Thornton v. First National Bank Credit Card
Filing
28
MEMORANDUM OPINION AND ORDER terminating 14 MOTION to Dismiss; granting 14 MOTION to Compel Arbitration; this action is dismissed without prejudice pending arbitration. Signed by Judge Robert C. Chambers on 9/24/2012. (cc: attys; any unrepresented party) (dcm)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION
MILDRED THORNTON,
Plaintiff,
v.
CIVIL ACTION NO. 3:12-0492
FIRST NATIONAL BANK CREDIT CARD
and FIRST NATIONAL BANK OF FT. PIERRE,
SOUTH DAKOTA,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendants First National Bank Credit Card and First
National Bank of Ft. Pierre’s Motion to Dismiss or, in the alternative, Motion to Compel Arbitration.
(ECF No. 14). For the following reasons, the Court GRANTS the Motion to Compel Arbitration
and DISMISSES this case without prejudice pending arbitration.
I.
FACTUAL AND
PROCEDURAL BACKGROUND
This action was brought by Plaintiff Mildred Thornton based upon diversity of
jurisdiction. See 28 U.S.C. § 1332 (providing, in part, “district courts shall have original jurisdiction
of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive
of interest and costs, and is between . . . citizens of different States”). In her Complaint, Plaintiff
states she obtained a Legacy Visa charge card from Defendants, but she fell behind on her payments
when she suffered an injury and was hospitalized. Complaint, at ¶¶ 5-7. Plaintiff alleges that
Defendants’ actions in attempting to collect the debt were illegal and violated West Virginia’s
Consumer Credit Protection Act, W. Va. Code § 46A-1-101, et seq. She also asserts Defendants’
actions were outrageous and invaded her privacy. As a result of Defendants’ alleged actions,
Plaintiff seeks actual damages, cancellation of the debt, deletion of the related trade line from her
credit history, civil penalties, attorney fees and costs, and punitive damages.
II.
DISCUSSION
Defendants now move to dismiss the Complaint on its merits or, in the alternative,
compel arbitration pursuant to the terms of the “Credit Card Contract and Initial Disclosure
Statement” provided to Plaintiff.1 Plaintiff argues Defendants have waived their right to pursue
arbitration because they have engaged the litigation process by asking that the case be dismissed.
In support, Plaintiff cites American Reliable Insurance Co. v. Stillwell, 212 F. Supp.2d 621 (N.D.
W. Va. 2002). However, Stillwell is clearly distinguishable from the present case.
In Stillwell, the district court quoted the Fourth Circuit’s decision in MicroStrategy
Inc. v. Lauricia, 268 F.3d 244 (4th Cir. 2001), which held:
A party may waive its right to insist on
arbitration if the party “so substantially utiliz[es] the
litigation machinery that to subsequently permit
arbitration would prejudice the party opposing the
stay.” But even in cases where the party seeking
arbitration has invoked the “litigation machinery” to
some degree “[t]he dispositive question is whether the
party objecting to arbitration has suffered actual
prejudice”.
1
Plaintiff asserts the document is sent to consumers after they apply for a line of credit.
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268 F.3d at 249 (citations omitted; italics original). In addition, the Fourth Circuit stated that “[t]he
party opposing arbitration ‘bears the heavy burden of proving waiver.’” Id. at 250 (quoting
American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 95 (4th Cir. 1996)).
Applying this standard, the district court in Stillwell found the issue of arbitration was never raised
until approximately 14 months after the action began in state court. 212 F. Supp.2d at 628. As the
parties actively engaged in litigation on the arbitrable claims during that period of time and the
defendants suffered actual prejudice, the district court determined that the plaintiffs waived their
right to enforce arbitration. Id. 627-28.
In this case, however, the Court finds the parties have engaged in virtually no
litigation. Defendants filed the current motion within one month of filing their Answer. Although
both parties have filed their initial disclosures pursuant to Rule 26(a) of the Federal Rules of Civil
Procedure, these disclosures are the extent of litigation, barring the current motion. Therefore, the
Court finds Plaintiff has completely failed to meet her burden to prove Defendants have waived their
right to request arbitration.
Plaintiff further argues, however, that because Defendants filed a motion to dismiss
and, in the alternative, a motion to compel arbitration, Defendants are hedging their bets with
inconsistent claims and the Court should find they have engaged in litigation by asking for the Court
to dismiss the action before ruling on the arbitration issue. In their Reply, Defendants admit they
should have asked for arbitration and, in the alternative, dismissal on other grounds. However,
Defendants insist such a misstep does not result in a waiver. The Court agrees with Defendants and
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finds Plaintiff has not suffered any prejudice as a result of the manner in which the motion was
worded. In fact, after Defendants filed their motion, Plaintiff filed a motion to stay a determination
on the motion to dismiss until after the Court rules upon the arbitration issue, and the Court granted
the motion. Therefore, the Court finds Plaintiff’s argument in this regard to be without merit.
Turning to the merits of whether or not this Court should compel arbitration, Plaintiff
argues the arbitration agreement is unconscionable because there are gross inadequacies in the
bargaining power between the parties and enforcing the agreement prevents Plaintiff from
vindicating her rights under West Virginia law. Thus, Plaintiff argues the agreement should not be
enforced. Defendants respond by stating the agreement is neither unconscionable nor unenforceable.
However, the first thing this Court must do is determine whether it is for the Court or the arbitrator
to decide whether the arbitration clause is unconscionable.
In considering this issue, the Court finds this case is remarkably similar to the United
State Supreme Court’s case of Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010). In
Rent-A-Center, the Supreme Court reiterated its long-standing position “that arbitration is a matter
of contract” and, pursuant to the Federal Arbitration Act (FAA), it “shall be valid, irrevocable, and
enforceable, save upon such grounds as exit at law or in equity for the revocation of any contract.”
130 S. Ct. at 2776 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1
(1983); 9 U.S. C. § 2 (internal quotation marks omitted)). In other words, “[t]he FAA . . . places
arbitration agreements on an equal footing with other contracts, and requires courts to enforce them
according to their terms.” Id. (citations omitted). However, arbitration agreements “may be
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invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.’”
Id. (quoting Doctor’s Assoc.’s Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).
In Rent-A-Center, the parties entered into an arbitration agreement. Id. at 2775. RentA-Center sought to enforce the agreement after Antonio Jackson filed an employment discrimination
action against it. Mr. Jackson argued the arbitration agreement was unconscionable under Nevada
law. Id. However, Rent-A-Center asserted the agreement included a provision which gave the
arbitrator exclusive authority to resolve any issue arising regarding the enforceability of the
agreement. Id.
In deciding whether it was for the court or the arbitrator to decide the
unconscionability issue, the Supreme Court first looked at the “delegation provision” which
provided: “[t]he Arbitrator . . . shall have exclusive authority to resolve any dispute relating to the
. . . enforceability . . . of this Agreement including, but not limited to any claim that all or any part
of this Agreement is void or voidable.” Id. at 2777 (internal quotation marks and citation omitted).
The Supreme Court recognized that parties can enter into such delegation provisions, in which they
“agree to arbitrate ‘gateway’ questions of ‘arbitrability[.]’” Id. (citations omitted). Such “gateway”
provisions are enforceable under § 2 of the FAA “save upon such grounds as exist at law or in equity
for the revocation of any contract[.]’” Id. (quoting, in part, 9 U.S.C. § 2). Thus, the question for the
Supreme Court to determine was whether the delegation provision at issue was valid under § 2. Id.
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In Rent-A-Center, Mr. Jackson challenged the validity of the contract as a whole. Id.
at 2779. He did not make any specific challenge to the delegation provision itself. Id. Rather, he
made unconscionability arguments that applied to either just the agreement to arbitrate or to both
the agreement to arbitrate and the delegation provision. Id. at 2780. In other words, Mr. Jackson’s
argument was “that the Agreement as a whole is unconscionable under state law.” Id. at 2781 (italics
original).2 As Mr. Jackson did not make any arguments that the delegation provision by itself was
unconscionable, the Supreme Court determined the clause was enforceable, “leaving any challenge
to the validity of the Agreement as a whole for the arbitrator.” Id. at 2779.
Similarly, in this case, the arbitration agreement contains a delegation provision. The
arbitration agreement provides that the parties “agree that any Dispute will be resolved by
Arbitration.” Credit Card Contract and Initial Disclosure Statement, at ¶30, in part. The agreement
defines a “Dispute” as “any controversy or claim between you and us[, . . . and] includes, by way
of example and without limitation, . . . any issue concerning the validity, enforceability or scope of
this agreement.” Id. As in Rent-A-Center, Plaintiff does not make any specific arguments in her
Response that the delegation provision itself is unenforceable. Instead, Plaintiff’s arguments focus
on the unconscionability of the entire agreement. As the agreement has a “gateway” provision
clearly and unmistakably delegating resolution of the “enforceability” of the agreement with the
arbitrator, the Court finds no reason why this provision should not be enforced. See Peabody
Holding Co. v. UMWA, 665 F.3d 96, 102 (4th Cir. 2012) (stating an “agreement must clearly and
2
Mr. Jackson did raise one challenge to the delegation provision when the case was before
the Supreme Court, but the Court found he raised the issue too late and it would not be considered.
Id. at 2781.
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unmistabkably provide that the arbitrator shall determine what disputes the parties agreed to
arbitrate” (internal ellipsis, quotation marks, and citations and footnote omitted)). Thus, it is for
the arbitrator, not the Court, to determine whether the arbitration agreement is unconscionable.
III.
CONCLUSION
Accordingly, for the foregoing reasons, the Court GRANTS Defendants’ Motion to
Compel Arbitration and DISMISSES this action without prejudice pending arbitration. (ECF No.
14).
The Court DIRECTS the Clerk to send a copy of this written Opinion and Order to
counsel of record and any unrepresented parties.
ENTER:
September 24, 2012
ROBERT C. CHAMBERS
UNITED STATES DISTRICT JUDGE
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