoma.
(See, Dempsey Decl., Ex. 9 at 7, Ex. 10 at 8).
Oddly, however,
Achey “takes no position” either way, except to point out that BMO
failed to address the issue in its motion to compel.
(Pl.’s Opp.
Mem. at 8).
While the Loan Documents do indicate that tribal law generally
governs the 2012 and 2013 Loans, the matter is somewhat unclear
because the arbitration provision appears to have been exempted:
the Loan Documents specify that tribal arbitration law controls
only if a court first determines that the FAA does not apply.
(Dempsey Decl., Ex. 9 at 8, Ex. 10 at 10).
need
to
resolve
the
issue,
however,
Happily, there is no
since
Achey
has
not
demonstrated the existence of any conflict between Pennsylvania and
tribal arbitration law “such that the case could have a different
outcome depending on which law is applied.”
In re Aircrash
Disaster Near Roselawn, Ind. on Oct. 31, 1994, 948 F. Supp. 747,
750 (N.D. Ill. 1996); see also, Sphere Drake Ins. Ltd. v. Am. Gen.
Life Ins. Co., 376 F.3d 664, 671 (7th Cir. 2004).
- 11 -
Accordingly, the
Court applies Pennsylvania and Third Circuit law to the extent that
it is not preempted by the FAA.
See, e.g., Booth v. BMO Harris
Bank, N.A., No. 13-5968, 2014 WL 3952945, at *4 n.4 (E.D. Pa.
Aug. 11, 2014).
1.
Under
Pennsylvania
Equitable Estoppel
law,
principles
of
equitable estoppel
permit non-signatories to enforce an arbitration agreement “when
there is an obvious and close nexus between the non-signatories and
the contract or the contracting parties.”
Dodds v. Pulte Home
Corp., 909 A.2d 348, 351 (Pa. Super. Ct. 2006).
whether
it
would
be
inequitable
to
allow
a
In determining
party
to
avoid
arbitration with a non-signatory, courts consider “whether there is
a close relationship between the parties involved, and examine the
relationship
of
the
alleged
wrongs
to
obligations and duties in the contract.”
the
non[-]signatory’s
Miron v. BDO Seidman,
LLP, 342 F. Supp. 2d 324, 333 (E.D. Pa. 2004) (internal quotation
marks omitted).
Turning
to
the
first
of
these
inquiries,
BMO’s
role
in
originating the 2012 and 2013 loan transactions demonstrates that
it shared a sufficiently close relationship with Achey such that it
would have been foreseeable that she would be required to arbitrate
her claims against BMO.
As part of her 2012 loan agreement, Achey
expressly authorized MNE’s “servicer, agent, or affiliate” to
initiate ACH credit and debit entries on her account.
- 12 -
The 2013
loan
agreement
language
in
omitted
favor
of
this
a
“servicer,
defined
term
agent,
for
MNE
or
affiliate”
that
included
“authorized representatives” and “agents,” but the meaning remains
the same.
The repeated references in both loan agreements to
“related third parties” and the need to “initiate” entries on the
ACH network clearly suggests that other entities would be required
to complete various aspects of the loan transactions.
Thus, by
consenting to arbitrate an extremely broad and open-ended range of
claims against those unidentified third parties, Achey “knowingly
agreed that, in the future, [she] would have to arbitrate with a
party who [was] not named in the loan documents, and having made
that agreement, [Achey] cannot now deny the foreseeability of BMO’s
involvement” in the loan transactions.
Moss v. BMO Harris Bank,
N.A., --- F. Supp. 2d ----, No. 13-cv-5438 (JFB)(GRB), 2014 WL
2565824, at *6 (E.D.N.Y. June 9, 2014).
Accordingly, the Court
finds there to be an “obvious and close nexus” between Achey and
BMO.
Dodds, 909 A.2d at 351.
The remaining estoppel consideration is whether Achey’s claims
in this action are sufficiently intertwined with the contract
obligations underlying the 2012 and 2013 loan agreements.
See,
E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir. 2001).
Claims
asserted against a non-signatory to an agreement are intertwined
with the underlying contract where the signatory “must rely on the
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terms of the agreement to assert its claims against the non[]signatory such that the signatory’s claims make reference to or
presume the existence of the written agreement, or the signatory’s
claims arise out of and relate directly to the written agreement.”
Bannett v. Hankin, 331 F. Supp. 2d 354, 359-60 (E.D. Pa. 2004).
There can be little doubt that Achey’s claims arise out of her 2012
and 2013 loan agreements. Indeed, her entire case depends upon the
alleged illegality of the underlying payday loans and is premised
on the notion that BMO was aware that it was assisting MNE in the
collection of usurious debts.
The agreements setting forth the
terms of those loans thus are indispensable to and intertwined with
her claims against BMO.
Although Achey contends that the relief she seeks in this
action does not turn on BMO’s duties and obligations under the loan
agreements, it is enough that her claims rely on the common
allegation that the terms of those agreements were illegal.
Bannett, 331 F. Supp. 2d at 360.
See,
Moreover, to the extent that
Achey argues that BMO should not be permitted to invoke arbitration
because it has “unclean hands” from having aided and abetted in the
collection of unlawful payday loans, that is an issue for the
arbitrator, rather than the Court, to decide.
In Buckeye Check
Cashing, Inc. v. Cardenga, the Supreme Court held that “unless the
challenge is to the arbitration clause itself, the issue of [a]
contract’s validity is considered by the arbitrator in the first
- 14 -
instance.”
Buckeye Check Cashing, Inc. v. Cardenga, 546 U.S. 440,
445-46 (2006). Achey’s unclean hands argument does not concern the
arbitration provision specifically, but instead relates to BMO’s
actions
with
regard
to
the
loan
agreements
in
general.
Consequently, Achey’s argument does not affect BMO’s ability to
enforce the arbitration provisions.
See, In re A2P SMS Antitrust
Litig., 972 F. Supp. 2d 465, 482 (S.D.N.Y. 2013).
At least four other courts in related payday lending actions,
including one applying Pennsylvania law, have permitted BMO to
enforce similar arbitration provisions through the doctrine of
equitable estoppel.
Booth, 2014 WL 3952945, at *5-7; Riley v. BMO
Harris Bank, N.A., No. 13-1677 (CKK), --- F. Supp. 2d ----, 2014 WL
3725341, at *5-6 (D.D.C. July 29, 2014); Graham v. BMO Harris Bank,
N.A., No. 13-cv-1460 (WWE) (D. Conn. July 16, 2014) (unpublished
memorandum decision, ECF No. 200); Moss, 2014 WL 2565824, at *4-6.
The Court finds no cause to depart from these well-reasoned and
persuasive decisions.
Accordingly, for the reasons explained, the
Court concludes that Achey’s claims against BMO are subject to
arbitration under the terms of her loan agreements. Because BMO is
entitled to enforce the arbitration provision under the doctrine of
equitable estoppel, the Court need not address its related argument
that it is a third-party beneficiary to the agreement.
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2.
Dismissal of Claims
Having determined that Achey is required to arbitrate her
claims
against
BMO,
the
ordinary
arbitration and stay the case.
course
would
be
to
compel
However, the Seventh Circuit has
held that a district court cannot order arbitration in a forum
outside of the district in which it sits, Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995),
and the arbitration provision contained in the loan agreements
mandates that all arbitration proceedings be conducted in the
county of the consumer’s residence, which in Achey’s case is Lehigh
County, Pennsylvania.
(Compl. ¶ 11, ECF No. 1).
Although the
arbitration provision does allow the consumer to stipulate to a
different location, there is no indication that Achey has agreed to
arbitrate within the Northern District of Illinois.
In these
circumstances, the Court is not permitted to compel arbitration
and, instead, dismissal of the action is appropriate.
Continental
Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d 727, 735 (7th Cir. 2005).
IV.
CONCLUSION
For the reasons stated herein, the Court finds that Achey’s
claims against BMO are subject to arbitration under the doctrine of
equitable estoppel.
However,
because
the
arbitration
clause
requires
that
arbitration take place in the county of Achey’s residence, which is
outside of the Northern District of Illinois, the Court cannot
- 16 -
order arbitration of her claims.
Consequently, BMO’s motion to
compel arbitration, (ECF No. 27), and all other pending motions,
(ECF Nos. 24 and 31) are denied.
The action is dismissed without
prejudice.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Date:8/19/2014
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