Moss v. BMO Harris Bank, N.A. et al
Filing
103
ORDER granting 94 Motion to Vacate. For the reasons set forth herein, the Court concludes that plaintiff cannot be compelled to arbitrate her claims against Bay Cities Bank and First Premier Bank. Accordingly, the motion for relief from the Court's June 9, 2014 Order is granted, and the stay of plaintiff's claims against Bay Cities Bank and First Premier Bank is hereby lifted. SO ORDERED. Ordered by Judge Joseph F. Bianco on 7/16/2015. (Moe, Alison)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 13-CV-5438 (JFB) (GRB)
_____________________
DEBORAH MOSS AND WILLIAM HILLICK,
ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED,
Plaintiffs,
VERSUS
BMO HARRIS BANK, N.A., FIRST PREMIER BANK, AND BAY CITIES BANK,
Defendants.
___________________
MEMORANDUM AND ORDER
July 16, 2015
___________________
JOSEPH F. BIANCO, District Judge:
On September 30, 2013, plaintiffs
Deborah Moss and William Hillick
commenced this action on behalf of
themselves and a prospective class, alleging
violations of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. §
1962. By Memorandum and Order dated
June 9, 2014, the Court granted the
defendants’ motions to compel arbitration
and stayed this case pursuant to 9 U.S.C. §
3.
Presently before the Court is plaintiff
Deborah Moss’s motion for relief from that
Order, on the grounds that the forum
designated in the arbitration clause (the
National Arbitration Forum) has now
declined to arbitrate the case, and thus she
cannot arbitrate her claims against Bay
Cities Bank and First Premier Bank
(“defendants”).1 Defendants oppose the
motion, arguing that the Court should
appoint a substitute arbitrator pursuant to 9
U.S.C. § 5.
For the reasons discussed below, the
Court concludes that defendants Bay Cities
Bank and First Premier Bank may no longer
enforce the arbitration provisions against
plaintiff. In short, there is no question here
that the agreed-upon arbitral forum is
unavailable. Under the circumstances of this
case, the arbitration clause cannot be
enforced. Moreover, the Court cannot
salvage the arbitration provision by
designating a substitute forum because the
1
Plaintiff’s claims against BMO Harris
Bank are not at issue in this motion, because
those claims are governed by an arbitration
clause that designates a different arbitration
forum. Plaintiff William Hillick does not
join in the present motion.
misrepresentation . . . including
disputes regarding the matters
subject to arbitration, or otherwise,
shall be resolved by binding
individual (and not joint) arbitration
by and under the Code of Procedure
of the National Arbitration Forum
(“NAF”) in effect at the time the
claim is filed.
process for naming an arbitrator has not
“lapsed” within the meaning of the Federal
Arbitration Act, 9 U.S.C. § 5. The Court
acknowledges that some circuit courts
presented with this issue have reached a
different conclusion, and defendants have
forcefully argued that this Court should
adopt the reasoning of those decisions.
However, this Court is bound to follow
Second Circuit precedent, and the Court
concludes that In re Salomon Shareholders’
Derivative Litig., 68 F.3d 554, 560-61 (2d
Cir. 1995), resolves this issue in plaintiff’s
favor. Accordingly, the Court vacates the
June 9, 2014 Order, insofar as it compelled
Moss to arbitrate her claims against Bay
Cities Bank and First Premier Bank.
(Pl. Ex. A, ECF No. 94-1 at 20.) The
following notice is printed directly beneath
the arbitration provision: “NOTICE: YOU
AND WE WOULD HAVE HAD A RIGHT
OR OPPORTUNITY TO LITIGATE
DISPUTES THROUGH A COURT AND
HAVE A JUDGE OR JURY DECIDE THE
DISPUTES
BUT
HAVE
AGREED
INSTEAD TO RESOLVE DISPUTES
THROUGH BINDING ARBITRATION.”
(Id.)
I. BACKGROUND
This action was commenced on
September 30, 2013. On February 3, 2014,
defendants filed separate motions to compel
arbitration, which the Court granted on June
9, 2014. The Court assumes familiarity with
the June 9, 2014 Order, which discussed at
length the factual and procedural
background of this case. Relevant here is the
arbitration provision contained in identical
form in each of the loan agreements (the
“SFS Loan Agreements”) at issue in this
case. The arbitration clause states:
Following the Court’s decision granting
the defendants’ motions to compel
arbitration,
plaintiff
Deborah
Moss
submitted her claims to the National
Arbitration Forum (“NAF”). On January 30,
2015, Moss received a letter from the NAF,
which stated:
Please be advised that we are no
longer able to accept arbitration
claims involving consumers pursuant
to a Consent Judgment entered in
Hennepin County District Court in
July 2009 between the Minnesota
Attorney General and the National
Arbitration Forum.
You and we agree that any and all
claims, disputes or controversies
between you and us, any claim by
either of us against the other . . . and
any claim arising from or relating to
your application for this loan,
regarding this loan or any other loan
you previously or may later obtain
from us, this Note, this agreement to
arbitrate all disputes, your agreement
not to bring, join or participate in
class actions, regarding collection of
the loan, alleging fraud or
(Pl. Ex. B, ECF No. 94-1 at 103).
On February 13, 2014, Moss filed a
motion to vacate the June 9, 2014 Order, on
the grounds that the NAF—the forum
designated in the SFS Loan Agreements—
declined to arbitrate the case. The parties do
2
reconsideration. Image Processing Techs.,
LLC v. Canon Inc., No. 10-CV-3867 (SJF)
(ETB), 2012 U.S. Dist. LEXIS 9479, at *4
(E.D.N.Y. Jan. 26, 2012) (citing Church of
Scientology Int’l v. Time Warner, Inc., No.
02 Civ. 3024 (PKL), 1997 U.S. Dist. LEXIS
12839, at *2 (S.D.N.Y. Aug. 27, 1997)).
That is because the Court cannot have
overlooked decisions or data that were never
presented to the court in the first instance.
not dispute that the NAF is unavailable as an
arbitral forum.
Defendants opposed the motion on
March 2, 2015, and Moss submitted her
reply on March 9, 2015. The Court heard
oral argument on May 21, 2015. (See
Transcript, ECF No. 102.) This matter is
fully submitted, and the Court has carefully
considered the applicable law and the
parties’ arguments.
A. Procedural Viability of the Motion
Here, plaintiff’s motion arises from the
NAF’s decision not to arbitrate the case,
which occurred after the original motion was
decided. Thus, Moss argues that she could
not have presented this argument in
opposition to the original motion, which
makes it appropriate for her to raise this
issue now. Defendants counter that the NAF
has been barred from hearing consumer
disputes since 2009, and that Moss’s counsel
knew this at the time the original motion
was briefed. As evidence of plaintiff’s
knowledge, defendants note that plaintiff’s
briefing in connection with the original
motion cited cases that expressly addressed
the consent decree that renders the NAF
unavailable to hear consumer disputes.
Therefore, according to defendants, plaintiff
could have raised this issue while the
original motion was argued, and her failure
to do so precludes her from rearguing the
motion to compel arbitration.
Defendants argue that Moss’s motion is
essentially a motion for reconsideration of
the Court’s initial ruling compelling
arbitration. A motion for reconsideration is
appropriate when a party can point to
“controlling decisions or data that the court
overlooked—matters, in other words, that
might reasonably be expected to alter the
conclusion reached by the court.” Shrader v.
CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir.
1995). Moreover, a party may not raise an
argument for the first time in a motion for
Although it would have been perhaps a
better practice for Moss’s counsel to have
apprised the Court of the NAF’s
unavailability at the time the Court
compelled arbitration, it is equally true that
defendants were aware of this issue at the
time they moved to compel arbitration.
Despite this knowledge, defendants failed to
notify the Court that they were seeking to
compel arbitration before an unavailable
forum. Thus, it appears that both sides made
a strategic decision not to raise this issue
II. DISCUSSION
Although there is no dispute that the
NAF is unavailable as an arbitral forum,
defendants oppose the motion on two
grounds. First, defendants argue that
plaintiff was aware, at the time the motion to
compel arbitration was originally argued,
that the NAF was barred by a consent decree
from hearing this case. Defendants argue
that plaintiff strategically elected not to raise
this issue in the original briefing, and that
plaintiff is therefore precluded from
asserting this argument at this juncture.
Second, the defendants argue that 9 U.S.C. §
5 permits the Court to name a substitute
arbitration forum under these circumstances.
The Court addresses each of these
arguments in turn.
3
earlier. In any event, plaintiff correctly
points out the consent decree only bars the
NAF from hearing consumer disputes, and
Moss could not have been certain that the
NAF would categorize her claims as a
consumer dispute until she submitted her
case for arbitration.2 Because the NAF did
not formally decline to arbitrate the case
until well after the Court rendered a decision
on the initial motion to compel arbitration,
the Court views the NAF’s decision as a
changed circumstance that warrants renewed
consideration of the parties’ duty to arbitrate
this case.
The Federal Arbitration Act (“FAA”)
requires courts to enforce private
agreements to arbitrate. See 9 U.S.C. § 2.
“While the FAA expresses a strong federal
policy in favor of arbitration, the purpose of
Congress in enacting the FAA ‘was to make
arbitration agreements as enforceable as
other contracts, but not more so.’” Cap
Gemini Ernst & Young v. Nackel, 346 F.3d
360, 364 (2d Cir. 2003) (quoting Prima
Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n.12 (1967)) (emphasis in
original). Thus, although the FAA creates a
presumption in favor of arbitration, “that
presumption does not apply to the threshold
issue of whether the parties agreed to
arbitrate at all, which is strictly a matter of
consent, and determined based on principles
of contract law.” Crewe v. Rich Dad Educ.,
884 F. Supp. 2d 60, 70 (S.D.N.Y. 2012)
(internal quotations omitted). When
interpreting an arbitration provision, courts
have held that the unavailability of a
designated arbitration forum will render an
arbitration provision unenforceable, if the
language of the contract makes clear that the
designated forum was intended to be the
“exclusive” arbitral forum. See Wendrovsky
v. Chase Paymentech, No. 12 Civ. 0704
(AJN), 2012 U.S. Dist. LEXIS 150866, at
*26
(S.D.N.Y.
Oct.
15,
2012)
(“Unavailability of a selected arbitrable
forum precludes enforcement of an
arbitration provision if the unavailable
forum is the ‘exclusive’ one chosen for
arbitration under the contract.”). Thus, the
Court must interpret the arbitration
agreement here to determine whether the
parties agreed to proceed before the NAF as
the exclusive arbitral forum.
Moreover, as a practical matter, the
Court’s previous ruling directed the parties
to arbitrate this case in accordance with the
arbitration clause, which the parties
obviously cannot now do, because that
clause designated a forum that is no longer
available. Thus, it is appropriate for Moss to
seek relief.
B. Merits of the Motion
Turning to the substance of the motion,
the Court again emphasizes that there is no
dispute here that the arbitration provision
identifies the NAF as the arbitral forum; nor
is there any dispute that the NAF cannot
arbitrate this case. Instead, the present
motion requires the Court to determine
whether to appoint a substitute arbitration
forum (as defendants urge), or whether the
unavailability of the NAF renders the entire
arbitration clause unenforceable (as Moss
asserts).
To determine the parties’ intent, the
Court turns to the text of the arbitration
clause. The agreement designates the NAF
as the selected arbitration forum, and does
not appear to contemplate arbitration before
2
However, it is not lost upon the Court that plaintiff
submitted her claim to the NAF with the following
heading, in bold: “Notice of intention to arbitrate
consumer debt claim.” In fact, the two-page letter
uses the term “consumer” no fewer than four times to
describe the plaintiff’s claims.
4
any other forum. The clause simply states
that “You and we agree that any and all
claims, disputes or controversies between
you and us . . . shall be resolved by binding
individual (and not joint) arbitration by and
under the Code of Procedure of the National
Arbitration Forum (“NAF”) in effect at the
time the claim is filed.” The clause is silent
as to how the parties should proceed in the
event that the NAF is unavailable to resolve
the dispute.3
Section 5 does not authorize such a
substitution when private parties agree to
arbitrate exclusively before a specific forum,
which subsequently becomes unavailable.
Id. at 560 (“We are not unaware that some
district courts have appointed new
arbitrators when the named arbitrators could
not or would not proceed. . . . None of these
cases, however, stands for the proposition
that district courts may use § 5 to
circumvent the parties’ designation of an
exclusive arbitral forum.”). Thus, the
holding of In re Salomon is that an
arbitration provision cannot be enforced if
the parties exclusively agreed upon an
arbitral forum, and that forum is no longer
available. Moss argues that this is the exact
situation in which she finds herself, and that
she cannot be compelled to arbitrate her
claims. The Court agrees.
In support of Moss’s argument that she
did not agree to arbitrate her claim before
any forum besides the NAF, plaintiff chiefly
relies upon the Second Circuit’s decision in
In re Salomon Shareholders’ Derivative
Litig., 68 F.3d 554, 560-61 (2d Cir. 1995).
That case involved a shareholder derivative
suit against several former executives of
Salomon Brothers, who sought to invoke an
arbitration provision in their employment
agreement stating that any disputes with
their employer would be decided by the
New York Stock Exchange (“NYSE”). Id. at
556. The NYSE declined to resolve the
dispute, and the Second Circuit held that the
plaintiffs could not be compelled to arbitrate
their claims before a different forum. Id. at
557-59. The Court reasoned that the plain
text of the agreement, which designated the
NYSE as the arbitral forum, reflected an
intent to arbitrate exclusively before the
NYSE. Id. Although Section 5 of the FAA
(9 U.S.C. § 5) permits courts to appoint a
substitute arbitrator when there is “a lapse in
the naming of an arbitrator or arbitrators or
umpire,” the Second Circuit held that
The defendants’ efforts to distinguish In
re Solomon are not persuasive. Defendants
assert that the ruling in In re Salomon
depended upon two primary factors that are
not present here: (1) the defendants’
considerable delay in seeking to compel
arbitration in that case, and (2) the
unsuitability of the NYSE for the resolution
of a complex shareholder derivative action.
In re Salomon does not bear this
interpretation, however, because the Second
Circuit repeatedly emphasized that its ruling
was based upon a textual interpretation of
the parties’ agreement. See id. at 558 (“We
look, then, to the text of the arbitration
agreements themselves.”). To apply that
textual approach here, the Court has
compared the agreement in In re Salomon to
the SFS Loan Agreements, and finds no
meaningful distinction. There, as here, the
parties agreed to resolve all disputes before
a specific forum.4 Neither clause explicitly
3
In this respect, this case is distinct from Wendrovsky
v. Chase Paymentech, No. 12 Civ. 0704 (AJN), 2012
U.S. Dist. LEXIS 150866, at *27 (S.D.N.Y. Oct. 15,
2012) and Crewe v. Rich Dad Educ., 884 F. Supp. 2d
60, 77 (S.D.N.Y. 2012), which both addressed
agreements containing express assent to arbitration
before a substitute forum if the NAF became
unavailable.
4
The text of the agreement in In re Salomon was as
follows: “any controversy between [the defendant]
5
concludes that these terms naturally must be
read together. Together, this disclaimer
clearly reads as an overriding warning to
Moss that she is agreeing to arbitrate her
claims according to the terms of the
arbitration clause, which designates the NAF
as the selected forum. Thus, nothing about
the disclaimer alters the Court’s conclusion
that Moss agreed to arbitrate her claims
exclusively before the NAF.
states that this forum is the “only” or
“exclusive” forum, and neither clause
provides guidance as to how to proceed if
the designated forum is unavailable. As
such, it appears that In re Salomon holds
that no such language is required to
transform an agreement to arbitrate a claim
before a specific forum into an agreement to
arbitrate a claim exclusively before that
forum. In other words, the language of the
agreements simply states an intention to
arbitrate before a specific forum, and does
not express any intention to arbitrate
generally, or arbitrate before a substitute
forum. When the text of an arbitration
agreement evinces an intent to arbitrate
solely before a specific forum, In re
Salomon tells us that a court may not
override the parties’ agreement and appoint
a substitute arbitrator.
The Fifth Circuit has examined a nearly
identical agreement to arbitrate before the
NAF, and concluded that the unavailability
of the NAF rendered the arbitration clause
unenforceable. See Ranzy v. Tijerina, 393
Fed. Appx. 174, 176 (5th Cir. 2010) (“Here,
the arbitration agreement plainly states that
Ranzy ‘shall’ submit all claims to the NAF
for arbitration and that the procedural rules
of the NAF ‘shall’ govern arbitration. Put
differently, the parties explicitly agreed that
the NAF shall be the exclusive forum for
arbitrating disputes.”). In fact, the disputed
arbitration agreement in Ranzy contained the
exact same disclaimer that is in the
agreement Moss signed. See Ranzy v.
Tijerina, No. 09-CV-3334, ECF No. 15-1 at
2 (S.D. Tex.). Most importantly, the Fifth
Circuit held that “we also find this case to be
indistinguishable from In re Salomon.” This
Court agrees, and likewise concludes that In
re Salomon controls here.5
Defendants argue that the agreement
contains a separate disclaimer that conveys
the parties’ overriding intent to arbitrate
their disputes, regardless of the forum. That
clause reads: “NOTICE: YOU AND WE
WOULD HAVE HAD A RIGHT OR
OPPORTUNITY
TO
LITIGATE
DISPUTES THROUGH A COURT AND
HAVE A JUDGE OR JURY DECIDE THE
DISPUTES
BUT
HAVE
AGREED
INSTEAD TO RESOLVE DISPUTES
THROUGH BINDING ARBITRATION.”
As an initial matter, the Court disagrees that
this notice is an independent contractual
clause, because the clause is located at the
bottom of the arbitration provision itself. As
such, the Court views this clause in tandem
with the larger arbitration clause, and
5
In so holding, the Court rejects defendants’
contention that this case is more closely akin to
Erving v. Virginia Squires Basketball Club, 468 F.2d
1064 (2d Cir. 1972) and Astra Footwear v. Harwyn
Int’l, Inc., 442 F. Supp. 907, 910 (S.D.N.Y. 1978),
aff’d, 578 F.2d 1366 (2d Cir. 1978), both of which
permitted the substitution of an arbitrator. Both of
these cases were distinguished by In re Salomon. The
Second Circuit held that Astra Footwear was
dissimilar because the naming of a specific arbitral
forum in that case was not central to the parties’
agreement. In re Salomon, 68 F.3d at 561. Likewise,
the Second Circuit distinguished Erving on the
grounds that the arbitrator’s ethical conflict in that
and any member or member organization arising out
of [the defendant's] employment by and with such
member or member organization shall be settled by
arbitration at the instance of any such party in
accordance with the Constitution and rules then
obtaining of the [NYSE].” Id. at 558.
6
Defendants offer no meaningful
argument that Ranzy is distinct. Instead,
defendants urge the Court to follow Khan v.
Dell, Inc., 669 F.3d 350 (3d Cir. 2012) and
Green v. U.S. Cash Advance Ill., LLC, 724
F.3d 787 (7th Cir. 2013), which both
determined that it was appropriate to appoint
a substitute arbitration forum to salvage an
arbitration provision that named the NAF as
the arbitration forum. However, Khan and
Green both expressly rejected the Second
Circuit’s reasoning of In re Salomon, a
decision that this Court is not at liberty to
make. See Khan, 669 F.3d at 356 (“We find
In re Salomon unpersuasive.”); Green, 724
F.3d at 790-92 (“We are skeptical of
decisions that allow a court to declare a
particular aspect of an arbitration clause
‘integral’ and on that account scuttle
arbitration itself.”). Although other circuits
may disagree with In re Salomon, their
disagreement makes it all the more clear that
In re Salomon is applicable here, and this
Court is bound to follow Second Circuit
precedent. Accordingly, the Court declines
to follow Green and Khan.
In re Salomon, the unavailability of the
designated arbitration forum renders the
entire arbitration agreement void. Therefore,
Moss cannot be compelled to arbitrate her
claims.
III. CONCLUSION
For the reasons set forth herein, the
Court concludes that plaintiff cannot be
compelled to arbitrate her claims against
Bay Cities Bank and First Premier Bank.
Accordingly, the motion for relief from the
Court’s June 9, 2014 Order is granted, and
the stay of plaintiff’s claims against Bay
Cities Bank and First Premier Bank is
hereby lifted.
SO ORDERED.
______________________
JOSEPH F. BIANCO
United States District Judge
In sum, this Court concludes that the
agreement to arbitrate before the NAF was
integral to the arbitration provision. Under
Dated: July 16, 2015
Central Islip, NY
***
case presented a true “lapse” within the meaning of
Section 5. Although the distinctions In re Salomon
drew may be fine indeed, this Court emphasizes,
again, that it is bound to follow Second Circuit
precedent. There can be no real dispute that In re
Salomon is controlling precedent here, because the
circumstances of this case are virtually identical.
Here, the Court granted the motion to compel
arbitration, the case was referred to the NAF, and the
NAF declined to resolve the dispute. This is precisely
what occurred in In re Salomon, where the district
court granted the motion to compel arbitration, the
case was referred to the NYSE, and the NYSE
declined to hear the case. Thus, the Court cannot
conclude that there has been a “lapse” here such that
the Court is authorized to appoint a substitute
arbitrator.
Plaintiffs are represented by Darren T.
Kaplan, Chitwood Harley Harnes LLP, 11
Grace Avenue, Suite 306, Great Neck, NY
11021; Jeffrey Ostrow, Kopelowitz Ostrow
P.A., 200 SW 1st Avenue, Fort Lauderdale,
FL 33301; Hassan Zavareei and Jeffrey D.
Kaliel, Tycko & Zavareei LLP, 2000 L
Street NW, Suite 808, Washington, DC
20036; Norman Siegel and Stephen N. Six,
Stueve Siegel Hanson LLP, 460 Nichols
Road, Suite 200, Kansas City, MO 64112.
Defendant BMO is represented by Therese
Craparo, Debra Bogo-Ernst, Kevin Ranlett,
Lucia Nale, and Matthew Sostrin, Mayer
7
Brown LLP, 71 S Wacker Drive, Chicago,
IL 60606; Defendant First Premier is
represented by David Todd Feuerstein,
Herrick, Feinstein LLP, 2 Park Avenue,
New York, NY 10016, and John C. Elkman,
Bryan Freeman, and James P. McCarthy,
Lindquist & Vennum, 4200 Ids Center, 80
South 8th Street, Minneapolis, MN 55402;
Defendant Bay Cities is represented by Eric
Rieder, Ann W. Ferebee, Courtney Janae
Peterson, and Michael P. Carey, Bryan Cave
LLP, 1201 W Peachtree Street NW, 14th
Floor, Atlanta, GA 30309.
8
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