Pyciak v. Credit One Bank, N.A.
Filing
41
OPINION AND ORDER denying 36 defendant's Motion to Compel Arbitration. Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
AARON PYCIAK,
Plaintiff,
Case No. 17-11415
v.
HON. GEORGE CARAM STEEH
CREDIT ONE BANK, N.A.,
Defendant.
___________________________/
OPINION AND ORDER DENYING DEFENDANT’S
MOTION TO COMPEL ARBITRATION
On July 9, 2018, Defendant Credit One Bank, N.A., filed a motion to
compel arbitration, which has been fully briefed. The court heard oral
argument on October 3, 2018. For the reasons explained below,
Defendant’s motion is DENIED.
BACKGROUND FACTS
Plaintiff Aaron Pyciak filed this action on May 5, 2017, alleging that
Defendant violated that Telephone Consumer Protection Act and the
Michigan Regulation of Collection Practices Act by making hundreds of
unauthorized calls to his cellular telephone in an attempt to collect a debt.
Plaintiff’s wife, Tricia Pyciak, had a credit card account with Credit One. On
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her account application, she provided Aaron Pyciak’s cell phone number as
a secondary contact. Although Plaintiff did not use the Credit One card to
make purchases, he sometimes paid the bill online or over the phone,
using his and his wife’s joint bank account.
Credit One contends that that Tricia Pyciak defaulted on the credit
card account and that it called to collect on the debt owed. The current
balance on the account is $681.72.
The cardholder agreement for the Credit One account includes an
arbitration provision requiring that disputes between the account holder and
Credit One be submitted to binding arbitration. (Doc. 36-2, Ex. B). The
agreement provides:
Claims subject to arbitration include not only Claims
made directly by you, but also Claims made by
anyone connected with you or claiming through you,
such as a co-applicant or authorized user of your
account, your agent, representative or heirs, or a
trustee in bankruptcy.
Id. at 5. The agreement further provides that “[i]f you allow someone to use
your Account, that person will be an Authorized User.” Id.
LAW AND ANALYSIS
Credit One argues that Plaintiff’s claims are subject to arbitration
under the cardholder agreement. Pursuant to the Federal Arbitration Act,
written arbitration agreements “shall be valid, irrevocable, and enforceable,
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save upon such grounds as exist at law or in equity for the revocation of
any contract.” 9 U.S.C. § 2. Before the court can compel arbitration, it must
“first determine whether a valid agreement to arbitrate exists.” Glazer v.
Lehman Bros., 394 F.3d 444, 450 (6th Cir. 2005). “In making this
determination, ‘ordinary state-law principles that govern the formation of
contracts’ will apply.” Id. See also Richmond Health Facilities v. Nichols,
811 F.3d 192, 195 (6th Cir. 2016) (“[I]n determining the enforceability of an
arbitration agreement, we apply state law of contract formation.”). “While
ambiguities in the language of the agreement should be resolved in favor of
arbitration, we do not override the clear intent of the parties, or reach a
result inconsistent with the plain text of the contract, simply because the
policy favoring arbitration is implicated.” EEOC v. Waffle House, Inc., 534
U.S. 279, 294 (2002) (internal citations omitted). “Arbitration under the
[FAA] is a matter of consent, not coercion.” Id. (citation omitted).
I.
Waiver
Plaintiff argues that Defendant has waived its right to seek arbitration
by waiting almost a year before filing its motion. Because of the
presumption in favor of arbitration, waiver “is not to be lightly inferred.”
Johnson Assocs. Corp. v. HL Operating Corp., 680 F.3d 713, 717 (6th Cir.
2012) (quoting Glazer, 394 F.3d at 450). “[A] party may waive an
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agreement to arbitrate by engaging in two courses of conduct: (1) taking
actions that are completely inconsistent with any reliance on an arbitration
agreement; and (2) ‘delaying its assertion to such an extent that the
opposing party incurs actual prejudice.’” Id. (citations omitted).
Defendant raised the arbitrability of this dispute in its answer to the
complaint, which was filed July 21, 2017. Doc. 9. At that time, Defendant
stated: “To the extent that Plaintiff was an authorized user of the Account,
used the Account himself, or benefitted from the Account, the terms and
conditions of the Account apply to him.” Defendant claims that did not
learn of the necessary facts to compel arbitration until May 29, 2018, when
it took the depositions of Plaintiff and his wife.
Accepting Defendant’s claim that it needed discovery in order to
determine whether it had a viable motion to compel arbitration, the court
cannot find that its actions were “completely inconsistent” with any reliance
on the arbitration agreement. Although Defendant ideally would have taken
Plaintiff’s deposition sooner, Defendant did not engage in significant motion
practice or other actions -- such as failing to raise arbitration in the answer,
filing a counterclaim, or engaging in settlement discussions with the court -that courts have found to be inconsistent with arbitration. Cf. Johnson, 680
F.3d at 718-19 (waiver of arbitration found when defendant “failed to raise
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arbitration in its answer; asserted a counterclaim for breach of contract; and
actively scheduled and requested discovery, including depositions, rather
than moving to compel arbitration following the end of formal settlement
discussions”). Moreover, under the circumstances it is not clear that
Plaintiff has suffered actual prejudice. Mindful that waiver is not to be
“lightly inferred,” the court finds that Defendant did not waive its right to
seek arbitration.
II.
Estoppel
In general, courts have found that Credit One’s arbitration clause is
valid and enforceable against the cardholder. See, e.g., Bibee v. Credit
One Bank, 2015 WL 5178700 (M.D. Tenn. Sept. 4, 2015); Doc. 36 at 10-11
(citing cases). Plaintiff argues that, as a non-signatory to the cardholder
agreement, he is not bound by the arbitration provision. “[N]onsignatories
may be bound to an arbitration agreement under ordinary contract and
agency principles.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th
Cir. 2003). “Five theories for binding nonsignatories to arbitration
agreements have been recognized: (1) incorporation by reference, (2)
assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel.” Id.
Defendant argues that Plaintiff is bound by the arbitration agreement
under an estoppel theory. “In the arbitration context, the doctrine
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recognizes that a party may be estopped from asserting that the lack of his
signature on a written contract precludes enforcement of the contract's
arbitration clause when he has consistently maintained that other
provisions of the same contract should be enforced to benefit him.”
International Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH,
206 F.3d 411, 418 (4th Cir. 2000) “A nonsignatory is estopped from
refusing to comply with an arbitration clause ‘when it receives a “direct
benefit” from a contract containing an arbitration clause.’” Id. Accord Truck
Ins. Exch. v. Palmer J. Swanson, Inc., 189 P.3d 656, 661 (Nev. 2008)
(citing International Paper, 206 F.3d at 418).1 See also Zurich Am. Ins. Co.
v. Watts Indus., Inc., 417 F.3d 682, 688 (7th Cir. 2005) (“A nonsignatory
party is estopped from avoiding arbitration if it knowingly seeks the benefits
of the contract containing the arbitration clause.”).
Defendant contends that Plaintiff “directly benefitted” from his wife’s
credit card “in the form of household purchases such as gas and
groceries.” Doc. 36 at 15. Plaintiff testified that he was in charge of the
1
Defendant contends that, based upon the choice of law clause in the cardholder
agreement, Nevada law applies. Although Plaintiff states that he “disagrees” that
Nevada law applies, he has waived any challenge to the application of Nevada law by
failing to develop this argument. McPherson v. Kelsey, 125 F.3d 989, 995 (6th Cir.
1997) (“[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at
developed argumentation, are deemed waived.”).
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household finances and that payments for the card were made from his
and his wife’s joint bank account. He read over the credit card offer letter
because his wife “wanted to make sure that getting this credit card would
be a smart idea.” Doc. 36-3 at 36. Plaintiff made payments on the card by
phone and by accessing the online account.
Based upon these facts, it cannot be said that Plaintiff directly
benefitted from the cardholder agreement. Plaintiff did not use the card to
make purchases, for example. Nor is Plaintiff attempting to enforce the
cardholder agreement against Credit One. Although Plaintiff benefitted
from household purchases made on the card and made payments on the
account, these “benefits” are too indirect and attenuated to enforce
arbitration under an estoppel theory. See also Zurich, 417 F.3d at 688
(“But caselaw consistently requires a direct benefit under the contract
containing an arbitration clause before a reluctant party can be forced into
arbitration.”) (emphasis in original); Int’l Paper, 206 F.3d at 418 (estoppel
precludes non-signatory from avoiding arbitration “when he has
consistently maintained that other provisions of the same contract should
be enforced to benefit him”).
This conclusion is supported by A.D. v. Credit One Bank, N.A., in
which the Seventh Circuit recently rejected a similar estoppel argument
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made by Credit One. 885 F.3d 1054, 1063-64 (7th Cir. 2018) (applying
Nevada law). In that case, A.D., a minor, used her mother’s Credit One
card to purchase smoothies that her mother had previously ordered. In
claiming that A.D.’s TCPA claim was subject to arbitration, Credit One
argued that A.D. should be bound by the arbitration clause because she
benefitted by using the card to make a purchase. The Seventh Circuit
disagreed, finding that A.D. “derived no direct benefit from the cardholder
agreement.” Id. at 1064. The court further noted that A.D. was not
attempting to benefit by enforcing the cardholder agreement; rather, her
claim -- like Plaintiff’s -- was brought under the TCPA. Id. The court
concluded that A.D. was not bound by the cardholder agreement and that
her TCPA claims were not subject to arbitration. Id.
At the hearing, Credit One attempted to distinguish A.D. on the basis
that A.D. was a minor and Plaintiff is not. However, A.D.’s status as a
minor did not factor into the court’s reasoning in rejecting Credit One’s
estoppel argument. Further, Credit One previously relied upon the lower
court decision in A.D. in a filing before this court, describing A.D. as a case
with “similar facts” to this one. Doc. 35 at 3. Credit One’s argument to the
contrary is neither persuasive nor ingenuous.2 The court finds the Seventh
2
The court is dismayed by Credit One’s failure to disclose the Seventh Circuit’s opinion
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Circuit’s decision in A.D. to be persuasive and agrees with its estoppel
analysis. Plaintiff is not bound by the arbitration clause under an estoppel
theory.
III.
Authorized User
Credit One also argues that the arbitration clause should be enforced
against Plaintiff because he is an “authorized user” on the account. The
cardholder agreement provides
AUTHORIZED USER: At your request, we may, at
our discretion, issue an additional card in the name
of an Authorized User with your credit card account
number. If you allow someone to use your Account,
that person will be an Authorized User. By
designating an Authorized User who is at least
fifteen years of age, you understand that: 1) you will
be solely responsible for the use of your Account
and each card issued on your Account including all
charges and transactions made by the Authorized
User and any fees resulting from their actions to the
extent of the credit limit established for the Account;
2) the Authorized User will have access to certain
account information including balance, available
credit and payment information. . . .3) we reserve
the right to terminate the Card Account privileges of
an Authorized User. . . . 4) the Account may appear
on the credit report of the Authorized User. . . . 5)
the Authorized User can make payments, report the
card lost or stolen and remove him or herself from
the Account; 6) you can request the removal of the
Authorized User from your Account via mail or
telephone.
in A.D., particularly since it relies upon Nevada law, which Credit One argues applies
here.
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Authorized User Annual Participation Fee: An
Authorized User Annual Participation Fee of $19.00
will be imposed for issuing a card in the Authorized
User’s name. . . .
Doc. 36-3 at Ex. B. Credit One does not claim that it issued an additional
card in Plaintiff’s name or that Plaintiff’s wife allowed him to use the card to
make purchases. Rather, it contends that Plaintiff became an authorized
user because he “used” the account by benefitting from purchases, making
payments, and accessing the account online. Defendant does not provide
authority for the proposition that these actions make Plaintiff an authorized
user under the cardholder agreement.
The Seventh Circuit in A.D. rejected Credit One’s argument that
A.D.’s use of her mother’s credit card for a purchase made her an
“Authorized User” under the cardholder agreement. Viewing the cardholder
agreement as a whole, the court noted that the agreement “sets forth a
specific procedure that an account holder must follow to add an authorized
user to her account. . . . [A]n account holder must notify Credit One that
she wishes to add an Authorized User to the account, so that Credit One
can issue a card in the Authorized User’s name.” A.D., 885 F.3d at 1061.
Here, Plaintiff’s wife did not notify Credit One that she wished to add him as
an authorized user to her account. The cardholder agreement provides
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that the cardholder or authorized user may use the card “to make
purchases” or “to obtain cash advances,” neither of which was done by
Plaintiff. Id. Although an authorized user “will have access to certain
account information including balance, available credit and payment
information,” it does not necessarily follow that access to such information
transforms an individual into an authorized user. Credit One’s argument
that Plaintiff was an authorized user and thus subject to the arbitration
clause is not persuasive.
IV.
Third-Party Beneficiary
Credit One further argues that Plaintiff is bound by the arbitration
clause because he is an intended third-party beneficiary of the cardholder
agreement as an authorized user. See generally Canfora v. Coast Hotels &
Casinos, Inc., 121 P.3d 599, 604-605 (Nev. 2005) (“Whether an
individual is an intended third-party beneficiary. . . depends on the parties’
intent, ‘gleaned from reading the contract as a whole in light of the
circumstances under which it was entered.’”). Essentially, Defendant’s
third-party beneficiary argument depends upon Plaintiff being designated
as an authorized user. Doc. 36 at 18-19. As discussed above, however,
there is no evidence that Plaintiff’s wife formally designated him as an
authorized user of the account or that his “use” of the account made him an
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authorized user. Nor has Defendant cited legal authority for the proposition
that, under the circumstances presented here, Plaintiff is an intended thirdparty beneficiary of the cardholder agreement.
CONCLUSION
For these reasons, the court finds that Plaintiff is not bound by the
cardholder agreement and his claims are not subject to arbitration.
Accordingly, IT IS HEREBY ORDERED that Defendant’s motion to
compel arbitration (Doc. 36) is DENIED.
Dated: October 4, 2018
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
October 4, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
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