Fawcett v. Citizens Bank, N.A.
Filing
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District Judge Timothy S. Hillman: MEMORANDUM OF DECISION AND ORDER entered denying 5 Motion to Certify Class. (Castles, Martin)
United States District Court
District of Massachusetts
________________________________________________
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Barbara Fawcett, Individually and on behalf of all
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Others similarly situated,
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Plaintiff,
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v.
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CITIZENS BANK, N.A.,
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Defendant.
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________________________________________________)
CIVIL ACTION
No. 17-11043-TSH
MEMORANDUM OF DECISION AND ORDER
February 27, 2018
HILLMAN, D.J.
Background
Plaintiff, Barbara Fawcett (“Fawcett” or “Plaintiff”) has filed suit, individually and on
behalf of other similarly situated persons, against Citizens Bank, N.A. (“Citizens”) alleging a
claim for violation of the National Bank Act, 12 U.S.C. § 85 (the “Act”). More specifically,
Fawcett alleges that Citizen violated the Act by mischaracterizing charges to her account as
“Sustained Overdraft Fees,” which were in fact interest charges with an annual rate of interest
that exceeded the rate permitted to be charged under the Act.
This Order addresses Plaintiff’s Motion for Class Certification And To Hold Motion In
Abeyance Pending Class Discovery (Docket No. 5), and Defendant Citizen Bank, N.A.’s Motion
To Dismiss And/Or Stay And To Compel Arbitration (Docket No. 12).
Discussion
A Summary of Fawcett’s Claim
When a Citizens Bank checking account customer incurs a debit to their account (such as
a check, ATM withdrawal, or debit card transaction) which exceeds the amount of money in that
account, and Citizens honors the debit (i.e., pays the check, permits the ATM withdrawal, or
pays the debit card transaction) and charges the customer an “Overdraft Fee of $35.” If Citizens
returns a check presented for payment by one of its customers due to “insufficient funds”, i.e.,
does not honor the check, it charges $35 against the customer’s account, which Citizens refers to
as a “Returned Item Fee.”
If Citizens returns the check due to insufficient funds, the $35 Returned Item Fee is the
only fee Citizens Bank charges as a result of a check having been presented for payment which
exceeded the balance remaining in the account. If, however, Citizens honors an overdraft by
advancing the deficiency to the customer, and if the customer does not repay that advance (by
depositing sufficient funds into the account to bring the account balance positive or at least zero)
within a very short period, Citizens charges what it calls a “Sustained Overdraft Fee.” This
charge is in addition to the initial “Overdraft Fee” Citizens charges at the time the customer’s
account was first overdrawn. Citizens continues to charge the so-called “Sustained Overdraft
Fee” over regular intervals until the customer repays Citizens’ monetary advances by returning
his or her account to a positive balance.
Fawcett acknowledges that the initial “Returned Item Fee” and the “Overdraft Fee,” are
“fees” Citizens charges for the service of responding when a customer causes a check or other
debit to be presented when there are insufficient funds in the customer’s account. However, she
contends that the so-called “Sustained Overdraft Fee” is, in reality, interest that Citizens charges
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to its customers for the use, forbearance, or detention of the money it has “loaned” to its
customer by advancing the funds necessary to pay the overdraft. She contends that the only
service or thing of value that Citizens provides in exchange for the so-called “Sustained
Overdraft Fee” is the continued use of the funds it previously loaned to the customer, which are
still owed by the customer to Citizens. Thus, according to Fawcett, the “Sustained Overdraft
Fee” is, in fact, an interest charge. The Act limits the interest rate which a national bank such as
Citizens can charge its customers. Fawcett argues that the annualized interest rate which
Citizens charges customers in the guise of “Sustained Overdraft Fees,” is substantially greater
than the maximum interest rate that the Act permits Citizens to charge.
Citizens’ Motion to Compel Arbitration
Citizens, invoking the Federal Arbitration Act, 9 U.S.C. § 2 et seq. (“FAA”), asserts that
because the parties have an agreement to arbitrate, this Court must compel arbitration and stay or
dismiss Fawcett’s claims pending arbitration. Fawcett argues that she was never party to the
agreement to arbitrate because Citizens cannot establish that she was ever provided a copy of the
agreement to arbitrate and assented to it.
Facts Relating to the Motion to Compel Arbitration
On or about July 11, 2013, Fawcett opened a checking account (the “Account”)
with Citizens. At the time that she opened the Account, Fawcett signed a signature card which
included the following statement:
By signing below, I acknowledge that I have read and understood [Citizens’]
Deposit Account Agreement and related fee schedule… each as amended from
time to time (all collectively and each individually referred to as “the
Agreement”). By signing below, I agree to all the terms of the Agreement.
At the time Fawcett opened her account, she was provided a Citizens’
Personal Deposit Account Agreement (“PDAA”) which included the terms and conditions
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applicable to her account. By her signature on the signature card, Fawcett agreed
to the terms of the PDAA as it would be amended from time to time.
The PDAA1 states:
Our Agreement with You
This Personal Deposit Account Agreement is the agreement that governs each
personal deposit account you have opened with us. This agreement replaces all
previous personal deposit account agreements. Please read it carefully and retain
it for future reference. By providing a written or electronic signature on a
signature card or other agreement to open your account or by using any of our
deposit account services, you and anyone else identified as an owner of the
account agree to the terms contained in this agreement. This agreement refers to
and includes Personal Account Fees and Features Guide and other disclosures,
agreements and amendments that we may provide to you. All may contain
information on fees that apply to your account.
PDAA, at p. 2.
The PDAA was in effect during the entire relevant time period (August 2015 to January
2017) when Fawcett incurred sustained overdraft fees, and remains in effect as of the current
date. The PDAA contains the following agreement to arbitrate (“Arbitration Agreement”) that
provided the customer with the ability to cancel or opt out of the Arbitration Agreement:
Arbitration Agreement
This section constitutes the Arbitration Agreement between you and us.
READ THIS SECTION CAREFULLY AS IT WILL HAVE A SUBSTANTIAL
IMPACT ON HOW LEGAL DISPUTES BETWEEN YOU AND US ARE
RESOLVED. If you do not opt out, for a dispute subject to arbitration, neither
you nor we will have the right to: (1) have a court or a jury decide the
dispute; (2) engage in information-gathering (discovery) to the same extent as in
court; (3) participate in a class action in court or in arbitration; or
(4) join or consolidate a claim with claims of any other persons. Arbitration
procedures are simpler and more limited than rules applicable in court.
The decision of the arbitrator is generally final and binding.
You have the right to cancel or opt out of this Arbitration Agreement as set forth
below.
1
A copy of the PDAA in effect during the relevant time period is attached as Ex. B the Decl. of Martin F.
Crowe (Docket No. 14).
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….
Binding Arbitration
If you have a dispute with us, and we are not able to resolve the dispute
informally, you and we agree that upon demand by either you or us, the
dispute will be resolved through the arbitration process as set forth in this part. A
“claim” or "dispute," as used in this Arbitration Agreement, is any
unresolved disagreement between you and us, arising from or relating in any way
to the Account Agreement (including any renewals, extensions,
addendums or modifications) or the deposit relationship between us. It includes
any disagreement relating in any way to services, accounts or any
other matters; to your use of any of our banking facilities; or to any means you
may use to access your account(s). Any claims or disputes arising
from or relating to the advertising of our services, the application for, or the
approval or establishment of your account are also included. Claims are
subject to arbitration, regardless of on what theory they are based, whether they
seek legal or equitable remedies, or whether they are common law
or statutory (federal or state) claims. Arbitration applies to any and all such claims
or disputes, whether they arose in the past, may currently exist,
or may arise in the future. Disputes include disagreements about the meaning,
application or enforceability of this arbitration agreement.
TRIAL WAIVER
YOU AGREE THAT YOU AND WE ARE WAIVING THE RIGHT TO A
JURY TRIAL AND TRIAL BEFORE A JUDGE IN A PUBLIC COURT.
As the sole exception to this arbitration agreement, you and we retain the right to
pursue in small claims court (or an equivalent state court) any
dispute that is within that court's jurisdiction, so long as the disputes remain in
such court and advance only an individual claim for relief. If either
you or we fail to submit to binding arbitration of an arbitrable dispute following
lawful demand, the party so failing shall bear all costs and expenses
incurred by the other in compelling arbitration.
CLASS ACTION AND CLASS ARIBITRATION WAIVER
NEITHER YOU NOR WE SHALL BE ENTITLED TO JOIN OR
CONSOLIDATE DISPUTES BY OR AGAINST OTHERS IN ANY COURT
ACTION OR ARBITRATION, OR TO INCLUDE IN ANY COURT ACTION
OR ARBITRATION ANY DISPUTE AS A REPRESENTATIVE OR MEMBER
OF A CLASS, OR TO ACT IN ANY ARBITRATION IN THE INTEREST OF
THE GENERAL PUBLIC OR IN A PRIVATE ATTORNEY GENERAL
CAPACITY, UNLESS THOSE PERSONS ARE JOINT ACCOUNT OWNERS
OR BENEFICIARIES ON YOUR ACCOUNT. This is so whether or
not the claim has been assigned.
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Arbitration Procedures
You or we may submit a dispute to binding arbitration at any time, regardless of
whether a lawsuit or other proceeding has been previously commenced.
….
If you initiate the arbitration, you must notify us in writing at:
Citizens Bank
PO Box 6067
Providence, RI 02940-6067
If we initiate the arbitration, we will notify you in writing at your last known
address in our file.
….
Right to Cancel or Opt Out of This Arbitration Agreement
You may opt out of this Arbitration Agreement to resolve any claim or dispute by
arbitration. To opt out of this Arbitration Agreement, you must
send us written notice of your decision within forty-five (45) days of the opening
of your account. Such notice must clearly state that you wish to
cancel or opt out of the Arbitration Agreement section of this Account
Agreement. It should include your name, address, account name, account
number and your signature and must be mailed to:
Citizens Bank
PO Box 6067
Providence, RI 02940-6067
This is the sole and only method by which you can opt out of this Arbitration
Agreement. Your exercise of the right to opt-out will not affect any
remaining terms of this Account Agreement and will not result in any adverse
consequence to you or your account. You agree that our business records
will be final and conclusive evidence with respect to whether you cancelled or
opted out of this arbitration agreement in a timely and proper fashion.
Id., at pp. 28-31.
Fawcett never sent Citizens notice that she was cancelling or opting out of the Arbitration
Agreement. Fawcett continued to make use of Citizens’ deposit account services from
August 2015 through January 2017, the time period during which the Complaint alleges
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sustained overdraft fees were incurred.
The terms of the PDAA provided that its terms and conditions could be amended by
Citizens, as follows:
Changes to Agreement
We may, in our sole discretion, change any term or condition of this agreement,
including any fees and features of your account, at any time. Any
such change will generally be effective immediately without notice to you unless
we are required by applicable law to provide you with advance
written notice of the proposed changes. In such instances, those changes will be
effective immediately after we have provided you with the required
advance written notice following the effective date stated in such notice. If any
required advance notice is returned to us as undeliverable because
of a change in your address about which you have not notified us in writing or for
any other reason which is not our fault, the changes described
in that notice are still binding on you. If you do not agree to the changes, you may
terminate this agreement in accordance with the terms of this
agreement. You will be deemed to accept any changes to this agreement if you
continue to maintain or use your account after the effective date of
any changes. This agreement may not be amended or modified orally.
Id., at p. 33.
Governing Legal Principles
At its most basic level, the FAA is a “congressional declaration of [the] liberal federal
policy favoring arbitration agreements, notwithstanding any state substantive or procedural
policies to the contrary.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24,
103 S. Ct. 927 (1983). Agreements to arbitrate “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. Moreover, the FAA “ensure[s] judicial enforcement of privately made agreements to
arbitrate,” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219, 105 S. Ct. 1238 (1985), and
“place[s] such agreements upon the same footing as [any] other contract[].” Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265, 271, 115 S. Ct. 834 (1995). See also Prima Paint Corp.
v. Flood & Conklin Mfg. Co., 388 U.S. 395, 405, 87 S. Ct. 1801 (1967) (“[I]t is clear beyond
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dispute that the [FAA] is based upon and confined to the incontestable federal foundations of
control over interstate commerce and over admiralty”) (internal quotations and citations
omitted); United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83,
80 S.Ct. 1347 (1960) (“An order to arbitrate the particular grievance should not be denied unless
it may be said with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage”).
When a party seeks either to compel arbitration under Section 4 or to stay proceedings
under Section 3, they must satisfy four requirements: “[1] that a valid agreement to arbitrate
exists, [2] that the movant is entitled to invoke the arbitration clause, [3] that the other party is
bound by that clause, and [4] that the claim asserted comes within the clause’s scope.” InterGen
N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003); 9 U.S.C. §§ 3-4. Only if all prongs of the test
are satisfied will the court grant a motion to compel arbitration. Combined Energies v. CCI, Inc.,
514 F.3d 168, 171 (1st Cir. 2008)(internal citations and citation to quoted case omitted).
Arbitration is also subject to waiver and therefore, the court must determine that the party
seeking to compel arbitration has not waived its right to do so. Id.
Whether a claim falls within the reach of a particular arbitration clause is a question of
law for the court, bearing in mind that federal policy favors arbitration. Id. (FAA establishes as
matter of federal law, that any doubts concerning scope of arbitrable issues should be resolved in
favor of arbitration). At the same time, the court must be cognizant that “‘arbitration is simply a
matter of contract between the parties; it is a way to resolve disputes-but only those disputes-that
the parties have agreed to submit to arbitration’ … . Therefore, ‘[w]hen deciding whether the
parties agreed to arbitrate a certain matter ..., courts generally ... should apply ordinary state-law
principles that govern the formation of contracts.’ ” Id. (internal citation and citations to quoted
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cases omitted). If it is clear that the parties have a contract that provides for arbitration of some
issues between them, any doubt concerning the scope of the arbitration clause is resolved in
favor of arbitration as a matter of federal law. Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. 927.
“To this end, a court may not deny a party’s request to arbitrate an issue ‘unless it may be said
with positive assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute.’ ” Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909
(7th Cir.1999) (quoting United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582–83, 80 S.Ct. 1347 (1960)). Finally, “any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration, whether the problem at hand is the construction of the
contract language itself or any allegation of waiver, delay, or a like defense to arbitrability.”
Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. at 941 (emphasis added).
Application of the Law to this Case
Because it is the most straight forward issue, the Court will address the fourth element
first, i.e., whether the claim(s) asserted fall within the scope of the Arbitration Agreement.
Fawcett has filed a Complaint alleging that the Sustained Overdraft Fee charged by Citizens is
actually interest charged at a rate which violates the Act. It cannot reasonably disputed that this
alleged claim falls within the scope of the Arbitration Agreement (and Fawcett does not assert
otherwise).
Nevertheless, Plaintiff asserts that she cannot be compelled to arbitrate because Citizens
cannot prove she was a party to an arbitration agreement. More specifically, she asserts that
Citizens has not established that a copy of the 2015 version of the PDAA (the version which
contained the Arbitration Agreement) was ever provided to her. She also contends that there is
no evidence she ever assented to the arbitration provision, and that the Arbitration Agreement is
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unenforceable because Citizens retained the “unilateral and unfettered right to modify the
agreement’s terms.” Pls. Opp. to Def’s Mot. To Dismiss And/Or Stay and To Compel
Arbitration, (Docket No. 22) at p. 1. As to Ms. Fawcett’s latter contentions, there is no dispute
that when she opened her checking account, she signed an signature card which provided that she
agreed to be bound by PDAA, as amended and in effect from time to time. Under Massachusetts
law, which governs this case, formation of a contract requires an offer, acceptance and
consideration, and is judged by the parties’ objective conduct, not their subjective intent. See
Bekele v Lyft, Inc., 199 F.Supp.3d 284, 294 (D.Mass. 2016). Ms. Fawcett’s suggestion that
despite her having expressly agreed to be bound by subsequent amendments to the PDAA,
Massachusetts law requires that she somehow “manifest” her assent to the Arbitration
Agreement in order to be bound thereby is meritless. However, that does not end the inquiry.
Ms. Fawcett is also, essentially, asserting that because she did not receive notice of the
amendment to the PDAA, there was never a “meeting of the minds” regarding the Arbitration
Agreement. See Nat’l Fed’n of the Blind v. Container Store Inc., Civ. Act. No. 15-12984, 2016
WL 4027711 (D.Mass. Jul. 27, 2016). I agree. The Arbitration Agreement by its terms gives
Fawcett the right to opt out. If she never received a copy of the Arbitration Agreement, that right
is meaningless. Thus, while Ms. Fawcett need not communicate her assent to be bound by the
Arbitration Agreement to Citizens, for example, by sending written acceptance or, perhaps by
continuing to use her account, she still must be provided notice of the Agreement to Arbitrate in
order for a contract to have been formed. Nowhere in its submissions does Citizens suggest that
it sent Ms. Fawcett a copy of the amendment to the PDAA adding the Arbitration Agreement, or
that it otherwise communicated the amendment to her. Indeed, the PDAA provides that it may be
amended without notice.
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Because it is unclear to the Court whether Ms. Fawcett received notice of the amendment
to the PDAA adding the Arbitration Agreement, I cannot make a definitive ruling on Citizens’
motion to compel arbitration. Therefore, on or before March 21, 2018, Citizens shall provide the
Court and Ms. Fawcett with whatever evidence it has in its possession to support a finding that it
communicated the amendment to the PDAA adding the Arbitration Agreement to Ms. Fawcett
and the time period during which it did so. If Citizens fails to provide the necessary evidence by
that date, then its motion to stay and compel arbitration shall be denied. The Court will then
address Citizens’ motion to dismiss for failure to state a claim.
A hearing will be held on Monday, April 9, 2018, at 2:00 p.m. to address Citizens’
motion to compel and/or dismiss for failure to state claim.
Supplemental Briefing
Ms. Fawcett contends that the Arbitration Agreement is “illusory” because Citizens
retains the right to unilaterally change its terms, or cancel it altogether, without prior notice to the
account holder. As Ms. Fawcett points out, Citizens retains the right, “in its sole discretion,” to
amend or terminate any term or condition of the PDAA without notice, unless applicable law
would require advance notice. The Fifth Circuit has held that under Texas law, an arbitration
agreement is illusory, thus not enforceable, “’[w]here one party has the unrestrained unilateral
authority to terminate its obligation to arbitrate.’” Nelson v. Watch House Intern, L.L.C., 815
F.3d 190, 193 (5th Cir. 2016)(alteration in original)(citation to quoted case omitted). Where,
however, the agreement provides that it cannot be terminated or amended unilaterally without
notice, or if the amendments would only apply prospectively, the agreement to arbitrate is not
illusory. Id. At least two judges in this District have found that where the party seeking to
enforce the arbitration provision retained the unilateral discretion to alter its terms, without
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notice, the agreement to arbitrate is “illusory and unenforceable.” See Nat’l Fed’n of the Blind v.
Container Store Inc., Civ. Act. No. 15-12984, 2016 WL 4027711 (D.Mass. Jul. 27,
2016)(adopting Report and Recommendation)(after noting that parties disagreed as to whether
Texas or Massachusetts law applies, court found no material difference between states and
applied Massachusetts law); Domenichetti v. Salter School, LLC., Civ.Act.No. 12-11311-FDS,
2013 WL 1748402 (D.Mass. Apr. 19, 2013); see also Douglas v. Johnson Real Estate Investors,
LLC, 470 Fed.Appx. 823 (11th Cir. 2012)(court held that under Massachusetts law promise to
arbitrate was illusory and unenforceable where employer retained right to unilaterally amend the
agreement without notice to employee). In reaching their conclusions, both Judge Saylor of this
Court in Domenichetti and the Eleventh Circuit in Douglas cited Jackson v. Action for Bos.
Cmty. Dev., Inc., 403 Mass. 8, 525 N.E.2d 411, 414 (1988). Courts applying other states’ laws
have reached conflicting conclusions. See e.g., In re Zappos.com, Inc. 893 F.Supp.2d 1058, 1063
(D.Nev. 2012) and numerous federal court decisions listed therein (most federal courts that have
considered issue have haled that if party retains unilateral, unrestricted right to terminate
arbitration agreement, it is illusory and unenforceable, especially where there is no obligation to
receive consent from or even notify other party to contract); but see Valle v. ATM Nat’l LLC,
No. 14-cv-7993(KBF), 2015 WL 413449, at (S.D.N.Y. Jan. 30, 2015)(New York law limits
party’s unfettered right to amend agreement and therefore, although agreement provides that
employer has unilateral right to modify agreement without notice, arbitration provision is not, as
a matter of law, unenforceable); John v. Hanlees Davis, Inc., No. 2:12-02529 WBS AC,2013
WL 3458183 at *6 and n. 4 (E.D.Cal. Jul. 9, 2013 )(same, but applying California law).
Citizens, on the other hand, asserts that because the Arbitration Agreement contains a
delegation provision, which delegates to the arbiter, the question of whether the Arbitration
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Agreement is enforceable is to be left to arbitration. See Rent-A-Center, West, Inc. v. Jackson, -561 U.S.63, 130 S.Ct. 2772 (2010). For that reason, Citizens argues, the issue of whether the
Arbitration Agreement is illusory is not for the Court to decide.
The Court notes that the “opt out provision” of the Arbitration Agreement provides that
an account holder may opt out of the Arbitration Agreement “within forty-five (45) days of the
opening of your account.” Neither party has raised the issue of whether such language suggests
that the Arbitration Agreement was not intended to apply retroactively to account holders such as
Ms. Fawcett, who opened their accounts before the PDAA was amended to include the
Arbitration Agreement.
On or before April 2, 2018, the parties may file supplemental memoranda, not to exceed
15 pages, on the issues of whether the Arbitration Agreement is illusory is for the Court or the
arbiter, and whether the Arbitration Agreement applies retroactively (assuming that I find that
Citizens provided adequate notice of the amendment to add the Arbitration Agreement to Ms.
Fawcett.)
Plaintiff’s Motion for Class Certification and Discovery
I am denying without prejudice Plaintiff’s Motion for Class Certification And To Hold
Motion In Abeyance Pending Class Discovery, as I find that from the standpoint of judicial
efficiency, it does not make sense to address the issues raised by that motion until I have ruled on
Citizens’ motion to dismiss and/or to stay and compel arbitration.
Conclusion
It is hereby Ordered:
Plaintiff’s Motion for Class Certification And To Hold Motion In Abeyance
Pending Class Discovery (Docket No. 5) is denied, without prejudice.
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A hearing on Defendant Citizens Bank, N.A.’s Motion To Dismiss And/Or Stay
And To Compel Arbitration (Docket No. 12) shall be held on April 9, 2018 at 2:00 p.m.
/s/ Timothy S. Hillman
TIMOTHY S. HILLMAN
ISTRICT JUDGE
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