Kelley v. Sallie Mae, Inc. et al
Filing
20
MEMORANDUM OPINION AND ORDER DENYING MOTION TO REMAND, GRANTING MOTION TO COMPEL ARBITRATION, AND STAYING ACTION DURING ARBITRATION: Granting 8 Motion to Compel; Denying 10 Motion to Remand to State Court. ( Status Report due by 10/15/2015.) Signed by Senior Judge Frederick P. Stamp, Jr on 4/14/15. (soa)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
PATTY KELLEY,
Plaintiff,
v.
Civil Action No. 5:14cv138
(STAMP)
SALLIE MAE, INC.; SLM Corporation;
and NAVIENT SOLUTIONS INC.,
Defendants.
MEMORANDUM OPINION AND ORDER DENYING MOTION TO REMAND,
GRANTING MOTION TO COMPEL ARBITRATION, AND
STAYING ACTION DURING ARBITRATION
I.
Procedural History
This civil action was removed to this Court from the Circuit
Court of Marshall County, West Virginia.
In her complaint, the
plaintiff, Patty Kelley, alleges that the defendants, Sallie Mae,
Inc.
(“Sallie
Mae”),
Solutions,
Inc.
improperly
attempted
defendants
were
SLM
Corporation
(“SLM”),
(“Navient”)(collectively,
to
aware
collect
that
the
a
debt
plaintiff
“the
from
was
and
Navient
defendants”),
her
after
represented
the
by
counsel. The plaintiff asserts causes of action for (1) violations
of the West Virginia Consumer Credit and Protection Act (“WVCCPA”),
(2) violations of the West Virginia Computer Crime and Abuse Act
(“WVCCAA”), (3) intentional infliction of emotional distress, and
(4) invasion of privacy.
The underlying debt arose from two Smart
Option Student Loans for which the plaintiff was a cosigner for her
daughter
who
was
attending
Bethany
College
in
Bethany,
West
Virginia.
The defendants thereafter removed the action to this Court.
In support of the amount in controversy, the defendants state in
the notice of removal that "the action is one that may be removed
to this Court by the Defendants pursuant to the provisions of Title
28 U.S.C. §§ 1441 and 1446, because the amount in controversy, if
proven, appears to exceed the sum or value of $75,000.00, exclusive
of costs and interest . . . ."
After removal, the defendants filed
a motion to compel arbitration.
The plaintiffs followed that
motion with a motion to remand. Both motions are fully briefed and
ripe for review.
II.
A.
Facts
Motion to Remand
In her motion to remand, the plaintiff argues that the
defendants have not shown that the amount in controversy exceeds
$75,000.00, exclusive of interests and costs.
The plaintiff
indicates that in her complaint she did not state the value of her
claim.
The plaintiff contends that the defendants assertion that
the amount in controversy exceeds $75,000.00 without any evidence
to support it, is a conclusory allegation which is insufficient to
meet the defendants' burden.
In
response,
the
defendants
assert
that
the
amount
in
controversy is met. Based on the allegations in the complaint, the
2
defendants argue that there were at least 16 violations of the
WVCCPA from which the plaintiff could recover damages.
The
defendants assert that, given inflation, the accepted amount for a
WVCCPA claim is $4,737.57 per violation.
Thus, the defendants
argue that this figure alone would meet the amount in controversy
requirement.
Further, the defendants assert that this must be
considered along with the plaintiff's request for the cancellation
of her debt which totals $31,506.41.
The defendants provided an
affidavit from a Navient customer advocate to support the figures
they have provided.
In her reply, the plaintiff asserts that the defendants’
affidavit should not be considered because it was not provided by
the defendants at the time of removal.
The plaintiff argues that
this Court should not adopt a "remove first, provide evidence
later" approach because such an approach is inefficient for (1) the
Court, who must now consider a motion to remand and (2) the
plaintiff, who must file a motion to remand based on the evidence
that exists at the time the notice of removal is filed.
B.
Motion to Compel Arbitration
In their motion, the defendants argue that this action is
governed by the Federal Arbitration Act ("FAA") because the two
promissory notes and applications that the plaintiff cosigned
contained valid arbitration agreements. The defendants assert that
3
the agreements must be upheld unless they are both procedurally and
substantively unconscionable.
In
response,
the
plaintiff
asserts
that
the
arbitration
agreements are unconscionable and should be invalidated.
In the
alternative, the plaintiff argues that she is entitled to discovery
into arbitrability if the Court finds that the agreements are not
facially unenforceable.
However, for the following reasons, she
argues that the agreements are facially unenforceable:
(1) The underlying notes are adhesion contracts because
the plaintiff is an unsophisticated consumer, the terms
of the contracts were not explained to her, the contracts
were presented on a "take ir or leave it" basis under
which the plaintiff was unable to negotiate any of the
terms, and they are pre-printed form contracts with
arbitration agreements buried at the end of the 8th and
9th pages in small print.
(2) The arbitration agreements are substantively
unconscionable because they strip the plaintiff of her
statutory right under the WVCCPA to seek attorneys’ fees
and costs. According to the arbitration agreements, if
the plaintiff appeals the administrator's decision, then
she would have to pay the administrator's and
arbitrator's costs fo the appeal thus stripping away part
of her statutory right to attorneys’ fees and costs.
(3) The arbitration agreements contain conflicting
clauses as to what the plaintiff may recover and thus the
defendants cannot show that there was a meeting of the
minds because plaintiff could not have formed an intent
to agree to conflicting terms. Further, the conflict
between these clauses is procedurally unconscionable as
a layperson such as the plaintiff would not be able to
reconcile the ambiguous agreements.
(4) The arbitration agreements impose unconscionable and
burdensome costs on the plaintiff.
The appeal costs
would require the plaintiff to advance all filing and
appeal fees and also be responsible for paying the fees
for three arbitrators which discourages the plaintiff
4
from seeking an appeal. Also, it is unclear from the
arbitration agreements what fees and costs the plaintiff
will be responsible for if the defendants' motion is
granted. The plaintiff argues that the remedial effect
of the WVCCPA would be lost because the plaintiff would
be forced to pay exorbitant arbitration costs.
In
their
reply,
the
defendants
first
argue
that
the
arbitration agreements are not contracts of adhesion because the
plaintiff had the right to reject the arbitration agreements while
preserving the other terms of the promissory notes. The defendants
assert that the weight of controlling authority supports this
argument.
Further, the defendants contend that the arbitration
agreements only require the plaintiff to pay attorneys’ fees and
costs if she is not successful on her claims and even then the
defendants would be required to consider any good faith request to
cover those costs.
As such, the defendants assert that the
plaintiff's statutory rights are not abridged and in fact she will
have greater rights to recover attorneys’ fees in arbitration than
in court.
Additionally, the defendants argue that the arbitration
costs are not unconscionable as the plaintiff will only pay an
up-front fee of $200-$250, less than court fees, and the defendants
must give her request to pay fees a good faith consideration.
For
the
the
reasons
stated
above,
the
defendants
contend
that
arbitration agreements, or even the loan agreements themselves,
should not be invalidated.
5
Based on the analysis that follows, this Court finds that the
plaintiff’s motion to remand is denied and the defendants’ motion
to compel arbitration is granted.
III.
A.
Applicable Law
Motion to Remand
A defendant may remove a case from state court to federal
court in instances where the federal court is able to exercise
original jurisdiction over the matter.
28 U.S.C. § 1441.
Federal
courts have original jurisdiction over primarily two types of
cases: (1) those involving federal questions under 28 U.S.C.
§ 1331, and (2) those involving citizens of different states where
the amount in controversy exceeds $75,000.00, exclusive of interest
and costs pursuant to 28 U.S.C. § 1332(a).
The party seeking
removal bears the burden of establishing federal jurisdiction. See
Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151
(4th Cir. 1994).
Removal jurisdiction is strictly construed, and
if federal jurisdiction is doubtful, the federal court must remand.
Id.
Although courts strictly construe the statute granting removal
jurisdiction, Doe v. Allied Signal, Inc., 985 F.2d 908, 911 (7th
Cir. 1993), the court is not required “to leave common sense
behind” when determining the amount in controversy.
Mullens v.
Harry’s Mobile Homes, 861 F. Supp. 22, 24 (S.D. W. Va. 1994).
When
the amount in controversy is not apparent on the face of the
6
plaintiff’s complaint, the federal court must attempt to ascertain
the amount in controversy by considering the plaintiff’s cause of
action as alleged in the complaint and any amendments thereto, the
notice of removal filed with a federal court, and other relevant
materials in the record.
14C Charles Allen Wright & Arthur R.
Miller, Federal Practice and Procedure § 3725 at 73 (3d ed. 1998).
However, the court is limited to examining only evidence that was
available at the moment the petition for removal was filed.
Chase
v. Shop ‘N Save Warehouse Foods, 110 F.3d 424, 428 (7th Cir. 1997).
B.
Motion to Compel Arbitration
The Federal Arbitration Act (“FAA”) applies to “[a] written
provision in any . . . contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising
out of such contract or transaction, or the refusal to perform the
whole or any part thereof . . . .”
9 U.S.C. § 2.
When a party
seeks enforcement of the arbitration clause of an agreement during
proceedings in a district court, a party sufficiently “invoke[s]
the full spectrum of remedies under the [Federal Arbitration Act,
9 U.S.C. § 1, et seq. (“FAA”)].”
Choice Hotels Intern., Inc. v.
BSR Tropicana Resort, Inc., 252 F.3d 707, 710 (4th Cir. 2001).
In order to compel arbitration under the FAA, the law of the
United States Court of Appeals for the Fourth Circuit provides that
a moving party must “demonstrate (1) the existence of a dispute
between the parties, (2) a written agreement that includes an
7
arbitration provision which purports to cover the dispute, (3) the
relationship
of
the
transaction,
which
is
evidenced
by
the
agreement, to interstate or foreign commerce, and (4) failure,
neglect, or refusal of the [opposing party] to arbitrate the
dispute.”
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th
Cir. 2002) (citing Whiteside v. Teltech Corp., 940 F.2d 99, 102
(4th Cir. 1991)).
Further, while federal law determines the
arbitrability of issues, “[w]hether a party agreed to arbitrate a
particular dispute is a question of state law governing contract
formation.”
Id. at 501 (citing First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995)).
Federal policy generally takes a liberal stance in favor of
See Adkins, 303
enforcement of contractual arbitration clauses.
F.3d at 500.
pursuant
to
When determining whether an issue is arbitrable
a
contractual
provision,
courts
are
required
to
“resolve ‘any doubts concerning the scope of arbitrable issues
. . . in favor of arbitration.’”
Hill v. PeopleSoft USA, Inc., 412
F.3d 540, 543 (4th Cir. 2005) (quoting Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).
IV.
A.
Discussion
Motion to Remand
1.
Consideration of the Defendant’s Affidavit
This Court must first determine whether it may consider the
affidavit provided with the defendants’ response to the motion to
8
remand. The plaintiff asserts that this Court may not consider the
affidavit as it was not provided with the notice of removal.
However, based on the following, this Court finds that it may
consider the defendants’ affidavit in determining whether the
amount in controversy has been met and satisfies the requirements
for removal.
In Dart Cherokee Basin Operating Company, LLC, et al. v.
Owens, 135 S. Ct. 547 (2014), the Supreme Court of the United
States held that, pursuant to § 1446(a), “a defendant’s notice of
removal need include only a plausible allegation that the amount in
controversy exceeds the jurisdictional threshold.”
135 S. Ct. at
555. That plausible allegation requirement, however, is made under
the assumption that the plaintiff does not contest that the amount
in controversy is satisfied.
If the plaintiff does contest the
defendant’s plausible allegation, however, removal will be proper
“by
the
defendant
‘if
the
district
court
finds,
by
the
preponderance of the evidence, that the amount in controversy
exceeds’ the jurisdictional amount.”
Id. at 553-54 (quoting 28
U.S.C. § 1446(c)(2)(B) (2011)). If a “defendant’s assertion of the
amount in controversy is challenged, . . . both sides submit proof
and the court decides, by a preponderance of the evidence, whether
the amount-in-controversy requirement has been satisfied.”
554.
9
Id. at
Although the defendants only made a plain statement regarding
the amount in controversy, it appears to be enough to meet the
requirements set forth by the Supreme Court in Dart. Thus, because
the defendants asserted that the amount-in-controversy was met in
their notice of removal, and the plaintiff is now challenging it,
this Court must determine by a preponderance of the evidence
whether the amount-in-controversy requirement has been satisfied.
That determination, pursuant to Dart, is completed by reviewing the
proof submitted by both sides which includes the defendants’
affidavit.
This finding comports with previous practice whereby
“[c]ourts have observed that the propriety of treating later-filed
documents as amendments to a notice of removal depends on the
content of the notice of removal and the record as a whole.”
Carter v. Monsanto Co., 635 F. Supp. 2d 479, 487 (S.D.W. Va.
2009)(citing USX Corp. v. Adriatic Ins. Co., 345 F.3d 190, 206 n.
12 (3d Cir.2003); Buell v. Sears, Roebuck & Co., 321 F.2d 468, 471
(10th Cir.1963)).
Accordingly, this Court finds that it may
consider the defendants’ affidavit that was filed with their
response to the motion to remand.
2.
Amount in Controversy
In their response to the motion to remand, the defendants
provided an affidavit from Lori Ungvarsky (“Ungvarsky”), a customer
advocate for Navient. In her affidavit, Ungvarsky asserts that the
plaintiff was called multiple times, at least sixteen, after August
10
7, 2013.
Further, Ungvarsky indicates that the outstanding amount
owed on the plaintiff’s debts is $31,506.41.
The plaintiff does
not dispute these assertions in her reply to the motion to remand.
When there is a maximum penalty by statute, it is appropriate
to measure the amount in controversy by the maximum and not by what
the plaintiff is likely to win.
See Brill v. Countrywide Home
Loans Inc., 427 F.3d 446, 449 (7th Cir. 2005); Korn v. Polo Ralph
Lauren Corp., 536 F. Supp. 2d 1199 (9th Cir. 2008).
This method of
measuring the amount in controversy is also the common practice in
cases under the WVCCPA which have been removed to federal court.
See Knott v. HSBC Card Services Inc., No. 3:10CV82, 2010 WL
35522105 at *4 (N.D. W. Va. Sept. 8, 2010); Maxwell v. Wells Fargo
Bank, N.A., No. 2:09-0500, 2009 WL 3293871 (S.D. W. Va. Oct. 9,
2009). As the surrounding case law demonstrates, it is appropriate
to use the statutory maximum in estimation of the amount in
controversy.
See e.g., Woodrum v. Mapother & Mapother P.S.C.,
Inc., No. 2:10-00478, 2010 WL 3943732 at *4 (W. Va. Oct. 5, 2010);
Jefferson v. Quicken Loans, Inc., No. 5:13CV59, 2013 WL 3812099, at
*2 (N.D. W. Va. July 19, 2013).
Pursuant to the WVCCPA, penalties for such violations are “not
less than one hundred dollars nor more than one thousand dollars.”
W. Va. Code § 46A-5-101(1).1
Further, the United States Department
1
On March 31, 2015, several provisions of the WVCCPA were
amended. One of which is that statutory damages no longer have a
minimum of $100, but still retain a maximum of $1,000. However, to
11
of Labor Consumer Price Index provides an adjusted maximum penalty
of $4,737.57, providing for inflation, as the $1,000.00 maximum was
set in 1974. Id.; see Thomas v. FIA Card Services, Nat. Ass’n,
5:14CV79, 2014 WL 4954389 (N.D.W. Va. Oct. 2, 2014).
Under the
standard cited above, this Court will use the maximum statutory
penalty to calculate the amount in controversy in this case given
the evidence.
In this case, the defendants have provided evidence that there
were at least sixteen calls made to the plaintiff after the alleged
date that she obtained counsel. The plaintiff has not provided any
evidence to the contrary.
Given the evidence, if at least sixteen
calls were made, the amount-in-controversy for the alleged WVCCPA
violations would exceed $75,000.00, exclusive of interest and costs
($75,801.12).
Thus, given the uncontested number of calls, this
Court finds by a preponderance of the evidence that the amount-incontroversy exceeds $75,000.00, exclusive of interest and costs.
This finding is further bolstered by the additional claim of
the plaintiff that any alleged debt be cancelled.
The defendants
have asserted, and the plaintiff has not contested, that the
plaintiff’s outstanding debt is $31,506.41.
As such, the amount-
in-controversy, taken with the WVCCPA violations claims, would
exceed $75,000.00, exclusive of interest and costs.
this Court’s knowledge, it appears that the relevant amendments to
the WVCCPA will not apply until June 2015. See 2015 W. Va. S.B. 542
(West’s No. 178).
12
B.
Motion to Compel Arbitration
The plaintiff only contends that the promissory notes she
signed were unconscionable and thus she should not be held to the
arbitration agreements contained within those notes.
Thus, this
Court finds that, as the plaintiff does not contest the defendants’
other claims as to the arbitration agreements, all other aspects of
the arbitration agreements are sound.
This Court will therefore
only address the unconscionability argument.
West
Virginia
law
provides
that
“[t]he
doctrine
of
unconscionability means that, because of an overall and gross
imbalance, one-sidedness or lop-sidedness in a contract, a court
may be justified in refusing to enforce the contract as written.”
Brown v. Genesis Healthcare Corp. (“Brown II”), 729 S.E.2d 217, 226
(W. Va. 2012).
Analyzing a claim under that doctrine requires an
“inquiry into the circumstances surrounding the execution of the
contract and the fairness of the contract as a whole.”
Syl. Pt. 3,
Troy Min. Corp. v. Itmann Coal Co., 346 S.E.2d 749 (W. Va. 1986).
When assessing a claim of unconscionability, a court “must focus on
the
relative
positions
of
the
parties,
the
adequacy
of
the
bargaining positions, the meaningful alternatives available to the
plaintiff, and the existence of unfair terms in the contract.”
Syl. Pt. 4, Art’s Flower Shop, Inc. v. Chesapeake and Potomac
Telephone Co. of West Virginia, Inc., 413 S.E.2d 670 (W. Va. 1991)
(internal quotations omitted).
The doctrine of unconscionability
13
may be used in attempting to invalidate an arbitration agreement.
Brown I, 724 S.E.2d at syl. pt. 9; see Johnson Controls, Inc. v.
Tucker, 729 S.E.2d 808, 815 (W. Va. 2012). The application of
traditional contract law defenses, such as unconscionability, makes
sense,
considering
that
it
is
a
“fundamental
principle
that
arbitration is a matter of contract.” Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. 63, 67 (2010).
More specifically, West Virginia law separates a claim of
unconscionability into two components: procedural and substantive.
Brown II, 729 S.E.2d at 227 (internal citations omitted).
contract
term
becomes
unenforceable
substantive unconscionability exist.
if
both
Id.
procedural
A
and
In assessing whether
those two components have been proven, courts “apply a ‘sliding
scale’
in
oppressive
making
a
this
contract
determination:
term,
the
less
the
more
evidence
unconscionability is required” to prove that claim.
citations and quotations omitted).
substantively
of
procedural
Id. (internal
Those two components are
separately analyzed below.
1.
Procedural Unconscionability
Procedural
improprieties,
unconscionability
or
unfairness
formation of the contract.”
in
refers
the
to
any
bargaining
“inequities,
process
and
Brown II, 729 S.E.2d at 227; see
Pingley v. Perfection Plus Turbo-Dry, L.L.C., 746 S.E.2d 544, 551
(W. Va. 2013).
It requires an examination of certain inadequacies
14
that, when viewed together, “result in a lack of a real and
voluntary meeting of the minds of the parties.”
Pingley, 746
S.E.2d at 551 (quoting Syl. Pt. 17, Brown v. Genesis Healthcare
Corp. (“Brown I”), 724 S.E.2d 250 (W. Va. 2011)).
Those certain
inadequacies include “the age, literacy, or lack of sophistication
of a party; hidden or unduly complex contract terms; the adhesive
nature of the contract; and the manner and setting in which the
contract was formed, including whether each party had a reasonable
opportunity to understand the terms of the contract.” Pingley, 746
S.E.2d at 551 (quoting Brown I, 724 S.E.2d at syl. pt. 17).
In this case, the arbitration agreements are not procedurally
unconscionable.
agreements
and
After analyzing the language of the arbitration
the
facts,
it
is
clear
that
procedural
unconscionability is inapplicable. Regarding the sophistication of
the parties, it appears that the plaintiff is an adult who was
capable of seeking funding for her daughter’s college education.
As to the complexity and length of the documents, although the loan
documents could be considered lengthy, each loan application stated
the following on the first page: “I [the plaintiff] have read the
Promissory Note accompanying this application and each applicable
Notice to Cosigner and agree to the terms therein.” ECF Nos. 8-1 at
2; 8-2 at 2.
To the left of that statement, it states in bold,
capital letters the following: “CAUTION - IT IS IMPORTANT THAT YOU
THOROUGHLY READ THE CONTRACT BEFORE YOU SIGN IT. . . . NOTICE TO
15
CUSTOMER (a) DO NOT SIGN THIS BEFORE YOU READ THE PROMISSORY NOTE
EVEN IF OTHERWISE ADVISED.” Id.
The plaintiff executed those loan
applications, including the all capital provision quoted above.
Therefore, the plaintiff confirmed that she allegedly reviewed the
loan application documents.
Regarding the adhesion of the contract, the plaintiff had the
right
to
reject
the
arbitration
agreements.
The
arbitration
agreements, located within the documents for each loan, state the
following:
To the extent permitted under federal law, [Navient] and
[the plaintiff] agree that either party may elect to
arbitrate - and require the other party arbitrate - any
Claim under the following terms and conditions. This
Arbitration Agreement is part of the Signature Student
Loan Promissory Note (“Note”).
1. RIGHT TO REJECT: I [the plaintiff] may reject
this Arbitration Agreement by mailing a signed
rejection notice to P.O. Box 9480 Wilkes-Barre, PA
18773-9480 within 60 days after the date of my
first disbursement. Any Rejection Notice must
include my name, address, telephone number and loan
or account number.
ECF Nos. 8-1 at 10; 8-2 at 11.
That same arbitration agreement was
listed on all the documents for each loan.
The plaintiff did not
reject that provision although she had the ability to do so and
such action would not have impacted her daughter’s student loan.
West Virginia law defines a contract of adhesion as “one
drafted and imposed by a party of superior strength that leaves the
subscribing party little or no opportunity to alter the substantive
terms, and only the opportunity to adhere to the contract or reject
16
it.” Brown II, 729 S.E.2d at 228. Simply reading the definition of
a contract of adhesion demonstrates that the arbitration agreements
at issue do not satisfy that definition. Here, the plaintiff could
have rejected the arbitration agreements without also rejecting the
loan contract. State ex rel. Ocwen Loan Servicing v. Webster, 752
S.E.2d 372, 389 (W. Va. 2013)(upholding an arbitration agreement
that “contained a plainly worded statement, placed conspicuously
above the signature line in all caps, that advised the [plaintiffs]
that they could reject the arbitration agreement and the lender
would not refuse to complete their loan due to such refusal”).
Thus, the arbitration agreements fail to create “no opportunity” to
alter their terms, or place the plaintiff in a situation of either
adhering to or rejecting the contracts.
Therefore, the record
shows
to
that
the
inadequacies
necessary
prove
procedural
unconscionability regarding the arbitration agreements are not
present.
2.
Substantive Unconscionability
Notwithstanding the lack of procedural unconscionability, this
Court
will
address
unconscionability.
the
second
component
for
a
claim
of
Substantive unconscionability relates to the
“unfairness in the contract itself and whether a contract term is
one-sided and will have an overly harsh effect on the disadvantaged
party.” Pingley, 746 S.E.2d at 551 (quoting Brown I, 724 S.E.2d at
syl. pt. 19).
When assessing substantive unconscionability, the
17
factors that a Court must analyze “vary with the content of the
agreement.”
omitted).
Pingley,
746
S.E.2d
at
551
(internal
citations
Therefore, courts should “assess whether a contract
provision is substantively unconscionable on a case-by-case basis.”
Brown I, 724 S.E.2d at 262.
Nonetheless, relevant factors to
consider include “the commercial reasonableness of the contract
terms, the purpose and effect of the terms, the allocation of the
risks between the parties, and public policy concerns.”
Pingley,
746 S.E.2d at 551; see also Dan Ryan Builders, Inc. v. Nelson, 737
S.E.2d 550 (W. Va. 2012); Johnson Controls, Inc., 729 S.E.2d at
808.
Regarding substantive unconscionability, the plaintiff asserts
several
arguments.
First,
the
plaintiff
contends
arbitration agreement abridges her statutory rights.
that
the
Here, the
plaintiff points to the arbitration agreements’ fee allocation for
appeals of the arbitration award, which states that the “appealing
party will pay the Administrator’s and arbitrator’s costs of the
appeal.”
Above that provision, an exception applies that states
“each party must pay the expense of that party’s attorneys, experts
and
witnesses,
regardless
of
which
party
prevails
in
the
arbitration.” The plaintiff claims that those provisions mean that
she cannot obtain attorneys’ fees as permitted under the WVCCPA.
Therefore, the plaintiff asserts that the alleged abridging of her
statutory rights for attorneys’ fees means that the arbitration
18
agreement is unconscionable. Second, the plaintiff claims that the
arbitration agreement permits remedies permitted by applicable
substantive law, but still limits statutory remedies under the
WVCCPA.
According to the plaintiff, that alleged conflict of
provisions
renders
Third,
plaintiff
imposes
the
the
arbitration
contends
unconscionable
and
that
agreement
the
unconscionable.
arbitration
prohibitive
costs.
agreement
Finally,
the
plaintiff believes that the unconscionable arbitration agreement
taints the entire loan agreement, and thus renders the loan
agreement unenforceable.
The plaintiff’s arguments, however, do not properly apply the
standard for satisfying a claim of unconscionability.
Rather, the
conduct of the defendants must be analyzed under the applicable
standard provided under West Virginia law.
Applying the above
legal standard, the plaintiff has not sufficiently demonstrated
that the arbitration agreements were substantively unconscionable.
Regarding commercial reasonableness, the facts do not show any
commercially unreasonable terms.
from the defendants.
The plaintiff received a loan
In exchange, the plaintiff would pay the
principal sum plus interest and fees to the defendants.
The facts
regarding that arbitration agreement display nothing unfair about
the transaction and fail to raise concerns as to commercial
unreasonableness or a public policy violation.
19
Further,
nothing
about
such
an
exchange
and
agreement
demonstrates an unfair allocation of risk as to either party.
The
plaintiff appears to argue that the fee arrangement violates the
plaintiff’s statutory rights under the WVCCPA. The standard for
whether terms of a contract are substantively unconscionable is not
proven simply by alleged violations of a statute.
Rather, the
plaintiff needs to demonstrate that the fee arrangement between the
plaintiff and the defendants is overly “one-sided” or unfair, as
provided above.
The plaintiff does not satisfy that standard.
The plaintiff’s allegations may be considered public policy
arguments.
However,
those
allegations
are
unfounded.
The
agreements in this case contain the following:
[Navient] will consider (and generally honor) any good
faith request to bear the fees charged by the
Administrator and the arbitrator. . . . Each party must
normally pay the expense of the party’s attorneys, expert
and witnesses, regardless of which party prevails in the
arbitration. Despite the foregoing, you [Navient] will
pay all such fees if I [the borrower] prevail in an
arbitration where I am the claimant (even if you are not
required to pay such fees under applicable law) and will
pay all such fees you are required to bear (a) under
applicable law; or (b) in order to enforce this
Arbitration Agreement.
ECF No. 8-1 at 11, ¶ T6.
Under the WVCCPA, the award of fees is
discretionary, and is not mandatory. W. Va. Code § 46A-5-104(2014);
Chevy Chase Bank v. McCamant, 512 S.E.2d 217, 227 (W. Va. 1998)(“By
using the word ‘may’ in conferring upon courts the power to award
attorneys’ fees, the [West Virginia] Legislature clearly made the
granting of [awards of attorneys’ fees and costs under the CCPA]
20
discretionary.”).
Here,
the
agreements
do
not
preclude
the
plaintiff from having her fees covered by the defendants and in
fact, under the terms, she would have reprieve if the defendants
did not honor any good faith request.
Thus, the agreements at
issue here do not require the plaintiff to forego any protections
that she would normally have under the WVCCPA.
The
plaintiff
asserts
that
sections
of
the
arbitration
agreements conflict with each other. This Court finds that they do
not, if read in conjunction with section T6.
Those sections are,
in pertinent part, as follows:
Except as provided in paragraph 6 above, the appealing
party will pay the Administrator’s and arbitrator’s costs
of the appeal.
. . .
The arbitrator shall follow applicable substantive law to
the extent consistent with the FAA . . . and shall be
authorized to award all remedies permitted by applicable
substantive law, including, without limitation . . .
attorneys’ fees and costs.
ECF Nos. 8-1 at 11, ¶ T8-T9; 8-2 at 12, ¶ T8-T9.
These sections
are not ambiguous nor do they conflict with each other.
The first
section specifically references section T6 which has been discussed
by this Court and found to be consistent with the statutory
remedies of the WVCCPA.
Thus, even though the first section, T8,
may be read by itself as requiring the plaintiff to pay costs for
an appeal that are separate from attorneys’ fees, T6 allows the
plaintiff to seek such costs and requires the defendants consider
such a request in good faith.
Further, section T9 specifically
21
allows the arbitrator to follow the substantive law under the
WVCCPA and any other West Virginia law that may be applicable.
This section also allows attorneys’ fees and costs.
As such, the
plaintiff does not lose any of her remedies by entering the
arbitration agreements and the sections are not inconsistent.
Given the analysis above, this Court also finds that the costs
of arbitration are not unconscionable.
As the defendants point
out, the plaintiff would be required to pay an initial filing fee
of, at maximum, $250.00.
This is similar to the fee that she had
to pay to the file the state court suit.
Further, as reviewed
above, any other costs may be submitted to the defendants for a
good faith consideration.
Finally, the arbitrator may award fees
and costs to either party.
The Supreme Court of the United States
has held that where “a party seeks to invalidate an arbitration
agreement on the ground that the arbitration would be prohibitively
expensive, that party bears the burden of showing the likelihood of
incurring such costs.” Randolph, 531 U.S. at 92. The plaintiff has
not met that burden as the costs of arbitration are no different
than court costs and are not unconscionable.
The plaintiff argues that the unconscionability attached to
the arbitration agreements permeates throughout the promissory
notes and thus the promissory notes must be wholly invalidated. As
this Court has found that the arbitration agreements are not
22
unconscionable, this Court finds that this argument is without
merit.
C.
Alternative Request for Discovery
This Court finds that the plaintiff’s alternative request for
discovery if this Court were to grant the defendants’ motion to
compel should be denied.
The purpose of arbitration is to promote
efficiency and reduce costs. Hay Group, Inc. v. E.B.S. Acquisition
Corp., 360 F.3d 404, 409 (3d Cir. 2004)(finding that “arbitration’s
goal [is to] ‘resolv[e] disputes in a timely and cost efficient
manner.’”) (internal citation omitted).
Thus, this Court finds
that those purposes would not be met by allowing the parties to
engage in discovery in this Court that it could engage in through
the arbitration process.
See Lone Star Steakhouse & Saloon, Inc.
v. Alpha of Va., Inc., 43 F.3d 922, 929 (4th Cir. 1995)(finding
that the decision to grant or deny discovery is generally within
the district court's broad discretion).
D.
Stay
The defendants have not requested that this action be stayed
while arbitration proceedings are underway.
However, district
courts possess inherent power to stay litigation proceedings.
See
Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936) (“The power to
stay proceedings is incidental to the power inherent in every court
to control disposition of the causes on its docket with economy of
time and effort for itself, for counsel, and for litigants.”); Reed
23
v. Health and Human Services, 774 F.2d 1270, 1277 (4th Cir. 1985)
(holding that a district court may defer ruling on a petition for
attorneys’ fees
pending a final resolution of the merits); see
also Clinton v. Jones, 520 U.S. 681, 706, 117 S. Ct. 1636, 137 L.
Ed. 2d 945 (1997) (“The District Court has broad discretion to stay
proceedings
as
an
incident
to
its
power
to
control
its
own
docket.”). In fact, this power may be exercised sua sponte, should
the circumstances warrant such an exercise of power.
Crown Cent.
Petroleum Corp. v. Dept. of Energy, 102 F.R.D. 95, 98 (D. Md. 1984)
(citing Landis, 299 U.S. at 254-55); see Rice v. Astrue, No. 4:06CV-02770-GRA, 2010 WL 3607474 at *2 (D. S.C. Sept. 9, 2010)
(“Although there has been no request to hold the instant motion in
abeyance, a federal court has the inherent power to stay, sua
sponte, an action before it.”).
Given that this Court is granting the motion to compel
arbitration, this Court finds that this action should be stayed
while the parties are engaged in arbitration proceedings.
This
Court will require the parties to provide status reports as needed
and to keep this Court apprised of the progress of arbitration.
V.
Conclusion
Based on the analysis above, the plaintiff’s motion to remand
is DENIED.
The defendants’ motion to compel is GRANTED.
Further,
this action is STAYED while arbitration proceedings are underway.
The parties are DIRECTED to submit a status report by October 15,
24
2015 informing the Court of what has occurred in arbitration and
the parties’ progress.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:
April 14, 2015
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
25
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?