Moss v. BMO Harris Bank, N.A. et al
Filing
91
ORDER terminating 48 Motion to Dismiss; granting 50 Motion to Compel; granting 53 Motion to Compel; terminating 56 Motion to Dismiss; terminating 58 Motion to Dismiss; granting 60 Motion to Compel; terminating 64 Motion to Dismis s. For the reasons stated herein, the motions to compel arbitration are granted, the case is stayed pending the outcome of arbitration, and the Court does not reach the motions to dismiss. SO ORDERED. Ordered by Judge Joseph F. Bianco on 6/9/2014. (Lamb, Conor)
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
June 9, 2014
___________________
JOSEPH F. BIANCO, District Judge:
Plaintiffs Deborah Moss and William
Hillick bring this action alleging violations
of the Racketeer Influenced and Corrupt
Organizations Act,1 18 U.S.C. § 1962, on
behalf of themselves and a prospective class
which they define as “[a]ll natural persons
within the state of New York whose
accounts were debited via an ACH entry
originated by either BMO Harris Bank,
N.A., First Premier Bank, or Bay Cities
Bank as an ODFI on behalf of an Illegal
Online Payday Lender in repayment of a
loan which was illegal under New York
law.” (Am. Compl. ¶ 109.)
In short, this action involves civil RICO
claims based on defendants’ alleged role in
1
The Amended Complaint also includes various
state-law claims, the nature of which do not affect the
Court’s analysis of the motions to compel arbitration.
facilitating high-interest payday loans,2
which have been outlawed in several states
but remain available from online lenders.
(Am. Compl. ¶¶ 4-5.) The two named
plaintiffs are parties to five loan agreements
with various online lenders (“the lenders”),
and each agreement contains an arbitration
clause. None of the arbitration clauses
explicitly mentions defendants by name, nor
are defendants signatories to any of the loan
agreements. In other words, plaintiffs have
elected not to sue their contractual counterparties, the lenders, but instead have sued
defendants, who facilitated the funds
transfers connected with plaintiff’s loans.
Although defendants are not parties to
the loan agreements, the agreements reflect
2
The Amended Complaint defines a payday loan as
“a short-term (typically a matter of weeks) high fee,
closed-end loan, traditionally made to consumers to
provide funds in anticipation of an upcoming
paycheck.” (Am. Compl. ¶ 27.)
their involvement in the loans in two ways.
Each agreement contains a provision
describing the function that defendants
ultimately performed: an authorization
section in which plaintiffs permitted the
lender to initiate electronic funds transfers
from plaintiffs’ bank accounts. In addition,
the arbitration provisions in each agreement
state that plaintiffs must arbitrate not only
with the lenders, but also with the lenders’
“agents” and “servicers.” Defendants argue
that they are agents and servicers within the
meaning of the arbitration provisions, and
that therefore plaintiffs should be estopped
from avoiding arbitration with them.
Plaintiffs argue that the arbitration
provisions did not place them on notice that
they were consenting to arbitrate with
defendants.
I. BACKGROUND
A. Factual Background
The following facts are taken from the
complaint. The Court assumes these facts to
be true for the purpose of deciding this
motion, and construes them in the light most
favorable to plaintiffs, the non-moving
party.
This case arises out of five online
payday loans.
Moss applied for and
received three such loans: one for $350 on
June 17, 2010, one for $400 on October 15,
2010, and one for $1,000 on May 8, 2013.
(Am. Compl. ¶¶ 87, 90, 94.) Hillick applied
for two online payday loans: one for $550
on September 5, 2012, and one for $750 on
June 1, 2013. (Id. ¶¶ 99, 104.) Each of
these loans was made pursuant to a written
agreement
containing
an
arbitration
provision and an authorization for the lender
to initiate electronic funds transfers.4 Those
provisions are discussed in more detail
below. Plaintiffs allege that the interest rate
on these loans was 30%, with annual interest
rates between 438% and 780%. (Id. ¶¶ 88,
91-92, 95-96, 100-01, 105-06.)
For the reasons discussed below, the
Court concludes that defendants may
enforce the arbitration provisions against
plaintiffs, because the broad arbitration
provisions and the specific authorizations of
electronic funds transfers made it
foreseeable that entities like defendants, who
are involved in those transfers, would be
among the third parties with whom plaintiffs
agreed to arbitrate.
Accordingly, the
motions to compel arbitration are granted,
and this case is stayed. The Court does not
reach the motions to dismiss at this
juncture.3
The electronic funds transfers involved
in these five loans were performed using the
Automated Clearing House (“ACH”)
network, “a processing system in which
financial institutions accumulate ACH
3
The Court is aware that defendants and counsel for
plaintiffs are involved in similar cases around the
country, and defendants have cited one case in which
another federal court likewise granted motions to
compel arbitration. See Elder v. BMO Harris Bank,
Civil No.-JFM-13-3043, 2014 WL 1429334 (D. Md.
Apr. 11, 2014); but see Dillon v. BMO Harris Bank,
N.A., No. 1:13-CV-897, 2014 WL 911950, at *2
(M.D.N.C. Mar. 10, 2014) (denying motions to
compel arbitration because of questions concerning
whether loan agreements presented were the same
ones referred to in the complaint).
4
Plaintiffs argue that the presence of the
authorizations creates a question of fact, specifically
whether the loans were illegally conditioned on
plaintiffs’ authorizing the fund transfers. Plaintiffs
cite no authority in support of that argument, nor do
they identify any fact or evidence suggesting that the
loans were so conditioned. Nothing on the face of
the authorizations suggests that the loans were
illegally conditioned upon them, and thus the Court
concludes that the authorizations raise no question of
fact.
2
Generale Energy Corp., No. 11 Civ.
6705(AJN), 2012 WL 3577833, at *1
(S.D.N.Y. Aug. 17, 2012) (citing DuBois v.
Macy’s East Inc., 338 F. App’x 32, 33 (2d
Cir. 2009)).
However, when a court
considers the motion to compel before
discovery has taken place, and in the context
of a motion to dismiss, it treats the
allegations in plaintiffs’ complaint as true.
Id. (citing Guyden v. Aetna, Inc., 544 F.3d
376, 379 n.1 (2d Cir. 2008)); see also Moses
H. Cone Mem. Hosp. v. Mercury Const.
Corp., 460 U.S. 1, 23 (1983) (noting
“Congress’s clear intent, in the Arbitration
Act, to move the parties to an arbitrable
dispute out of court and into arbitration as
quickly and easily as possible. . . . with only
restricted inquiry into factual issues.”).
transactions throughout the day for later
batch processing.”
(Id. ¶ 35.)
The
transactions are the debits and credits
necessary for an exchange between two
parties, and they are performed by entities
known as Originating Depository Financial
Institutions (“ODFIs”), which are banks
belonging to the ACH network who transmit
the funds from one party to the other party’s
bank. (Id. ¶¶ 36-40.) The organization that
provides governing rules for the ACH
network refers to ODFIs as “the gatekeepers
of the ACH Network.” (Id. ¶ 45.)
Defendants are the ODFIs that
originated the five loan transactions in this
case. (Id. ¶¶ 89 (First Premier); 93 (BMO);
97 (Bay Cities); 103 (BMO); 107 (BMO).)
Plaintiffs allege that defendants received
fees for performing the origination of these
loans, and that they are able to charge the
lenders higher fees than for other ACH
transactions, because of the risks inherent in
online payday lending. (Id. ¶¶ 79-80; 98;
108.)
The following discussion is based upon
the allegations in the Amended Complaint,
as well as the text of the five loan
agreements in this case. Those agreements
are not attached to the Amended Complaint,
but they are referred to throughout,
including in allegations that mention the
precise dates and amounts reflected in the
loan agreements. (See Am. Compl. ¶¶ 87,
90, 94, 99, 104.) Therefore, the Court
concludes that the five loan agreements are
integral to the Amended Complaint, and
proper for consideration on these motions.
See Chambers v. Time Warner, Inc., 282
F.3d 147, 152-53 (2d Cir. 2002) (“[T]he
complaint is deemed to include any written
instrument . . . incorporated in it by
reference . . . [or] where the complaint relies
heavily upon [the instrument’s] terms and
effect, which renders the document
‘integral’ to the complaint.”). No party
disputes that conclusion; in fact, each has
submitted the loan agreements as exhibits
during the litigation of these motions.
B. Procedural History
Plaintiffs filed the complaint in this
action on September 30, 2013, and filed an
Amended Complaint on January 3, 2014.
On February 3, 2014, defendants filed
separate motions to compel arbitration and
motions to dismiss. Plaintiffs responded in
opposition on March 3, 2014, and
defendants replied in further support of their
motions on March 17, 2014. The Court
heard oral argument on April 9, 2014.
II. STANDARD OF REVIEW
“In a typical motion to compel
arbitration, the Court would apply a standard
similar to that of a summary judgment
motion . . . and some discovery may be
allowable or necessary.” Lismore v. Societe
3
action.5 Nonetheless, the Second Circuit has
described the “basic doctrine” in this
situation as follows:
III. DISCUSSION
The Second Circuit has observed that “it
is difficult to overstate the strong federal
policy in favor of arbitration, and it is a
policy we have often and emphatically
applied.” Arciniaga v. Gen. Motors Corp.,
460 F.3d 231, 234 (2d Cir. 2006) (internal
quotation marks omitted). “‘Having made
the bargain to arbitrate, the party should be
held to it unless Congress itself has evinced
an intention to preclude a waiver of judicial
remedies for the statutory rights at issue.’”
Id. at 235 (quoting Mitsubishi Motors Corp.
v. Soler Chrysler–Plymouth, Inc., 473 U.S.
614, 628 (1985)). Although plaintiffs argue
that the strong federal policy in favor of
arbitration does not apply here, because this
case does not involve the scope of an
arbitration clause, but instead involves
which parties are bound to it, the Second
Circuit has noted these same “bedrock
principles of arbitration law” even in
estoppel cases. See Ross v. Am. Exp. Co.,
547 F.3d 137, 142 (2d Cir. 2008).
Our cases have recognized that
under principles of estoppel, a nonsignatory
to
an
arbitration
agreement may compel a signatory
to that agreement to arbitrate a
dispute where a careful review of
the relationship among the parties,
the contracts they signed . . . , and
the issues that had arisen among
them discloses that the issues the
non-signatory is seeking to resolve
in arbitration are intertwined with
the agreement that the estopped
party has signed.
Ross, 547 F.3d at 144 (internal quotation
marks and further citation omitted).6
5
Bay Cities argues that the very question of
plaintiffs’ obligation to arbitrate with the nonsignatory defendants should be decided by the
arbitrator. However, in the primary case on which
Bay Cities relies, Contec Corp. v. Remote Solution,
Co., Ltd., the Second Circuit still employed the same
intertwined-ness test used herein to determine if the
parties’ relationship was close enough to justify
compelling arbitration, even of the question of
arbitrability. See 398 F.3d 205, 209 (2d Cir. 2005)
(“In order to decide whether arbitration of
arbitrability is appropriate, a court must first
determine whether the parties have a sufficient
relationship to each other and to the rights created
under the agreement. . . . A useful benchmark for
relational sufficiency can be found in our estoppel
decision in Choctaw . . . where we held that the
signatory to an arbitration agreement is estopped
from avoiding arbitration with a non-signatory when
the issues the non-signatory is seeking to resolve in
arbitration are intertwined with the agreement that the
estopped party has signed.” (internal quotation marks
and citation omitted)). Thus, the Court must still
determine whether plaintiffs are estopped from
avoiding arbitration, even if arbitrability must be
determined by the arbitrator.
Still, plaintiffs are correct that
“[a]rbitration . . . is a matter of consent, not
coercion.” Volt Info. Sciences, Inc. v. Bd. of
Trs. of Leland Stanford Jr. Univ., 489 U.S.
468, 479 (1989). Thus, “[w]hile 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.” JLM Indus.,
Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 171
(2d Cir. 2004) (internal quotation marks and
citations omitted) (emphasis in original).
Here, of course, plaintiffs did not
contract with defendants—they contracted
with the lenders, who are not parties to this
4
The Second Circuit has been careful to
note that its estoppel doctrine does not mean
that “whenever a relationship of any kind
may be found among the parties to a dispute
and their dispute deals with the subject
matter of an arbitration contract made by
one of them, that party will be estopped
from refusing to arbitrate.” Sokol Holdings,
Inc. v. BMB Munai, Inc., 542 F.3d 354, 359
(2d Cir. 2008). In Sokol and in Ross, the
Second Circuit rejected estoppel claims by
non-signatories
seeking
to
compel
arbitration because the non-signatory was
simply too remote from the contract; in
other words, when the signatory consented
to arbitrate with one party, it could not have
foreseen the involvement of the nonsignatory, and therefore could not be said to
have consented to arbitrate with the nonsignatory. See Sokol, 542 F.3d at 362
(rejecting claim of estoppel where nonsignatory’s only relationship to contract was
as a third-party wrongdoer); Ross, 547 F.3d
at 148 (“[P]laintiffs have it precisely correct
when they assert that there [was] no reason
for someone signing up for a Chase Visa
card, for example, to believe that he (or she)
was entering into any kind of relationship
with [Amex].” (internal quotation marks
omitted and alterations in original)).
6
In Arthur Andersen LLP v. Carlisle, the Supreme
Court held that state contract law provides the
“traditional principles . . . [that] allow a contract to be
enforced by or against nonparties to the contract
through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party
beneficiary theories, waiver and estoppel.” 556 U.S.
624, 631 (2009). Based on that holding, plaintiffs
suggest that the relevant state law in this case would
be the law of the tribal and foreign nations in which
the lenders are based, and which are mentioned in the
loan agreements. However, as the proponents of
tribal and foreign law, plaintiffs would have to show
that it conflicts with New York law on the question
of estoppel. See Dornberger v. Metro. Life Ins. Co.,
961 F. Supp. 506, 530 (S.D.N.Y. 1997) (assigning
burden to party invoking foreign law and noting “[i]t
has been held that a court may choose to apply the
law of the forum state where the parties have not
adequately advised the court of foreign law” (citing
Gehling v. St. George Univ. Sch. of Med., 698 F.
Supp. 419, 422 (E.D.N.Y. 1988))). Plaintiffs have not
attempted to make that showing; in fact, they
explicitly “take no position on the applicability of
[foreign and tribal] law,” other than to note that
defendants did not address it in their motions. (Pl.
Mem. Opp. to BMO at 10; Pl. Mem. Opp. to Bay
Cities at 10; Pl. Mem. Opp. to First Premier at 10.)
Simply raising the choice-of-law question is
insufficient, especially since the loan agreements
appear to exempt the arbitration provisions from the
application of tribal or foreign law. (See Pl. Ex. 1 at
645 (specifying that FAA governs the arbitration
provision and that tribal arbitration law only governs
if a court concludes that the FAA does not apply); Pl.
Ex. 2 at 659 (same); Pl. Ex. 3 at 688 (“This Note
(other than the Arbitration Provision) is governed by
the laws of St. Vincent and the Grenadines.”); Pl. Ex.
4 at 366 (providing for the FAA to govern arbitration,
and for the contract to be governed by federal law
and the unspecified law of the lender’s location); Pl.
Ex. 5 at 413 (same).) Accordingly, the Court has
applied New York law “to the extent it is not
preempted by the Federal Arbitration Act.” Republic
of Iraq v. BNP Paribas USA, 472 F. App’x 11, 13 (2d
Cir. 2012); see also Gov’t Emps. Ins. Co. v. Grand
Med. Supply, Inc., No. 11 Civ. 5339(BMC), 2012
WL 2577577, at *3 (E.D.N.Y. July 4, 2012)
(collecting cases showing that the Second Circuit’s
estoppel decisions are in accordance with New York
law, and noting that “the distinction between federal
law and New York law on this issue appears to be
insignificant”); Belzberg v. Verus Inv. Holdings Inc.,
On the other hand, and in accordance
with the strong federal policy in favor of
arbitration, many cases in this circuit have
accepted claims of estoppel and allowed
non-signatories to compel arbitration. See,
e.g., Ross, 547 F.3d at 144-45 (collecting
cases); In re A2P SMS Antitrust Litig., 972
F. Supp. 2d 465, 479 (S.D.N.Y. 2013)
(compelling
arbitration
where
nonsignatories were explicitly and implicitly
mentioned in contract); Choctaw Generation
21 N.Y.3d 626, 630 (2013) (applying “estoppel
theory, derived from federal case law, to abrogate the
general rule against binding nonsignatories”).
5
Ltd. P’ship v. Am. Home. Assur. Co., 271
F.3d 403, 406-08 (2d Cir. 2001) (compelling
arbitration where non-signatory’s dispute
with signatory to separate contract was
“linked textually” to the separate contract
containing an arbitration provision).7
examine whether: (1) the signatory’s claims
arise under the subject matter of the
underlying agreement, and (2) whether there
is a close relationship between the signatory
and the non-signatory party.” A2P, 972 F.
Supp. 2d at 476 (internal quotation marks
and citations omitted); see also Lismore v.
Societe Generale Energy Corp., No. 11 Civ.
6705(AJN), 2012 WL 3577833, at *7
(S.D.N.Y. Aug. 17, 2012) (collecting cases).
The Court considers each of these
requirements in turn.
Since Ross clarified the “basic doctrine”
quoted above, district courts within this
circuit have formulated “a two-part
intertwined-ness test,8 under which they
(1) Arising Under the Loan Agreements
7
The Court also notes that in JLM, the Second
Circuit cited favorably an Eleventh Circuit case
which applied equitable estoppel because the
plaintiff’s claims made reference to and arose directly
out of a written agreement containing an arbitration
clause. JLM, 387 F.3d at 178 (citing MS Dealer
Serv. Corp. v. Franklin, 177 F.3d 942, 947-48 (11th
Cir. 1999) (“Although Franklin does not allege that
the service contract has been violated or breached in
any way, each of her fraud and conspiracy claims
depends entirely upon her contractual obligation to
pay $990.00 for the service contract.”)); see also
Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 70 (2d
Cir. 2005) (quoting MS Dealer for the same
proposition). Defendants have also cited a New York
Supreme Court case applying the same principle,
based on authority from the Fifth Circuit. See
Hoffman v. Finger Lakes Instrumentation, LLC, 789
N.Y.S.2d 410, 415 (N.Y. Sup. Ct. 2005). Although,
as discussed infra at note 8, the Court disagrees with
defendants that Hoffman provides a separate ground
for estoppel outside of the Second Circuit’s
intertwined-ness test, these cases combine to
demonstrate that a plaintiff’s reliance on a written
agreement in constructing his claims makes it more
likely that he will be estopped from avoiding that
agreement’s arbitration clause.
Although plaintiffs argue that their
causes of action do not arise under the loan
agreements, the Court disagrees. Every one
of plaintiffs’ causes of action requires the
conclusion that the loan agreements are
invalid. (See Am. Compl. ¶¶ 123 (“BMO
has used its role within the ACH Enterprise
to conduct and participate in the collection
of unlawful debts”); 140 (same for First
Premiere); 157 (same for Bay Cities); 169
(“Defendants . . . receipt of money . . . was
improper because the money represented
citation omitted). Defendants have not identified a
higher court in New York which has applied estoppel
on the “misconduct” ground alone, and the Second
Circuit has raised concerns about the application of
estoppel in the context of conspiracy allegations.
Ross, 547 F.3d at 148; see also Butto v. Collecto Inc.,
845 F. Supp. 2d 491, 498 (E.D.N.Y. 2012) (noting
that recent cases “cast doubt on whether concerted
misconduct may even be a sufficient basis for
estoppel”).
In doing so, the Second Circuit
emphasized that the focus of estoppel must remain on
general principles of contract law, and whether “the
totality of the evidence supports an objective
intention to agree to arbitrate.” Id. (quoting Sarhank
Grp. v. Oracle Corp., 404 F.3d 657, 662 (2d Cir.
2005)). Thus, the decision to compel arbitration here
is based on the evidence of plaintiffs’ consent to
arbitrate with defendants, and not merely on
plaintiffs’ allegations of interdependent and
concerted misconduct.
8
To the extent that defendants have argued that
Hoffman—a single New York Supreme Court case—
supports the existence of a separate ground for
estoppel outside of the intertwined-ness test, the
Court disagrees. In addition to the proposition
discussed supra at note 7, Hoffman suggests that
“equitable estoppel applies . . . when the signatory to
the contract containing the arbitration clause raises
allegations of substantially interdependent and
concerted misconduct by both the nonsignatory and
one or more of the signatories to the contract.” 789
N.Y.S.2d at 415 (internal quotation marks and
6
In addition, like in Ross, the goal of the
alleged conspiracy is directly related to the
agreements: otherwise, defendants would
have had no loans to facilitate. Cf. Ross,
547 F.3d at 146 (“It is indisputable that the
subject matter of the dispute between the
parties-the alleged conspiracy between
Amex and the Issuing Banks to violate the
antitrust laws-is related to the subject matter
of the cardholder agreements the plaintiffs
signed with the Issuing Banks. After all, the
goal of the alleged conspiracy was to fix
fees on transactions with foreign enterprises
which the plaintiffs conducted by means of
the credit cards they received as a result of
signing the cardholder agreements.”). This
is not to suggest that simple but-for
causation is all that is required. However,
but-for causation is indicative of common
subject matter. See Birmingham Assocs.
Ltd. v. Abbott Labs., 547 F. Supp. 2d 295,
301 (S.D.N.Y. 2008) (“The plaintiff’s actual
dependence on the underlying contract in
making out the claim against the
nonsignatory defendant is therefore always
the sine qua non of an appropriate situation
for applying equitable estoppel.”) (emphasis
in original and internal quotation marks
omitted). Here, the first prong is satisfied
because the Amended Complaint reveals far
more than a but-for relationship between the
loans and plaintiffs’ claims: the entire case
depends on the contents of the loan
agreements, and in particular whether their
terms are unlawful.
repayment of debts that were illegal and
unenforceable”);
177
(alleging
that
defendants “aided and abetted the . . .
Lenders’ violations of New York civil usury
law”); 185 (“BMO, First Premier and Bay
Cities used their roles as ODFIs to originate
debt entries . . . that were in violation of
state law.”); 196 (“Defendants’ deceptive
business practices include . . . repeatedly
conspiring . . . to charge illegal, usurious,
unconscionable fees for payday loans.”).)
Thus, like in A2P, “plaintiffs’ factual
allegations, alone, indicate that the claims
premised upon these same facts ‘arise from
the subject matter’ of the . . . Agreement.”
972 F. Supp. 2d at 477.
Plaintiffs argue that they could still
pursue their claims against defendants even
if the loan agreements were invalidated, but
that is not a definitive test under this prong.
In the case relied on by plaintiffs for that
argument, Denney v. Jenkins & Gilchrist,
the plaintiffs did not allege that the
underlying agreements were integral to the
fraudulent scheme. 412 F. Supp. 2d 293,
300 (S.D.N.Y. 2005). Here, in contrast,
plaintiffs allege that the illegality of the
underlying agreements, and defendants’
knowledge of it, is what makes defendants
liable for conspiracy.
Therefore, even
though the invalidation of the agreements
would aid, rather than defeat, plaintiffs’
claims, this prong poses a different question:
whether the claims arise from the same
subject matter of the agreements, even if
they are illegal.
(2) Close relationship
The Court concludes that plaintiffs’
claims do arise from the same subject matter
as the loan agreements, in no small part
because the putative class “is premised upon
the relationships entered into through the . . .
Agreement and is a status only conferred to
those who have assented to the terms of that
agreement.” A2P, 972 F. Supp. 2d at 477.
The primary dispute between the parties
concerns the “[t]he second prong of the
equitable estoppel test[:] . . .whether there
exists a sufficiently ‘close relationship’
between the signatory and the non-signatory
who seeks to compel arbitration.” A2P, 972
F. Supp. 2d at 478. This inquiry is highly
“fact-specific,” id., and requires a showing
7
having agreed that agents and servicers
could perform the ACH transactions, it
would be inequitable for plaintiffs to avoid
arbitration with those same agents and
servicers.
that there is “a relationship among the
parties which either supports the conclusion
that [the signatory] had consented to extend
its agreement to the [non-signatory], or,
otherwise put, made it inequitable for [the
signatory] to refuse to arbitrate on the
ground that it had made no agreement with
[the non-signatory].” Sokol, 542 F.3d at
361.
The fifth agreement did not use the
terms “servicer” or “agent” in the payment
authorization provision, but it did refer to
the “network” and described the lender’s
role as “initiat[ing]” the electronic funds
transfers, which suggests that the task would
be completed by a third party. (Pl. Ex. 3 at
690.) Furthermore, the fifth agreement
contained the type of broadest arbitration
provision, in which plaintiff Moss agreed to
arbitrate “all claims against . . . agents . . . or
affiliated entities.”
(Id. at 694.)
By
agreeing to that term, plaintiffs explicitly
consented to arbitrate with an indeterminate
but broad class of entities doing business
with the lenders. In other words, plaintiffs
knowingly agreed that, in the future, they
would have to arbitrate with a party who is
not named in the loan documents, and
having made that agreement, plaintiffs
cannot now deny the foreseeability of
BMO’s involvement, since its function and
the existence of a “network” were explicitly
mentioned in the contract. (See Am. Compl.
¶ 93 (naming BMO as the ODFI for the fifth
loan).)
Here, the language of the five loan
agreements reveals that plaintiffs consented
to arbitrate not only with the signatory
lenders, but also with the lenders’ agents and
servicers. (Pl. Ex. 1 at 645 (“any of [the
lenders’] agents or servicers . . . or any
affiliated entities (hereinafter collectively
referred to as “related third parties”).”); Pl.
Ex. 2 at 659 (same); Pl. Ex. 3 at 689 (same);
Pl. Ex. 4 (“or the agents, [or] servicers . . . of
the other”); Pl. Ex. 5 (same).)
The question is whether it was
foreseeable that defendants would be
included among the lenders’ agents and
servicers, and the Court concludes that it
was foreseeable based on the language of
the loan agreements.
All five loan
agreements include authorizations by
plaintiffs for the lenders to receive payments
via electronic funds transfers. In four of the
five agreements, plaintiffs explicitly
authorized the lender’s “servicer” or “agent”
to perform the ACH debit entries, and these
are the same words contained in the
arbitration provisions quoted above.
Therefore, plaintiffs clearly consented to
arbitrate with defendants in those four
agreements. Cf. A2P, 972 F. Supp. 2d at
479 (compelling arbitration where “[t]he RS
Agreement does not specifically mention
WMC, but does refer to ‘agents’ of CTIA
and anticipates that their role will be
precisely the one that WMC in fact
played.”). Having agreed to arbitrate with
undefined agents and servicers, and likewise
The foreseeability of defendants’
involvement in the loan transactions here is
distinguishable from Ross, on which
plaintiffs have relied, and which held that
American Express could not compel
arbitration with holders of other companies’
credit cards, who alleged that American
Express had conspired with the other
companies to artificially inflate certain
transaction fees. 547 F.3d at 146. There,
“the further necessary circumstance of some
relation between Amex and the plaintiffs”
was “utterly lacking.” Id. In particular, the
8
Second Circuit noted that “Amex [was] a
complete stranger to the plaintiffs’
cardholder agreements; it did not sign them,
it is not mentioned in them, and it performs
no function whatsoever relating to their
operation.” Id. at 148. Defendants here, in
contrast, are implicitly described in the
arbitration provisions as “servicers” or
“agents,” and as discussed, defendants
performed a crucial function with respect to
the loans, which was referred to in the
authorizations for funds transfers. Thus,
defendants here are invoking arbitration
provisions in contracts to which they are
intimately connected, unlike American
Express in Ross, whose “only relation with
respect to the cardholder agreements was as
a third party allegedly attempting to subvert
the integrity of the cardholder agreements.”
Id.
distinct unclean-hands argument with
respect to the arbitration provision, as
opposed to the loans as a whole. See A2P,
972 F. Supp. at 482 (“[I]n contesting the
application of equitable estoppel, Plaintiffs
still must discuss why Defendants’ hands are
unclean with regard to the making of the
agreement to arbitrate.”) (internal quotation
marks and citation omitted). Therefore,
plaintiffs’ arguments concerning the legality
of the loans do not affect the enforceability
of the arbitration provisions to which
plaintiffs agreed.
In sum, the Court concludes that
estoppel is appropriate here because all
defendants are “linked textually” to the
arbitration provisions. Choctaw, 271 F.3d at
407; accord David L. Threlkeld & Co., Inc.
v. Metallgesellschaft Ltd., 923 F.2d 245, 250
(2d Cir. 1991) (“Federal policy requires us
to construe arbitration clauses as broadly as
possible.” (internal quotation marks and
citation omitted)). Combined with the fact
that plaintiffs’ claims arise out of, and
depend heavily on, the existence of the loan
agreements, the textual linkages between the
agreements and defendants demonstrate that
“the issues the non-signatory is seeking to
resolve in arbitration are intertwined with
the agreement that the estopped party has
signed.” Ross, 547 F.3d at 144 (internal
quotation marks and further citation
omitted).
Accordingly, plaintiffs are
estopped from avoiding arbitration with
defendants.10
Plaintiffs have also argued that the Court
should not enforce the arbitration provisions
because they are contained in usurious
loans, and that, for the same reason,
defendants have unclean hands and may not
avail themselves of the equitable doctrine of
estoppel. However, the legality of the loan
agreements is first a question for the
arbitrator, and plaintiffs have not made a
distinct challenge to the validity of the
arbitration provisions themselves.
See
Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 445-46 (2009) (“[A]s a matter
of substantive federal arbitration law, an
arbitration provision is severable from the
remainder of the contract. . . . [U]nless the
challenge is to the arbitration clause itself,
the issue of the contract’s validity is
considered by the arbitrator in the first
instance.”).9 Plaintiffs also have not made a
federal policy in favor of arbitration, which requires
that arbitration agreements be placed “upon the same
footing as other contracts,” Carlisle, 556 U.S. at 630
(citation omitted), the Court declines to limit
Cardegna.
9
10
Plaintiffs contend that Cardegna only applies
between signatories to a contract, but they cite no
authority for limiting its holding in that way. Given
the Supreme Court’s repeated emphasis on the strong
As an alternative to estoppel, defendants also argue
that they may compel arbitration as third-party
beneficiaries of the loan agreements. However, “it
remains an open question in this Circuit whether the
9
***
IV. CONCLUSION
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
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.
The broad arbitration provisions in the
loan agreements, and the specific
authorizations of electronic funds transfers,
made it foreseeable that entities like
defendants, who are involved in those
transfers, would be among the third parties
with whom plaintiffs agreed to arbitrate.
Accordingly, the motions to compel
arbitration are granted, and this case is
stayed. See 9 U.S.C. § 3. The Court does
not reach the motions to dismiss.
The parties are hereby ordered to
proceed to arbitration, as required by the
provisions in the loan agreements. This case
is stayed, and the Court will not consider the
motions to dismiss until the case has
proceeded through arbitration.
SO ORDERED.
______________________
JOSEPH F. BIANCO
United States District Judge
Dated: June 9, 2014
Central Islip, NY
non-signatory may proceed upon any theory other
than estoppel.” Ross, 547 F.3d at 143 n.3. Because
the Court has determined that estoppel applies here,
the Court need not address whether, in the
alternative, defendants were third-party beneficiaries.
10
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