Danley, et al v. Encore Capital Group, Inc et al

Filing 59

OPINION and ORDER granting 39 defendants' Renewed MOTION to Compel Plaintiffs to Arbitrate Their Claims and Dismissing Action Without Prejudice Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JACOB J. DANLEY and
JEFFREY J. MACINTYRE, JR.,
Plaintiffs,
Case No. 15-CV-11535
vs.
HON. GEORGE CARAM STEEH
ENCORE CAPITAL GROUP, INC.,
MIDLAND FUNDING, LLC, and
MIDLAND CREDIT MANAGEMENT, INC.,
Defendants.
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OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO COMPEL
ARBITRATION AND DISMISS ACTION WITHOUT PREJUDICE [DOC. 39]
Plaintiffs filed this case under the Fair Debt Collection Act and Michigan
Collection Practices Act. Defendants purchase credit card debts from banks and other
debt buyers after the bank has charged off the debts. Plaintiffs maintain that
defendants did not purchase the right to add or reassess or collect interest once it had
been waived and extinguished by the bank. Nonetheless, defendants made efforts to
collect the post charge-off interest from the debtors whose accounts they purchased.
For those debtors who did not pay in response to the telephonic and mail collection
actions, defendants filed lawsuits against the debtors.
In this lawsuit, plaintiffs allege defendants violated various sections of the federal
and Michigan collection statutes by adding and attempting to collect interest that has
been waived by the original owner of the debt. The matter is presently before the court

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on defendants’ renewed motion to compel arbitration and dismiss the action without
prejudice.
1. Plaintiff Danley’s Citibank Credit Card Account
Plaintiff Jacob J. Danley opened a credit card account issued by Citibank on April
6, 2009, with an account number ending in 5718. Following the court’s December 1,
2015 order denying defendants’ original motion to compel arbitration, Citibank submitted
a supplemental response to the Midland defendants’ August 6, 2015 subpoena which
includes a Declaration authenticating the Card Agreement that governs Danley’s
Citibank account. Attached to the Declaration of Catherine Reinecke, Vice President of
Citibank, is an exemplar of the Card Agreement for the account that was sent to Danley
when he opened the account in April 2009. The May 2009 statement transaction detail
for the Danley account is also attached, and shows that Danley used the account after
receiving the Card Agreement, which included an arbitration agreement.
The Card Agreement provides, “This Agreement is binding on you unless you
close your account within 30 days after receiving the card and you have not used or
authorized use of the card.” Danley used his Citibank Account by making purchases,
and stopped making payments on the account on July 23, 2009. The account was
charged off on March 16, 2010.
The exemplar credit card agreement contains an arbitration provision:
Either you or we may, without the other’s consent, elect mandatory,
binding arbitration for any claim, dispute, or controversy between you and
us (called “Claims”).
***

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All Claims relating to your account, a prior related account, or our
relationship are subject to arbitration, including Claims regarding the
application, enforceability, or interpretation of this Agreement and this
arbitration provision. All Claims are subject to arbitration, no matter what
legal theory they are based on or what remedy (damages, or injunctive or
declaratory relief) they seek. . . .
***
Not only ours and yours, but also Claims made by or against anyone
connected with us or you or claiming through us or you, such as a coapplicant or authorized user of your account, an employee, agent,
representative, affiliated company, predecessor or successor, heir,
assignee, or trustee in bankruptcy.
Any questions about whether Claims are subject to arbitration shall be
resolved by interpreting this arbitration provision in the broadest way the
law will allow it to be enforced.
The arbitration provision also contains a class action waiver provision: “Claims
and remedies sought as part of a class action . . . are also subject to arbitration on an
individual (non-class, non-representative) basis, and the arbitrator may award relief only
on an individual (non-class, non-representative) basis.”
The arbitration agreement provides that it is “governed by the Federal Arbitration
Act (the “FAA”).” (Ex. C, p. 214). The Credit Card Agreement provides that Citibank
may assign the Agreement: “We may assign any or all of our rights and obligations
under this Agreement to a third party.” (Ex. C, p. 217). The arbitration provision states
that it “shall survive: (I) termination or changes in the Agreement, the account, or the
relationship between you and us concerning the account; (ii) the bankruptcy of any
party; and (iii) any transfer, sale or assignment of your account, or any amounts owed
on your account, to any other person or entity.” (Ex. C, p. 217).

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On March 29, 2013, Citibank sold and assigned Danley’s Citibank Account to
Thunderbolt Holdings. On the same day, Danley’s Citibank Account was sold by
Thunderbolt to Midland Funding by way of Assignment and Bill of Sale. These
documents are attached to the Michael Burger Declaration, which was submitted to
plaintiffs as part of defendants’ supplemental response on March 14, 2016. Burger is
the Senior Manager of Operations for Midland Credit Management, which is in turn the
servicer and authorized agent for Midland Funding. Midland Funding purchased “all
rights, title and interests in and to each and every one of the Purchased Accounts
described in the related Purchased Accounts File . . . “ (Burger Declaration ¶ 3, and
Exhibit A thereto). Exhibit B to the Burger Declaration identifies Danley’s Citibank
Account as one of the accounts sold to Midland Funding. The Account Purchase
Agreement is attached as Exhibit C to the Burger Declaration.
2. Plaintiff McIntyre’s Citibank Home Depot Credit Card Account
Jeffrey J. McIntyre, Jr. opened a Home Depot branded credit card account
issued by Citibank on September 25, 2003, with an account number ending in 8762.
The Citibank Home Depot Account was governed by a Credit Card Agreement. (Berger
Dec. ¶ 12). Citibank’s Supplemental Response includes a Declaration authenticating
the Card Agreement that governs McIntyre’s Citibank Home Depot Account. (Reinecke
Declaration ¶¶ 5, 6). Attached as Exhibit 3 to the Reinecke Declaration is a copy of the
January 2009 statement transaction detail that was sent to McIntyre. This statement
contains the complete Card Agreement governing McIntyre’s Home Depot Credit Card
Account, including an arbitration agreement. Exhibit 4 includes the statement
transaction detail for March and April 2009, which show that McIntyre continued to use
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the Account. McIntyre stopped making payments on the Citibank Home Depot Account
by August 31, 2009. The Account was charged off on April 6, 2010.
The Citibank Home Depot Account Credit Card Agreement contains an
arbitration provision that is the same as that contained in the Danley Citibank Account
quoted above. The Agreement also contains the same language in its class action
waiver, Federal Arbitration Act, Assignment, and arbitration survival provisions.
A true and correct copy of the Bill of Sale and Assignment between Citibank and
Midland Funding, dated March 23, 2011, is attached as Exhibit G to the Burger
Declaration. The relevant portion of the Final Electronic File referenced in the Bill of
Sale and Assignment identifying McIntyre’s Citibank Home Depot Account is attached
as Exhibit H to the Burger Declaration. The Purchase and Sale Agreement is Exhibit I,
and shows Midland Funding purchased “all right, title and interest of Bank in and to the
Accounts.”
3. McIntyre’s Chase Credit Card Account
Plaintiff McIntyre opened a credit card account issued by Chase Bank on
September 20, 2007, with an account number ending in 3359. The Chase Account was
governed by a Credit Card Agreement. (Berger ¶ 17). Between the time the Account
was opened and August 31, 2010 when the Account was charged off by Chase, Chase
issued five changes to the Cardmember Agreement. (Burger ¶ 18). None of the
changes altered the Arbitration Agreement or the class action waiver provision.
The Credit Card Agreement provides, “Any use of your account is covered by this
agreement. . . . Whether you use your account or not, you will be bound by this
agreement unless you cancel your account within 30 days after receiving your card and
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you have not used your account for any purpose. (Exhibit O to Burger Declaration).
McIntyre used his Chase Account and stopped making payments by January 13, 2010.
The Account was charged off on August 31, 2010.
The Chase Credit Card Agreement contains an arbitration provision providing
that either party may elect mandatory, binding arbitration, without the other’s consent, of
any claim, dispute or controversy arising from or relating to the Cardmember
Agreement. The Chase Credit Card Agreement also contains a class action waiver,
states it is governed by the Federal Arbitration Act, provides that Chase may assign the
agreement, states that the arbitration provision survives, and has an anti-waiver clause.
A true and correct copy of the Bill of Sale and Assignment is attached as Exhibit
K to the Burger Declaration. The Final Data File referenced in the Bill of Sale identifies
McIntyre’s Chase Account as one of the accounts sold to Midland Funding. (Exhibit L to
Burger Declaration). The Account Purchase Agreement is attached as Exhibit M and
shows that Midland Funding purchased “all right, title and interest in and to” McIntyre’s
Chase Account. (Burger Declaration ¶ 13, Exhibit M).
On August 24, 2015, plaintiffs filed their Second Amended class action complaint
against the defendants alleging violations of the Fair Debt Collection Practices Act, 15,
U.S.C. § 1692 et seq. (FDCPA), and the Michigan Collection Practices Act, MCL §
445.251, et seq. (MCPA), in which plaintiffs allege the defendants sought to collect post
charge-off interest that had been waived by their original creditors. The defendants
notified plaintiffs of their election to arbitrate this matter but plaintiffs refuse to do so. On
September 4, 2015 defendants filed their motion to compel arbitration and to dismiss
the action without prejudice. On December 1, 2015 the court entered an order denying
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the motion without prejudice. The court permitted defendants to file a renewed motion
to compel arbitration which is presently before the court.
ANALYSIS
The FAA represents a “liberal federal policy favoring arbitration” and the
“fundamental principle that arbitration is a matter of contract.” AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1745 (2011). When a contract contains an arbitration
clause, there is a presumption in favor of arbitrability. Huffman v. Hilltop Cos., LLC, 747
F.3d 391, 394 (6th Cir. 2014). When faced with a motion to compel arbitration, “the
court must engage in a limited review to determine whether the dispute is arbitrable;
meaning that a valid agreement to arbitrate exists between the parties and that the
specific dispute falls within the substantive scope of that agreement.” Javitch v. First
Union Securities, Inc., 315 F.3d 619, 624 (6th Cir. 2003).
Plaintiffs assert that defendants violated federal and state law by allegedly
seeking to collect post charge-off interest that had been waived by plaintiffs’ original
creditors. In order to resolve the issue of arbitrability of the plaintiffs’ claims, the court
must address plaintiffs’ challenges to the validity of the agreement to arbitrate contained
in the credit card agreements. The Supreme Court in Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. 63 (2010) held that this is the only “type of challenge relevant to a
court’s determination whether the arbitration agreement at issue is enforceable.” Id. at
70. A court is not to consider challenges that question “the contract as a whole, either
on a ground that directly affects the entire agreement (e.g., the agreement was
fraudulently induced), or on the ground that the illegality of one of the contract’s
provisions render the whole contract invalid.” Id.
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I. Evidentiary Burden Regarding Original Contract Documents
Plaintiffs first question whether the exemplar credit card agreements provided by
defendants are enforceable because defendants have not produced the original
agreements signed by the plaintiffs. The last time the court considered the issue it was
not convinced that the sample or embedded credit card agreements provided by
defendants were the same agreements accepted by plaintiffs. Defendants have now
produced declarations from the custodian of the accounts of the original creditor, in the
case of Citibank, who in turn attached the relevant exemplar contract documents, as
well as copies of actual statement transaction details from plaintiffs’ credit card
accounts. In the case of the Chase account, defendants provide the Affidavit of Sale of
Account by Original Creditor, which attests to the validity of the records that make up
the accounts, including an exemplar cardmember agreement and actual statement
transaction details. (Burger Decl. Ex. O). Plaintiffs have not come forward with any
evidence to rebut that the agreements that have been produced are the same as those
entered between plaintiffs and the original creditors. See, e.g., Coppock v. Citigroup,
Inc., 2013 U.S. Dist. LEXIS 40632, *12-13 (W.D. Wash. March 22, 2013) (accepting an
“exemplar” agreement where the plaintiff “produced no evidence that the 2001
agreement (an exemplar of which Citi submitted with its motion) is not the agreement
that governed her account.”)
Defendants argue that the agreements submitted by defendants are not required
to be authenticated, as argued by plaintiffs. A Rule 56 standard of proof does not apply
to defendants’ motion to compel arbitration, and furthermore the current Rule 56 does
not require authentication. See, e.g., Townsend v. Rhodes, 2015 U.S. Dist. LEXIS
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129943, *10 n. 8 (E.D. Mich. Sep. 28, 2015) (“in light of the 2010 changes to Rule 56,
authentication is no longer required.”). Even so, Ms. Reinecke has authenticated
Danley’s and McIntyre’s Citibank Card Agreements, and Mr. Burger has provided
authentication of McIntyre’s Chase Card Agreement, with their declarations for
purposes of satisfying the business record exception to the rule against hearsay.
The arbitration clauses in the credit card agreements, which the court accepts at
this stage as being those governing the parties’ relationship, contain delegation clauses.
The delegation clauses provide that claims relating to the debtors’ account, a prior
related account, or the parties’ relationship are subject to arbitration, including claims
regarding application, enforceability and interpretation of the agreement as a whole.
Plaintiffs do not mention, let alone challenge the delegation provision. The Supreme
Court held that such a failure requires the Court to “treat it [the delegation provision] as
valid under § 2, and must enforce it under §§ 3 and 4, leaving any challenge to the
validity of the Agreement as a whole to the arbitrator.” Rent-A-Center, 561 U.S. at 7273.
II. Purchase of Credit Card Receivables
Plaintiffs next argue that defendants cannot invoke the arbitration agreements in
the credit card agreements because “[t]he only thing these defendants ever bought
were the rights to debts.” The parties go on to argue the applicability of the UCC to the
sale of credit card receivables and whether or not the terms of the credit card
agreements follow the sale of the receivables. This is an example of an issue
challenging the application, enforceability or interpretation of the credit card agreement
and the arbitration provision, and as such it is distinctly an issue for the arbitrator to
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decide. A challenge to the applicability of the arbitration provision has been delegated
to the arbitrator, as discussed in the previous section of this opinion.
III. Chase Purchase Agreement Section 4
Plaintiffs point to language in the Chase Purchase Agreement between Chase
and Midland Funding, which states “Purchaser agrees that it will not attempt to enforce
any rights it may otherwise have under any arbitration clauses that may appear in
Seller’s Cardholder Agreements.” (Burger Declaration, Exhibit M, Section 4, p. 9). This
language appears in the section regarding “Representations and Warranties of
Purchaser”. Defendants point out that plaintiffs omit the previous page of the
agreement, which provides “All representations and warranties made in respect of this
Section 4 shall survive the execution and delivery of this Agreement until the second
anniversary of the applicable Closing Date for which such representations and
warranties were made by Purchaser.” (Exhibit M, Section 4(h), p. 8). The closing date
for the sale of McIntyre’s Chase Account to Midland Funding was March 28, 2012.
(Exhibit K). Therefore, according to defendants, Midland Funding agreed not to enforce
McIntyre’s arbitration agreement for a two-year period following the closing date, which
ended on March 28, 2014.
The issue whether defendants acquired Chase and Citibank’s rights to invoke the
arbitration clause when they purchased the plaintiffs’ debts is one that has been
delegated to the arbitrator to decide.

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CONCLUSION
For the reasons stated above, defendants’ motion to compel arbitration and
dismiss action without prejudice is GRANTED.
Dated: May 16, 2016
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
May 16, 2016, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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