Locke-Odell v. Orion Processing, LLC et al
Filing
20
MEMORANDUM AND ORDER granting 12 Motion to Compel; denying as moot 15 Motion for Hearing. IT IS FURTHER ORDERED that this action, as it relates to claims against defendant Global, is stayed pending arbitration. Litigation of plaintiff's claims against defendant World Law will proceed. IT IS FURTHER ORDERED that plaintiff and defendant Global are to proceed with arbitration in accordance with the provisions of the arbitration clause. See Memorandum and Order for further details. Signed by District Judge Carlos Murguia on 3/27/2012. (jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
JOY LOCKE-O’DELL,
Plaintiff,
v.
GLOBAL CLIENT SOLUTIONS, LLC,
et al.,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
No. 12-2009-CM
MEMORANDUM AND ORDER
Defendant Global Client Solutions, Inc. (“Global”) removed this action to federal court and
now moves this court for an order compelling arbitration under the Federal Arbitration Act, 9 U.S.C.
§§ 1–16 (“FAA”) (Doc. 12). The FAA allows a district court to compel arbitration when the court
determines that: (1) a valid arbitration agreement exists between the parties, and (2) the dispute
before it falls within the scope of the agreement. The agreement between plaintiff Joy Locke-O’Dell
and Global includes a broad, unambiguous, and valid arbitration requirement. And plaintiff’s claims
against Global are within the scope of the arbitration requirement. Accordingly, the court grants
Global’s motion; stays the action pending arbitration as it relates to claims against defendant Global;
and orders plaintiff and Global to proceed with arbitration in accord with the provisions of the
arbitration clause. Because nothing has been presented to the court to compel staying the litigation
against defendant World Law, those claims will proceed in this court.
I.
Background
Global asserts that plaintiff enrolled in a debt resolution program and defendants provided
her services in connection with that program. Specifically, plaintiff contracted with defendant Orion
Processing, LLC, d/b/a World Law (“World Law”), which provided her “bundled legal services to
assist her in resolving her . . . unsecured consumer debt” of over $72,000. Global serves as the
processor of all the activity related to a special purpose bank account that plaintiff opened in
connection with the debt resolution program. Global, however, is not a party to the debt resolution
plan, and does not negotiate any of its account-holders’ debt. Global is “a financial and technology
services company that specializes in payment processing solutions for traditional banks,” and is a
Third Party Automated Clearing house (“ACH”) sender. As such, Global processes ACH
transactions that the bank executes for its account holders.
Global asserts that, in connection with the services for which plaintiff contracted with World
Law, she also signed Global’s Agreement for transaction processing of her special purpose bank
account. She made periodic payments into her special purpose account from her primary bank
account. She then periodically authorized Global to process disbursements of funds to repay her
debts and the costs associated with her World Law debt settlement program.
Plaintiff admits she “agreed to allow Global to create a special purpose account agreement
that required her to set up an automatic payment transfer for her monthly payments” to Global and
World Law. (Doc. 1-1 at 12.) However, she asserts that she believed she was contracting with a
reputable law firm to help resolve her debts but that after learning she had been misled, she severed
ties with defendants. She asserts that Global is actually an unregistered debt management service
and credit service organization. She notes that Global is the sole mechanism for collecting and
paying World Law for its purported services. She contests that she authorized Global to process
disbursements of funds to repay debts; she argues that she had no control over the special purpose
-2-
account and that no individual account actually existed. Her complaint contains sixteen counts,
including alleged violations of the Kansas Credit Services Organizations Act and Kansas Consumer
Protection Act.
II.
Legal Standards
The FAA embodies the national policy favoring arbitration. Hall Street Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576 (2008). Under the FAA, a district court should compel arbitration when
(1) a valid arbitration agreement exists between the parties, and (2) the dispute before the court falls
within the scope of the arbitration agreement. 9 U.S.C. § 2 (“A written provision . . . to settle by
arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract.”); id. at § 3 (“If any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration under an agreement in writing for such arbitration, the
court in which such suit is pending . . . shall . . . stay the trial of the action until such arbitration has
been had in accordance with the terms of the agreement . . . .”); see also Olathe Senior Apts., L.P. v.
Ace Fire Underwriters Ins. Co., No. 04-2346-CM, 2005 U.S. Dist. LEXIS 43449, at *11 (D. Kan.
Sept. 30, 2005) (outlining two-step approach).
Thr FAA does not require parties to arbitrate when they have not agreed to do so; it requires
the court to enforce agreements to arbitrate, like other contracts, in accord with their terms. “If a
generally applicable state contract defense invalidates an arbitration agreement or if grounds exist at
law or equity that would call for the revocation of any contract,” the court will not compel arbitration
under the agreement. See Klima v. Evanglical Lutheran Good Samaritan Soc., No. 10-1390-JARJPO, 2011 WL 5412216, at *2 (D. Kan. Nov. 8, 2011) (citing Volt Info. Scis., Inc. v. Bd. of Trs. of
Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989)).
-3-
The court applies ordinary state-law principles that govern the formation and interpretation of
contracts when evaluating whether the parties have agreed to arbitrate a particular dispute. Hardin v.
First Cash Fin. Servs., Inc., 465 F.3d 470, 475 (10th Cir. 2006); Summit Contractors, Inc. v. Legacy
Corner L.L.C., 147 F. App’x 798, 801 (10th Cir. 2005). This is a diversity action, so the court
applies the choice of law rules of the forum state. See N.Y. Life Ins. Co. v. K N Energy, Inc., 80 F.3d
405, 409 (10th Cir. 1996) (“In a diversity action . . . we apply the substantive laws of the forum state,
including its choice of law rules.”). Kansas is the forum state, and Kansas choice of law rules honor
an effective choice of law by contracting parties. Brenner v. Oppenheimer & Co., 44 P.3d 364, 374
(Kan. 2002). The agreement at issue in this case with regard to defendant Global includes a choice
of law provision in favor of Oklahoma law, or the laws of the state in which the consumer
resides—which in this case is Kansas. Although the parties do not specify which state’s law they
seek to apply, the court will look to Kansas law regarding the formation and interpretation of the
arbitration agreement.1
III.
Analysis
1
The Client Service Agreement between plaintiff and defendant World Law also includes an
arbitration clause, with a New York choice of law provision. (Doc. 1-3 at 26.) The signature page
states that plaintiff “read, understand[s] and agree[s] with the above Service Agreement and [has]
been provided a copy for my personal records.” (Doc. 1-3 at 26.) See Filho v. Safra Nat. Bank of
N.Y., 797 F. Supp. 2d 289, 297–98 (S.D.N.Y. 2011) (rejecting plaintiff’s argument that he did not
receive or read the terms and conditions because “[d]irectly above Plaintiff’s signature on the
account application is an acknowledgment that he received, understood, and agreed to the [terms and
conditions]”); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 252 (N.Y. App. Div. 1998) (“That a
consumer does not read the agreement or thereafter claims he or she failed to understand or
appreciate some term therein does not invalidate the contract any more than such claim would undo a
contract formed under other circumstances.”). Defendant World Law has not sought to compel
arbitration. Robinson v. Food Serv. of Belton, Inc., 415 F. Supp. 2d 221 (D. Kan. 2005) (denying
motion to compel arbitration in part because defendant’s delay in raising the arbitration issue was
inconsistent with the right to arbitrate).
-4-
The court has reviewed the contract and the arbitration agreement it contains. Specifically,
the Special Purpose Account Agreement (Doc. 14-1 at 14–17) is a contract between Global and
plaintiff. The plain and unambiguous language of the arbitration clause in the Agreement with
Global includes “any controversy, claim or dispute between the parties arising out of or relating to
this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including
the termination of the scope or applicability of this Agreement to arbitrate. . . .” This is a broad
arbitration clause. See, e.g., Brown v. Coleman Co., 220 F.3d 1180, 1184 (10th Cir. 2000)
(explaining that arbitration clause including “all disputes or controversies arising under or in
connection with this Agreement” is “the very definition of a broad arbitration clause”). The court
concludes that the clause must be enforced. In reaching this conclusion, the court rejects the three
arguments raised by plaintiff: (1) plaintiff was unaware of the contents of the agreement, and did not
sign or receive a copy of the agreement; (2) the contract is illegal; and (3) the arbitration provision is
unenforceable.
1.
The Agreement Expressly States That Plaintiff Received The Agreement, and
the Agreement Bears her Initials and Electronic Signature.
In connection with the motion to compel, plaintiff asserts that she did not receive a copy of
the agreement and that its contents were unknown to her at the time it was made. She states she did
not execute or initial each page of the agreement, but that the agreement was signed “using an
electronic signature that plaintiff did not sanction and would not have sanctioned if she were armed
with the truth.” (Doc. 16 at 3.)
But the express language of agreement contradicts plaintiff’s argument. Specifically, the
application and signature page of the Special Purpose Account Agreement clearly states that “the
-5-
Special Purpose Account is governed by the terms of this Agreement” and that she “is bound by all
of its terms and conditions.” (Doc. 14-1 at 16.) Plaintiff is bound by these statements despite her
current arguments to the contrary. Felling v. Hobby Lobby, Inc., No. 04-2374-GTV, 2005 U.S. Dist.
LEXIS 6853, at *13 (D. Kan. Apr. 19, 2005) (noting that “a person who signs a written contract is
bound by its terms regardless of his or her failure to read and understand its terms”) (internal
quotation omitted). The agreement is “DocuSigned” by plaintiff, and bears her initials on each page.
Further, evidence offered by defendant establishes that a copy of the Special Purpose Account
Agreement was mailed to plaintiff, along with a Welcome Letter from Global, shortly after she
submitted her electronic application. (Doc. 14-2.) Plaintiff’s argument is rejected.
2.
Whether The Contract Is Illegal Is An Issue For The Arbitrator
As the court understands it, plaintiff is asserting that defendants did not have the authority to
perform the services they agreed to perform on her behalf. She argues that because the contract was
“for an illegal act,” “the entire contract between plaintiff[] and defendant is illegal.” (Doc. 16 at 6.)
She states she is “not necessarily challenging the agreement as a whole,” but is challenging “whether
defendants have the right to make such an agreement.” (Doc. 16 at 6.)
A claim of fraud in the inducement that goes to the validity of the entire contract should be
decided by the arbitrator. The court should only decide the issue if the defense goes to the arbitration
clause alone. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04 (1967); see
also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–46 (2006) (“[U]nless the
challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the
arbitrator in the first instance”); Brooke Credit Corp. v. Buckeye Ins. Ctr., 563 F. Supp. 2d 1205,
1208 (D. Kan. 2008).
-6-
Although plaintiff tries to argue that her situation falls outside the Supreme Court’s Prima
Paint and Buckeye holdings, her challenge to the contract is similar to a claim of fraudulent
inducement. And it is apparent that her fraud/illegality argument is not restricted to the arbitration
clause but to the entire contract. Accordingly, the issue of whether or not the contract is valid or
enforceable is to be resolved in arbitration—not in this court.
3.
The Arbitration Clause is Enforceable
In addition to arguing that the entire agreement is invalid or illegal, plaintiff also argues that
the arbitration provision is unenforceable because it violates Kansas public policy in favor of
protecting citizens from misleading, deceptive, unconscionable, and even criminal acts, and that a
consumer cannot waive his or her rights under the Kansas Consumer Protection Act. She argues that
enforcement of the provision would act as such a waiver because arbitration would effectively
eliminate her right to a jury trial on her deceptive acts and practices claims; her right to seek punitive
and other damages; and her right to seek attorney fees under the Kansas Consumer Protection Act
and/or Kansas Credit Services Organization Act. Additionally, plaintiff argues the arbitration
provision is unconscionable because it provides that the American Arbitration Association (“AAA”)
has the right to choose the arbitrator.
The court finds that these facts do not render the provision unenforceable. Upon review, the
terms of the arbitration are relatively customer-friendly. The Agreement states the arbitration will be
governed by the AAA’s rules, and that the AAA will select the arbitrator. The terms of the
agreement guarantee, however, that the arbitrator “shall be neutral and independent and shall comply
with the AAA code of ethics.” (Doc. 14-2 at 5.) The Agreement mutually binds plaintiff and Global
to arbitrate all disputes arising under the contract. It notes that both parties are giving up their rights
to a jury trial. While it states that the parties will share the cost of arbitration, defendant will pay the
-7-
consumer’s share of any cost in excess of $1,000. This includes equal cost-sharing of attorney’s
fees. The provision does not purport to eliminate all appeal rights. And the provision does not
appear to restrict the arbitrator to grant plaintiff the same relief under the laws of Kansas that are
available to plaintiff in this court. The validity of other provisions, and of the contract as a whole, is
for the arbitrator.
IT IS THEREFORE ORDERED that Defendant Global Client Solution, LLC’s Motion to
Compel Arbitration Pursuant to the Federal Arbitration Act (Doc. 12) is granted.
IT IS FURTHER ORDERED that this action, as it relates to claims against defendant
Global, is stayed pending arbitration. Litigation of plaintiff’s claims against defendant World Law
will proceed.
IT IS FURTHER ORDERED that plaintiff and defendant Global are to proceed with
arbitration in accordance with the provisions of the arbitration clause.
Dated this 27th day of March, 2012, at Kansas City, Kansas.
s/ Carlos Murguia
CARLOS MURGUIA
United States District Judge
-8-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?