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On April 5, the U.S. Court of Appeals for the Eleventh Circuit held that an arbitration provision survived the termination of a subscriber agreement between a defendant cable company and a customer. According to the opinion, the plaintiff obtained services from the defendant in December 2016, and signed a subscriber agreement containing an arbitration provision covering claims that arose before the agreement was entered into and after it expired or was terminated. The plaintiff terminated the defendant’s services in August 2017, but later called the defendant in 2019 to inquire about pricing and services. The plaintiff filed a putative class action, alleging the defendant violated the FCRA when it accessed his credit report during the call without his permission, thus lowering his credit score. The defendant moved to compel arbitration, which the district court denied, ruling that while the parties may have intended for the arbitration provision to survive termination of the subscriber agreement, the plaintiff’s claim fell outside the scope of the subscriber agreement because “no reasonable person would believe that the Arbitration Provision was so all-encompassing as to apply to all claims regardless of when they occurred or whether they related to the agreement.” Moreover, the district court ruled that the Federal Arbitration Act (FAA) “could only compel [the plaintiff] to arbitrate his FCRA claim if it ‘arose out of’ or ‘relate[d] to’ the 2016 subscriber agreement, which the district court held it did not.
On appeal, the appellate court disagreed, concluding that the plaintiff’s FCRA claim relates to the 2016 subscriber agreement since the defendant was only able to conduct the credit check during the phone call because of its previous relationship with the plaintiff. The plaintiff argued that he was calling to obtain new services and not to reconnect services, but the appellate court countered that the “reconnection provision” contained within the subscriber agreement provides broad language that defines terminate, suspend, and disconnect as not necessarily being mutually exclusive. However, the 11th Circuit clarified that its holding is narrow, and that because it concluded that the plaintiff’s claim did arise out of the subscriber agreement the court did not need to and was not making a determination about whether the “broad scope” of the arbitration provision in the subscriber agreement is enforceable under the FAA.
On March 24, the U.S. Court of Appeals for the Third Circuit determined that a plaintiff must arbitrate proposed class claims brought against a debt resolution law firm. The plaintiff alleged the law firm engaged in racketeering, consumer fraud, and unlawful debt adjustment practices in violation of various New Jersey laws. The district court denied the firm’s motion to compel arbitration, applied the law of the forum state, New Jersey, and ruled that the arbitration provision was invalid and unenforceable. The law firm appealed, arguing, among other things, that the arbitration provision would have been found valid if the district court had applied Delaware law in accordance with the parties’ 2013 professional legal services agreement. On appeal, the 3rd Circuit disagreed with the district court, holding that the arbitration provision demonstrated that the plaintiff gave up her right to litigate her claims in court, despite there appearing to be a true conflict between Delaware and New Jersey law. The appellate court concluded that the arbitration clause met the standard set forth in Atalese v. U.S. Legal Services Group, L.P., which held that an arbitration provision “will pass muster if it, ‘at least in some general and sufficiently broad way,. . .explain[s] that the plaintiff is giving up her right to bring claims in court or have a jury resolve the dispute.’” Moreover, the 3rd Circuit noted that the arbitration provision was also sufficiently broad enough to reasonably encompass the plaintiff’s statutory causes of action.
On March 9, the U.S. District Court for the Southern District of New York denied a global technology company’s motion to compel arbitration in a putative consumer privacy class action, ruling that the technology company is not party to a co-defendant telecommunications company’s terms and conditions, which require consumer disputes to be arbitrated. The proposed class alleged that the defendants “engaged in false, deceptive and materially misleading consumer-oriented conduct” in violation of state law “by ‘failing to disclose that its practice of recycling phone numbers linked to SIM cards, and selling those SIM cards to consumers without requiring prior users to manually disassociate their  IDs from the phone numbers associated with the recycled SIM cards, did not protect the privacy of users’ data and confidential personal information.’” The defendants moved to compel arbitration based on arbitration provisions contained in the telecommunications company’s terms and conditions.
The court first reserved its decision on one of the plaintiff’s claims because there was an open question as to whether the plaintiff received a copy of the terms and conditions at the time the plaintiff purchased the SIM card. With respect to the other plaintiff’s sole claims against the technology company, the court ruled that the technology company cannot enforce an agreement to which it is not a party. “This general rule stems from the principle that arbitration is a matter of consent, since ‘no party may be forced to submit a dispute to arbitration that the party did not intend and agree to arbitrate,’” the court said. The court also ruled, among other things, that the plaintiff’s claims “do not allege any interdependent or concerted misconduct by” the defendants, and as such they are not so entangled that the plaintiff must arbitrate his claims against the non-signatory technology company.
On March 4, the U.S. Court of Appeals for the Sixth Circuit determined that a district court “exceeded its authority” when it ruled that an arbitration agreement was unenforceable in a case disputing an allegedly predatory loan. According to the 6th Circuit opinion, the plaintiff claimed she was the victim of an illegal “rent-a-tribe” scheme when she accepted a $1,200 loan with an interest rate exceeding 350 percent from an online lender owned and organized under the laws of a federally recognized Montana tribe. The loan contract the plaintiff signed included a provision stating that “‘any dispute. . .related to this agreement will be resolved through binding arbitration’ under tribal law, subject to review only in tribal court.” The plaintiff filed suit, alleging, among other things, that the arbitration agreement violated Michigan and federal consumer protection laws. The defendant moved to compel arbitration, arguing that because the plaintiff agreed to arbitrate issues regarding “the validity, enforceability, or scope” of the arbitration agreement through a “delegation clause,” the court should stay the case and compel arbitration. The district court denied the defendant’s motion, “maintaining that the enforceability of the arbitration agreement ‘has already been litigated, and decided against [the defendant], in a similar case from the 2nd Circuit.’” The defendant appealed, arguing that the district court disregarded the delegation clause.
On remand, the 6th Circuit stated that its decision does not bear on the merits of the case but merely addresses who resolves the plaintiff’s challenges to the arbitration agreement. “It’s not even about whether the parties have to arbitrate the merits. Instead, it’s about who should decide whether the parties have to arbitrate the merits,” the appellate court wrote. Focusing on the delegation clause—which states that the parties agreed that an arbitrator, and not the court, would decide “gateway arbitrability issues”—the appellate court held that “[o]nly a specific challenge to a delegation clause brings arbitrability issues back within the court's province,” which was a challenge that the plaintiff failed to make.
On February 19, the U.S. Court of Appeals for the Ninth Circuit affirmed a grant of a motion to compel arbitration filed by the operator of a smartphone app that offers financial services to consumers, holding that an agreement between a consumer and the lender authorizes the arbitrator to award all injunctive remedies available in an individual lawsuit under California law. In this case, the plaintiff took out a credit-builder loan and was required to enroll in a program offered by the lender as a prerequisite for applying for the loan, which required the payment of monthly fees. After the consumer fell behind on her fees, deposits, and loan payments, she filed a putative class action suit claiming that when she tried to cancel her membership in the program, the lender informed her that she first had to pay off the loan in full, which could only happen after she paid the still-accumulating past-due membership fees. The lender moved to compel arbitration, which the district court granted, ruling that the arbitration agreement was fully enforceable and that the agreement “explicitly” did not violate the ruling established in McGill v. Citibank NA, as it allowed the arbitrator to award “all remedies in an individual lawsuit,” including, without limitation, public injunctive relief. On appeal, the 9th Circuit rejected the consumer’s argument that she could only secure public injunctive relief by acting as a private attorney general, which the arbitration agreement explicitly prohibited. “Public injunctive relief is available under California law in individual lawsuits—not just in private-attorney-general suits,” the appellate court wrote. “It follows that [the consumer] may secure that relief in arbitration under the [a]greement.” As a result, the court affirmed the district court’s order to compel arbitration.
On February 12, the U.S. District Court for the Northern District of West Virginia denied for a second time a satellite TV provider’s (defendant) motion to compel arbitration in a TCPA class action, concluding that the arbitration provision was “overbroad, absurd and unconscionable.” As previously covered by InfoBytes, the plaintiff filed a lawsuit against the defendant alleging the defendant violated the TCPA by making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” On appeal, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision with the majority concluding that the allegations fit within the broad scope of the arbitration agreement, and that even though the plaintiff agreed to arbitration with a telecommunications company in 2012, the agreement extends to the TCPA allegations against the defendant after the telecommunications company acquired the defendant in 2015. Specifically, the appellate court stated that the arbitration agreement had a “forward-looking nature,” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” The 4th Circuit remanded the case back to the district court for consideration of unconscionability.
On remand, the district court again denied the motion, stating that the “arbitration provision is overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the [Federal Arbitration Act].” Specifically, the court stated the plaintiff was “an ordinary wireless consumer” given a “small electronic pinpad device” with a few lines of the agreement displayed at a time and an option to skip to an acknowledgment screen, which required her signature, in order to “obtain her line of service.” She would then be “irrevocably locked in to face demands that she arbitrate any dispute arising out of any relationship with virtually any of [the telecommunications company]’s corporate cousins—a list that could, overtime, comprise  current competitors or not-yet created subsidiaries.” Because the arbitration provision was unconscionably broad, the court denied the motion to arbitrate.
On January 21, the U.S. District Court for the Eastern District of Pennsylvania granted a national cable provider’s motion to compel arbitration in a putative class action alleging the company violated the FCRA by checking consumer credit reports without a permissible purpose. According to the opinion, after the consumer filed the putative class action, the company moved to arbitrate the claims pursuant to a provision contained “in various written materials that were originally provided to [the consumer]’s household in 2006” upon the opening of a company account. In response, the consumer asserts that the arbitration provision is not binding on him, because he was not the signatory on the document that contains the provision. The court disagreed with the consumer, concluding that, even though he was a non-signatory, he “actively sought and obtained benefits provided pursuant to the Subscriber Agreement, such that he is equitably estopped from avoiding the Arbitration Provision contained therein.” Specifically, the court acknowledged the existence of the arbitration agreement was not in dispute, but whether the consumer was bound by it. The court found that, not only did the consumer obtain benefits from the household account, he also “exceris[ed] control over the account,” including placing servicing calls regarding the account. Moreover, because the claims filed by the consumer fall within the scope of the arbitration agreement, as they “relate to [company] and/or [consumer]’s relationship with [company],” and the court granted the company’s motion to compel arbitration.
On January 11, the Court of Appeals of the State of California affirmed the denial of an auto lender’s motion to compel arbitration, concluding that the arbitration clause was invalid and unenforceable. According to the opinion, in May 2019, consumers filed a class action complaint alleging the lenders charged unconscionable interest rates in violation of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). The company moved to compel arbitration, which the consumers opposed, arguing that the agreement was “procedurally and substantively unconscionable,” and that the California Supreme Court decision in McGill v. Citibank, N.A. (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable) applied. The trial court denied the motion to compel arbitration, concluding that the McGill rule applied and that the injunctive relief provision could not be severed from the rest of the arbitration agreement because severability did not apply to the class waiver provision.
On appeal, the state appellate court agreed with the trial court, concluding that the McGill rule applied. Specifically, the appellate court concluded that the injunctive relief the consumers were seeking “encompasses all consumers and members of the public,” and “an injunction under the CLRA against [the lender]’s unlawful practices will not directly benefit the Customers because they have already been harmed and are already aware of the misconduct.” Moreover, the appellate court determined that there is no precedent holding that “the remedy of public injunctions under CLRA and UCL should be limited to false advertising claims.” The court further concluded that the class waiver was not severable, stating that the lender’s argument that the arbitration agreement could not be determined void until after an appellate court reviews the viability of the class waiver was “illogical.” Accordingly, the appellate court affirmed the denial of the motion to arbitrate.
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
On November 25, the U.S. Court of Appeals for the First Circuit affirmed a grant of a motion to compel arbitration in a debt collection action, concluding that a debt buyer holds the same arbitration rights as the original creditor under a cardmember agreement entered into with the plaintiff. The debt buyer purchased a pool of defaulted credit card debts from the original creditor, including the plaintiff’s charged-off account. After a municipal judge ruled that the debt buyer could not prove it owned the unpaid debt, the plaintiff filed a class action lawsuit alleging, among other things, that the debt buyer and its law firm (collectively, “defendants”) violated the FDCPA by attempting to collect the debt after the statute of limitations had expired. The defendants filed a motion to compel arbitration, and the district court approved the magistrate judge’s recommendation that an enforcement clause in the cardholder agreement between the plaintiff and the original creditor be enforced. The plaintiff appealed, arguing that the defendants should not be able to compel arbitration because they were not the signatories of the original cardholder agreement.
On appeal, the 1st Circuit concluded that the plaintiff offered no support for deviating from the “long-standing given in contract law. . .that ‘an assignee stands in the shoes of the assignor,’” holding that the original creditor’s rights were assigned to the debt buyer and its agents, including the right to invoke the cardmember agreement’s arbitration provision.
- John R. Coleman to discuss “CFPB update” at the MBA Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State licensing and NMLS challenges" at MBA’s Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Fair lending and equal opportunity laws” at the MBA Legal Issues and Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss “Contemplating the boundaries of UDAAP” at the MBA Legal Issues and Regulatory Compliance Conference
- Steven vonBerg to speak at closing “super session“ on compliance topics at MBA Legal Issues and Regulatory Compliance Conference
- Buckley Webcast: Fifth Circuit muddles CFPB’s plans to use in-house judges in enforcement proceedings
- Jeffrey P. Naimon to discuss “Understanding the ESG impact on compliance” at the ABA’s Regulatory Compliance Conference