LOMAX v. MERACORD LLC et al

Filing 20

OPINION. Signed by Judge Stanley R. Chesler on 7/22/13. (jd, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

REGINA LOMAX, on behalf of herself
and others similarly situated,
Plaintiff,
v.
MERACORD LLC, and JOHN DOES 1-5,
Defendants.

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Civil Action No. 13-1945 (SRC)

OPINION

CHESLER, District Judge
This matter comes before the Court upon the motion filed by Defendant Meracord LLC
(“Defendant” or “Meracord”) to stay this litigation and compel arbitration or, in the alternative,
to dismiss this action without prejudice. Plaintiff Regina Lomax (“Plaintiff” or “Lomax”) has
opposed the motion. The Court has considered the papers filed by the parties and proceeds to
rule on the motion without oral argument, pursuant to Federal Rule of Civil Procedure 78. For
the reasons discussed below, the Court will deny Meracord’s motion.

I.

BACKGROUND
In June 2010, Plaintiff Lomax, a resident of New Jersey, contracted with a debt

settlement company, known as P&E Solutions, to engage that company’s services in connection
with approximately $14,000 in debt she carried at the time. The Court will refer to this contract
for debt settlement services as the “P&E contract.” The P&E contract provides that Lomax
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would make payments “of $263 per month, for a term of 37 months, for the purpose of settling
[her] unsecured debts and paying for the costs of [her] Debt Settlement System subscription fee.”
(P&E contract, ¶ 4.) The P&E contract contains an arbitration clause which reads as follows:
In the event of any litigation arising out of or relating to this Agreement,
all parties, including Client, P&E Solutions agree to resolve the dispute
with neutral binding arbitration according to the laws of the State of
Florida. Venue for all arbitrations shall be in Broward County.
(Id., ¶ 10.)
Defendant Meracord becomes involved in this transaction as a payment processor. Its
role required it to debit Lomax’s payments to the P&E debt settlement program from Lomax’s
bank account, place the money in a trust account, and disburse it to creditors and other parties
pursuant to the debt settlement program. To participate in the P&E debt settlement system,
Lomax also entered into a separate contract with Meracord, the June 4, 2010 “Signup
Agreement,” authorizing Meracord (then known as “NoteWorld LLC”) to perform these debiting
and disbursement services. The Court will refer to Lomax’s Signup Agreement for the payment
processing services as the “Meracord contract.” The Meracord contract does not contain an
arbitration clause.
According to the First Amended Complaint (hereinafter, the “Complaint”), from June
2010 to February 2012, Meracord debited the agreed-upon monthly amount from Lomax’s bank
account, ultimately withdrawing a total of $5,530.56. Lomax alleges that, after contacting the
bank that had issued the credit card associated with the debt P&E was supposed to settle, she
learned that P&E had not negotiated her credit card debt or made payments in satisfaction of that
debt. The Complaint states that in February 2012, she closed her bank account to prevent
Meracord from withdrawing additional funds. She alleges that Meracord violated New Jersey
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law by acting as a debt adjuster without the required license to do so and by charging fees in
excess of the amount permitted by applicable law.
The Complaint, filed in New Jersey state court as a putative class action, asserts three
causes of action: violation of the New Jersey Debt Adjustment and Credit Counseling Act,
N.J.S.A. 17:16G-1, et seq.; violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et
seq.; and violation of the New Jersey Truth in Consumer Contract, Warranty and Notice Act,
N.J.S.A. 56:12-14-18. Defendant removed the action to the Court on the basis that this Court has
subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d). 1

II.

DISCUSSION
Questions of arbitrability are presumed to be for judicial determination. Quilloin v. Tenet

HealthSystem Phila., Inc., 673 F.3d 221, 228 (3d Cir. 2012). The Third Circuit has held that
“[b]efore a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court,
there should be an express, unequivocal agreement to that effect.” Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir. 1980). The Third Circuit recently
resolved the question of the appropriate legal standard for deciding a motion to compel
arbitration. In Guidotti v. Legal Helpers Debt Resolution, L.L.C., it held that where arbitrability
is apparent on the face of the complaint, a Rule 12(b)(6) standard of review should be applied.
716 F.3d 764, 774 (3d Cir. 2013). However, where the complaint does not establish on its face
that the parties have agreed to arbitrate, or when the party opposing arbitration has come forward
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The required minimal diversity of citizenship between the parties exists, as Plaintiff Lomax is a citizen of New
Jersey and Defendant Meracord is a Delaware limited liability company, whose principal place of business is in
Washington and whose sole member is an individual citizen of Washington. The Court is also satisfied that
according to the allegations of the Complaint, the amount in controversy in this putative class action exceeds
$5,000,000. See 28 U.S.C. § 1332(d).
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with reliable evidence that it did not intend to be bound by an arbitration agreement, the Court of
Appeals determined that granting a motion to compel arbitration under a Rule12(b)(6) standard
would not be appropriate. Id. In those instances, either further factual development is needed or,
if the Court is presented with evidence placing the arbitrability question in issue, the issue must
be decided under the Rule 56 summary judgment standard. Id.
In this action, Meracord moves to compel arbitration based on the face of the Complaint
and on the contracts expressly referenced in the Complaint. There is no dispute, however, that
the contract between the parties to this action, that is, the Meracord contract, does not require
arbitration. The P&E contract, which enrolled Lomax in the debt settlement program underlying
this lawsuit, does compel arbitration, but Meracord concedes that it is not a signatory to that
contract. Meracord nevertheless seeks to enforce the arbitration clause contained in the P&E
contract on an equitable estoppel theory.
Arbitration agreements may, in certain situations, be enforced by non-parties to the
contract through traditional state law principles, including, in relevant part, estoppel. Arthur
Andersen, LLP v. Carlisle, 556 U.S. 624, 631 (2009); EPIX Holdings Corp. v. Marsh &
McLennan Cos., Inc., 410 N.J. Super. 453, 463 (App. Div. 2009). Whether arbitration may be
compelled based on equitable estoppel is a fact specific inquiry requiring “analysis of the
connection between the claim, the arbitration agreement and the parties.” EPIX Holdings, 410
N.J. Super. at 463. Under New Jersey law, a signatory to an arbitration agreement may be
estopped from avoiding arbitration with a non-signatory to that agreement “‘when [the] issues to
be litigated are intertwined with [the] agreement containing [the] arbitration clause.’” Id.
(quoting Bruno v. Mark McGrann Assoc., 388 N.J. Super. 539, 548 (App. Div. 2006) (alterations
in quotation).
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In EPIX Holdings, the New Jersey Appellative Division reviewed various cases in which
both state and federal courts had considered the invocation of a contractual arbitration clause by
a non-signatory based on the doctrine of equitable estoppel. See id. at 466-67. It noted that
“even where the inextricable connectivity was not considered itself dispositive of the issue, the
combination of the requisite nexus of the claim to the contract together with the integral
relationship between the non-signatory and the other contracting party was recognized as a
sufficient basis to invoke estoppel.” Id. at 466 (emphasis in original). Examples of the kind of
integral relationship which would estop a plaintiff from resisting arbitration of her claims against
a non-signatory include situations in which the non-signatory is a parent or successor corporation
of the contracting party, the non-signatory is in a principal-agent relationship with the
contracting party or the plaintiff has specifically pleaded that the non-signatory has conspired
with the signatory. Id. at 466-67.
The dispositive question, then, is whether Lomax’s claims against Meracord are
intertwined with the P&E contract and the conduct of signatory P&E, such that principles of
fairness and equity estop Lomax from avoiding that contract’s arbitration clause. The Court
finds that they are not. While Lomax’s relationship with Meracord may have been initiated by
virtue of her decision to enroll in P&E’s debt settlement program, the claims she brings against
Meracord in this action are distinct from the contract of enrollment, that is, the P&E contract
containing the arbitration clause. Lomax asserts no claim against Meracord pursuant to that
contract nor does she allege that Meracord engaged in conduct in violation of obligations which
essentially derive from that contract. The Complaint does recite facts concerning the debt
settlement program and the overall arrangement by which Lomax engaged the payment
processing services of Meracord. The Court acknowledges, as Meracord points out in its motion,
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that Plaintiff goes as far as asserting that she has not been provided with the debt settlement
services she was entitled to receive from “Defendants.” Even so, these facts cannot be construed
as more than contextual information, and perhaps some poor editing of the document, given that
the Complaint does not predicate Lomax’s claims to relief on a breach of the P&E contract or
seek to recover for the alleged harm she may have sustained as a result of not receiving the debt
negotiation and settlement she was promised by P&E. Rather, her three statutory claims are
limited to Meracord’s activities as the payment processor, specifically, according to the
Complaint, conducting a debt adjustment business without a license, charging unauthorized
and/or undisclosed fees for its services and charging fees in excess of the amount permitted by
the applicable statute. There is no indication that through artful pleading, Lomax has tried to
avoid enforcement of the P&E contract’s arbitration clause while at the same time attempting to
avail herself of her rights under that contract. Moreover, Lomax’s Complaint does not allege
that non-signatory Meracord conspired with P&E to deprive Lomax of the services to which she
was entitled under the P&E contract, and Meracord does not contend that it is, or was at the
relevant time, in an agency relationship with P&E. 2 In short, both the legal theories and the
factual allegations at issue in this lawsuit are separate and distinct from the P&E contract and,
moreover, from the actions of P&E itself. 3

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In fact, the Meracord contract expressly disclaims that it is engaged in any joint venture, business association or
affiliation with P&E.

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Lomax’s decision not to join signatory P&E as a defendant would not necessarily preclude Meracord from
prevailing on a motion to compel arbitration based on equitable estoppel. Nevertheless, the Court notes that P&E is
not a party to this action nor has Lomax put its performance or the P&E contract at issue. Cf. Bruno, 388 N.J. Super.
at 548 (finding that plaintiff homebuyers, whose lawsuit against the home developer was dismissed based on a
contractual arbitration clause, were estopped from avoiding arbitration when they filed a subsequent lawsuit against
subcontractors with whom they had no contractual relationship because the claims against the subcontractors
presented the same factual allegations as against the developer and arose directly out of the homebuyers’ contracts
with the developer).
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The facts of this action are substantially distinct from those considered by another judge
of this district court in the case of Guidotti v. Legal Helpers Debt Resolution. There, Chief
Judge Simandle held that a plaintiff’s claims against two parties who were not signatories to an
arbitration agreement were sufficiently intertwined with the agreement, and with the actions of
signatories to the agreement, to warrant the conclusion that plaintiff was equitably estopped from
resisting arbitration of his claims against the non-signatories. See Guidotti v. Legal Helpers Debt
Resolution, L.L.C., No. 11-1219, 2012 U.S. Dist. LEXIS 111382, at *14 (D.N.J. Aug. 7, 2012),
reversed on other grounds by 716 F.3d 764 (3d Cir. 2013). He based his conclusion on various
factors presented by the plaintiff’s claims and the factual allegations on which they were based.
First, he noted that the plaintiff had named both signatories and non-signatories as defendants
and, moreover, sought relief from both groups under exactly the same legal theories, which
included various New Jersey statutory and common law causes of action. Id. at *19. Second,
Judge Simandle noted that the plaintiff had pled facts alleging that the non-signatory defendants
had conspired with the signatory defendants to commit the acts giving rise to her legal claims,
which involved engaging in unlawful debt adjustment and unlicensed practice of law. Id. at *1920. Third, he observed that, according to the factual allegations of the complaint, the harm the
plaintiff claimed to have suffered from the actions of the non-signatory defendants could not be
disentangled from the allegedly wrongful actions of the signatory defendants. Id. at *20-21. The
Guidotti plaintiff, the court reasoned, had alleged that the non-signatory defendants directed her
to the signatory defendants and had sought to recover damages from the non-signatory based, in
part, on a signatory’s failure to perform under the agreement which included the arbitration
clause. Id. In contrast, as this Court discussed above, Lomax bases her statutory claims against

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non-signatory Meracord on its own actions, separate and distinct from the conduct of P&E and
from any performance required under the arbitration agreement.
The facts here more closely resemble those presented in a recent Ninth Circuit decision
affirming a district court’s conclusion that equitable estoppel did not provide a basis for a nonsignatory payment processor – the same company seeking to compel Lomax to arbitrate – to
enforce an arbitration clause against the plaintiff. See Rajagopalan v. NoteWorld, LLC, ---F.3d --, 2013 WL 2151193, at *3 (9th Cir. May 20, 2013). Rajagopalan v. NoteWorld involved a
similar situation to the case at bar, in which the plaintiff had signed up for a debt settlement
program, in that case with a company known as First Rate Debt Solutions (“First Rate”),
enrolling in the program pursuant to a contract with First Rate which contained an arbitration
clause. Id. at *1. NoteWorld was responsible for the payment processing but was not a party to
the arbitration agreement between Rajagopalan and First Rate. Id. Rajagopalan canceled his
subscription to the debt settlement program, sought a refund of funds that had been withdrawn by
NoteWorld from his bank account, and, when certain funds were not returned, filed a class action
complaint against NoteWorld, but not First Rate. Id. at *1-2. Rajagopalan’s complaint, this
Court notes, did assert that NoteWorld engaged in a conspiracy in violation of the Racketeer
Influenced and Corrupt Organizations Act. Id. at *2. The district court denied NoteWorld’s
motion to stay litigation and compel arbitration, or in the alternative, to dismiss the action,
rejecting NoteWorld’s arguments that it was a third-party beneficiary of the agreement between
First Rate and the plaintiff and that it could enforce the arbitration clause under the theory of
equitable estoppel. Id. As to equitable estoppel, the appeals court noted while the Ninth Circuit
had never permitted a non-signatory defendant to enforce an arbitration clause based on that
doctrine, those jurisdictions that had required that “the subject matter of the dispute be
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intertwined with the contract providing for arbitration.” Id. at *3 (quotations omitted). Applying
the “intertwined” standard, the Ninth Circuit court found NoteWorld’s attempt to invoke the
arbitration clause unavailing, reasoning that the plaintiff did not contend breach of the contract
containing the arbitration clause, by NoteWorld or any other party, but instead asserted statutory
claims which did not arise out of that contract. Id. As such, it held that NoteWorld could not
compel the plaintiff to arbitrate his claims on the basis of equitable estoppel. Id.
Likewise, and for the reasons set forth above, this Court finds that this action does not
meet the “intertwined” standard articulated in EPIX Holdings that would support Meracord’s
attempt to enforce an arbitration clause in a contract to which it is not a party.

III.

CONCLUSION
For the foregoing reasons, the Court will deny Meracord’s motion to stay the litigation

and compel arbitration or, in the alternative, to dismiss the action. An appropriate Order with be
filed together with this Opinion.

s/Stanley R. Chesler
STANLEY R. CHESLER
United States District Judge

Dated: July 22, 2013

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