Picard v. Credit Solutions, Inc., 08-11104.

• Citation: 564 F.3d 1249
• Decision Date: 06 April 2009
• Docket Number: No. 08-11104.,08-11104.
• Parties: Elizabeth PICARD, Thomas E. Reynolds, as Trustee of the Bankruptcy Estate of Elizabeth Picard, Plaintiffs-Appellees-Cross-Appellants, v. CREDIT SOLUTIONS, INC., Defendant-Appellant-Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

564 F.3d 1249

Elizabeth PICARD, Thomas E. Reynolds, as Trustee of the Bankruptcy Estate of Elizabeth Picard, Plaintiffs-Appellees-Cross-Appellants, v. CREDIT SOLUTIONS, INC., Defendant-Appellant-Cross-Appellee.

No. 08-11104.

United States Court of Appeals, Eleventh Circuit.

April 6, 2009.

Nicole Mapp Hardee, JAmes A. Harris, III, Harris & Harris, LLP, Birmingham, AL, Richard E. Hillary, II, Derek S. Witte, Miller Johnson, Grand Rapids, MI, for Credit Solutions, Inc.

Michael H. Johnson, Law Office of Michael H. Johnson, LLC, Robert N. Barber, II, Barber Law Group, Michael Charles Skotnicki, Frank M. Young, III, Haskel, Slaughter, Young & Rediker, LLC, Birmingham, AL, for Reynolds.

Deepak Gupta, Public Citizen Litigation Group, Washington, DC, for Amici Curiae Public Citizen, Inc., National Association of Consumer Advocates, National Consumer Law Center, and U.S. Public Interest Research Group.

Christopher D. Thomas, Nixon Peabody, LLP, Rochester, NY, for Amicus Curiae National Association of Consumer Credit Attorneys.

Todd L. McLawhorn, Kenneth M. Kliebard, Howrey, Simon, Arnold & White, Chicago, IL, for Amici Curiae Association of Independent Consumer Credit Counseling Agencies.

Adel James Chareq, Hudson Cook, LLP, Washington, DC, for Amici Curiae Consumer Data Industry Association.

Appeals from the United States District Court for the Northern District of Alabama.

Before EDMONDSON, Chief Judge, TJOFLAT, Circuit Judge, and RYSKAMP,^* District Judge.

PER CURIAM:

This appeal presents the question of whether claims brought pursuant to the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679 et seq., are subject to arbitration. The district court held that the statute precludes arbitration. We disagree.

I. FACTUAL AND PROCEDURAL BACKGROUND

Credit Solutions, Inc., a/k/a Credit Solutions of America, Inc. ("CSA") is a debt settlement company that negotiates with unsecured creditors on behalf of its customers to lower the customers' debt loads and monthly payments. Facing unsecured credit card debt, Elizabeth Picard ("Picard")¹ contacted CSA via telephone on or about December 13, 2006 to discuss her debt load and a possible plan to manage her debt payments.

During the phone conversation, CSA representative Martin Englert ("Englert") represented to Picard that if she entered into an agreement for a debt management plan with CSA, CSA would negotiate settlements and reductions of her outstanding debts with her creditors. Englert proposed a structure whereby CSA would make direct withdrawals from Picard's bank account and make subsequent disbursements to creditors. Picard would pay for the service via direct withdrawals from her bank account. Picard entered into a contract with CSA via the Internet during her conversation with Englert.

In late January 2007, Picard began receiving telephone calls and letters from creditors telling her that she was in default on her accounts. Picard maintains that these defaults were due to CSA's failure to provide its promised services. Picard filed a Chapter 7 petition for bankruptcy in the United States Bankruptcy Court for the Northern District of Alabama. Picard then filed this action, alleging violations of CROA, breach of an oral contract and fraudulent inducement.

CSA moved to dismiss, or, in the alternative, to compel arbitration based on an arbitration clause in the customer enrollment package. The district court held an evidentiary hearing on the motion, at which time it received into evidence the audio recording of Picard's conversation with Englert. The district court held that CSA was a "credit repair organization" such that it was subject to CROA, and that CROA precludes arbitration, thereby rendering the arbitration clause void.

CSA appeals, arguing that CROA does not preclude arbitration and that the finding that it is a credit repair organization subject to CROA is premature. Picard brings a contingent cross-appeal, arguing that, in the event this Court reverses the holding that CROA precludes arbitration, her fraud claim should be heard in a judicial forum.

The arbitration clause contained in the customer enrollment package reads as follows:

If there is any dispute between the parties arising out of this agreement, the parties agree to submit the dispute to binding arbitration under the auspices of the American Arbitration Association (AAA). If such arbitration is held under the auspices of any other organization, the arbitration will be held in accord with AAA rules to the extent possible. Binding arbitration means that both parties give up their right to a trial by jury and to appeal except for a narrow range of issues that may be appealed under Texas law. Discovery may be limited by the arbitrator.

Picard initially maintained that the arbitration clause did not apply because she did not sign an agreement with CSA. Subsequent to the evidentiary hearing, however, and the presentation of the audio recording of her conversation with Englert, Picard argued that the arbitration clause was not applicable (1) because CROA voids the arbitration clause, and (2) because the agreement as a whole is void pursuant to the fraud in the factum doctrine.²

II. STANDARD OF REVIEW

We review de novo the district court's decision that CROA claims are not arbitrable. Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 873 (11th Cir.2005).

III. DISCUSSION

A. CROA DOES NOT CREATE A NONWAIVABLE RIGHT TO A JUDICIAL FORUM

The Federal Arbitration Act ("FAA") provides that written agreements to arbitrate disputes arising out of transactions involving interstate commerce are "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. The FAA requires a federal court in which a suit has been brought "upon any issue referable to arbitration under an agreement in writing for such arbitration" to stay the action pending arbitration "upon being satisfied that the issue involved in such suit or proceeding is referrable to arbitration under such an agreement." 9 U.S.C. § 3.

The FAA creates a strong federal policy in favor of arbitration. See Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1258 (11th Cir.2003). The FAA "provides for `the enforcement of arbitration agreements within the full reach of the Commerce Clause.'" Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S.Ct. 2037, 2040, 156 L.Ed.2d 46 (2003) (citing Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 2526, 96 L.Ed.2d 426 (1987)). Accordingly, courts "rigorously enforce" arbitration agreements. Klay v. All Defendants, 389 F.3d 1191, 1200 (11th Cir.2004) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985)). "[Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)).

Where parties agree to arbitrate disputes brought pursuant to federal statute, the statutory claims are subject to arbitration "unless Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue." Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (1991) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1985)). "Statutorily-created causes of action are no exception to the rule that arbitration agreements should be enforced according to their terms." Cunningham v. Fleetwood Homes, 253 F.3d 611, 617 (11th Cir.2001) (citing Mitsubishi, 473 U.S. at 626-27, 105 S.Ct. at 3354).

Courts review the statutory text, legislative history, and the purpose of the statute in determining whether Congress intended to preclude arbitration:

Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue. If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent will be deducible from [the statute's] text or legislative history, or from an inherent conflict between arbitration and the statute's underlying purposes.

Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226-27, 107 S.Ct. 2332, 2337-38, 96 L.Ed.2d 185 (1987) (alteration in original) (internal quotations and citations omitted).

The district court concluded that Picard signed a contract containing an arbitration clause with CSA in connection with a transaction involving interstate commerce. The district court then concluded that CROA's disclosure provision and non-waiver provision precluded arbitration under CROA.

The disclosure provision provides as follows:

(a) Disclosure required

Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed[.]

15 U.S.C. § 1679c(a). The provision lists the items that must be included in the written statement, which include, inter alia, notice of the right to a copy of one's credit report, notice of the right to dispute inaccurate information in a credit report, and notice of the right to cancel a contract with a credit repair organization for any reason within three business days from the date of execution. For purposes of this case, the key element required in the written disclosure is as follows: "You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations." Id.

The non-waiver provision provides as...