Caudill v. Calvary SPV I, LLC et al
Filing
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MEMORANDUM OPINION & ORDER: (1) 18 MOTION to Compel Arbitration is GRANTED. (2) Pursuant to 9 USC 3, further proceedings in this matter are STAYED pending arbitration. (3) If Caudill fails to initiate arbitration proceedings w/in 60 days from the entry of this order, the case will be dismissed w prejudice. Signed by Judge Amul R. Thapar on 8/25/2014.(SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
BILLY CAUDILL,
Plaintiff,
v.
CAVALRY SPV I, LLC, et al.,
Defendants.
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Civil No. 14-32-ART
MEMORANDUM OPINION AND
ORDER
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Contracts, by their nature, sometimes require and other times foreclose a desired
course of action. In doing so, they reduce uncertainty for both parties, creating a predictable
framework in which to pursue common interests.
If one party could throw off such
constraints at will, uncertainty would reign, rendering the contract as ineffectual as a
modern-day challenge to duel.1 Fortunately, contracts still have consequences.
Defendants Cavalry SPV I (“SPV”) and Cavalry Portfolio Services (“CPS”) have
asked the Court to enforce the arbitration clause of a contract between GE Capital Retail
Bank (“the Bank”) and Billy Caudill. R. 18. Caudill seeks to avoid arbitration. R. 19.
However, because Caudill entered into a valid arbitration agreement and his claims fall
within the scope of that agreement, the Court will grant the motion to compel arbitration and
stay Caudill’s suit.
1
AimArchives, Sen. Zell Miller Challenges Chris Matthews to a Duel (Published on July 24,
2012) (“I wish we lived in the day where you could challenge a person to a duel.”), available
at https://www.youtube.com/watch?v=SXpuEFansic.
BACKGROUND
Like many Americans, Billy Caudill struggled financially in the wake of the 2008
economic downturn. R. 1 ¶ 1. During that time, he defaulted on a credit card issued by the
Bank. See id. ¶ 11; R. 18-1 at 21. By May of 2012, SPV had purchased Caudill’s debt from
the Bank. R. 1 ¶ 22; R. 18-1 at 21 (certifying that the Bank’s collections operations
representative, David Stransky, had reviewed Caudill’s account, which had been “sold to
[SPV]”). According to SPV’s authorized representative, Terry Rivera, SPV then assigned
the debt to CPS for collection. R. 18-1 at 16 (“SPV assigned the Caudill Account to CPS,
including an assignment of its servicing, collection, and enforcement rights.”). A letter from
CPS to Caudill puts the transfer in slightly different terms: “SPV . . . has referred your
account to [CPS] for servicing.” R. 19-2 at 1. Caudill claims that he owed a total of
$1,294.00 at the time of the debt transfer and that SPV and CPS charged him an additional
$1,452.00 in interest between May 2012 and December 2013. R. 1 ¶¶ 21–26. Rather than
pay the full amount, Caudill filed nine claims against SPV and CPS, alleging that they
charged exorbitant interest, and violated both the credit card agreement (“the Agreement”)
and the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 (“FDCPA”). R. 1 ¶¶ 28–29.
The defendants responded to Caudill’s suit by moving to compel arbitration, citing a
provision in the Agreement: “Any past, present or future legal dispute or claim of any kind,
including statutory and common law claims and claims for equitable relief . . . will be
resolved by binding arbitration if either you, we, or [the credit card company] elects to
arbitrate.” R. 18-1 at 1, 24. The Agreement defines “we” as “[the Bank] and all of its
respective parents, subsidiaries, affiliates, predecessors, successors, assigns, employees,
officers and directors.” R. 19-3 at 5. The Agreement then expressly provided that the Bank
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had the right to “sell, assign or transfer any of [its] rights or obligations under [the]
Agreement.” Id. at 6.
The defendants assert that (1) SPV assumed the Bank’s contractual rights under the
arbitration clause when it purchased Caudill’s account from the Bank, R. 20 at 4–5, and
(2) CPS acquired contractual rights under the arbitration clause when SPV assigned Caudill’s
account to CPS for collection. Id. at 9–11. As a result, they argue, the Court must enforce
the arbitration provision pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. R.
18-1 at 1. Caudill contends that because SPV and CPS were not parties to the original
Agreement they cannot enforce the arbitration clause. R. 19.
DISCUSSION
The Federal Arbitration Act of 1925 (“FAA”) enshrines in the United States Code “a
liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983). See also Circuit City Stores, Inc. v. Adams,
532 U.S. 105, 111 (2001) (“[T]he FAA compels judicial enforcement of a wide range of
written arbitration agreements.”). Under Section 2 of the FAA, an arbitration provision in a
contract “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. When a party violates an
agreement to arbitrate by instead bringing claims in a civil suit, the aggrieved party may ask
a federal court to compel arbitration if there is an independent basis for jurisdiction. 9 U.S.C.
§ 4. To defeat a motion to compel arbitration, “the party opposing arbitration must show a
genuine issue of material fact as to the validity of the agreement to arbitrate.” Great Earth
Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002). The standard to defeat a motion to
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compel arbitration “mirrors that required to withstand summary judgment in a civil suit.” Id.
(citing Doctor's Assocs. v. Distajo, 107 F.3d 126, 129–30 (2d Cir. 1997)).
To determine whether there is a genuine issue about whether the plaintiffs violated a
valid agreement to arbitrate, the Court applies a two-prong test inquiring whether (1) there is
a valid agreement to arbitrate between the parties and (2) the specific dispute falls within the
substantive scope of that agreement. Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th
Cir. 2003). State contract law governs the first prong—“the validity, revocability, and
enforceability” of the contract itself. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–
87 (1996) (internal quotation marks omitted). Courts then examine the second prong in light
of a strong “presumption of arbitrability.” Granite Rock Co. v. Int'l Bhd. of Teamsters, 561
U.S. 287, 301 (2010). “[A]ny ambiguities . . . should be resolved in favor of arbitration.”
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (citing Mitsubishi Motors Corp. v.
Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626 (1985)). Where claims are premised upon
a federal statute, that presumption shifts the burden to the party seeking to avoid arbitration,
requiring it to demonstrate that “Congress intended to preclude arbitration of the statutory
claims at issue” or that the parties did not intend to arbitrate statutory claims. Green Tree
Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 91–92 (2000).
For this Court, and for SPV, this inquiry covers familiar ground. 2 See Martin v.
Cavalry SPV I, LLC, Civil No. 13-88-GFVT, 2014 WL 1338702 (E.D. Ky. Mar. 31, 2014).
Here, Caudill argues under the first prong that no valid arbitration agreement exists between
the parties. Under the second prong, he argues that, even if a valid arbitration clause exists,
2
Indeed, this Court’s previous foray into this inquiry involved a challenged arbitration clause in a credit card
agreement formed with the same bank, enforced by SPV, and brought by the same plaintiff’s counsel.
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his claims fall outside the scope of the Agreement. Because Caudill fails to demonstrate a
genuine dispute of a material fact under either prong, both arguments fail.
I.
Whether A Valid Agreement Exists Between the Parties.
Caudill makes numerous arguments against the existence of a valid arbitration
agreement between himself and the defendants.
He claims that the defendants fail to
establish that SPV purchased Caudill’s debt from the Bank. R. 19 at 5. Even if SPV did
purchase Caudill’s debt, he argues, SPV did not properly document the assignment of the
debt from SPV to CPS. Id. at 3. He argues that the transfer of debt from the Bank to SPV
included receivables only, not any rights under the arbitration clause. Id. at 15. Finally,
Caudill alleges a genuine dispute as to whether SPV assigned his entire account to CPS,
depriving SPV of any rights under the Agreement. Id. at 4–5. For the following reasons,
each argument is unpersuasive.
A. The Defendants Can Establish that the Bank Sold Caudill’s Debt to SPV.
Caudill asserts that there is no proof that the Bank transferred Caudill’s debt to SPV.
This is true, he argues, because the bill of sale from the Bank does not mention Caudill’s
name or account number and accordingly fails to establish a transfer of his debt to SPV. R.
19 at 4. As a result, SPV cannot have an agreement with Caudill or the right to make him
arbitrate his claim. “To prevail,” Caudill writes, “a plaintiff/creditor must provide . . . ‘a bill
of sale listing the name and account number of the defendant.’” Id. (quoting Bruner v.
Discover Bank, 360 S.W.3d 774, 778 (Ky. Ct. App. 2012)).
But Bruner does not apply. Bruner describes what a plaintiff must prove to prevail on
a summary judgment motion to collect a debt. Id. Here, Caudill challenges the distinct point
of whether the Bank assigned the account to SPV and, with it, the arbitration clause. See id.
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at 2–4. Even if Bruner did apply, it does not support Caudill’s argument. Bruner holds that
“an assignment from the demonstrated owner of the debt for the purpose of collection . . .
serve[s] virtually the same purpose as a bill of sale.” Bruner, 360 S.W.3d at 778. Here, the
affidavit of sale satisfies this requirement.
David Stransky, the Bank’s Collections
Operations Representative, testified in writing and under oath that “[t]he amount owed on the
account on 5/19/2012, $1823.23 was sold to Cavalry SPV I LLC.” R. 18-1 at 21. To the
extent that Caudill fails to explain why this affidavit does not “serve virtually the same
purpose as a bill of sale,” Bruner, 360 S.W.3d at 778, he waives the argument by failing to
develop it. See McPherson v. Kelsey, 125 F.3d 989, 995–96 (6th Cir. 1997).
B. SPV Assigned Caudill’s Debt to CPS.
Caudill asserts that the defendants fail to demonstrate the “alleged assignment from
[SPV] to CPS.” R. 19 at 3. But Exhibit 1 to the defendants’ motion, a Business Records
Declaration from Terry Rivera, does just that. R. 18-1 at 15–16. It explicitly states that
“SPV assigned the Caudill Account to CPS, including an assignment of its servicing,
collection, and enforcement rights.” Id. at 16. Additionally, Caudill admits in his complaint
the very information he disputes in his response to the motion to compel arbitration:
Caudill’s complaint lists “May 14, 2012 as the date that [SPV] purchased Mr. [Caudill’s]
credit card debt and the date that the debt was assigned to CPS for collection.”). R. 1 at 3.
Caudill tries to undermine Rivera’s declaration in three ways, first under the business
records exception, second under the best evidence rule, and finally under “the specter of
robo-signing.” First, he argues that Rivera is not qualified to introduce the Agreement
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pursuant to the business records exception to the hearsay rule because he3 never claims to
have personal “knowledge of the procedures under which the [Agreement was] created.” R.
19 at 8 (quoting United States v. Petroff-Kline, 557 F.3d 285, 292 (6th Cir. 2009)). Rivera’s
personal knowledge, however, is not required.
Debt collectors routinely rely upon
documents that they have “integrated into [their] records” even when they do “not have
personal knowledge” of or “personally participate in [their] creation, or even know who
actually recorded the information.” Brawner v. Allstate Indem. Co., 591 F.3d 984, 987 (8th
Cir. 2010) (quoting Resolution Trust Corp. v. Eason, 17 F.3d 1126, 1132 (8th Cir. 1994)).
Caudill further argues that Rivera’s declaration failed to establish that the Agreement
was made or kept “in the course of regularly conducted business activity before its transfer
to CPS.” R. 19 at 8 (emphasis added). Here, Caudill is simply wrong. According to SPV’s
uncontroverted declaration, it integrated the Bank’s records into its own as soon as it
purchased the account. R. 18-1 at 16. Rivera avers that, “upon the sale of the Account to
SPV,” the related “business records of [the Bank] became, and are now fully integrated with,
the business records of SPV.”
Id. (emphasis added).
SPV could not possibly have
transferred the account to CPS before it had even bought the account. Rivera also avers that
he is the custodian of the records and has verified their accuracy and applicability to
Caudill’s account. Id. Once an entity integrates a third party’s document into its records and
relies upon it, the document becomes “qualified for admission under the business records
exception.” United States v. Hollie, No. 93-6021, 25 F.3d 1051 (6th Cir. May 16, 1994)
(unpublished) (citing United States v. Doe, 960 F.2d 221 (1st Cir. 1992)).
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Though Caudill’s counsel refers to Terry Rivera as “she” throughout his response, e.g., R. 19 at 5–6, the
Court defers to the characterization of the party that submitted Terry Rivera’s declaration. See R. 20 at 2–3
(referring to “Mr. Rivera”).
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Second, Caudill alleges “in a perfunctory manner,” McPherson v. Kelsey, 125 F.3d
989, 995–96 (6th Cir. 1997), that Rivera’s declaration “is clearly not the best evidence of the
alleged assignment.” R. 19 at 3. But this allegation is “unaccompanied by [any] effort at
developed argumentation” and is “deemed waived” as a result. McPherson, 125 F.3d 989 at
995–96. The Court will not assume Caudill’s duty to put “flesh on [the argument’s] bones.”
Id.
As a last-ditch effort to attack Rivera’s declaration, Caudill alleges that the “specter of
robo-signing” affidavits without reviewing them first is “rampant” in the debt-collection
industry. R. 19 at 12. This practice, he argues, “undermines” the Rivera declaration, even
though “none of this is to say that [SPV] or CPS are guilty of robo-signing.” Id. If there is
nothing to say that robo-signing arises in this case, then the possibility that someone is
practicing it somewhere else does not undermine Rivera’s declaration.
C. The Language of the Agreement and the Doctrine of Equitable Estoppel
Empower SPV and CPS to Invoke the Arbitration Clause.
Next, Caudill argues that SPV did not purchase from the Bank the contractual right to
compel arbitration but, rather, just the “receivables,”—the right to collect on the debt. R. 19
at 15. Caudill relies on a single district court in another circuit for the proposition that
“receivables” means the “amount owed” and not other contract provisions like an arbitration
clause. See Munoz v. Pipestone Fin., LLC, 397 F. Supp. 2d 1129, 1132 (D. Minn. 2005).
But Kentucky contract law has firmly established that, in the absence of ambiguous
language, a contract should be interpreted strictly according to its terms. Wehr Constructors,
Inc. v. Assurance Co. of Am., 384 S.W.3d 680, 687 (Ky. 2012). And here, Caudill does not
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allege that the terms of the Agreement are ambiguous. The Court must therefore give weight
to the Agreement’s plain meaning.
Taken together, the terms of the Agreement empower SPV and CPS to enforce the
arbitration clause against Caudill. The Agreement provided that “any . . . claim of any kind .
. . that relates in any way to your account or your relationship with us will be resolved by
binding arbitration if either you, we, or [the credit card company] elects to arbitrate.” R. 193 at 5. The Agreement then defines “we” as “GE Money Bank and all of its respective
parents, subsidiaries, affiliates, predecessors, successors, assigns, employees, officers and
directors.” Id. (emphasis added). The Agreement makes clear that “[w]e may sell, assign or
transfer any of our rights or obligations under this Agreement or your Account, including our
rights to payments, without prior notice to you.” Id. at 6. The terms of the Agreement,
strictly applied, are clear: the Bank can assign away any of the rights under the Agreement;
the assignee or successor can then “elect to arbitrate” any claim related to the Agreement.
Even if Caudill is right that the Bank only transferred the account receivables to SPV, the
clear terms of the Agreement empower “all . . . successors [and] assigns” of “any . . . right”
to elect to arbitrate “any . . . legal dispute or claim of any kind.” See R. 19-3 at 5, 6. Here,
all means all, and any means any.
Regardless, Caudill is estopped from arguing that the defendants cannot invoke the
arbitration clause against him, even if they did not sign the original agreement. Why?
Because a plaintiff who seeks a benefit of a contract in a lawsuit cannot escape being bound
by that contract’s other provisions—including its arbitration provision. Javitch v. First Union
Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003). See also Sherer v. Green Tree Servicing LLC,
548 F.3d 379, 381–82 (5th Cir. 2008) (“When the agreement’s terms do not expressly state
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whether a signatory may be compelled to arbitrate with a nonsignatory, we have drawn
on . . . [the doctrine of] equitable estoppel[] to determine a nonsignatory's rights and duties
under an arbitration clause.”); Hagan v. Greenpoint Credit Corp., No. Civ.A.07-17-KKC,
2007 WL 2258866 at *8 (E.D. Ky. Aug. 3, 2007) (“When each of a signatory's claims against
a nonsignatory ‘makes reference to’ or ‘presumes the existence of” the written agreement, the
signatory's claims ‘arise[] out of and relate[] directly to the [written] agreement,’ and arbitration
is appropriate.”).
Here, Caudill relies on the Agreement in all nine of his claims, alleging that the
defendants exceeded their “contractual [and] statutory right[s]” and assessed interest or fees
they “had no legal right to collect” under the Agreement. R. 1 at 3–4. (citing 15 U.S.C.
§ 1692f(1) (prohibiting the collection of interest or fees that were not “expressly authorized
by the agreement.” (emphasis added)). In short, because Caudill’s claims rely on and are
intertwined with the Agreement, he is estopped from dodging the arbitration clause, even
against non-signatories. There are various additional arguments the parties could have made.
Because they did not, however, the Court will not address them either.
D. Whether the Parties Assigned the Entire Account or Just the Receivables
is Immaterial.
Finally, Caudill claims that Rivera’s declaration contradicts a letter from CPS to
Caudill. R. 19 at 3–4. The Rivera declaration says: “SPV assigned the Caudill Account to
CPS, including an assignment of its servicing, collection, and enforcement rights.” R. 18-1
at 16 (emphasis added). The CPS letter to Caudill, however, says that SPV “referred
[Caudill’s] account to [CPS] for servicing.” R. 19-2 at 1 (emphasis added). Caudill asserts
that the discrepancy reveals a genuinely disputed material fact: SPV either assigned the
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entire Caudill account to CPS or merely referred it for servicing. R. 19 at 4. The factual
dispute is material, Caudill argues, because a full assignment of the account to CPS would
deprive SPV of the ability to compel arbitration under the assigned Agreement. Id. Caudill
cites no legal authority to support this claim.
But equitable estoppel permits both defendants to invoke the arbitration clause in the
Agreement because it forms the basis of Caudill’s claims against them. See Section I.C,
supra. Accordingly, whether SPV conveyed full or merely partial rights to CPS is not
material to the right of both parties to invoke the arbitration clause under the Agreement. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (“As to materiality, . . . .[o]nly
disputes over facts that might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment.”).
II.
Whether Caudill’s Claims Fall Within the Scope of the Credit Card Agreement.
Caudill argues that his claims are exempt from binding arbitration because they do
not “arise out of” the Agreement or “relate to” his relationship with the defendants. R. 19 at
21. As discussed above, there is no basis for that argument. Caudill argues that the accrual
of interest on his account has nothing to do with the account, R. 19 at 20–21, and that the
defendants’ alleged violations of the Agreement have nothing to do with the Agreement, R. 1
at 3–4. But merely saying so does not make it so. R. 19-3 at 5 (“[A]ny . . . claim of any kind
. . . that relates in any way to your account or your relationship with us will be resolved by
binding arbitration if either you, we, or [the credit card company] elects to arbitrate.”). His
arguments are conclusory and unpersuasive.
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III.
Whether SPV Waived Its Right to Compel Arbitration.
Lastly, Caudill alleges that SPV waived its right to compel arbitration by “acting
completely inconsistent[ly] with any reliance” on the arbitration clause. R. 19 at 22 (quoting
Highlands Wellmont Health Network v. John Deere Health Plan, 350 F.3d 568, 573 (6th Cir.
2003)). Caudill argues that SPV’s bill of sale “likely . . . includes hundreds of thousands of
credit card debts transferred as part of an electronic file.” R. 19 at 22. Caudill then states,
without any support, that SPV “routinely brings suit in Kentucky state courts to collect these
and other debts from Kentucky consumers.” R. 19 at 22. Caudill provides a website
revealing that SPV “has filed approximately 580 cases in Kentucky’s three most populous
counties.” Id. But Caudill alleges no connection between those cases and this case. He cites
no authority to support his apparent view that filing unrelated suits in Kentucky state court is
“completely inconsistent with any reliance on an arbitration agreement” to the point of
causing “actual prejudice.” Johnson Assocs. Corp. v. HL Operating Corp., 680 F.3d 713,
717 (6th Cir. 2012). Exercising a right to sue in one case does not waive a contractual
provision requiring arbitration in another. To establish such a rule would contravene “the
federal policy favoring arbitration agreements.” Moses H. Cone Mem’l Hosp., 460 U.S. at
24.
CONCLUSION
Caudill entered into a valid contract with the Bank. That contract includes a valid
arbitration clause expressed in broad terms, with clear provision for assignment to
subsequent parties. The Bank sold the entire account to SPV. SPV, in turn, assigned the
account—either in whole or in part—to CPS. In either case, SPV and CPS can enforce the
clause against Caudill. With federal court unavailable and the dueling grounds no more,
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Caudill must, instead, pursue his claims in arbitration.
Contracts, after all, still have
consequences.
Accordingly, it is ORDERED as follows:
(1)
The defendants’ Amended Motion to Compel Arbitration, R. 18, is
GRANTED.
(2)
Pursuant to 9 U.S.C. § 3, further proceedings in this matter are STAYED,
pending arbitration.
(3)
If Caudill fails to initiate arbitration proceedings within sixty days from the
entry of this order, the case will be dismissed with prejudice.
This the 25th day of August, 2014.
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