BURGOS v. TRANS UNION, LLC et al

Filing 41

MEMORANDUM. SIGNED BY HONORABLE J. CURTIS JOYNER ON 5/18/2017. 5/19/2017 ENTERED AND COPIES MAILED TO COUNSEL AND E-MAILED.(amas)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ALI BURGOS
Plaintiff
vs.
TRANS UNION, LLC, et. al.,
Defendants

:
: CIVIL ACTION
:
:
: NO. 16-CV-6338
:
:
:
:

MEMORANDUM AND ORDER

JOYNER, J.

May 18, 2017

This Federal Credit Reporting Act case is presently before
the Court on Motion of Defendant Credit One Bank to Compel
Arbitration.
Factual Background
This case arose in September, 2016 when in the course of
applying for a mortgage, Plaintiff Ali Burgos learned that
Defendants Credit One and Midland Credit Management (to whom
Credit One had transferred Plaintiff’s account) had inaccurately
reported her credit data to the three nationwide consumer
reporting agencies

- Equifax, Trans Union and Experian.

Upon

discovering this incorrect reporting, Plaintiff disputed the
reports with Equifax, Trans Union and Experian, each of which
purportedly acknowledged receipt of Plaintiff’s dispute and
reported the dispute to Credit One and Midland.

Thereafter,

Trans Union, Equifax and Experian notified Plaintiff that the
reported accounts had been “verified” and that the alleged
inaccuracies within the trade lines of Credit One and Midland
would not be corrected.

Plaintiff avers that she filed a second

dispute with Defendants on October 2, 2016 with the same outcome.
Plaintiff submits that the defendants were negligent and
willful in their refusal to investigate and/or to employ proper
procedures in investigating her disputes and to correct the
inaccuracies in her credit reports with the result that the
information which the defendants are continuing to disseminate
concerning Plaintiff is false and misleading.

As a consequence,

Plaintiff’s credit score is lower than it should be, she has had
to refrain from applying for additional credit and she was caused
to be charged a higher interest rate on her mortgage.

Plaintiff

claims that Defendants’ actions violated the Fair Credit
Reporting Act, 15 U.S.C. §1681, et. seq., the Fair Debt
Collections Practices Act, 15 U.S.C. §1692, et. seq., and that
she suffered defamation of her character.

Although each of the

defendants have filed an answer to the complaint, Defendant
Credit One now moves to compel this matter to arbitration on the
basis of an agreement to arbitrate contained within the credit
card application and the cardholder agreement issued by Credit
One to Plaintiff when it mailed her the card.

Plaintiff opposes

arbitration for the reason that the arbitration agreement is

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substantively unconscionable.
Standards Governing Motions to Compel Arbitration
The FAA requires district courts to stay judicial
proceedings and compel arbitration of claims covered by a written
and enforceable arbitration agreement.

James v. Global Tellink

Corp., No. 16-1555, 2017 U.S. App. LEXIS 5448 at *4-*5 (3d Cir.
Mar. 29, 2017)(citing 9 U.S.C. §3).

As articulated by the U.S.

Court of Appeals for the Third Circuit in Guidotti v. Legal
Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013), the
standards to be applied to motions to compel arbitration differ
depending upon the state of the existing record of the case and
on what may or may not appear from the face of the complaint.
According to Guidotti:
when it is apparent, based on “the face of a complaint, and
documents relied upon in the complaint,” that certain of a
party’s claims “are subject to an enforceable arbitration
clause, a motion to compel arbitration should be considered
under a Rule 12(b)(6) standard without discovery’s delay.”
... (citation omitted). But if the complaint and its
supporting documents are unclear regarding the agreement to
arbitrate, or if the plaintiff has responded to a motion to
compel arbitration with additional facts sufficient to place
the agreement to arbitrate at issue, then “the parties
should be entitled to discovery on the question of
arbitrability before a court entertains further briefing on
the question.” After limited discovery, the court may
entertain a renewed motion to compel arbitration, this time
judging the motion under a summary judgment standard. In
the event that summary judgment is not warranted because
“the party opposing arbitration can demonstrate, by means of
citations to the record,” that there is “a genuine dispute
as to the enforceability of the arbitration clause,” the
“court may then proceed summarily to a trial regarding “the
making of the arbitration agreement or the failure, neglect,
or refusal to perform the same,” as Section 4 of the FAA
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envisions.”
Id, at 776 (quoting Somerset Consulting, LLC v. United Capital
Lenders, LLC, 832 F. Supp. 2d 474, 482 (E.D. PA. 2011) and 9
U.S.C. §4); Monfared v. St. Luke’s University Health Network, 182
F. Supp. 2d 188, 190-191 (E.D. Pa. 2016).
Discussion
“There is a strong federal policy in favor of arbitration,
and a ‘party to a valid and enforceable arbitration agreement is
entitled to a stay of federal court proceedings pending
arbitration as well as an order compelling such arbitration.’” In
re: Pharmacy Benefit Managers Antitrust Litigation, 700 F.3d 109,
116 (3d Cir. 2012)(quoting Alexander v. Anthony International,
L.P., 341 F.3d 256, 263 (3d Cir. 2003)).

To be sure,

“[a]rbitration is a matter of contract between the parties and a
judicial mandate to arbitrate must be predicated upon an
agreement to that effect.”

James, supra,(quoting Par-Knit Mills,

Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)).
See also, AT & T Technologies, Inc. v. Communications Workers of
America, 475 U.S. 643, 648-649, 106 S. Ct. 1415, 1418, 89 L.
Ed.2d 648 (1986)(“arbitration is a matter of contract and a party
cannot be required to submit to arbitration any dispute which he
has not agreed so to submit”).

Hence, before a federal district

court entertaining a motion to compel arbitration may order a
reluctant party to arbitrate, the FAA requires the court “to

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engage in a limited review to ensure that the dispute is
arbitrable - i.e. that a valid agreement to arbitrate exists and
that the specific dispute falls within the substantive scope of
that agreement.”

Cuie v. Nordstrom, Civ. A. No. 05-4771, 2005

U.S. Dist. LEXIS 26698 at *6 (E.D. Pa. Nov. 4, 2005)(quoting
PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)).
And, in determining whether a valid arbitration agreement exists,
federal courts are to “apply ordinary state-law principles that
govern the formation of contracts.”

James, supra,(quoting First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct.
1920, 1924, 131 L. Ed.2d 985 (1995)).

See also, Cuie, 2005 U.S.

Dist. 26698 at *7 (quoting Spinetti v. Service Corporation,
International, 324 F.3d 212, 214 (3d Cir. 2004)).

Similarly, in

“applying the relevant state contract law, a court may also hold
that an agreement to arbitrate is ‘unenforceable based on a
generally applicable contractual defense, such as
unconscionability.’” Id, at *7(quoting Parilla v. IAP Worldwide
Services, VI, Inc., 368 F.3d 269, 276 (3d Cir. 2004)).
In Pennsylvania, it is black letter law that in order to
form an enforceable contract, there must be an offer, acceptance,
consideration, or mutual meeting of the minds.

Walton v.

Johnson, 2013 PA Super 108, 66 A.3d 782 (Pa. Super. 2013); Neyvas
v. Morgan, 2007 PA Super 66, 921 A.2d 8 (Pa. Super. 2007);
Jenkins v. County of Schuylkill, 441 Pa. Super. 642, 648, 658

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A.2d 380, 383 (Pa. Super. 1995).

To determine whether an

agreement is enforceable then, it is incumbent upon the courts to
examine: (1) whether both parties manifested an intention to be
bound by the agreement; (2) whether the terms of the agreement
are sufficiently definite to be enforced, and (3) whether there
was consideration.

Jenkins, 441 Pa. Super. at 650, 658 A.2d at

384.
Here, Credit One alleges1 in the motion which is now before
us that on January 5, 2010, Plaintiff accepted a written
solicitation for a pre-approved credit card which Credit One had
sent to her on December 28, 2009 by completing an online
application.

The written solicitation contained the notation:

“SEE REVERSE FOR IMPORTANT INFORMATION ON RATES, FEES, COSTS, AND
AVAILABLE CREDIT.”

Included among the headings on the reverse

side of the solicitation was the following verbiage:
ARBITRATION AGREEMENT: You and we agree that either you or
we may, without the other’s consent require that any dispute
between you and us be submitted to mandatory, binding
arbitration. A more detailed description of the Arbitration
Agreement will be sent with your card.
In response to Plaintiff’s online application, Credit One issued

1
In support of all of the averments advanced in its Motion to Compel
Arbitration, Credit One relies upon the Affidavit of Gary Harwood, its Vice
President of Portfolio Services (Exhibit A) and the exhibits attached thereto,
which consist of copies of a Sample Pre-Approval letter (Exhibit A-1), a
screenshot of the Applicant Information completed by or for Plaintiff as part
of the online application which resulted in the issuance of the credit card at
issue (Exhibit A-2), a copy of the Visa/MasterCard Cardholder Agreement,
Disclosure Statement and Arbitration Agreement (Exhibit A-3) which Credit One
typically includes when mailing new credit cards to its customers, and copies
of Credit One’s monthly billing statements sent to Plaintiff (Exhibit A-4).

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a credit card to Plaintiff by mail.

Included in the mailing was

a copy of the Visa/MasterCard Cardholder Agreement, Disclosure
Statement and Arbitration Agreement, which covers more than two
pages and which begins:
PLEASE READ THIS PROVISION OF YOUR CARD AGREEMENT CAREFULLY.
IT PROVIDES THAT EITHER YOU OR WE CAN REQUIRE THAT ANY
CONTROVERSY OR DISPUTE BE RESOLVED BY BINDING ARBITRATION.
ARBITRATION REPLACES THE RIGHT TO GO TO COURT, INCLUDING THE
RIGHT TO A JURY AND THE RIGHT TO PARTICIPATE IN A CLASS
ACTION OR SIMILAR PROCEEDING. IN ARBITRATION, A DISPUTE IS
RESOLVED BY A NEUTRAL ARBITRATOR INSTEAD OF A JUDGE OR JURY.
ARBITRATION PROCEDURES ARE SIMPLER AND MORE LIMITED THAN
RULES APPLICABLE IN COURT. IN ARBITRATION, YOU MAY CHOOSE
TO HAVE A HEARING AND BE REPRESENTED BY COUNSEL.
The Arbitration Agreement is extraordinarily broad in its
definitions of covered claims2 and provides in relevant part:
Claims subject to arbitration include, but are not limited
to, disputes relating to the establishment, terms,
treatment, operation, handling, limitations on or
termination of your account; any disclosures or other
documents or communications relating to your account; any
transactions or attempted transactions involving your
account, whether authorized or not; billing, billing errors,
credit reporting, the posting of transactions, payment or
credits, or collections matters relating to your account;
...
Plaintiff does not dispute the formation of a valid
agreement to arbitrate and we find that the materials attached to
the moving defendant’s motion clearly support such a finding.

2

In fact, the Claims Covered section of the Agreement comprise some
five single-spaced paragraphs and appear at least to this Court to include
every kind of claim imaginable arising in the past, present or future, between
not only the parties to the card agreement but “others” as well, regardless of
whether they are made as direct, cross, counter or third-party claims, or
“interpleaders or otherwise.”

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Indeed, the written solicitation constituted an offer, which was
accepted by the plaintiff’s online application, and supported by
the mailing to plaintiff of a credit card which she then utilized
to charge several purchases.

Consequently, we conclude that a

valid agreement to arbitrate was in fact entered into by the
parties.

And, in light of the very broad definition of covered

claims, it appears obvious that the instant dispute over the
correctness of Credit One’s reporting of Plaintiff’s payment
history on the card to the three nationwide credit reporting
agencies falls within the confines of an arbitrable dispute.
Again, Plaintiff does not appear to be contesting that the
dispute upon which she bases her complaint falls within the
definition of the claims subject to arbitration.
These findings do not end the inquiry however, as Plaintiff
alleges that the arbitration agreement is unenforceable because
it is substantively unconscionable and the unconscionable
provisions are not severable.

Alternatively, Plaintiff asserts

that Defendant has waived its right to compel arbitration because
“of its significant delay” in filing this motion.
1.

Waiver

“Consistent with the strong preference for arbitration in
the federal courts, waiver is not to be lightly inferred and will
normally be found only where the demand for arbitration came long
after the suit commenced and when both parties had engaged in

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extensive discovery.”

Pharmacy Benefit Managers Antitrust

Litigation, 700 F.3d at 117(quoting Nino v. Jewelry Exchange,
Inc., 609 F.3d 191, 208, 53 V.I. 901 (3d Cir. 2010)).

“A court

may, however, refuse to enforce an arbitration agreement where a
party has acted inconsistently with the right to arbitrate.”
Id.; Worth v. Worth, Civ. A. No. 16-3877, 2016 U.S. Dist. LEXIS
164061 at *16 (E.D. Pa. Nov. 29, 2016).

It is prejudice which

“is the touchstone for determining whether the right to arbitrate
has been waived by litigation conduct.”

Zimmer v. CooperNeff

Advisors, Inc., 523 F.3d 224, 231 (3d Cir. 2008).

To guide the

prejudice inquiry, the Third Circuit has outlined six, nonexclusive factors to be considered:
(1) timeliness or lack thereof of the motion to arbitrate;
(2) [the] extent to which the party seeking arbitration has
contested the merits of the opposing party’s claims; (3)
whether the party seeking arbitration informed its adversary
of its intent to pursue arbitration prior to seeking to
enjoin the court proceedings; (4) the extent to which a
party seeking arbitration engaged in non-merits motion
practice; (5) the party’s acquiescence to the court’s
pretrial orders; and (6) the extent to which the parties
have engaged in discovery.
Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 451 (3d Cir. 2011);
Zimmer, supra,(quoting Ehleiter v. Grape-tree Shores, Inc., 482
F.3d 207, 222 (3d Cir. 2007) and Hoxworth v. Blinder, Robinson &
Co., Inc., 980 F.2d 912, 926-927 (3d Cir. 1992)).
In application of the foregoing, we cannot agree with
Plaintiff’s assertion that Credit One waived its entitlement to
seek arbitration.

The docket entries reflect that the Plaintiff
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filed her Complaint commencing this lawsuit on December 6, 2016
and that it was served on Credit One on December 12, 2016.
Credit One answered the Complaint on January 13, 2017 and filed
the instant Motion to Compel Arbitration on March 3, 2017.

Thus

far, there is no evidence that any discovery has been undertaken
between the parties and it appears that the only real substantive
action to have been thus far taken is Plaintiff’s having
stipulated to the dismissal of Defendants Trans Union and Midland
Funding and the entry by this Court of a Scheduling Order
directing the completion of discovery by June 7, 2017.3
Although the record is devoid of evidence as to whether Moving
Defendant informed Plaintiff of its intent to pursue arbitration
prior to seeking to enjoin further proceedings, its Answer to the
Complaint makes clear that it is definitely contesting the merits
of Plaintiff’s claims.

We therefore find that inasmuch as this

case is in its infancy, Defendant was timely in its filing of
this motion to compel arbitration and that Plaintiff would not
suffer prejudice were this Court to direct it to arbitrate this
matter at this point in the proceedings.
2.

Substantive Unconscionability

As noted, Plaintiff also argues that this matter should not
be referred to arbitration because the arbitration agreement at

3

And, on April 24, 2017, we issued an Order staying discovery pending
the issuance of a decision on this Motion to Compel Arbitration.

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issue is substantively unconscionable.4

In so arguing, Plaintiff

points to the following language in the agreement:
... The arbitration will be conducted under the applicable
procedures and rules of the arbitration administrator that
are in effect on the date the arbitration is filed unless
this arbitration provision is inconsistent with those
procedures and rules, in which case this Agreement will
prevail. These procedures and rules may limit the amount of
discovery available to you or us. ...
Costs: If we file the arbitration, we will pay the initial
filing fee. If you file the arbitration, you will pay the
initial filing fee, unless you seek and qualify for a fee
waiver under the applicable rules of the arbitration
administrator. We will reimburse you for the initial filing
fee if you paid it and you prevail. If there is a hearing,
we will pay any fees of the arbitrator and arbitration
administrator for the first day of that hearing. All other
fees will be allocated in keeping with the rules of the
arbitration administrator and applicable law. However, we
will advance or reimburse filing fees and other fees if the
arbitration administrator or arbitrator determines there is
other good reason for requiring us to do so, or we determine
there is good cause for doing so. Each party will bear the
expense of that party’s attorneys, experts, and witnesses,
and other expenses, regardless of which party prevails,
except that the arbitrator shall apply any applicable law in
determining whether a party should recover any or all
expenses from another party.
“Unconscionability is a ‘defensive contractual remedy which
serves to relieve a party from an unfair contract or from an

4

The courts have recognized that there are distinctions between
“procedural” unconscionability and “substantive” unconscionability.
“Procedural unconscionability refers to ‘the process by which an agreement is
reached and the form of an agreement, including the use therein of fine print
and convoluted or unclear language.’” Zimmer, 523 F.3d at 228(quoting Harris
v. Green Tree Financial Corp., 183 F.3d 173, 181 (3d Cir. 1999)).
“Substantive unconscionability looks to whether the arbitration provision
‘unreasonably favors the party asserting it.’” Id,(quoting Salley v. Option
One Mortgage Corp., 592 Pa. 323, 331, 925 A.2d 115, 119 (2007)). Here,
Plaintiff is not raising procedural unconscionability as a defense, presumably
because she is not challenging the entry or validity of the arbitration
agreement contained within the Cardholder Agreement.

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unfair portion of a contract.’” Harris, supra,(quoting Germantown
Mfg. Co. v. Rawlinston, 341 Pa. Super. 42, 491 A.2d 138, 145 (Pa.
Super. 1985)).

“The party challenging a contract provision as

unconscionable generally bears the burden of proving
unconscionability.”

Id.

In determining whether an arbitration

agreement is unconscionable, state law contract principles are
typically applied.

Quilloin v. Tenet HealthSystem Philadelphia,

Inc., 673 F.3d 221, 230 (3d Cir. 2012)(citing AT&T Mobility LLC
v. Concepcion, 563 U.S. 333, 340, 131 S. Ct. 1740, 1746, 179 L.
Ed.2d 742 (2011)).

In Pennsylvania, a contract or term is

unconscionable and therefore avoidable, where there was a lack of
meaningful choice in the acceptance of the challenged provision
and the provision unreasonably favors the party asserting it.
Salley, supra.
Although the existence of large arbitration costs may well
preclude a litigant from effectively vindicating their rights,
the mere absence of a provision governing costs in an arbitration
agreement is not sufficient to make the agreement unenforceable.
Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 92, 121 S.
Ct. 513, 517, 148 L. Ed.2d 373 (2000); Hall v. Treasure Bay
Virgin Islands Corp., No. 09-1754, 2010 U.S. App. LEXIS 5539, 371
Fed. Appx. 311, 313 (3d Cir. Mar. 16, 2011).

A party seeking to

“invalidate an arbitration agreement on the ground that
arbitration would be prohibitively expensive bears the burden of

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showing the likelihood of incurring such costs” by coming forward
with some evidence to show the projected fees that would apply to
their specific arbitrations and showing the party’s inability to
pay those costs.

Hall, id, (citing Parilla, 368 F.3d at 283-285

and Alexander, 341 F.3d at 268-269).

Stated otherwise, “a party

seeking to declare a provision awarding arbitration costs
unenforceable must proffer some credible and substantiated
evidence of that party’s financial situation as well as the
specific costs of arbitration.”

Id.; Monfared, 182 F. Supp. 3d

at 194.
In this case, Plaintiff has provided no evidentiary support
for her claim that the arbitration agreement is substantively
unconscionable aside from her five-sentence Declaration in which
she avers that if she “is required to bear the costs of
arbitration, the above-captioned action and my right to pursue
the same is greatly compromised and will perhaps come to an end”
and that she does “not have the financial ability to bear the
costs of arbitration and [she is] of financially limited means.”
No further details concerning what the projected costs of the
arbitration might reasonably be, what plaintiff’s income is, what
her living and other monthly expenses are, or any other
information evincing what she means by “financially limited
means” or why she would face financial hardship in the event she
is compelled to arbitrate this case.

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Accordingly, we cannot find

that Ms. Burgos has met her burden of proving substantive
unconscionability.
In the interests of clarity, however, and in view of the
appropriate stated standard for ruling on motions to compel
arbitration articulated in Guidotti as discussed above, we will
grant the parties a very brief, thirty-day window in which to
conduct discovery and supplement the record with regard to this
issue.

For this reason, this motion shall be continued for a

period of thirty (30) days from the entry date of this Memorandum
and accompanying Order, at the conclusion of which the parties
shall have an additional period of one week to submit
supplemental briefing.

In the event that no filings are provided

within that thirty-seven day period, this Court shall issue an
Order finally disposing of this Motion to Compel Arbitration.
An order follows.

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