Montgomery v. Credit One Bank, NA
MEMORANDUM OPINION AND ORDER: ordering that the 10 MOTION by Credit One Bank, NA to Compel Arbitration be granted and Plaintiff's claims are REFERRED to arbitration in accordance with the terms of the contract and the Federal Arbitration Act; ordering that this action be stayed pending resolution of arbitration and REMOVED from the Court's active docket. Signed by Judge Irene C. Berger on 1/31/2012. (cc: attys; any unrepresented party) (slr)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CIVIL ACTION NO. 5:11-cv-00714
CREDIT ONE BANK, NA,
MEMORANDUM OPINION AND ORDER
The Court has reviewed Defendant, Credit One Bank, N.A.’s Motion to Compel Arbitration
(Document 10) together with Plaintiff’s Complaint (Document 1 Ex. A), Defendant’s supporting
memoranda and all written submissions and exhibits relative thereto.
On July 25, 2011, Plaintiff, Senetha Montgomery, filed this action in the Circuit Court of
Raleigh County, West Virginia, against Credit One Bank, N.A., a Nevada corporation with its
principal place of business in Nevada. Plaintiff’s Complaint contains three counts based on “not
less than one hundred ninety-four (194) calls” placed by Defendant to Plaintiff’s cellular phone
from February 10, 2011, through June 28, 2011. (Compl. ¶ 7.) Plaintiff alleges that all calls to
collect on a debt placed during the relevant time period occurred after notification that Plaintiff
revoked Defendant’s right to contact her. (Compl. ¶ 6.) Count One asserts a claim for violations of
the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227 (2006). Count Two asserts a
claim for violations of the West Virginia Consumer Credit and Protections Act (“WVCCPA”), W.
Va. Code §§ 46A-1-1-2 et seq. (2011) and Count Three is based on an allegation of violation of W.
Va. Code § 61-3C-14a (2011). This state statute prohibits the making of telephone calls by use of a
computer with the intent to harass after being requested by a person to stop contacting them.
(Compl.) On October 7, 2011, Defendant properly removed this action to this Court. (Document
On December 23, 2011, Defendant filed its Motion to Compel Arbitration, wherein
Defendant argues this Court should compel arbitration because Plaintiff agreed to arbitrate her
claims and the arbitration agreement is valid and enforceable. (Document 10 at 4-5). Defendant
further argues that all of Plaintiff’s claims are subject to the arbitration clause. (Id. at 5). Finally,
Defendant argues the parties’ agreement is not void for unconscionablity. (Id. at 5-11). Plaintiff
failed to respond to Defendant’s Motion to Compel.
A. General Arbitration Law
The Federal Arbitration Act (“FAA”) provides that:
A written provision in any maritime transaction or a 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, or an agreement in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.
9 U.S.C. § 2 (2006). Federal law strongly favors arbitration and interprets arbitration provisions
under ordinary contract principles. AT&T Mobility LLC v. Concepcion, –––U.S. ––––, 131 S.Ct.
1740, 1745–46, 179 L.Ed.2d 742 (2011) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Also, the Supreme Court has held
that there is a “fundamental principle that arbitration is a matter of contract.” Rent–A–Center,
West, Inc. v. Jackson, 561 U.S. ––––, ––––, 130 S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010).
“[C]ourts must put arbitration agreements on equal footing with other contracts and enforce them
according to their terms.” Concepcion, 131 S.Ct. at 1746. (internal citation omitted.) Sections 3
and 4 of the FAA grant federal courts authority to compel arbitration and issue a stay upon the
motion of one of the parties to the agreement.
The party who seeks to compel arbitration must establish “(1) [t]he making of the
agreement and (2) the breach of the agreement to arbitrate.” Mercury Constr. Corp. v. Moses H.
Cone Mem’l Hosp., 656 F.2d 933, 939 (4th Cir. 1981). Whether a contract is valid and enforceable
is governed by the contract formation and interpretation principles of the forum state. Cara's
Notions, Inc. v. Hallmark Cards, Inc., 140 F.3d 566, 569 (4th Cir. 1998). Nevertheless, when
determining the scope of a valid arbitration clause, a federal district court is to use the “federal
substantive law of arbitrability.” Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH,
206 F.3d 411, 417 n. 4 (4th Cir. 2000) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. at 24).
A district court must “engage in a limited review to ensure that the dispute is arbitrable-i.e.,
that a valid agreement to arbitrate exists between the parties and that the specific dispute falls
within the substantive scope of that agreement.” Glass v. Kidder Peabody & Co., 114 F.3d 446,
453 (4th Cir.1997) (citations and quotation marks omitted). To challenge the validity of an
arbitration clause within a contract, a party must specifically challenge the arbitration clause, not
just the contract as a whole. See Buckeye Check Cashing, Inc, 546 U.S. 440, 445 (2006). The scope
of an arbitration agreement must be construed with “due regard . . . to the federal policy favoring
arbitration, and ambiguities . . . [must be] resolved in favor of arbitration.” Cara's Notions, 140
F.3d at 569 (citing Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468,
B. Validity and Enforceability of Arbitration Clause
The Court must first decide if the Parties’ Agreement (“Agreement”) (Document 10 Ex. A)
is valid and enforceable under West Virginia law. The burden is on the Defendant to demonstrate
that a valid contract exists. Mercury Constr. Corp., 656 F.2d at 939.
The Agreement states that “Claims subject to arbitration include Claims based on any
theory of law, any contract, statute, regulation, ordinance, tort (including fraud or any intentional
tort), common law, . . . or any other legal or equitable ground (including any claim for injunctive or
declaratory relief).” (Document 10 Ex. A). The Agreement further states “Claims subject to
arbitration include Claims based on any allegations of fact, including an alleged act, inaction,
omission, suppression, representation, statement, obligation, duty, right, condition, status or
relationship.” (Id.) The Parties’ arbitration clause defines “Administrator” as “the National
Arbitration Forum [NAF], the American Arbitration Association [AAA], or JAMS [Judicial
Arbitration and Mediation Services Inc.].” (Id.) Both parties are required to submit all claims to
arbitration. (Id.) Although Plaintiff failed to respond to Defendant’s motion, the parties do not
appear to dispute that they entered into the Agreement. Thus, the Court moves on to determine if
the Agreement is enforceable.
To be enforceable, a contract cannot be unconscionable. Defendant argues that the
Agreement is not unconscionable under Brown v. Genesis Healthcare Corp., ___ W.Va. ___, ___,
___ S.E.2d ___, ___ (Nos 35494, 35546, 35635, June 29, 2011) and ex rel. Richmond Am. Homes
of W. Va., Inc. v. Sanders___ W.Va. ___, ___, ___ S.E.2d ___, ___ (No. 11-0770, Nov. 21, 2011).
Although the West Virginia Supreme Court had touched on the issue of unconscionability,
the Court had “never fully explained the principles and application behind unconscionability.”
Brown v. Genesis Healthcare Corp., ___ W.Va. ___, ___, ___ S.E.2d ___, ___ (Nos. 35494,
35546, 35635, June 29, 2011) (Slip Op. at 2). Thus, in Brown, the Court set out a comprehensive
discussion of unconscionability under West Virginia law. In Richmond, the Court affirmed a lower
court ruling that the plaintiffs’ homeowner purchase agreements, which contained a mandatory
arbitration provision that covered personal injury and wrongful death claims, was unenforceable.
The lower court ruling was issued prior to the Brown decision, so the Court did not apply Syllabus
Point 21 of Brown, which would easily have invalidated the arbitration clause.1 Richmond, ___
W.Va. at ___, ___ S.E.2d at ___ (Slip Op. at 15). As the seminal case, Brown provides the best
framework to address unconscionability under West Virginia law.
“The 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. The concept of unconscionability must be applied in a flexible manner, taking
into consideration all of the facts and circumstances of a particular case.” Brown, ___ W.Va. at
___, ___ S.E.2d at ___ (Slip Op. at 52). “A determination of unconscionability must focus on the
relative positions of the parties, the adequacy of the bargaining position, the meaningful
alternatives available to the plaintiff, and ‘the existence of unfair terms in the contract.’” Brown,
___ W.Va. at ___, ___ S.E.2d at ___ (Slip Op. at 54) (citing Syl. pt. 4, Art's Flower Shop, Inc. v.
1 “Congress did not intend for arbitration agreements, adopted prior to an occurrence of negligence that results in a
personal injury or wrongful death, and which require questions about the negligence be submitted to arbitration, to be
governed by the Federal Arbitration Act.” Syl. pt. 21, Brown.
Chesapeake and Potomac Telephone Co. of West Virginia, Inc., 186 W.Va. 613, 413 S.E.2d 670
(1991)). “A contract term is unenforceable if it is both procedurally and substantively
unconscionable. However, both need not be present to the same degree.” Brown, ___ W.Va. at
___, ___ S.E.2d at ___ (Slip Op. at 64). This is to be applied on a sliding scale. Id. “[T]he more
substantively oppressive the contract term, the less evidence of procedural unconscionability is
required to come to the conclusion that the clause is unenforceable, and vice versa.” Id.
Procedural unconscionability addresses the “inequities, improprieties, or unfairness in the
bargaining process and formation of the contract.” Brown, ___ W.Va. at ___, ___ S.E.2d at ___
(Slip Op. at 60). This requires an examination of “a variety of inadequacies that results in the lack
of a real and voluntary meeting of the minds of the parties.” Id. A non-exhaustive list of
inadequacies includes: “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.” Id. A finding of procedural unconscionability often involves a contract
of adhesion, but this is not always the case. Brown, ___ W.Va. at ___, ___ S.E.2d at ___ (Slip Op.
at 57-59). “A contract of adhesion is 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 it.” Brown, ___ W.Va. at ___, ___ S.E.2d at ___
(Slip Op. at 61). A court should give greater scrutiny to an adhesion contract to determine if “it
imposes terms that are oppressive, unconscionable or beyond the reasonable expectations of an
ordinary person.” Id.
Substantive unconscionability addresses 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.” Syl. pt.
When examining substantive unconscionability “courts should consider 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.” Id. The burden of proof
rests with the party who seeks to establish a contract term is unconscionable. Brown, ___ W.Va. at
___, ___ S.E.2d at ___ (Slip Op. at 55).
In Brown, the Court held that “Congress did not intend for arbitration agreements, adopted
prior to an occurrence of negligence that results in a personal injury or wrongful death, and which
require questions about the negligence be submitted to arbitration, to be governed by the Federal
Arbitration Act.” Brown, ___ W.Va. at ___, ___ S.E.2d at ___ (Slip Op. at 73). The Court
examined three consolidated cases that essentially had the same facts. Brown, ___ W.Va. at ___,
___ S.E.2d at ___ (Slip Op. at 3-4). “In each case, a person was ill or incapacitated and needed
extensive, ongoing nursing care. The person was admitted to a nursing home, and a family member
signed an admission agreement with the nursing home that contained an arbitration clause.” Id.
The arbitration clause required the ill or incapacitated to arbitrate personal injury claims (or any
other dispute) that arose from the facility’s subsequent actions. Id.
The Court finds that the Agreement is a contract of adhesion because it contains
boiler-plate language that does not appear to be subject to negotiation. Rather, it appears it was
given on a take it or leave it basis. State ex rel. Saylor v. Wilkes, 216 W.Va. 766, 773, 613 S.E.2d
914, 921 (2005). However, finding a contract of adhesion, alone, does not establish that the
contract is procedurally unconscionable. Unlike the facts in Brown, where the plaintiffs were
each in a medical emergency situation and their representatives had little choice but to
immediately accept the terms of the agreement upon their admittance to the nursing home, here,
Plaintiff puts forth no pressing need or emergency to enter into the Agreement. Brown, ___ W.Va.
at ___, ___ S.E.2d at ___ (Slip Op. at 74-84). Further, in Brown, the plaintiffs had little choice
but to enter into the agreement if they wanted to receive further medical care and did not appear to
have any alternatives. Id. Here, Plaintiff puts forth no evidence of a pressing need, and the record
is void of any evidence that she had no other alternative but to enter into a credit card agreement
with this particular Defendant. Additionally, Plaintiff actually was the party that assented to the
agreement, as opposed to the situation in Brown where the agreements were entered into by family
members on behalf of the plaintiffs. (Slip Op. at 74-84). Plaintiff wholly fails to put forth any
evidence that the Agreement was procedurally unconscionable. The Court will also consider if the
Agreement was substantively unconscionable.
The Court finds the Agreement is not substantively unconscionable under West Virginia
Unlike the arbitration clause in Brown, where nursing home residents, through their
personal representatives, waived their rights to pursue subsequent personal injury or wrongful
death claims in court, here, there is a common consumer credit card arbitration clause. In
determining if a term in a contract is substantively unconscionable, courts should generally
“consider the commercial reasonableness of the terms, the purpose and effect of the terms, the
allocation of the risks between the parties, and public policy concerns.” Brown, ___ W.Va. at ___,
___ S.E.2d at ___ (Slip Op. at 63). In Brown, the court found the nursing home agreement
substantively unconscionable for several reasons. First, the court found there was no “modicum
of bilaterality” because the nursing home could pursue payments and discharges in any forum it
chose, while the plaintiff was limited to arbitrating all of his claims. Brown, ___ W.Va. at ___, ___
S.E.2d at ___ (Slip Op. at 77). Second, nothing in the nursing home agreement allowed the
residents to reject or opt out of the arbitration clause. Id. Third, the court found the fees
associated with filing an arbitration claim “in the context of an action for negligence by a nursing
home was an unconscionable bar to relief.” Id. at 77-78. Fourth, the court found the arbitration
clause was not commercially reasonable because it was “beyond the reasonable expectations of an
ordinary person.” Id. at 78. The determination that the term was commercially unreasonable was
made in part because the court found it clearly violated West Virginia’s public policy “that nursing
homes are not to require residents to sign agreements that waive the right to commence a civil
action, a right that is preserved in the West Virginia Constitution.” Id. at 78-79. See Section 15(c)
of West Virginia’s Nursing Home Act, W.Va. Code §§ 16-5C-1 to -20. Furthermore, Brown has
several stark differences from the instant case. Unlike the clause in Brown, there is a “modicum
of bilaterality” here because both parties must submit all of their claims to arbitration. The Court
finds that Plaintiff wholly fails to put forth any evidence that the Agreement was substantively
unconscionable. Therefore, the Plaintiff having failed to demonstrate that any aspect of the
arbitration clause is either procedurally or substantively unconscionable, the Court finds that the
Agreement is valid and enforceable under West Virginia law.
C. Scope of Arbitration Agreement
In light of the Court’s finding that the parties entered a valid and enforceable agreement,
the Court must now decide whether the dispute in the instant case falls within substantive scope of
the Agreement. Glass v. Kidder Peabody & Co., 114 F.3d 446, 453 (4th Cir.1997) (citations and
quotation marks omitted). The Agreement’s broad arbitration clause seems to cover almost any
conceivable dispute that could arise from interactions between the parties. “Arbitration is a matter
of contract and a party cannot be required to submit to arbitration any dispute which he has not
agreed to submit.” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574,
582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Questions concerning the scope of an arbitration
clause are to be left to the arbitrator, “unless it can be said with positive assurance that the
arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”
Winston-Salem Mailers Union 133, CWA v. Media Gen. Operations, Inc., 55 Fed. Appx. 128, 133
(4th Cir. 2003) (quoting AT & T Technologies, Inc. v. CWA, 475 U.S. 643, 649-50, 106 S.Ct. 1415,
89 L.Ed.2d 648 (1986)). The court, in Winston-Salem, enunciated the standard the Court should
use in deciding whether the party’s claims fall within the substantive scope of the Agreement as
required by Glass. In essence, the Court should find that a party’s claims fall within the scope of
the arbitration clause, unless the Court finds the arbitration clause cannot possibly be interpreted to
cover the claims at issue. This, however, does not prevent an arbitrator from later finding that a
party’s claims are beyond the scope of an arbitration clause because the arbitrator is tasked with
ultimately deciding the specific scope of an arbitration clause.
Defendant submits that Plaintiff “asserted various statutory claims arising out of Credit
One’s alleged unlawful attempt to collect a debt in connection with the Account in question.”
(Document 10 at 5). Furthermore, Defendant contends that the Agreement provides that “any
questions about what claims are subject to arbitration shall be resolved by interpreting this
arbitration provision in the broadest way the law will allow it to be enforced." (Id.) (citing
Document 10 Ex. A). The Court finds that Plaintiff’s claims are not beyond the scope of the
Agreement because the Court cannot find “with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute.” Winston-Salem, 55 Fed. Appx. at
133. The Court makes this finding considering that the scope of an arbitration agreement must be
construed with “due regard . . . to the federal policy favoring arbitration, and ambiguities . . . [must
be] resolved in favor of arbitration.” Cara's Notions, 140 F.3d at 569 (citing Volt Info. Scis., Inc. v.
Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989)). In summary, the Court
finds that the Plaintiff’s claims are arbitrable because the claims are within the scope of a valid and
legally enforceable agreement and because it cannot be said with positive assurance that the
arbitration clause is not susceptible to an interpretation that covers the Plaintiff’s claims.
WHEREFORE, as discussed herein, the Court does hereby ORDER that Defendant,
Credit One Bank, N.A.’s Motion to Compel Arbitration (Document 10) be GRANTED, and
Plaintiff’s claims are hereby REFERRED to arbitration in accordance with the terms of the
contract and the Federal Arbitration Act. Finally, the Court ORDERS that this action be
STAYED pending resolution of arbitration and REMOVED from the Court’s active docket.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and to any
January 31, 2012
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