Thomas v. National Collector's Mint, Inc et al
Filing
84
MEMORANDUM OPINION AND ORDER granting in part, denying in part, and mooting in part 16 MOTION to Dismiss 1 Complaint, Case stayed (Status Report due by 2/8/2019, and every 60 days thereafter) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
PATRICIA THOMAS,
Plaintiff,
v.
NATIONAL COLLECTOR'S MINT,
INC., RANDY T. PERRY, and
STRATUSCOM CORPORATION,
Defendants.
§
§
§
§
§
§
§
§
§
§
§
December 04, 2018
David J. Bradley, Clerk
CIVIL ACTION NO. H-18-0348
MEMORANDUM OPINION AND ORDER
Plaintiff
Patricia
Thomas
("Thomas"
Defendants National Collector's Mint, Inc.
("Perry")
or
"Plaintiff")
sued
("NCM"), Randy T. Perry
(collectively "Defendants"), and StratusCom Corporation
("StratusCom") for a number of claims arising from NCM, Perry, and
StratusCom' s allegedly improper practices in selling Plaintiff more
than a hundred expensive coins.
Pending before the court is NCM
and Perry's Motion to Dismiss Randy T. Perry and Compel Arbitration
or, in the Alternative, to Dismiss for Failure to Plead Fraud With
Particularity
Motion").
(Docket
Entry No.
16)
(hereinafter,
"Defendants'
For the reasons stated below, Defendants' Motion will be
granted in part and denied in part. 1
1
Defendants' Motion to Dismiss for Failure to Plead Fraud with
Particularity (Docket Entry No. 16) is moot in light of Patricia
Thomas's First Amended Complaint.
See Patricia Thomas's First
Amended Complaint ("Plaintiff's Amended Complaint"), Docket Entry
No. 75.
I.
Factual Background 2
Plaintiff's claims arise from NCM,
Perry,
and Stratuscom's
allegedly predatory and abusive tactics in selling Plaintiff a
series of expensive coins.
Plaintiff filed suit against all three
named defendants for alleged violations of the Telemarketing and
Consumer Fraud and Abuse Prevention Act, 15 U.S.C.
the Texas Deceptive Trade Practices Act,
et
for
common
& Comm. Code
Tex. Bus.
and
disclosure,
breach
of
conspiracy.
Plaintiff also sued NCM and StratusCom for negligent
informal
law
fraud,
6101-08, and
seq.,
§
17.14,
§
fiduciary
fraud
duty,
by
and
noncivil
supervision.
Plaintiff is an elderly woman who suffers from debilitating
rheumatoid arthritis and requires full-time care.
that sells coins and collectibles.
and telemarketing services to NCM.
NCM is a company
Stratuscom provides marketing
Perry is a telemarketer who
works for NCM and whose job is to sell coins and collectibles on
behalf of NCM.
Plaintiff contacted NCM to inquire about purchasing
coins after viewing one of NCM's advertisements.
Perry was the
sales representative assigned to her account.
2
See First Amended Complaint, Docket Entry No. 75, p. 4-10;
Defendants' Motion, Docket Entry No. 16, pp. 6-12; Plaintiff's
Response to Defendants' Motion to Dismiss Randy T. Perry and Compel
Arbitration or, in the Alternative, to Dismiss for Failure to Plead
Fraud with Particularity ("Plaintiff's Response"), Docket Entry
No. 19, pp. 7-8.
[All page numbers for docket entries in the
record refer to the pagination inserted at the top of the page by
the court's electronic filing system, CM/ECF.]
-2-
In the months after Plaintiff initiated contact with NCM,
Plaintiff and Perry developed a "friendship" of sorts.
call Plaintiff to check up on her.
Perry would
Plaintiff looked forward to
Perry's calls because she lived alone and had a limited ability to
leave home due to her illness.
NCM's call logs show that during
Perry and Plaintiff's four-year-plus relationship, Perry and other
NCM representatives called Plaintiff over 700 times. 3
calls,
Perry pitched and sold Plaintiff
over a
During his
hundred coins.
Plaintiff was not knowledgeable about the marketplace for coin
trading, and she trusted Perry's assessment of how much the coins
were worth and whether they were a good investment.
regular
calls
initiated
by
Perry,
NCM
also
In addition to
sent
Plaintiff
advertisements about available coins.
In reliance on statements made by Perry during their telephone
conversations and in NCM's promotional materials, Plaintiff spent
over $1.6 million buying coins from NCM.
Plaintiff alleges that
she did not realize that the coins were sold to her for prices that
often vastly exceeded their market values.
Plaintiff points to
numerous instances where NCM charged Plaintiff nearly double the
fair market value of the coins she purchased. 4
NCM' s
markups,
Plaintiff
lost
thousands
As a result of
of dollars
and is now
3
See Index of Calls Between NCM and Patricia Thomas, Exhibit 1
to Plaintiff's Sur-Reply to Defendants' Reply Memorandum in Further
Support of Their Motion to Dismiss and Compel Arbitration, Docket
Entry No. 44-1.
4
See Plaintiff's Amended Complaint, Docket Entry No. 75, p. 9.
-3-
unable to resell the coins for what she paid for them to recoup the
cost.
Plaintiff claims that Defendants' advertising, sales calls,
and correspondence with her falsely represented that they were
selling her valuable,
investment-grade
coins
at
a
fair
price.
Plaintiff seeks to recover damages for NCM, Perry, and StratusCom's
allegedly unscrupulous business practices.
Defendants argue that the court lacks personal jurisdiction
over Perry.
Defendants
also argue
that
this
dispute must be
submitted to arbitration because a binding mandatory arbitration
agreement exists between Plaintiff and NCM.
The alleged arbitra-
tion agreement ("the Agreement") appeared on NCM's website and on
a
packing slip
sent with each of
Plaintiff's purchases.
The
packing slip contained a section labeled "IMPORTANT INFORMATION
ABOUT
YOUR
ORDER I"
A subsection
"RESOLUTION OF CLAIMS OR DISPUTES."
of
this
heading
is
titled
This subsection contained the
following statement:
THIS AGREEMENT STARTS WHEN YOU ACCEPT. You accept when
you do any of the following things after an opportunity
to review this agreement:
give us a written or
electronic signature; tell us orally or electronically
that you accept; open or use a closed product (that says
you are accepting by opening it); or not returning the
product to us within ten days.
IF YOU DO NOT WISH TO
ACCEPT THESE TERMS, YOU MUST RETURN THE PRODUCT IN ITS
ORIGINAL CONDITION WITHIN TEN DAYS AFTER RECEIPT. 5
See MERCHANDISE RETURN LABEL [see RESOLUTION OF CLAIMS OR
DISPUTES],
Exhibit 3 to Plaintiff's Response, Docket Entry
No. 19-1, p. 14 (emphasis in original).
While each packing slip
Plaintiff received contained an arbitration clause, the exact
language used and extent of detail of its terms varied. A nearly
(continued ... )
5
-4-
Recorded telephone calls between Plaintiff and NCM also show
that
Plaintiff
"arbitration
was
terms"
informed
over
the
of
(and
consented
telephone. 6
NCM
to)
operators
NCM's
told
Plaintiff that they would follow up with a copy of the terms in
writing, which they did by including a copy of the Agreement with
each of Plaintiff's shipments.
Plaintiff argues that the Agreement
is unenforceable and contests Defendants' demand that this action
be stayed pending arbitration to resolve the Parties' dispute.
II.
Defendants' Motion to Dismiss Randy T. Perry
Defendants argue that Perry must be dismissed because the
court lacks personal jurisdiction over him.
the
court
has
personal
jurisdiction
over
Plaintiff argues that
Perry
because
his
allegedly tortious contacts with Plaintiff in Texas suffice to
establish the requisite minimum contacts between Perry and Texas.
5
( • • • continued)
identical delivery slip cited by Defendants allows 30 days, not
ten, to return the product before keeping the product constitutes
acceptance of the arbitration clause. See Delivery Slip, Exhibit A
to the Declaration of Avram Freedberg in Support of Defendants'
Motion ("Freedberg Declaration"), Docket Entry No. 16, p. 351.
Some of the Delivery Slips cited by Defendants do not contain the
above referenced language regarding acceptance.
See Invoice and
Order Registration Form, Exhibit C to Freedberg Declaration, Docket
Entry No. 16, p. 356.
6
When NCM' s representatives told Plaintiff that she would
receive a copy of the arbitration terms in writing on four
occasions, she responded either "OK" or "Alright." See Defendants'
Sur-Reply Memorandum in Response to Plaintiff's Sur-Reply Filed
with Respect to Defendants'
Motion to Dismiss and Compel
Arbitration ("Defendants' Sur-Reply") , Docket Entry No. 54, pp. 6-8.
-5-
A.
Standard of Review
Dismissal for lack of personal jurisdiction is governed by
Federal Rule of Civil Procedure 12(b) (2).
moves
to
dismiss
for
lack
of
When a foreign defendant
personal
jurisdiction
under
Rule 12 (b) (2), "the plaintiff 'bears the burden of establishing the
district
court's
jurisdiction
over
the
defendant.'"
Quick
Technologies, Inc. v. Sage Group PLC, 313 F.3d 338, 343 (5th Cir.
2002),
cert. denied,
Development LLC,
124 S. Ct.
190 F.3d 333,
66
335
(2003)
(quoting Mink v. AAAA
(5th Cir. 1999)).
"When the
district court rules on a motion to dismiss for lack of personal
jurisdiction 'without an evidentiary hearing,
the plaintiff may
bear his burden by presenting a prima facie case that personal
jurisdiction is proper.'"
644,648
making
Id.
(quoting Wilson v. Belin, 20 F.3d
(5th Cir.), cert. denied,
its
determination,
the
115 S. Ct.
district
322
(1994)).
"In
court may consider
the
contents of the record before the court at the time of the motion,
including 'affidavits, interrogatories, depositions, oral testimony,
or any combination of the recognized methods of discovery.'"
Id. at
344 (quoting Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165
(5thCir. 1985)).
The court must accept as true the uncontroverted allegations
in the plaintiff's complaint and must resolve in favor of
plaintiff any factual conflicts.
Guidry v. United States Tobacco
Co., Inc., 188 F.3d 619, 625 (5th Cir. 1999).
is
not
obligated
to
credit
conclusory
-6-
the
However, the court
allegations,
even
if
uncontroverted.
Panda Brandywine Corp. v. Potomac Electric Power
Co., 253 F.3d 865, 869 (5th Cir. 2001).
"Absent any dispute as to
the relevant facts, the issue of whether personal jurisdiction may
be
exercised
law.
II
over
a
nonresident
defendant
is
a
question
of
Ruston Gas Turbines, Inc. v. Donaldson Co., Inc.,
9
F.3d 415, 418 (5th Cir. 1993).
B.
Applicable Law
The
court
may
exercise
nonresident defendant if "(1)
confers personal
personal
jurisdiction
over
a
the forum state's long-arm statute
jurisdiction over that defendant;
and
(2)
the
exercise of personal jurisdiction comports with the Due Process
Clause of the Fourteenth Amendment."
753,
759
(5th Cir.
2009),
cert.
McFadin v. Gerber, 587 F.3d
denied,
131 S.
Ct.
68
(2010).
Since the Texas long-arm statute extends as far as constitutional
due process allows, the court considers only the second step of the
inquiry.
Id.
Exercise of personal jurisdiction over a nonresident defendant
comports with federal due process guarantees when the nonresident
defendant has established minimum contacts with the forum state,
and the exercise of
jurisdiction "does not offend
notions of fair play and substantial justice.'"
'traditional
International Shoe
Co. v. State of Washington, Office of Unemployment Compensation and
Placement, 66 S. Ct. 154, 158 (1945)
S.
Ct.
339,
343
(1940)).
(quoting Milliken v. Meyer, 61
A plaintiff
-7-
satisfying
these
two
requirements raises a presumption that exercise of jurisdiction
over the defendant is reasonable,
and the burden shifts to the
defendants to present "a compelling case that the presence of some
other
considerations
would
render
jurisdiction
unreasonable."
Burger King Corp. v. Rudzewicz, 105 S. Ct. 2174, 2185 (1985).
"The
'minimum contacts' inquiry is fact intensive and no one element is
decisive; rather the touchstone is whether the defendant's conduct
shows that [he]
in the forum.
'reasonably anticipate(d] being haled into court'"
McFadin, 587 F.3d at 759.
'minimum contacts':
jurisdiction
and
jurisdiction."
1.
those
those
that
that
give
"There are two types of
rise
specific personal
rise
give
to
to
general
personal
Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir. 2001).
General Jurisdiction
A court may exercise general jurisdiction over non-resident
defendants
"when
their
affiliations
with
the
State
are
so
'continuous and systematic' as to render them essentially at home
in the forum State."
Brown,
131
jurisdiction
S.
is
Ct.
Goodyear Dunlop Tires Operations, S.A. v.
2846,
2851
'difficult'
and
between a defendant and a forum. '"
Private Limited,
882
F.3d 96,
"Establishing
(2011)
requires
general
'extensive
contacts
Sangha v. Navig8 ShipManagement
101-02
(5th Cir.
2018)
(quoting
Johnston v. Multidata Systems International Corp., 523 F.3d 602,
609 (5th Cir. 2008)).
as
to
the
extent,
Vague allegations "that give no indication
duration,
or
-8-
frequency
of
contacts
are
insufficient to support general jurisdiction."
Johnston, 523 F.3d
at 610.
2.
Specific Jurisdiction
A court may exercise specific jurisdiction when the alleged
injuries arise from or are directly related to the non-resident
defendant's
contacts
with
the
forum
state.
Gundle
Lining
Construction Corp. v. Adams County Asphalt, Inc., 85 F.3d 201, 205
(5th Cir. 1996)
(citing Helicopteros Nacionales de Colombia, S.A.
v. Hall, 104 S. Ct. 1868, 1872 n.8 (1984)); Quick Technologies, 313
F.3d at 344.
To determine whether specific jurisdiction exists,
the court must "examine the relationship among the defendant, the
forum, and the litigation to determine whether maintaining the suit
offends traditional notions of fair play and
substantial justice."
Gundle Lining, 85 F.3d at 205.
Even a single contact can support
specific
jurisdiction
defendant
[himself]
of the privilege of conducting activities within the
forum State,
laws.'"
if
the
"'purposefully
avails
thus invoking the benefits and protections of its
Burger King,
'purposeful availment'
105 S.
Ct.
at 2183.
"The non-resident's
must be such that the defendant
'should
reasonably anticipate being haled into court' in the forum state."
Ruston Gas,
9 F.3d at 419
(citing World-Wide Volkswagen Corp. v.
Woodson, 100 S. Ct. 559, 567 (1980)).
There
are
three
parts
to a
purposeful
availment
inquiry.
First, only the defendant's contacts with the forum are relevant,
-9-
not the unilateral activity of the plaintiff or a third party.
Sangha, 882 F.3d at 103 (citing Walden v, Fiore, 134 S. Ct. 1115,
1122 ( 2014)
("We have consistently rejected attempts to satisfy the
defendant-focused
'minimum
contacts'
State.") ) .
Second,
by
demonstrating
(or third parties)
contacts between the plaintiff
inquiry
and the forum
the contacts relied upon must be purposeful
rather than random, fortuitous, or attenuated.
134 S. Ct. at 1123).
advantage,
or
Id. (citing Walden,
Lastly, the defendant must seek some benefit,
profit
by
availing
itself
of
the
jurisdiction.
Burger King, 105 S. Ct. at 2183.
A defendant may avoid being haled into court in a particular
forum
by not
Expeditions v.
conducting
Drugg,
221
business
there.
s. w. 3d 569, 575
Burger King, 105 S. Ct. at 2181-85).
See
Moki
(Tex.
Mac
2007)
River
(citing
Since specific jurisdiction
is claim specific, a plaintiff bringing multiple claims that arise
out of different contacts of the defendant with the forum must
establish specific personal jurisdiction for each claim.
Seiferth
v. Helicopteros Atuneros, Inc., 472 F.3d 266, 274 (5th Cir. 2006).
c.
Analysis
1.
General Jurisdiction
Defendants argue that the court lacks general jurisdiction
over
Perry
because
Perry
lacks
systematic" contacts with Texas.
no property or assets in Texas.
the
requisite
"continuous
and
Perry resides in New York and has
Perry has never maintained a place
-10-
of business in Texas.
Perry has never sought the protections or
benefits of Texas law in the Texas courts or otherwise.
Perry's
only substantial contact with Texas is in his capacity as a sales
representative of NCM, where he interacts with clients who live in
Texas by telephone or e-mail.
Merely having clients in Texas and
conducting business in Texas is not sufficient to establish the
sort of continuous and systematic contacts required for general
jurisdiction.
The court therefore concludes that Plaintiff has
failed to allege facts that would support general jurisdiction.
2.
Specific Jurisdiction
"In contrast to general, all-purpose jurisdiction,
specific
jurisdiction is confined to adjudication of issues deriving from,
or
connected
with,
the
Goodyear,
jurisdiction."
quotations omitted) .
very
131
controversy
S.
Ct.
at
that
2851
establishes
(citations
and
In assessing personal jurisdiction over an
employee of a business, the employee's contacts with the forum are
not to be judged according to their employer's activities there-"[e]ach defendant's contacts with the forum State must be assessed
individually."
Generally,
a
Calder v.
corporation
Jones,
will
104 S.
serve
Ct.
to
1482,
1487
insulate
(1984).
individual
employees from a court's personal jurisdiction under the fiduciary
shield doctrine.
Cir. 1985).
See Stuart v. Spademan, 772 F.2d 1185, 1197 (5th
The fiduciary shield doctrine does not apply, however,
if the individual employee's actions are motivated by fraud or
-11-
personal interest outside his corporate capacity.
See Lewis v.
Fresne, 252 F.3d 352, 359-60 (5th Cir. 2001).
When a nonresident defendant commits a tort within
the state, or an act outside the state that causes
tortious injury within the state, that tortious conduct
amounts to sufficient minimum contacts with the state by
the defendant to constitutionally permit courts within
that state,
including federal courts,
to exercise
personal adjudicative jurisdiction over the tortfeasor
and the causes of action arising from its offenses or
quasi-offenses. Even an act done outside the state that
has consequences or effects within the state will suffice
as a basis for jurisdiction in a suit arising from those
consequences if the effects are seriously harmful and
were intended or highly likely to follow from the
nonresident defendant's conduct.
Guidry, 188 F.3d at 628 (internal citations omitted).
Purposeful
availment
exists
if
the
actual
content
of
communications with a forum is the basis for an intentional tort
cause of action.
213
(5th Cir.
Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208,
1999)
In Brandt the Fifth Circuit held that a
defendant's letters, faxes, and telephone calls failing to disclose
material
information
directed
at
the
plaintiff
in
Texas
were
sufficient to give rise to specific personal jurisdiction over the
defendant when the plaintiff's causes of action were based on the
alleged misrepresentations.
Defendants
argue
that
Id. at 212-14.
the
court
does
not
have
specific
jurisdiction over Perry because "Perry's only contact with Texas in
relation
to
Plaintiff's
claims
were
telephone
and
e-mail
communications from New York, made solely in the course and scope
-12-
of his employment in New York." 7
This case is analogous to Brandt.
Plaintiff's claims against Defendants are based in part on Perry's
alleged misrepresentations about the value of the coins he sold
her.
The Fifth Circuit found similar facts sufficient to support
the exercise of specific personal jurisdiction over the defendant
in Brandt.
It is no defense that Plaintiff's residence in Texas is
"fortuitous."
fortuitous,
As the court in Brandt noted,
but
the
tortious
nature
of
"[i]t may have been
the
constitutes purposeful availment" nonetheless.
directed
activity
Brandt, 195 F. 3d at
213.
Two
cases
cited by Defendants
in which communications
or
negotiations with a resident of the forum state were held to be
insufficient to subject the non-resident defendant to the court's
jurisdiction did not involve intentional torts.
International Inc. v.
OAO Gazprom,
See Moncrief Oil
481 F.3d 309
(5th Cir. 2007)
(claims for breach of contract, promissory estoppel, and negligent
misrepresentation based on a contract); Holt Oil & Gas Corp. v.
Harvey, 801 F.2d 773 (5th Cir. 1986)
(breach of contract and other
related claims arising from failed oil and gas venture) .
case cited by Defendants, Sinkin v.
2014 WL 12488583
(W.D.
Tex.
Sept.
The other
Pons, Civil No. 13-871(RCL),
16,
2014),
is distinguishable
because the communications between the plaintiff and defendants in
Sinkin were extremely limited -- the plaintiff and defendant only
7
See Defendants' Motion, Docket Entry No. 16, p. 14.
-13-
shared two
telephone
conversations
and one
e-mail
exchange
in
response to the plaintiff's unsolicited contact made from within
the forum.
Id. at *3.
Perry's contacts with Plaintiff in Texas
were far from limited -- Perry called Plaintiff in Texas repeatedly
to solicit sales for a period spanning over four years and in the
process sold Plaintiff over a
separate transactions.
hundred coins
in over a
hundred
The court concludes that Perry has the
requisite minimum contacts to be subject to specific jurisdiction
in Texas.
In determining whether the exercise of personal jurisdiction
over
Perry would offend
substantial
Defendants,
justice,
the
traditional
court
notions
considers
the
fair
burden
play and
on
the
the interest of the forum state in adjudicating the
dispute, and the interests of the Plaintiff.
615.
of
Johnston, 523 F.3d at
"The relationship between the defendant and the forum must be
such that it is reasonable to require the defendant to defend the
particular suit which is brought there."
Guidry, 188 F.3d at 630.
Plaintiff has alleged state law causes of action for common law
fraud and violations of the DTPA.
Texas has a strong interest in
protecting its residents from deceptive practices by out-of-state
salespersons.
Plaintiff,
If
Perry
made
a Texas resident,
material
misrepresentations
to
regarding the value of the coins,
Perry should reasonably expect that he might be subject to a Texas
court's jurisdiction in a lawsuit based on those misrepresentations.
Because Perry has the requisite minimum contacts with Texas and the
-14-
exercise of the court's jurisdiction over Perry does not offend
traditional
notions
of
fair
play
and
substantial
justice,
Defendants' Motion seeking the dismissal of Perry will be denied.
III.
Defendants' Motion to Compel Arbitration
Defendants allege that
this action must be stayed pending
arbitration because an enforceable arbitration agreement exists
between
Plaintiff
accepted
the
and
NCM.
Agreement
unenforceable.
Plaintiff
and
Plaintiff
that
also
argues
the
that
Agreement
argues
that
the
she
is
never
therefore
Agreement
is
unconscionable.
A.
Standard of Review and Applicable Law
The Federal Arbitration Act ("FAA"), 9 U.S.C.
creates
"a
body
of
federal
substantive
law
of
§§
1, et seq.,
arbitrability,
applicable to any arbitration agreement within the coverage of the
Act."
Moses H.
Corp.,
103 S.
Flood
&
Cone Memorial Hospital v.
Ct.
927,
941
(1983)
Conklin Manufacturing
Mercury Construction
(citing Prima Paint Corp. v.
Corp.,
87
S.
Ct.
1801
(1967)).
"[W]hen a court interprets [] provisions in an agreement covered
by the
favoring
FAA,
'due
regard must
arbitration,
arbitration
clause
be
given
and ambiguities
itself
resolved
in
to
as
to
favor
the
the
of
federal
scope
policy
of
the
arbitration. '"
Mastrobuono v. Shearson Lehman Hutton, Inc., 115 S. Ct. 1212, 1218
(1995)
(quoting
Volt
Information
-15-
Sciences,
Inc.
v.
Board
of
Trustees of Leland Stanford Junior University,
109
s.
Ct.
1248,
1254 (1989)).
Section
2
of
the
FAA
states
that
a written arbitration
agreement in any contract involving interstate commerce is valid,
irrevocable, and enforceable except on grounds that would permit
the revocation of a contract in law or equity.
9
u.s.c.
§
2.
Section 3 of the FAA requires federal courts, on a party's motion,
to stay litigation of claims subject to arbitration.
9 U.S.C.
§
3.
Section 4 of the FAA permits a party to seek an order compelling
arbitration if the other party has failed to arbitrate under a
written agreement.
9 U.S.C.
when
motion
ruling
on
a
§
to
4.
Courts apply a two-step inquiry
compel
arbitration.
Edwards
Doordash, Incorporated, 888 F.3d 378, 743 (5th Cir. 2018).
v.
"First,
the court asks whether there is a valid agreement to arbitrate and,
second,
whether the current dispute falls within the scope of a
valid agreement."
B.
Id.
Analysis
To
determine
whether
Defendants'
request
for
an
order
compelling arbitration should be granted, the court must determine
whether an enforceable agreement to arbitrate existed between the
parties.
Defendants argue that the Agreement is enforceable and
that Plaintiff is therefore required to submit to arbitration.
Plaintiff
argues
that
the
Agreement
is
unenforceable
as
an
additional term to Plaintiff's original agreement to purchase coins
-16-
il
from NCM.
Plaintiff also argues that the Agreement is invalid
because she did not agree to arbitrate and that the Agreement is
both substantively and procedurally unconscionable. 8
1.
Enforceability of the Agreement
Agreements to arbitrate are contracts, and the ordinary rules
regarding contract formation apply.
v.
Kaplan,
115 s.
Ct.
1920,
1924
First Options of Chicago, Inc.
(1995);
Fleetwood Enterprises,
Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002)
law the elements of an enforceable contract are:
Under Texas
( 1 ) an offer ;
(2) an acceptance;
(3) a meeting of the minds;
(4) a communication
that
consented
of
each
party
to
the
terms
the
contract;
(5) execution and delivery of the contract with an intent that it
become mutually binding on both parties;
and
(6)
consideration.
Coleman v. Reich, 417 S.W.3d 488, 491 (Tex. App. -- Houston [14th
Dist.] , no pet.) .
Plaintiff
argues
that
the
Agreement
is
an
unenforceable
additional term contained in an acceptance of a contract between
Plaintiff and NCM for the purchase of coins.
The Texas Business
and Commerce Code governs contracts for the sale of goods, such as
the coins that Plaintiff purchased from NCM.
Under§ 2.207 of the
Texas Business and Commerce Code additional terms in an acceptance
of an offer where a party is not a merchant are to be construed as
8
Plaintiff does not dispute that her claims fall within the
scope of the Agreement if it is valid.
-17-
proposals for an addition to the contract.
§
2.207.
TEX . Bus .
&
COMM . CODE
"If no answer is received [disagreeing or agreeing to the
proposed
additional
terms]
within
additional terms are proposed,
a
reasonable
time
after
it is both fair and commercially
sound to assume that their inclusion has been assented to."
§
2.207 n.6.
making
Id.
Acceptance can be made through conduct, such as by
continued
purchases
after
learning
of
the
proposed
See Preston Farm & Ranch Supply, Inc. v. Bio-Zyme
additional term.
Enterprises, 625 S.W.2d 295, 300 (Tex. 1981).
Plaintiff cites the court's opinion in Enpro Systems, Ltd. v.
Namasco Corp., 382 F. Supp. 2d 874 (S.D. Tex. 2005), in support of
her argument that the Agreement is not part of a contract between
Plaintiff and NCM.
of warranties
on a
In Enpro the court concluded that a disclaimer
delivery
shipment could not be
§
ticket
or
invoice
contained in a
included in the parties'
contract under
2.207 because the delivery ticket and invoice did not act as an
acceptance.
Id. at 882.
The court noted that "[a]n enforceable
contract existed before these documents could even have come to the
attention of relevant Enpro employees."
Id.
The court's opinion in Enpro does not apply in this case.
A
contract to buy and sell coins was formed when NCM shipped the
coins to Plaintiff with a form detailing the terms of the parties'
agreement
and
Plaintiff
retained
the
coins
for
the
period
prescribed by the Agreement after having an opportunity to inspect
the coins and NCM's terms.
The Agreement was not an additional
term, but a part of the parties' original contract.
-18-
While the Fifth Circuit has not addressed the enforceability of
an
arbitration
agreement
under
similar
facts,
other
circuits
addressing so-called "return-or-accept" arbitration agreements have
found them enforceable.
In Hill v. Gateway 2000,
Inc.,
105 F.3d
1147 (7th Cir. 1997), the court held that an arbitration agreement
printed on a
list of
terms
included in the box of
a
computer
purchased by the plaintiffs was enforceable against the plaintiffs.
Id. at 1148-51.
The arbitration agreement instructed the plain-
tiffs to return the computer within 30 days if they did not accept
either the product or the terms of the agreement.
Id. at 1148.
The
court noted that it did not matter that the plaintiffs did not
notice that the terms contained an agreement to arbitrate.
Id.
The
court stated that the seller was not required to inform consumers of
such agreements before they purchased a product.
Id. at 1149.
In Higgs v. Automotive Warranty Corp. of America, 134 F. App'x
828
(6th Cir. 2005),
for
an
automobile
the plaintiff responded to an advertisement
insurance
warranty
by
sending
completing a "Warranty Group Registration Form."
a
check
Id. at 829.
and
The
plaintiff later received a "Limited Warranty Service Contract" in
the mail containing an arbitration clause.
Id.
The plaintiff was
not required to sign the Limited Warranty Service Contract.
Id.
The Limited Warranty Service Contract contained a provision stating
that
if
the plaintiff was not
"completely satisfied"
"return it within 10 days and [the defendant would]
full money back guarantee."
Id. at 830.
-19-
he could
give
[him] a
The Sixth Circuit, citing
Hill,
held
that
"[k)eeping
the
warranty
past
ten
days
was
sufficient to demonstrate agreement to the terms of the contract,
including the arbitration clause."
Id. at 832.
The court also
found it significant that the plaintiff had been given notice when
completing his application that a service contract was forthcoming.
In Norcia v. Samsung Telecommunications America, LLC, 845 F.3d
1279,
1281-90
however,
(9th Cir.),
cert.
denied,
the Ninth Circuit held that
contained in the box of a
138
s. Ct. 203 (2017),
an arbitration agreement
cellular telephone purchased by the
plaintiff was unenforceable in part because the plaintiff never had
an opportunity to review the agreement before becoming bound by it.
The plaintiff purchased a cellular telephone and left the box (and
arbitration agreement contained within it) at the store and failed
to review the paperwork contained in the box.
Id. at 1282.
The
court noted that in-the-box contracts may be enforceable under
certain circumstances, but not where the party to be bound did not
have notice of the agreement.
Id. at 1289.
The court stated that
" [w] here a notice on a package states that the user agrees to
certain terms by opening the package,
a
court could reasonably
conclude, consistent with California contract law,
has a
duty to act
that the user
in order to negate the conclusion that
consumer had accepted the terms in the notice."
9
the
Id. at 1287. 9
California contract law is substantially the same as Texas
contract law.
Cubria v. Uber Technologies, Inc., 242 F. Supp. 3d
541, 547 (W.D. Tex. 2017).
-20-
The Agreement is analogous to the arbitration agreements at
issue in Hill and Higgs.
Like the plaintiffs in Hill and Higgs,
Plaintiff
opportunity
was
given
an
to
return
the
coins
she
purchased to prevent herself from being bound by the Agreement
after she had a chance to review its arbitration provision.
Like
the plaintiff in Higgs, Plaintiff had notice that additional terms
existed
before
making
her
purchase.
Recordings
of
telephone
conversations between Plaintiff and representatives of NCM show
both that Plaintiff was told of the arbitration terms and that
Plaintiff verbally consented to such terms. 10
case are distinguishable from Norcia.
The facts of this
Plaintiff had notice of the
terms contained in the Agreement and an opportunity to review it.
The Agreement's language gave Plaintiff an affirmative duty to act
-- i.e., to return the product within a certain time frame or be
bound by the Agreement's terms, which the Norcia court noted could
reasonably result in a binding agreement.
Plaintiff also argues that she did not accept the Agreement
because she failed to manifest her acceptance or communicate her
acceptance to NCM.
An offeror can specify a particular mode of
acceptance in its offer.
Franklin Life Insurance Co. v. Winney,
469 S.W.2d 21, 24 (Tex. Civ. App. -- San Antonio 1971, writ ref'd
n. r. e.).
According to the language of the Agreement,
10
Plaintiff
During recorded phone conversations where an NCM operator
told Plaintiff about the arbitration agreement,
she either
responded "OK" or "Alright." See Declaration of Morgan Spina, Esq.
in Connection with Defendants' Sur-Reply ("Spina Declaration"),
attached to Defendants' Sur-Reply, Docket Entry No. 54, p. 15.
-21-
could accept in one of three ways:
electronically consenting,
purchased for
Agreement.
to
the
a written signature, orally or
or by keeping the product Plaintiff
longer than the period of days
specified in the
Not only does it appear that Plaintiff verbally agreed
Agreement
on
several
occasions
during
her
telephone
conversations with NCM operators, but Plaintiff also accepted under
the terms of the Agreement by keeping dozens of coins for longer
than the period stated in the Agreement after having an opportunity
to review the Agreement.
Agreement
becoming
an
Plaintiff
may
Plaintiff's acceptance resulted in the
have
not
arbitrate any claims
enforceable
understood
contract.
that
she
she had against NCM does
The
was
not
fact
that
agreeing
to
render the
Agreement invalid.
2.
Unconscionability
An unconscionable agreement to arbitrate is unenforceable.
In re Palm Harbor Homes,
There
are
procedural.
two
types
of
Inc.,
195 S.W.3d 672,
unconscionability:
678
(Tex.
2006).
substantive
and
Procedural unconscionability "refers to the circum-
stances surrounding the adoption of the arbitration provision" and
substantive
unconscionability
arbitration provision itself."
56 6 ,
5 71
( Tex . 2 0 0 2 ) .
substantive
"refers
to
the
fairness
of
the
In re Halliburton Co., 80 S.W.3d
"[C]ourts may consider both procedural and
unconscionability
of
an
arbitration
evaluating the validity of an arbitration provision."
(emphasis added) .
-22-
clause
in
Id. at 572
!!
jj
H
n
n
II
ll
II
II
ii
Plaintiff
argues
that
the
Agreement
was
procedurally
unconscionable because she did not have sufficient notice of the
Agreement.
A party to a contract cannot use unconscionability to
n
negate a bargain because he was in a less advantageous bargaining
position.
Palm Harbor Homes, 195 S.W.3d at 679.
A party's failure
to read a contract or to understand its terms does not by itself
make that contract unconscionable.
The Agreement was printed on a
packing slip for each order of coins under the bolded heading
"IMPORTANT
INFORMATION
ABOUT
YOUR
ORDER!"
Plaintiff
had
an
opportunity to review the Agreement -- she placed over a hundred
orders with NCM and filled out the packing slip containing the
Agreement multiple times when making returns. 11
Recorded telephone
conversations show that NCM representatives informed Plaintiff of
the Agreement,
and her
responses
manifested agreement
on each
occasion. 12 The evidence does not support Plaintiff's argument that
11
See Plaintiff's Response, Docket Entry No. 19, p. 8;
Defendants' Motion, Docket Entry No. 16, p. 8; Invoice and Order
Registration Form, Exhibit C to Freedberg Declaration, Docket Entry
No. 16, p. 356; Invoice and Order Registration Form, Exhibit D to
Freedberg Declaration, Docket Entry No. 16, p. 358.
12
See Spina Declaration, attached to Defendants' Sur-Reply,
Docket Entry No. 54, p. 15. While the exact words varied slightly
on each occasion, the substance of the conversation Plaintiff had
with an NCM operator during four recorded conversations was as
follows:
Verifier: Your orders are 100% covered by our sixty-day,
money-back guarantee for purchase price and arbitration
terms.
The complete guarantee and terms information we
include on your invoice, which arrives with the coins, so
that you have them with you there in writing, OK?
Plaintiff:
Alright.
-23-
she did not have notice of, or agree to, the Agreement.
Plaintiff
had an opportunity to object to the Agreement by returning the
coins within the period provided by the Agreement, but she failed
to do so.
Plaintiff
argues
unconscionable
because
that
it
Agreement
the
requires
her
recover attorney's fees under the DTPA.
unconscionability
is
whether,
'given
to
is
waive
substantively
the
right
to
"The test for substantive
the
parties'
general
commercial background and the commercial needs of the particular
trade or case,
the clause involved is
so one-sided that it is
unconscionable under the circumstances existing when the parties
made the contract.'"
Palm Harbor Homes, 195 S.W.3d at 678.
parties agree to arbitrate statutory claims,
When
"a party does not
forego the substantive rights afforded by the statute;
it only
submits to their resolution in an arbitral, rather than a judicial,
forum."
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
105 S. Ct. 3346, 3354 (1985).
"[I]t would be unconscionable for an
arbitration agreement to mandate arbitration of a statutory claim
and at the same time eliminate the rights and remedies afforded by
the statute."
(Tex.
2014).
Venture Cotton Co-Op v. Freeman, 435 S.W.3d 222, 229
To determine whether a
restriction of statutory
rights is permissible the court must analyze the underlying purpose
of the statute.
See In re Poly-America, L.P., 262 S.W.3d 337, 348
( Tex . 2 0 0 8 ) .
-24-
The DTPA's primary purposes are "to protect consumers against
false, misleading, and deceptive business practices, unconscionable
actions,
and breaches of warranty and to provide efficient and
economical procedures to secure such protection."
CODE
§
17 . 4 4 (a) .
TEx. Bus.
&
CoMM.
The DTPA's attorney's fees provision seeks to
encourage consumers to bring their own complaints under the Act:
"[The Legislature]
provided for the recovery of attorney's fees
under the Deceptive Trade Practices Act, as encouragement to those
abused by certain proscribed conduct to avail themselves of the
remedies of the Act."
First City Bank-Framers Branch,
Guex, 677 S.W.2d 25, 30 (Tex. 1984)
a
(emphasis added).
consumer from recovering attorney's
fees
Texas v.
Preventing
would undermine the
DTPA's goal of protecting consumers' ability to seek redress for
conduct in violation of the DTPA.
The DTPA provides that "[a]ny
waiver by a consumer of the provisions of [the DTPA] is contrary to
public policy and is unenforceable and void"
TEX . Bus .
requirements for a valid waiver are met.
§
17.42(a).
unless the DTPA's
&
COMM. CODE
For a waiver to be valid under the DTPA it must, among
other things, be "conspicuous and in bold-face type of at least 10
points
in size"
Consumer
§
and be
Rights,'
or
"identified by
words
of
the
similar
heading
meaning."
'Waiver of
Id.
at
1 7 . 4 2 ( c ) ( 1 ) and ( 2 ) .
The Agreement applies to claims to enforce statutes such as
the DTPA. The Agreement states:
"You acknowledge and agree that
each party shall pay the fees and costs of its own counsel, experts
-25-
and witnesses. " 13
recovery
of
The right of a prevailing consumer-plaintiff to
"reasonable
guaranteed by the DTPA.
and
necessary"
TEX . Bus .
attorney's
COM . CODE
&
§
fees
1 7 . 50 (d) .
is
The
Agreement does not contain a waiver meeting the requirements of the
DTPA.
Because the Agreement prohibits Plaintiff from recovering
attorney's
fees
under
the
DTPA
if
she
prevails,
it
is
unconscionable.
However,
"' [a] n
illegal
or unconscionable
provision of
a
contract may generally be severed so long as it does not constitute
the essential purpose of the agreement. '"
S.W.3d at 230.
Venture Cotton,
435
"In determining an agreement's essential purpose,
the issue is 'whether or not parties would have entered into the
agreement absent the unenforceable provisions.'"
Id.
In Venture
Cotton the court concluded that rather than invalidating an entire
arbitration agreement,
invalid waiver
of
the trial court should have severed the
DTPA remedies
arbitration agreement to stand.
The
essential
purpose
of
and
allowed
the
rest
the
Agreement
is
to
court.
America,
an
S.W.3d
at
the
submit
any
Id. at 230-31.
disputes to an arbitral forum rather than a
262
of
360.
Eliminating
See Poly-
unconscionable
restriction on remedies will not defeat this purpose.
"In fact,
the lifting of that illegal restriction enhances the ability of the
arbitration provision to function fully and adequately under the
13
See Invoice and Order Registration Form, Exhibit
Freedberg Declaration, Docket Entry No. 16, p. 356.
-26-
C
to
law."
Hadnot v.
Bay,
Ltd.,
344 F. 3d 474,
478
(5th Cir.
2003).
Neither party has presented evidence that NCM or Plaintiff would
not
have
portion.
entered
into
the
Agreement
absent
the
unenforceable
The court concludes that the Agreement's restriction on
recovery of attorney's fees may be severed while preserving the
parties' choice of arbitration as the forum for resolving disputes.
See, e.g., Bonded Builders Home Warranty Association of Texas v.
Rockoff, 509 S.W.3d 523, 537 (Tex. App. -- El Paso 2016, no pet h.)
(" [T] he
arbitrator would be
Venture Cotton Cooperative,
fees,
and sever
Cotton,
it
from
435 S.W.3d at 230.
bound,
as
we
would be,
to
follow
strike the limitation on attorney's
the
arbitration agreement.") ;
Therefore,
Venture
the court will sever the
attorney's fees limitation from the Agreement.
Because Defendants have shown both that a valid arbitration
agreement exists and that Plaintiff's claims fall within its scope,
Defendants' Motion to Compel arbitration will be granted.
Perry
has consented to arbitrate this dispute, 14 and Plaintiff does not
object to Perry's consent.
When all parties to an action are bound
by an arbitration agreement the court has discretion to dismiss it.
Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir.
1992) .
Because StratusCom has not consented to arbitration of
14
See Correspondence from Defendants' Counsel, Exhibit 4 to
Plaintiff's Response, Docket Entry No. 19 ("For the convenience of
both you and your client, we are willing to hold the arbitration in
the Houston area."), p. 15.
-27-
Plaintiff's claims against it,
the court will stay this action,
instead of dismissing it, pending completion of the arbitration of
Plaintiff's claims against NCM and Perry.
IV.
Conclusion
For the reasons stated above, Defendants' Motion to Dismiss
Randy T. Perry and Compel Arbitration or,
in the Alternative,
to
Dismiss for Failure to Plead Fraud with Particularity (Docket Entry
No. 16) is GRANTED in part and DENIED in part as follows:
Defendants' Motion to Dismiss Perry is DENIED.
Defendants' Motion to Compel Arbitration is GRANTED.
Defendants' Motion to Dismiss for Failure to Plead Fraud
with Particularity is MOOT in light of Plaintiff's First
Amended Complaint (Docket Entry No. 75).
The Agreement's limitation on Plaintiff's right to
recover attorney's fees under the DTPA is SEVERED from
the Agreement.
This action is STAYED.
The parties will file a status report
on February 8, 2019, and every 60 days thereafter.
SIGNED at Houston, Texas, on this 4th day of December, 2018.
UNITED STATES DISTRICT JUDGE
-28-
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