Massey v. Credit Acceptance Corporation et al

Filing 22

MEMORANDUM OPINION AND ORDER granting 6 Credit Acceptance Corporation's Motion to Dismiss and Massey's claims against Credit Acceptance are dismissed with prejudice; granting 6 Motion of joined by Wynn's Extended Care, Inc. to Compel Arbitration; this case is stayed pending the outcome of the arbitration. Signed by Chief District Judge Louis Guirola, Jr on 6/10/2013. (avm)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
REBECCA A. MASSEY
v.

PLAINTIFF
CAUSE NO. 1:13CV90-LG-JMR

CREDIT ACCEPTANCE CORPORATION
and WYNN’S EXTENDED CARE, INC.

DEFENDANTS

MEMORANDUM OPINION AND ORDER CONCERNING
DEFENDANT’S MOTION TO DISMISS, OR
ALTERNATIVELY, TO COMPEL ARBITRATION
BEFORE THE COURT is the Motion to Dismiss, or Alternatively, to
Compel Arbitration [6] filed by Credit Acceptance Corporation and joined in part by
Wynn’s Extended Care, Inc. In this lawsuit, Rebecca A. Massey alleged that the
defendants engaged in unfair and deceptive practices by selling her a used vehicle
warranty that they had no intention of honoring. She also alleges that the failure
to honor the warranty caused her to default on the finance agreement related to the
vehicle she purchased. Credit Acceptance argues that Massey’s claims should be
dismissed with prejudice pursuant to the doctrines of res judicata and collateral
estoppel, since it previously obtained a judgment against Massey regarding her
breach of the finance agreement. In the alternative, Credit Acceptance asserts that
her claims are subject to binding arbitration. Wynn has only joined in Credit
Acceptance’s Motion to the extent that it demands arbitration.
Massey counters that Credit Acceptance has waived its right to arbitration,
and Wynn does not qualify as a third party beneficiary of the arbitration
agreement. She also claims that res judicata and collateral estoppel do not apply in

this case. Upon reviewing the submissions of the parties and the applicable law,
the Court finds that the Motion to Dismiss filed by Credit Acceptance should be
granted, and the Motion to Compel Arbitration joined by Wynn should be granted.
FACTS
Massey worked as an employee and salesperson for a dealer/partner of Credit
Acceptance. (Compl. at 4, ECF No. 1-1). On April 28, 2010, she obtained financing
through Credit Acceptance in order to purchase a 2002 Chrysler Sebring, and she
obtained a warranty for the Chrysler from Wynn. (Id.) After the purchase, Massey
traveled to Brandon, Mississippi, to care for her father during an illness. (Id.)
While in Brandon, she took the Chrysler to a mechanic in order to have the oil
changed. (Id.) The mechanic found that the Chrysler was making a clicking sound.
(Id.) It was determined that diagnostic disassembly would be required in order to
identify the exact cause of the problem. (Id. at 4-5). The mechanic contacted Wynn,
but Wynn refused to pay the claim because it viewed the problem as preexisting.
(Id. at 5).
Massey asserts that the denial of her warranty claim caused her to be
trapped in Brandon, since she did not have the funds to buy a new vehicle or repair
the Chrysler. (Id.) She was also unable to make payments on the Chrysler,
because she was not able to travel to work. (Id.) Credit Acceptance repossessed the
Chrysler and sold it. (Id.) It then filed a lawsuit against Massey to collect the
deficiency under the finance agreement. (Id. at 6). Credit Acceptance’s Complaint

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for Debt filed against Massey in the County Court of Harrison County, Mississippi,
alleged that Massey owed $3953.95 plus interest, court costs, and attorneys’ fees
pursuant to the finance agreement. (Def.’s Mot., Ex. D, ECF No. 6-4). Wynn was
not a party to that lawsuit. (See id.) Credit Acceptance received a default judgment
against Massey. (Def.’s Mot., Ex. E, ECF No. 6-5).
Massey filed the present lawsuit against Credit Acceptance and Wynn,
asserting the following claims: unfair competition and practices, unjust enrichment,
intentional or negligent misrepresentation, breach of contract, unlawful conversion,
civil conspiracy, tortious breach of contract, breach of the duty of good faith and fair
dealing, and fraud. (Id. at 6-14).
In support of her unfair competition and practices claim, Massey alleges that
Credit Acceptance: (1) violated Miss Code Ann. § 83-5-35, which prohibits unfair
competition and practices in the business of insurance; (2) misrepresented that she
is obligated to pay the deficiency balance under the finance agreement; (3) issued
defective statutory notices that she is obligated to pay the deficiency balance; (4)
concealed its unlawful activity in sending her deficiency notices; (5) fraudulently
and unfairly “continues to carry on its account records deficiency balances of
Plaintiff;” (6) unfairly and fraudulently notified credit reporting agencies and other
third parties that she owes a deficiency balance; (7) unfairly and fraudulently
collected deficiency balances from Massey; (8) misrepresented its compliance with
Miss. Code Ann. § 83-5-35; and (9) violated the Mississippi Motor Vehicle Sales
Finance Law. Concerning her intentional or negligent misrepresentation claim,
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Massey argues that Credit Acceptance and Wynn knew or should have known that
the Wynn warranty would not be honored and misrepresented the substance of the
warranty agreement.
Massey also asserts that Credit Acceptance and/or Wynn breached the
contracts at issue by knowingly contracting with her under terms that rendered the
finance agreement impossible or impractical to complete and “through nondisclosure of inherent disincentives for compliance combined with known and/or
expected complications of the vehicle.” (Compl. at 11, ECF No. 1-1). She claims
that Credit Acceptance and Wynn engaged in a civil conspiracy, committed an
unlawful conversion, committed a tortious breach of contract, and breached the duty
of good faith and fair dealing by denying the warranty claim, knowing that the
denial would likely cause her to default under the finance agreement. Furthermore,
she claims that Credit Acceptance and Wynn were unjustly enriched by collecting
moneys they were not entitled to, and that they committed fraud by selling her a
warranty contract that they did not intend to honor.
Massey seeks restitution and damages resulting from the entry of the default
judgment against her, preliminary and permanent injunctions, an order requiring
Credit Acceptance to declare the judgment against Massey satisfied, compensatory
damages, prejudgment interest, attorneys’ fees, costs, expenses, declaratory relief,
and punitive damages. (Id. at 14-15).
DISCUSSION
The Fifth Circuit has held that the question of whether a party’s claims are
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barred by the doctrine of res judicata or collateral estoppel is a question for the
courts, not arbitrators. See Local 1351 Int’l Longshoremens Ass’n v. Sea-Land Serv.
Inc., 214 F.3d 566, 572 (5th Cir. 2000) (citing Miller Brewing Co. v. Fort Worth
Distrib. Co., Inc., 781 F.2d 494, 498 (5th Cir. 1986)). As a result, the Court must
first consider Credit Acceptance’s Motion to Dismiss.
I. MOTION TO DISMISS
A. RES JUDICATA
“When a federal court is asked to give res judicata effect to a state court
judgment, the federal court must determine the preclusiveness of that state court
judgment under the res judicata principles of the state from which the judgment
originates.” Jones v. Sheehan, Young & Culp, P.C., 82 F.3d 1334, 1338 (5th Cir.
1996). “In order for the doctrine of res judicata to act as a bar to subsequent
litigation, Mississippi law requires the presence of the following four identities: ‘(1)
identity of the subject matter of the action; (2) identity of the cause of action; (3)
identity of the parties to the cause of action; and (4) identity of the quality or
character of a person against whom the claim is made.’” Moorman v. Crocker, 38 So.
3d 662, 666 (¶10) (Miss. Ct. App. 2010). A final judgment adjudicated on the merits
is also required. Harrison v. Chandler-Sampson Ins., Inc., 891 So. 2d 224, 232 (¶22)
(Miss. 2005). As long as these five requirements are met, “res judicata prevents
litigation of all grounds for, or defenses to, recovery that were previously available
to the parties, regardless of whether they were asserted or determined in the prior

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proceeding.” Id. at 232 (¶22); see also Rodgers v. Moore, 101 So. 3d 189, 193 (¶10)
(Miss. Ct. App. 2012).
1. Identity of the Subject Matter of the Action
While in the past the subject matter of a lawsuit was defined as the “thing
sued for,” more recently it has been referred to as the “substance” of the lawsuit.
Hill v. Carroll Cnty., 17 So. 3d 1081, 1085 (Miss. 2009). Massey argues that the
subject matter of the first lawsuit was the finance agreement, while the subject
matter of the present lawsuit is the warranty agreement. Credit Acceptance
counters that the two agreements are “inextricably intertwined,” because Credit
Acceptance provided financing for the Wynn warranty agreement pursuant to the
finance agreement. See Copiah Med. Assoc. v. Miss. Baptists Health Sys., 898 So. 2d
656, 662-63 (Miss. 2005). In Copiah, the Court, while determining whether res
judicata would pertain to an alleged compulsory counterclaim, determined that
identity of the subject matter was present because the agreements at issue in the
separate lawsuits were “inextricably intertwined.” Id.
In her Complaint, Massey claims that Credit Acceptance entered into a
conspiracy with Wynn to sell her an ineffective Wynn warranty in order to frustrate
Massey’s ability to perform under the finance agreement provided by Credit
Acceptance. Thus, despite her attempts to reclassify her claims for purposes of the
pending Motion, in her Complaint Massey did not allege a mere breach of the Wynn
warranty agreement. Furthermore, many of her claims of unfair practices would
require a determination that she does not owe the deficiency that is the subject of
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the Default Judgment obtained by Credit Acceptance. As a result, the Court finds
that identity of the subject matter is present.
2. Identity of the Cause of Action
The Mississippi Supreme Court has held that identity of the cause of action
exists where the latter case “involve[s] the same claim premised upon the same
body of operative fact as was previously adjudicated.” Harrison, 891 So. 2d at 234
(¶31). When presented with numerous claims in one lawsuit, the Mississippi courts
have looked beyond “the legal bases asserted and relied more on the factual and
transactional relationship between the original action and the subsequent action.”
Id.
[C]auses of actions are the same if they arise from the same
“transaction;” whether they are products of the same “transaction” is to
be determined by “giving weight to such considerations as whether the
facts are related in time, space, origin, or motivation, whether they
form a convenient trial unit, and whether their treatment as a unit
conforms to the parties’ expectations or business understanding or
usage.”
Id. (quoting Nevada v. United States, 463 U.S. 110, 131 (1983)).
In a case featuring similar facts to those presented here, the Mississippi
Supreme Court explained:
The central and essential fact asserted in the claim and delivery action
against Magee was his default under the contract and the consequent
right of GMAC to repossess under the contract. His willful failure to
answer or controvert, for whatever reason, amounted to a confession of
the charge . . . . It would be ironical indeed if GMAC, in an action in
which due process was accorded Magee and in which the law was
faithfully followed, should repossess the automobile under a solemn
judgment of a court of competent jurisdiction, which finally
adjudicated that Magee was in default and that GMAC was entitled to
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the automobile under its contract, and then, when that is all over and
done with, permit Magee, who had allowed it all to happen, exact
damages predicated upon the repossession which was in all respects
lawful.
Magee v. Griffin, 345 So. 2d 1027, 1032-33 (Miss. 1977).
The Court finds that the two lawsuits at issue are products of the same
transaction. In the Default Judgment, the County Court held that Massey was
liable for the deficiency under the finance agreement. In the present case, she
alleges that, due to the conduct of Credit Acceptance and Wynn, she is not liable for
that deficiency and her claimed damages include the Default Judgment imposed
against her. In essence, she is seeking to collaterally attack the prior judgment in
favor of Credit Acceptance by suing Credit Acceptance in the present lawsuit. The
claims that she alleges against Credit Acceptance here could have and should have
been raised as defenses and/or compulsory counterclaims in the County Court
lawsuit filed by Credit Acceptance. Her attempt to recover damages against Credit
Acceptance resulting from a Default Judgment of deficiency lawfully obtained by
Credit Acceptance must be barred.
3. Identity of the Parties to the Cause of Action
While Credit Acceptance and Massey were parties to both lawsuits, Wynn is
only a party to the present lawsuit. The Mississippi Supreme Court has held that
strict identity of the parties is not necessary, since a nonparty defendant can assert
res judicata if it is in “privity” with the named defendant. Little v. V&G Welding
Supply, Inc., 701 So. 2d 1336, 1339 (¶15) (Miss. 1997). In the present case, it is not

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necessary to determine whether Wynn was in privity with Credit Acceptance, since
Wynn is not seeking to assert res judicata. The Court finds that the presence of
Wynn in this lawsuit does not destroy Credit Acceptance’s ability to assert res
judicata on its own behalf. See Magee, 345 So. 2d at 1032 (holding that res judicata
applied as to a defendant that was a party to both lawsuits, but finding in a
plurality opinion that a new defendant was not entitled to invoke res judicata).
Massey and Credit Acceptance were parties to both lawsuits, and the issue of
whether any other party is either bound by or entitled to enforce the prior judgment
is not before the Court. Massey’s decision to add an additional defendant in this
lawsuit should not affect the enforcement of the prior Default Judgment as it
relates to Credit Acceptance. As a result, the Court finds that the identity of the
parties requirement is satisfied.
4. Identity of the Quality or Character of a Person against
Whom the Claim is Made
Identity of the quality or character of a party is absent where a person is
sued in a limited or a representative capacity in one case then personally in
another. In re Estate of Bell, 976 So. 2d 965, 968 (¶8) (Miss. Ct. App. 2008).
Neither Massey nor Credit Acceptance appeared in either lawsuit in a limited
capacity. Thus, this identity is satisfied in this lawsuit.
5. Finality of the Prior Judgment
Default judgments are viewed as final judgments adjudicated on the merits
under Mississippi law. Franklin Collection Serv., Inc. v. Stewart, 863 So. 2d 925,

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929 (¶15) (Miss. 2003); Hood v. Mordecai, 900 So. 2d 370, 377 (¶18) (Miss. Ct. App.
2004). As a result, that requirement has been met.
B. COLLATERAL ESTOPPEL
Since the Court has found that all of the required identities for res judicata
are present, Massey’s claims against Credit Acceptance must be dismissed with
prejudice. Therefore, it is not necessary for the Court to determine whether
collateral estoppel also bars Massey’s claims against Credit Acceptance.
II. MOTION TO COMPEL ARBITRATION
The Court must now consider Wynn’s demand for arbitration as a nonsignatory. The arbitration clause contained in the finance agreement entered into
by Massey and Credit Acceptance provides:
This Arbitration Clause describes how a Dispute (as defined below)
may be arbitrated. Arbitration is a method of resolving disputes in
front of one or more neutral persons, instead of having a trial in court
in front of a judge and/or jury. In this Arbitration Clause, “we” and
“us” mean Seller and/or Seller’s Assignee, Credit Acceptance
Corporation, or their employees, agents or assignees or any third party
providing any goods or services in connection with the origination,
servicing and collection of amounts due under the Contract if such
third party is named as a party between you and us. “You” means the
Buyer(s). A “Dispute” is any dispute, controversy or claim between
You or us arising out of or in any way related to this Vehicle, or any
product or service included in this Contract. “Dispute” includes
contract claims, and claims based on tort or any other legal theories.
Either You or we may require any Dispute to be arbitrated and may do
so before or after a lawsuit has been started over the Dispute or award
may be entered in any court with jurisdiction. The arbitrator shall
decide whether a particular Dispute is subject to arbitration and any
question as to enforceability of all or part of this Arbitration Clause . . .
. The Federal Arbitration Act governs this Arbitration Clause.
(Def.’s Mot., Ex. A at 2, ECF No. 6-1).
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Section 2 of the Federal Arbitration Act provides that arbitration agreements
are “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. Arbitration is, essentially, a
matter of contract, and arbitration agreements should be treated like other
contracts and enforced according to their terms. AT&T Mobility LLC v. Concepcion,
131 S. Ct. 1740, 1745 (2011). Because arbitration is a matter of contract, “a party
cannot be required to submit to arbitration any dispute which he has not agreed so
to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).
The Fifth Circuit has adopted a two-step inquiry for determining whether
parties should be compelled to arbitrate. Banc One Acceptance Corp. v. Hill, 367
F.3d 426, 429 (5th Cir. 2004). First, the court must determine whether the parties
agreed to arbitrate the dispute. Id. This step has two components – determining
(1) whether there is a valid agreement to arbitrate between the parties and (2)
whether the dispute between the parties falls within the scope of the arbitration
agreement. Id.
“Arbitrability” is the question of whether the parties have agreed to arbitrate
a particular dispute. Howsam, 537 U.S. at 83. Generally, the question of
arbitrability is a matter for the courts to decide, rather than an arbitrator. AT&T
Techs, Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986). Nevertheless,
“[t]he question of ‘who has the primary power to decide arbitrability’ turns upon
what the parties agreed about that matter.” First Options of Chicago, Inc. v.

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Kaplan, 514 U.S. 938, 943 (1995). The court cannot simply “assume that the
parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’
evidence that they did so.” Id. at 944 (quoting AT&T Techs., 475 U.S. at 649); see
also Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010). An
agreement to submit disputes concerning arbitrability to arbitration may be
memorialized in contract. Agere Sys., Inc. v. Samsung Elecs. Co. Ltd., 560 F.3d 337,
339 (5th Cir. 2009). Nevertheless, “a dispute over whether the parties entered into
any arbitration agreement in the first place” must be decided by the courts. DK
Joint Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011).
In the present case, it is undisputed that Credit Acceptance and Massey
agreed to arbitrate disputes that arose between them, but Massey argues that
Wynn cannot compel arbitration since it was not a signatory to the agreement
containing the arbitration clause. When determining whether parties agreed to
arbitration, courts apply “ordinary state-law principles that govern the formation of
contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see
also Todd v. S.S. Mut. Underwriting Ass’n (Bermuda) Ltd., 601 F.3d 329, 336 (5th
Cir. 2010) (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009))
(holding that courts should look to state law when determining whether an
arbitration clause can be invoked by a non-signatory). The Mississippi Supreme
Court has enumerated the theories in which a non-signatory may enforce an
arbitration agreement: (a) incorporation by reference; (b) assumption; (c) agency; (d)

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veil-piercing/alter ego; (e) estoppel; and (f) third-party beneficiary. Qualcomm Inc.
v. Am. Wireless License Grp., LLC, 980 So. 2d 261, 269 (¶17) (Miss. 2007) (quoting
Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003)).
The Court finds that Wynn is incorporated by reference as a party to the
arbitration clause, because the clause states that third parties who provide goods
and/or services in connection with the origination of the finance agreement are
included as parties to the arbitration clause. Wynn provided a warranty in
connection with the origination of the finance agreement, and the Wynn warranty
was specifically referenced in the Credit Acceptance finance agreement. (Def.’s
Mot., Ex. A at 1, ECF No. 6-1). The $1380 charge for the warranty was also
financed by Credit Acceptance pursuant to the agreement containing the
arbitration clause. (Id.) Since Massey and Credit Acceptance agreed that third
parties referenced in this manner were parties to the arbitration clause, Wynn is
entitled to invoke the arbitration clause as a non-signatory.
Furthermore, Massey’s arguments that Credit Acceptance waived the
arbitration clause do not affect Wynn’s ability to enforce the arbitration clause. See
Lemon Drop Props., LLC v. Pass Marianne, LLC, 73 So. 3d 1131, 1137 (¶17) (Miss.
2011). The Lemon Drop case also indicates that it is permissible for a non-signatory
to enforce an arbitration clause even where claims filed against a signatory are not
submitted to arbitration. See id.
Since the arbitration clause specifically provides that questions regarding the

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scope of the arbitration clause should be presented to the arbitrator, all remaining
issues in this lawsuit must be referred to arbitration.
CONCLUSION
For the foregoing reasons the Court finds that Massey’s claims against Credit
Acceptance are barred by the doctrine of res judicata and must be dismissed with
prejudice. Meanwhile, Massey’s claims against Wynn must be referred to
arbitration. The Court will stay this lawsuit pending the outcome of the
arbitration.
IT IS, THEREFORE, ORDERED AND ADJUDGED that the Motion to
Dismiss [6] filed by Credit Acceptance Corporation is GRANTED. Rebecca A.
Massey’s claims against Credit Acceptance are hereby DISMISSED WITH
PREJUDICE.
IT IS, FURTHER, ORDERED AND ADJUDGED that the Motion to
Compel Arbitration [6] joined by Wynn’s Extended Care, Inc., is GRANTED. This
lawsuit is STAYED pending the outcome of the arbitration.
SO ORDERED AND ADJUDGED this the 10th day of June, 2013.

s/

Louis Guirola, Jr.

LOUIS GUIROLA, JR.
CHIEF U.S. DISTRICT JUDGE

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