Adams et al v. ACSO of Texas, Inc.

Filing 12

ORDER GRANTING 8 Motion to Compel Arbitration and GRANTING 8 Motion to Stay Case; DISMISSING 8 Motion to Dismiss as moot. Signed by Judge Xavier Rodriguez. (tm)

UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
LILLIE M. ADAMS, WANDA LEE
BARNETT, DIANE ALVARADO CANTU,
ROSA M. CASTILLO, CHERYL LYNN
COOPER, WILLIAM ERWIN, CATHI L.
GROOVER, BEVERLY LOPEZ HUGHIE,
ROBERT DANIEL LIMON, SHERYL ANN
MCKINNEY, JANET MEDINA,
GREGORY MAURICE OWENS, MELVIN
EUGENE SHELL, GILBERT D. SOSA,
VERNA LOIS TAYLOR, and BARBARA
ANN ZUNIGA,
Plaintiffs,
v.
ACSO OF TEXAS, INC.,
Defendant.

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§ Civil Action No. SA-11-CA-0187-XR
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ORDER ON MOTION TO COMPEL ARBITRATION
On this date, the Court considered Defendant ACSO of Texas, Inc.’s Motion to Compel
Arbitration and Stay Litigation (Docket No. 8), and the Response and Reply thereto. Defendant’s
motion to compel arbitration is GRANTED, but the order is stayed pending the Supreme Court’s
decision in CompuCredit v. Greenwood.
Background
Plaintiffs, Lillie M. Adams, Wanda Lee Barnett, Diane Alvarado Cantu, Rosa M. Castillo,
Cheryl Lynn Cooper, William Erwin, Cathi L. Groover, Beverly Lopez Hughie, Robert Daniel Limon,
Sheryl Ann McKinney, Janet Medina, Gregory Maurice Owens, Melvin Eugene Shell, Gilbert D.

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Sosa, Verna Lois Taylor, and Barbara Ann Zuniga, sued Defendant, ACSO of Texas, Inc., alleging
violations of the Credit Repair Organizations Act (“CROA”).1 Defendant moved to compel
arbitration and stay litigation according to the arbitration provisions within the credit services
contracts executed between each Plaintiff individually and the Defendant. In the alternative,
Defendant moved to stay the case pending the Supreme Court’s decision in Compucredit v.
Greenwood. As a third alternative, Defendant moved to dismiss for failure to state a claim under Rule
12(b)(6).2
Legal Standard
In considering a motion to compel arbitration under the Federal Arbitration Act (“FAA”),
courts must engage in a two-step analysis. Janvey v. Alguire, 628 F.3d 164, 182 (5th Cir. 2010). The
first step of the analysis is to determine whether “‘(1) . . . there is a valid agreement to arbitrate the
claims and (2) . . . [whether] the dispute in question fall[s] within the scope of that arbitration
agreement.’” Id. at 182 (quoting Sherer v. Green Tree Servicing, 548 F.3d 379, 381 (5th Cir. 2008)).
These determinations “‘[are] generally made on the basis of ordinary state-law principles that govern
the formation of contracts.’” Torres v. S.G.E. Mgmt., L.L.C., 397 Fed. Appx. 63, 65 (5th Cir. 2010)
(quoting Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008)). Importantly, any
“ambiguities as to the scope of the arbitration clause itself [are] resolved in favor of arbitration.” Volt
Info. Sci., Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S. Ct. 1248,
103 L. Ed. 2d 488 (1989). After finding the arbitration agreement to be valid, the court must continue

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Pl.’s Am. Compl., Apr. 14, 2011 (Docket Entry No. 7).

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Def.’s Mot. to Compel Arbitration and Stay Litigation, or in the alternative Mot. to Stay, or in the
alternative, Mot. to Dismiss for Failure to State a Claim, May 2, 2011 (Docket No. 8).

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to step two of the analysis by examining whether “‘any federal statute or policy renders the claims
nonarbitrable.’” Janvey, 628 F.3d at 182 (quoting Sherer, 548 F.3d at 381). In the absence of a
contrary federal statute, arbitration should be compelled in accordance with the FAA. 9 U.S.C. § 3.
Analysis
The credit services contracts signed by each Plaintiff individually and Defendant contain a
series of arbitration provisions. As Defendant states, the contract “discloses the parties’ acceptance
and agreement to waive a jury trial in favor of individual arbitration no fewer than four times before
the customer’s signature block.” Def.’s Mot. to Compel Arbitration and Stay Litigation at 3-4.
Specifically, the contract contains the following provision:
For purposes of this Waiver of Jury Trial and Arbitration provision (hereinafter the
“Arbitration Provision”), the words “dispute” and “disputes” are given the broadest
possible meaning and include, without limitation . . . (b) all federal or state law
claims, disputes or controversies arising from or relating directly or indirectly to the
. . . Contract for Purchase of Credit Services (including the Arbitration Provision) . .
. and/or any past agreement or agreements between you and us; . . . (e) all claims
based upon a violation of any state or federal constitution, statute or regulation . . . .
Def.’s Mot. to Compel Arbitration and Stay Litigation at Ex. A-P.
In determining whether this arbitration provision is valid, it is necessary to look to Texas law
given that it is the law of the forum. Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008).
In accordance with the FAA, Texas courts “employ a strong presumption in favor of arbitration.” In
re Rubiola, 334 S.W.3d 220, 225 (Tex. 2011) (citing Cantella & Co., Inc. v. Goodwin, 924 S.W.2d
943, 944 (Tex. 1996); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995)). Applying
this presumption, the arbitration provision in the credit services contract at issue is facially valid.
Additionally, when assessing whether the dispute falls within the scope of the arbitration clause,
“[t]he policy in favor of enforcing arbitration agreements is so compelling that a court should not
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deny arbitration ‘unless it can be said with positive assurance that an arbitration clause is not
susceptible of an interpretation which would cover the dispute at issue.’” Id.; Prudential Sec. Inc.,
909 S.W.2d at 899. Because the arbitration provision covers “all claims based upon a violation of
any state or federal constitution, statute or regulation,” Plaintiffs’ assertions of CROA violations
sufficiently fall within the scope of the provision. Finally, Texas courts “presume a party. . . who has
the opportunity to read an arbitration agreement and signs it, knows its contents” and is thus, bound
to the agreement. EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 90 (Tex. 1996) (citing Cantella & Co.,
Inc., 924 S.W.2d at 944; Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962)). Plaintiffs and
Defendant, therefore, have agreed to a valid arbitration provision within the credit services contract.3
Plaintiffs do not dispute the validity of the arbitration provisions within the credit services
contract or argue that the controversy falls outside of the scope of the provisions. Instead, Plaintiffs’
objection to arbitration relates to step two of the motion to compel arbitration analysis. Plaintiffs
argue that “[c]laims brought under the CROA are not subject to arbitration because Congress granted
consumers the express right to sue under the statue.” Pls.’ Resp. to Mot. to Compel Arbitration at ¶1.4
Plaintiffs’ reference to “the express right to sue under the statute” concerns Section 1679c of the
CROA. 15 U.S.C. § 1679c(a). The section contains a list of consumer rights that credit repair
organizations must disclose prior to entering into an agreement with a consumer. Id. One right that
organizations must disclose reads as follows: “You have a right to sue a credit repair organization
that violates the Credit Repair Organization Act.” Furthermore, Section 1679f of the CROA contains

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Plaintiffs point out that the arbitration provisions in the individual contracts are not identical. Thus,
each arbitration will proceed according to the terms of the individual agreements.
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Pls.’ Resp. to Mot. to Compel Arbitration, May 11, 2011 (Docket No. 9).

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the following non-waiver provision: “Any waiver by any consumer of any protection provided by or
any right of the consumer under this subchapter– (1) shall be treated as void; and (2) may not be
enforced by any Federal or State court or any other person.” 15 U.S.C. § 1679f(a).
Plaintiffs urge the Court to adopt the Ninth Circuit’s reasoning in Greenwood v. CompuCredit
and to interpret the “right to sue” and non-waiver provisions as excluding arbitration as a means of
conflict resolution in cases involving credit repair organizations. 615 F.3d 1204, 1209 (9th Cir.
2010), cert granted, No. 10-948. In reaching this conclusion, the Ninth Circuit opined that when the
language “right to sue” is given its “plain and ordinary meaning,” it is properly defined as a “right to
bring an action in a court of law.” Id. at 1208. Relying on this definition, the Ninth Circuit then held
that “[a]s a matter of parlance, reference, and common sense, we cannot conclude that when Congress
used the word ‘sue,’ it really meant ‘arbitrate.’” Id. at 1209. Considering this in conjunction with
the non-waiver provision, the Ninth Circuit concluded that Congress intended to provide consumers
with the non-waivable right to bring claims in court against credit repair organizations. Id. at 1214.5
Conversely, Defendant asks the Court to align with the Third and Eleventh Circuits in holding
CROA claims to be arbitrable. In Gay v. CreditInform and Picard v. Credit Solutions, Inc., the Third
and Eleventh Circuits, respectively, rejected the argument that the CROA created a non-waivable,
substantive “right to sue” in a judicial forum. In Picard, the Eleventh Circuit acknowledged that the
statute created the right of a consumer to receive a disclosure of rights from the credit repair
organization prior to engaging in a transaction. Picard v. Credit Solutions, 564 F.3d 1249, 1255 (11th
Cir. 2009); see 15 U.S.C. § 1679c(a). One such right to be disclosed was the right of the consumer

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One district court in the Fifth Circuit has held that CROA claims are non-arbitrable. See Alexander
v. U.S. Credit Mgmt., Inc., 384 F. Supp. 2d 1003, (N.D. Tex. 2005).

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to bring a cause of action against the organization. Picard, 564 F.3d at 1255. Thus, the Eleventh
Circuit stated, the CROA did not create a substantive “right to sue,” but rather, required credit repair
organizations to disclose to consumers that this right existed. Id. Given this analysis, the Eleventh
Circuit found no basis to conclude that Congress intended to prohibit arbitration in cases involving
credit repair organizations. Id. Instead, the Court was confident that “[t]he substantive rights created
in the CROA are entirely preserved in an arbitral forum.” Id. (citing Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 637, 105 S. Ct. 3346, 3359 (1985)).
Applying a similar line of reasoning, the Third Circuit in Gay stated that “[r]ather than
creating substantive rights the statute[] merely recognize[s] that a party who believes she has been
wronged may bring an action in a court seeking a remedy for her injuries.” Gay v. CreditInform, 511
F.3d 369, 382 (3d Cir. 2007). The Court found no indication that Congress intended to prohibit
arbitration in the context of CROA disputes, nor did the plaintiffs adequately show that the rights that
the CROA actually did create could not be adequately protected by the arbitral process. Id.
Furthermore, given that the non-waiver provision in Section 1679f only applies to “any right of the
consumer under this subchapter,” the Third Circuit concluded that the right to bring a cause of action
in a judicial forum was not covered by the non-waiver provision in Section 1679f because it was not
a right created within the statute. Id. at 383.
Considering these opposing interpretations of the CROA and the fact that the Fifth Circuit has
not yet considered this issue, this Court chooses to follow the interpretations of the Third and
Eleventh Circuits and holds that the “right to sue” language of Section 1679c(a) does not exclude
arbitration as a means of settling disputes related to CROA violations. Viewing both Circuits’
reasoning in conjunction with the federal policy of upholding arbitration agreements expressed
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through the FAA and the fact that Congress did not include an explicit prohibition of arbitration
within the CROA, this Court finds it appropriate to enforce the arbitration clause within the credit
services contract.

However, the Supreme Court recently granted certiorari in the case of

CompuCredit v. Greenwood to resolve the issue of “whether claims arising under the [CROA] are
subject to arbitration pursuant to a valid arbitration agreement.” Petition for Writ of Certiorari at 1,
CompuCredit Corp. v. Greenwood, No. 10-948.

Because the question to be answered in

CompuCredit is the same as that in the current case, this Court will stay its order compelling
arbitration pending the Supreme Court’s holding in CompuCredit.
Conclusion
Plaintiffs’ claims are subject to valid arbitration agreements. The “right to sue” provision of
the CROA, Section 1679c(a) and the non-waiver provision of Section 1679f(a) do not prohibit the
enforcement of the arbitration agreement. Therefore, Defendant’s Motion to Compel Arbitration and
Stay Litigation (docket no. 8) pursuant to 9 U.S.C. § 3 is GRANTED, but the order and all
proceedings in this case are STAYED pending the Supreme Court’s decision in CompuCredit v.
Greenwood. Defendant’s alternative Rule 12(b)(6) motion is DISMISSED AS MOOT.
It is so ORDERED.
SIGNED this 13th day of June, 2011.

_________________________________
XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

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