Alexander v. U.S. Credit Management, Inc.

Citation384 F.Supp.2d 1003
Decision Date01 September 2005
Docket NumberNo. CIV.A. 3:05-CV-339-M.,CIV.A. 3:05-CV-339-M.
PartiesLatashia ALEXANDER, Luz Maria Valdez, and Annice B Hutchinson, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. U.S. CREDIT MANAGEMENT, INC. Defendant
CourtU.S. District Court — Northern District of Texas

Jeremi K. Young, Jeffrey H. Rasansky, Jessica M. Dean, Rasansky Law Firm, Dallas, TX, for Plaintiffs.

Aubrey (Nick) Pittman, Pittman Law Firm, Shannon Jamison, Jamison Law Firm, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

LYNN, District Judge.

Before the Court is the First Amended Motion to Dismiss and Compel Arbitration of Defendant U.S. Credit Management, Inc. ("USCM"), filed on March 18, 2005. Having considered the Motion, as well as the parties' Response and Reply, the Court is of the opinion that the Motion should be DENIED.

I. Background

Plaintiffs have filed a purported class action on behalf of themselves and other customers of USCM, which advertises itself as "the national debt elimination and credit counseling company." Pls.' Resp. to Def.'s 1st Am. Mot. to Dismiss and Compel Arbitration at 7 ("Pls.' Resp."). Plaintiffs charge USCM with numerous violations of: the Credit Repair Organizations Act ("CROA" or "the Act"), 15 U.S.C. §§ 1679-1679i (2005), including violations of disclosure and fee payment requirements; the Texas Finance Code, including disclosure violations, registration violations, contract terms requirements violations, and illegal "debt pooling"; and violations of the Texas Deceptive Trade Practices Act. Pls.' 1st. Am. Compl. at 7-10 ("Pls.' Compl.").

All of the members of the proposed class are customers who have "paid money to USCM ... pursuant to an agreement with USCM." Id. at 7. The agreement in question is USCM's Customer Service Agreement ("CSA"), which retains USCM to provide counseling and representation in managing and reducing the customer's debt. See App. in Supp. of Pls.' Resp. at 001, 004-005 ("Pls.' App."). The CSA contains a "Mediation/Arbitration" clause, which specifies that

[i]n regards to any claim, dispute, or issue arising out of this agreement, or the breach thereof, the parties agree first to attempt ... to settle the dispute by negotiation.... [T]hen the parties shall resort to online mediation ... before resorting to ... binding ... arbitration.... The parties agree to utilize the American Arbitration Association Rules of Arbitration....

Id. at 005, § 13.

Seeking to enforce the CSA's arbitration clause, USCM has brought its First Amended Motion to Dismiss and Compel Arbitration. In support of its Motion, USCM relies upon the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-15 (2005), which requires that arbitration clauses covering a "controversy arising out of ... a contract" be held "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.

II. Analysis

This evaluation of an arbitration clause in connection with a CROA claim, to this Court's knowledge, is a case of first impression in the Fifth Circuit, and some elements addressed herein are of first impression nationally.1

Defendant's Motion depends upon there being a valid arbitration agreement recognized under the FAA. Because this Court concludes that CROA grants a right to sue in court, reinforced by a non-waiver provision, the statute renders void the disputed arbitration clause. As a result, this Court cannot compel arbitration.

Liberal Federal Policy Favoring Arbitration

Adjudication of arbitration agreements is governed by the FAA, which generally declares that "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable." 9 U.S.C. § 2. In considering challenges to arbitration agreements, courts are mindful of the FAA's purpose: "to reverse the longstanding judicial hostility to arbitration agreements ... and to place arbitration agreements upon the same footing as other contracts." Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)). FAA provisions establish a "liberal federal policy favoring arbitration agreements." Gilmer, 500 U.S. at 25, 111 S.Ct. 1647 (quoting 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)). Such arbitration agreements are generally enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

The Parties Agreed to Arbitrate

Courts have established a two-step process by which challenges to arbitration may be evaluated. First, courts determine whether the parties agreed to arbitrate their disputes, considering (a) the validity of the agreement to arbitrate, and (b) whether the agreement encompasses the dispute between the parties. Fleetwood Ent. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002). Second, courts "must consider whether any federal statute or policy renders the claims nonarbitrable." R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir.1992) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)); accord, First Options of Chicago, Inc., v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211, 214 (5th Cir.2003); Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir.1996).

At issue here is the CSA's "Mediation/Arbitration" clause. See Pls.' App. at 004-005. A written agreement to arbitrate is generally presumed to be prima facie valid and enforceable. Freudensprung v. Offshore Technical Serv., 379 F.3d 327, 341 (5th Cir.2004). Plaintiffs argue, however, that this arbitration clause was drawn "narrowly," meaning that it applies only to claims arising out of the contract, and does not reach their claims, which reference statutes external to the contract. See Pls.' Resp. at 3-4. Plaintiffs argue that the CSA's language — "any claim, dispute, or issue arising out of this agreement, or breach thereof" — strictly limits arbitration to claims that are "contractual in nature." Id. at 4 (emphasis added).

While the Fifth Circuit has employed distinctions between "broad" and "narrow" arbitration clauses, these do not amount to a bright line rule governed by the presence of particular terms. The scope of arbitration clauses indicated by the phrase "arising out of" generally depends upon context and surrounding language. See Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.1998) (describing a "narrow" interpretation of "arising out of" language); Sedco v. Petroleos Mexicanos Mexican Nat'l Oil, 767 F.2d 1140, 1145 (5th Cir.1985) ("arising out of" language found to be "broad" in context). Nevertheless, the Court agrees with Defendant's contention that even a "narrow" reading of the clause would encompass the Plaintiffs' claims. That the Plaintiff cites various federal and state laws challenging the legality of the activities that derive from the CSA does not somehow remove those issues from the ambit of the CSA itself. By the very terms of the Plaintiffs' Complaint, all of their claims relate directly to relationships, obligations, provisions, acts, and omissions allegedly established by the CSA. Indeed, the Plaintiffs' own class description depends upon "consumers... entering into a contract for services with Defendant." Pls.' Comp. at 6. Thus, even under a "narrow" interpretation, the arbitration clause covers the issues raised by the Plaintiffs' claims. Therefore, the Court finds it unnecessary to determine whether such language is "narrow" or "broad." In light of the "federal policy favoring arbitration ..., ambiguities as to the scope of the arbitration clause itself [should be] resolved in favor of arbitration." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)); accord, Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir.2002) ("[A]ll doubts concerning the arbitrability of claims should be resolved in favor of arbitration.").

Legal Grounds for Avoiding Arbitration

Moving to the second analytical step, "consider[ing] whether any federal statute or policy renders the claims nonarbitrable," courts have restricted such inquiry to only a few, narrowly defined avenues. R.M. Perez, 960 F.2d at 538 (citing Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346). As a rule, attacks upon the validity or legality of a contract as a whole are unavailing:

[W]here parties have formed an agreement which contains an arbitration clause, any attempt to dissolve that agreement by having the entire agreement declared voidable or void is for the arbitrator. Only if the arbitration clause is attacked on an independent basis can the court decide the dispute; otherwise, general attacks on the agreement are for the arbitrator.

Will-Drill, 352 F.3d at 218; accord, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ("If the claim ... goes to the `making' of the agreement to arbitrate — the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims ... [attacking] the contract generally."); Primerica, 304 F.3d at 471-72 ("When conducting this two-pronged analysis [of challenges to an arbitration agreement], courts must not consider the merits of the underlying action.... [U]nless a defense relates specifically to the arbitration agreement, it must be submitted to the arbitrator as part of the...

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