Hagy et al v. Demers & Adams, LLC et al

Filing 34

ORDER denying 15 Motion to Stay Proceedings and Compel Arbitration. Signed by Magistrate Judge Terence P Kemp on 11/2/2011. (pes1)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
James R. Hagy, III, et al.,
Plaintiffs,

:
:

v.

:

Case No. 2:11-cv-530
:

Demers & Adams, LLC, et al.,

Magistrate Judge Kemp
:

Defendants.
ORDER
This case is before the Court to consider the motion to stay
proceedings and to compel arbitration filed by Defendants Green
Tree Servicing LLC and Kevin Winehold (“Green Tree Defendants”).
(Motion to Stay, #15).

Defendants Demers & Adams, LLC and David

J. Demers (“the Law Firm Defendants”) are not parties to this
motion. For the following reasons, this Court denies the Green
Tree Defendants’ motion to stay proceedings and to compel
arbitration.
I. Background
This Court assumes that the background facts recited in the
Green Tree Defendants’ motion to stay and the background facts
contained in the Hagys’ amended complaint are true for purposes
of this motion only, and they will be summarized here.

The Court

notes, however, that any facts on which this decision turns- or,
for that matter, any other decision this Court must make in this
case- must be supported by admissible evidence before the Court
will assume them to be true.
According to the Green Tree Defendants’ motion to stay,
plaintiffs, James R. Hagy, III and Patricia R. Hagy, executed a
fixed-rate note and mortgage securing payment of that note with
Conseco Finance Servicing Corp. in September of 2002. The note,

which is attached to the amended complaint, contains an
arbitration provision that binds the parties to arbitration for
claims or controversies related to the note.

Without citation to

any relevant evidence, the Green Tree Defendants allege that
“Conseco Finance Servicing Corp. was subsequently converted to
Defendant Green Tree Servicing LLC” and Green Tree Servicing LLC
is currently the owner and holder of the Hagys’ note and mortgage
deed. (Motion to Stay, #15, p. 2). The Hagys’ amended complaint,
on the other hand, alleges that Green Tree Servicing LLC
“purchased the consumer debt in default,” but defendants’ answer
denies that allegation. (Amended Complaint, #18, p.3, ¶ 14 and
Answer, # 25, p. 2, ¶ 14).
According to the amended complaint, on April 28, 2010, the
Law Firm Defendants filed a foreclosure action against the Hagys
on behalf of Defendant Green Tree Servicing LLC in the Carroll
County Court of Common Pleas, Case No. 10:CVE26336. After
receiving the summons and complaint, Patricia Hagy called the Law
Firm Defendants and asked whether some type of settlement could
be reached regarding the default on the note and mortgage.

On

June 8, 2010, David Demers sent the Hagys a letter and warranty
deed in lieu of foreclosure. (Amended Complaint, #18, Ex.3).

On

June 24, 2010, the Hagys entered into the warranty deed in lieu
of foreclosure, which was prepared by David Demers. (Amended
Complaint, #18, Ex. 4).

On June 30, 2010, David Demers told the

Hagys’ counsel, James Sandy, Esq., that he had received the
warranty deed in lieu of foreclosure and stated in a letter that
in return for the Hagys executing it, Green Tree Servicing LLC
would not attempt to collect any deficiency balance which might
be due after the sale of the collateral. (Amended Complaint, #18,
Ex. 5).
After the warranty deed in lieu of foreclosure was executed,
the Green Tree Defendants began contacting the Hagys by phone for
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collection of an alleged deficiency.

On June 15, 2011, the Hagys

filed this case against Law Firm Defendants and the Green Tree
Defendants alleging violations of the Fair Debt Collection
Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., the Ohio
Consumer Sales Practices Act, O.R.C. § 1345.01 et seq., and
common law invasion of privacy.
The Green Tree Defendants argue that this case should be
stayed and the Hagys’ claims submitted to arbitration because
this dispute arises out of the note and therefore is subject to
the note’s arbitration clause.

The Hagys, on the other hand,

argue that the Green Tree Defendants have not demonstrated either
the assignment or their ownership of the note, and that the Hagys
do not have any obligation to arbitrate with them.

The Green

Tree Defendants did not respond to the Hagys argument and
submitted no reply brief. For the reasons that follow, this Court
agrees with the Hagys.
II. Discussion
The question of arbitrability, that is, whether an agreement
creates a duty to arbitrate, is a question for the courts to
decide. Granite Rock Co. v. Int’l Bhd. of Teamsters, __ U.S. __,
130 S. Ct. 2847, 2855 (2010).

Under the Federal Arbitration Act,

arbitration clauses are enforceable in contracts “evidencing a
transaction involving commerce” unless there are “grounds . . .
at law or in equity for the revocation of any contract.” 9 U.S.C.
§ 2. Whether such grounds exist is a matter of state law. Stutler
v. T.K. Constructors, 448 F.3d 343, 345 (6th Cir. 2006).

Even

under federal law, which strongly encourages the enforcement of
arbitration clauses, however, “a party cannot be required to
submit to arbitration any dispute which he has not agreed so to
submit.’” United Steelworkers of Am. v. Warrior & Gulf Navigation
Co., 363 U.S. 574, 582 (1960).
An assignee to a contract “takes that contract with all
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rights of the assignor and subject to all defenses that the
obligor may have had against the assignor.” Citizens Fed. Bank,
F.S.B. v. Brickler, 683 N.E.2d 358, 364 (Ohio Ct. App. 1996).
Federal and state law are in agreement, however, that in order
for a non-signatory to a contract to be able to enforce its
terms, there must be proof of an assignment. See, e.g. Britton v.
Co-Op Banking Group, 4 F.3d 742, 746 (9th Cir. 1993) (“An
assignee of a contractual right must prove the validity of his
ownership claims”); see also Hinkle, Cox, Eaton, Coffield &
Hensley v. Cadle Co., 676 N.E.2d 1256, 1258 (Ohio Ct. App. 1996)
(quoting Zwick v. Zwick, 134 N.E.2d 733, 734 (Ohio Ct. App.
1956)(“‘an assignee of a claim must allege and prove the
assignment.’”). Other decisions bear out this general rule. See
e.g., U.S. Bank. v. Richards, 938 N.E.2d 74, 77 (Ohio Ct. App.
2010) (holding the real party in interest in foreclosure actions
is the current holder of the note and mortgage and the failure to
prove who is the real party in interest creates a genuine issue
of material fact precluding summary judgment); Buford v.
Palisades Collection, LLC, 552 F.Supp.2d 800, 809 (N.D. Ill.
2008)(holding that, in a FDCPA case where the debt collector did
not provide the court with the assignment or purchase contract
between the debt collector and AT&T, the debt collector had not
shown that it acquired all rights under the agreement).
Here, the Green Tree Defendants are attempting to enforce
the terms of the arbitration clause in the note against the
Hagys.

They have not, however, produced any supporting evidence

that they are in fact owners or assigns of the note and therefore
able to enforce the rights under that note. Instead, they only
make an unsupported argument in their motion that “Conseco
Finance Servicing Corp. was subsequently converted to Defendant
Green Tree Servicing LLC” (Motion to Stay, #15, p. 2).

Moreover,

they did not file a reply to the Hagys’ memorandum in opposition,
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which pointed out that the Green Tree Defendants had not
demonstrated they were owners or assigns of the note.

Thus,

because the Green Tree Defendants have not submitted any evidence
that they are truly owners or assigns of the promissory note,
they cannot, on the basis of the present record, seek to enforce
its terms.
III.

Order

Based on the foregoing, the Green Tree Defendants motion to
stay the proceedings and to compel arbitration (#15) is denied.
/s/ Terence P. Kemp
United States Magistrate Judge

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