Love v. BMW Financial Services NA, LLC
Filing
24
ORDER granting 14 Motion to Compel; denying 16 Motion for Sanctions; terminating 17 Motion for Sanctions because the document is not a motion but a submission in support of the motion filed as Docket Entry 16; terminating 18 Motion for Sa nctions because the document is not a motion but a submission in support of the motion filed as Docket Entry 16. For the reasons set forth in the attached Memorandum and Order, defendant's motion to compel arbitration is granted. Defendant 9;s application for fees and costs is referred to arbitration as well. Plaintiff's cross-motion for sanctions is denied. This action is stayed pending the outcome of the arbitration proceedings. Counsel for defendant shall submit a letter reporting on the status of the arbitration proceedings once they have been concluded or by June 1, 2016, whichever shall first occur. Ordered by Chief Mag. Judge Steven M. Gold on 1/21/2016. (Gold, Steven)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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KEVIN B. LOVE,
:
:
Plaintiff,
:
:
-against:
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BMW FINANCIAL SERVICES NA, LLC,
:
:
Defendant.
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:
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GOLD, STEVEN M., U.S.M.J.:
MEMORANDUM &
ORDER
15-CV-124 (SMG)
INTRODUCTION
Plaintiff in this action asserts a violation of the Fair Credit Reporting Act and several
common law claims. Plaintiff’s claims arise from a motor vehicle lease agreement and, in
particular, defendant’s contention that plaintiff failed to make certain payments required under
the lease. The lease agreement includes an arbitration clause. Defendant BMW Financial
Services has moved to compel arbitration and plaintiff has cross-moved for sanctions.1 The
parties have consented to assignment of the case to the undersigned magistrate judge for all
purposes. Docket Entry 11. For the reasons stated below, defendant’s motion to compel
arbitration is granted and plaintiff’s cross-motion for sanctions is denied.
FACTS
On January 27, 2010, plaintiff Kevin B. Love entered into a lease agreement for a 2010
BMW 750 (the “car”) with Open Road BMW of Edison, New Jersey. Stipulation of
Uncontested Facts (“Stip.”) ¶ 1, Docket Entry 21. Open Road assigned its rights under the lease
agreement to defendant BMW Financial Services (“BMW FS”). Stip. ¶ 3. In his complaint,
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Defendant’s motion and supporting papers are filed as Docket Entries 14 and 15. Plaintiff’s opposition and crossmotion are filed as Docket Entries 16 and 17. Defendant’s reply papers are filed as Docket Entries 20-22.
plaintiff contends that the car had a number of mechanical problems and required substantial
repairs. The issues with the car were so severe that it remained in a repair facility from March of
2012 until early 2013. Stip. ¶¶ 7-8.
The lease agreement required plaintiff to make thirty-six payments of $1,418.24 by the
27th day of each month. Stip. Ex. A. Despite the car’s mechanical problems, plaintiff paid most
of the amounts due under the lease. However, according to defendant, many of the payments
were made late, causing plaintiff to incur additional charges. Def. Reply at 2, Docket Entry 20.
As a result, BMW FS declared plaintiff to be in default on his lease, repossessed the car, sold it
and claimed that a deficiency balance was due and owing. Compl. ¶¶ 37-41. Plaintiff’s Fair
Credit Reporting Act claim arises from defendant’s negative reports about him to credit reporting
agencies. Compl. ¶¶ 46-55. Plaintiff’s common law claims arise generally from the same
underlying facts and circumstances.
As noted above, the lease agreement includes an arbitration clause. The arbitration
clause provides in relevant part as follows:
PLEASE REVIEW - IMPORTANT - AFFECTS MY LEGAL
RIGHTS
NOTICE: Either you or I may choose to have any dispute between us
decided by arbitration and not in a court or by jury trial . . . .
Any claim or dispute, whether in contract, tort, statute or otherwise
(including the interpretation and scope of this clause, and the
arbitrability of the claim or dispute), between me and you or your
employees, agents, successors or assigns, which arise out of or relate
to my credit application, lease, purchase or condition of this Vehicle,
this Lease or any resulting transaction or relationship (including any
such relationship with third-parties who do not sign this Lease) shall,
at your or my election, be resolved by neutral, binding arbitration and
not by a court action . . . .
Any arbitration under this Arbitration Clause shall be governed by the
Federal Arbitration Act (9 U.S.C. § 1 et. seq.) and not by any state law
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concerning arbitration; however, the governing law as to the
substantive issues of the Lease and Vehicle shall be the law of the state
in which this Lease was executed.
Stip. Ex. A, Lease Agreement ¶ 41, Docket Entry 21-1.
DISCUSSION
A. The Federal Arbitration Act
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., provides that arbitration
clauses “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. Section 2 of the FAA reflects “both a
liberal federal policy favoring arbitration and the fundamental principle that arbitration is a
matter of contract.” AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339 (2011) (internal
quotations and citations omitted). The Supreme Court has held that the FAA requires courts to
“‘rigorously enforce’ arbitration agreements according to their terms.” Am. Express Co. v.
Italian Colors Rest., ___ U.S. ___, ___, 133 S. Ct. 2304, 2309 (2013) (quoting Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985)). Thus, courts have repeatedly held that “[a]
party to an arbitration agreement seeking to avoid arbitration generally bears the burden of
showing the agreement to be inapplicable or invalid.” Harrington v. Atl. Sounding Co., 602 F.3d
113, 124 (2d Cir. 2010) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92
(2000)).
The scope of the arbitration provision in the lease agreement at issue here is broad, and
covers “[a]ny claim or dispute . . . aris[ing] out of or relat[ing] to [plaintiff’s] credit application,
lease, purchase or condition of this Vehicle.” Lease Agreement ¶ 41. Moreover, the lease
agreement clearly provides that either BMW FS or plaintiff may elect to have any covered
dispute between them determined in arbitration as opposed to a court of law. Plaintiff
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nevertheless contends for various reasons that the clause should not be enforced and that
defendant’s motion to compel arbitration should be denied. Each of plaintiff’s contentions is
addressed below.
B. Unconscionability
Plaintiff first contends that the arbitration clause in the lease agreement should not be
enforced because it is unconscionable. As indicated in the excerpt quoted above, the lease
agreement states that it is governed by the law of the state in which it is signed. Lease
Agreement ¶ 41. The lease was signed in New Jersey. Luthmann Affirm. ¶ 30, Docket Entry 18.
Accordingly, New Jersey law applies here.
The Second Circuit has held that, “for an agreement to be unconscionable under New
Jersey law, it must include an exchange of obligations so one-sided as to shock the court’s
conscience.” Harrington, 602 F.3d at 125 (internal quotation marks and citations omitted).
Plaintiff’s challenge to the validity of the arbitration clause on grounds of unconscionability does
not rise to this level. Plaintiff’s argument appears to be that the lease agreement is confusing
because it identifies plaintiff, the lessee, as “I” or “we” and the car dealer, the lessor, as “you,”
whereas a separate document—a privacy notice provided to plaintiff by the dealer—refers to the
dealer as “we, our or us” and plaintiff as “you.” Compare Lease Agreement ¶ 2 with Privacy
Notice, Docket Entry 18-3. Because these are separate documents, little if any genuine
confusion was caused by referring to plaintiff as “I” in one and “you” in the other. Moreover, as
indicated above, the arbitration agreement provides that “[e]ither you or I may choose to have
any dispute between us decided by arbitration.” Lease Agreement ¶ 41. Thus, any confusion
that may have been caused by using “I” and “you” differently in separate documents was
immaterial; the arbitration clause makes it clear that either party to the lease agreement may
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invoke it. Finally, “misleading language in an agreement is relevant to procedural, and not
substantive, unconscionability,” and “[p]rocedural unconscionability typically does not, by itself,
render an arbitration agreement unenforceable.” Harrington, 602 F.3d at 125 (internal quotation
marks, brackets, and citations omitted).
C. Adhesion
Plaintiff next suggests that the lease agreement is a contract of adhesion and therefore
“necessarily involve[s] indicia of procedural unconscionability.” Pl. Mem. at 9. As noted above,
though, procedural unconscionability, even if demonstrated, is insufficient by itself to invalidate
an agreement to arbitrate.
In any event, the lease agreement at issue here is not unenforceable as a contract of
adhesion. Under New Jersey law, “the essential nature of a contract of adhesion is that it is
presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without
opportunity for the ‘adhering’ party to negotiate except perhaps on a few particulars.” Rudbart
v. North Jersey Dist. Water Supply Comm’n., 127 N.J. 344, 353 (1992). Assuming that the lease
agreement was presented to plaintiff on a take-it-or-leave it basis on a pre-printed form and
without the opportunity to negotiate its terms, it does not necessarily follow that its provisions
are unenforceable. Rather, before concluding that an agreement is an unenforceable contract of
adhesion, courts consider not only the take-it-or-leave-it aspect of the contract, but also the
contract’s subject matter, the relative bargaining positions of the parties, the degree of economic
compulsion involved, and the public interests at stake. Id. at 356.
As plaintiff points out, many people need to use a car. A luxury car like the one involved
here, though, is not a consumer necessity. Moreover, there are many competing suppliers of
automobiles, and plaintiff might have selected another dealer if he was unhappy with the terms
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offered to him by Open Road. Thus, plaintiff was not subject to any economic compulsion. See
id. at 356 (pointing out that investors were not under economic pressure to buy notes, and had
the opportunity to choose other equity and debt investments); see also Allianz Ins. Co. v.
Cavagnuolo, 2004 WL 1048243, at *4 (S.D.N.Y. May 7, 2004) (expressing skepticism that an
agreement to lease a Mercedes Benz could constitute an unenforceable contract of adhesion
under New Jersey law because, as here, lessees could have leased or purchased a different
vehicle). Nor are there significant public interests at stake in this case. The terms of the lease
agreement do not, for example, invalidate any legislatively guaranteed rights or otherwise
contravene New Jersey’s public policy. See Cavagnuolo, 2004 WL 1048243, at *4 (finding no
significant public interest involved in automobile lease terms); Rudbart, 127 N.J. at 355-56
(discussing public policy interests compromised by contract that required eviction upon
termination of employment). When these additional considerations are taken into account, it
becomes clear that the lease agreement is not unenforceable as a contract of adhesion.
D. Waiver and Estoppel
In addition to this action, plaintiff brought a separate lawsuit against Open Road, BMW
of North America, and BMW of Morristown in the Supreme Court of the State of New York for
Richmond County. The lawsuit was discontinued without prejudice. Luthmann Affirm. Ex. E,
Docket Entry 18-5. Plaintiff did not name BMW FS as a defendant in that action. Nevertheless,
plaintiff contends that BMW FS waived its right to arbitrate and should be estopped from
seeking arbitration now because the defendants that appeared in the Richmond County action did
not move to compel arbitration.
The lease agreement was assigned to BMW FS coincident with its execution. Lease
Agreement ¶¶ 2, 20. Thus, to the extent plaintiff suggests that BMW FS was assigned the lease
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after Open Road consented to litigate in court, he is mistaken. Plaintiff’s reliance on Babitt v.
Frum, 606 F. Supp. 680 (S.D.N.Y. 1985), is similarly unavailing. While the Court in that case
did state that participation in a court action may be sufficient to waive a right to arbitrate, 606
F.Supp. at 682, its decision in no way suggested that an assignee is bound by an assignor’s
decision, made subsequent to assignment, to participate in a court action rather than invoke an
arbitration clause.
Equitable estoppel is established under New Jersey law when (1) an opposing party
engaged in conduct that induced reliance, and (2) the party invoking estoppel acted or changed
his position to his detriment. Knorr v. Smeal, 178 N.J. 169, 178 (2003). Here, plaintiff elected
not to name BMW FS in his lawsuit against Open Road and the other BMW entities. Thus,
BMW FS did not, and could not, take any action in that lawsuit, much less an action that
constituted a waiver of its right to arbitrate. Moreover, plaintiff has not identified any manner in
which he acted or changed position to his detriment with respect to pursuing his claims against
BMW FS as a result of Open Road’s decision to proceed in court rather than invoke its right to
arbitrate. Accordingly, plaintiff’s waiver and estoppel arguments are without merit.
E. Attorney’s Fees
Defendant asks that this Court award to it the legal fees and costs it incurred as a result of
bringing this motion to compel arbitration. Defendant invokes Paragraph 26 of the lease
agreement, which provides that BMW FS may recover its attorney’s fees and costs. Def. Mem.
at 6-7, Docket Entry 15. Because defendant’s claim for attorney’s fees and costs arises from the
lease agreement, and because the arbitration clause in the lease agreement has been invoked by
defendant and applies to all claims and disputes arising under that agreement—including
disputes over arbitrability—defendant must seek its fees and costs in arbitration and not here.
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F. Stay of Proceedings
Defendant originally sought to have this lawsuit stayed or dismissed. Def. Mem. at 9,
Docket Entry 15. However, as defendant pointed out in a subsequently submitted letter, the
Second Circuit has held that district courts must stay a case and not dismiss it when all of the
claims in the action have been referred to arbitration. Katz v. Cellco Patnership, 794 F.3d 341,
347 (2d Cir. 2015), cert denied ___ U.S. ___, 136 S.Ct. 596 (2015). This case will therefore be
stayed pending the resolution of any ensuing arbitration proceedings.
G. Plaintiff’s Cross-Motion
Plaintiff cross-moves for fees and costs pursuant to 28 U.S.C. § 1927. Luthmann Affirm.
¶ 46. Section 1927 authorizes a fee award when a party “multiplies the proceedings in any case
unreasonably and vexatiously.” Plaintiff has failed to establish any unreasonable or vexatious
conduct by defendant. Accordingly, plaintiff’s cross-motion is denied.
CONCLUSION
For the forgoing reasons, defendant’s motion to compel arbitration is granted.
Defendant’s application for fees and costs is referred to arbitration as well. Plaintiff’s crossmotion for sanctions is denied. This action is stayed pending the outcome of the arbitration
proceedings. Counsel for defendant shall submit a letter reporting on the status of the arbitration
proceedings once they have been concluded or by June 1, 2016, whichever shall first occur.
SO ORDERED.
/s/
STEVEN M. GOLD
United States Magistrate Judge
Brooklyn, New York
January 21, 2016
U:\KJ 2014-15\Love v. BMW 15-CV-124\Compel Arbitration Final.docx
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