Arriaga v. Cross Country Bank

• Decision Date: 05 July 2001
• Docket Number: No. 01 0498 IEG (RBB).,01 0498 IEG (RBB).
• Citation: 163 F.Supp.2d 1189
• Parties: Andrea C. ARRIAGA, on behalf of herself and all others similarly situated, and on behalf of the General Public, Plaintiff, v. CROSS COUNTRY BANK and Applied Card Systems, Incorporated, Defendants.
• Court: U.S. District Court — Southern District of California

Page 1189

163 F.Supp.2d 1189

Andrea C. ARRIAGA, on behalf of herself and all others similarly situated, and on behalf of the General Public, Plaintiff, v. CROSS COUNTRY BANK and Applied Card Systems, Incorporated, Defendants.

No. 01 0498 IEG (RBB).

United States District Court, S.D. California.

July 5, 2001.

ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

GONZALEZ, District Judge.

Presently before the Court is a motion to compel arbitration and stay the action pending arbitration by defendants Cross Country Bank and Applied Card Systems, Inc. (collectively the "defendants"). For the reasons discussed below, the Court grants defendants' motion to compel arbitration on all claims and stays the action pending arbitration.

BACKGROUND

On March 21, 2001, plaintiff Andrea Arriaga ("Arriaga") initiated this class action on behalf of herself and similarly situated individuals against defendants Cross Country Bank ("CCB") and Applied Card Systems, Incorporated ("ACS"). Arriaga claims that defendants violated the Truth in Lending Act (TILA), 15 U.S.C. §§ 1632, 1637, the Consumer Legal Remedies Act (CLRA), California Civil Code § 1750, and California Business and Professions Code § 17200, as well as engaged in fraud and breach of contract. All claims relate to her CCB credit card account maintained by CCB and ACS collectively. (See Compl. at ¶ 17.)

Arriaga alleges that in the summer of 1999 she received a mailer encouraging her to accept a Cross Country credit card as a way to establish good credit. In response to this mailer, Arriaga submitted an application for an account with CCB. Arriaga claims that on July 6, 1999, before she ever received her credit card or the Credit Card Agreement (hereinafter, "the Agreement"), CCB charged her $150 in up-front fees without her knowledge, representing almost half of her available credit limit. Later in July, Arriaga received her credit card and the Agreement containing the arbitration clause, to which she consented according to its terms.¹ Approximately one month later, Arriaga asserts that CCB, again without her knowledge or consent, debited her account in the amount of $34.95 for an "Applied Advantage" membership program.² Finally, Arriaga claims that defendants purposefully failed to send monthly billing statements, forcing her and other customers to request one at a charge of $3 to their credit accounts. All of this, plaintiff contends, is part of a fraudulent scheme to force CCB customers to exceed their credit limits, triggering a $27 "over limit" fee and potential late fees.³

On April 9, 2001 defendants filed the present motion to compel arbitration and stay proceedings pursuant to the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 3. The arbitration clause defendants wish to enforce is contained in the Agreement and reads in relevant part:

Arbitration. You and we agree that all claims, demands or disputes that you may have against us or that we may have against you which in any way relate to or arise out of this Agreement, your Account, or your use or attempted use of the Card ... shall be brought in arbitration before the National Arbitration Forum ("NAF").

Arriaga opposes the motion, arguing (1) that the arbitration clause in the Agreement does not cover her claims, (2) that the arbitration clause is invalid, (3) that the arbitration clause is inapplicable to some of her claims, and (4) that the defendants do not and/or should not have the ability to compel arbitration.

DISCUSSION

A. Applicable Law: Arbitration and Stay Pursuant to the FAA

The enforceability of arbitration agreements in contracts involving interstate commerce are governed by the FAA.⁴ See 9 U.S.C. § 1, et seq.; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24-26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). The FAA provides that:

A written provision in any ... 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...., 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. The FAA represents a "liberal federal policy favoring arbitration agreements." 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), quoted in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). Accordingly, "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration." Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927, quoted in Gilmer, 500 U.S. at 26, 111 S.Ct. 1647.

Additionally, the FAA provides that an agreement to arbitrate will take precedence over a suit in federal court involving the same subject matter. Indeed, the Supreme Court has held that where applicable, the FAA "leaves no place for the exercise of discretion by a district court, but instead mandates that the district court shall direct the parties to proceed to arbitration." See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). If a suit is proceeding in federal court, the party seeking arbitration may move the district court to compel the party resisting arbitration to submit to arbitration. See 9 U.S.C. § 4. A party to a lawsuit pending in federal court may also request that the action be stayed pending arbitration of the issues. See 9 U.S.C. § 3; Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1048 (9th Cir. 1996).⁵

B. Analysis

As stated above, Arriaga opposes this motion to compel arbitration on several grounds. The Court will address each of these arguments in turn.

1. Scope of the Arbitration Clause

Arriaga first contends that some of her claims arose out of events that occurred before she had signed any agreement to arbitrate (the initial $150 in charges on her account), and thus those claims are not arbitrable under the Agreement. Indeed, although there is a strong federal policy favoring arbitration that this court must uphold (see Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927), "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so 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). Moreover, "before a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court, there should be an express, unequivocal agreement to that effect." Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1141 (9th Cir.1991).

Keeping these considerations in mind, the Court disagrees that the arbitration clause does not reach Arriaga's claims even those that arise out of events that took place before she signed the Agreement. "An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Food & Commercial Workers Union, Local 770 v. Geldin Meat Co., 13 F.3d 1365, 1368 (9th Cir.1994) (emphasis in original) (citing United Steelworkers at 582-83, 80 S.Ct. 1347). Plaintiff has not provided this Court with the kind of "positive assurance" that is required for her claims to be exempt from the arbitration clause.

The arbitration clause at issue here is susceptible of an interpretation which would cover all of Arriaga's claims. The clause applies to all claims which "in any way relate to or arise out of this Agreement, your Account, or your use or attempted use of the Card." (emphasis added). The fact that some of Arriaga's claims may stem from events that occurred before the arbitration clause took effect does not foreclose the possibility that those claims relate to the Agreement, and thus fall under the arbitration clause's broad scope.⁶ The Supreme Court has also addressed similar arbitration clauses and held that they cover claims based on events pre-dating the contract. See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (holding that arbitration clause extending to claims "relating to" underlying agreement covered claims for fraudulent inducement). Thus, in light of Supreme Court precedent interpreting arbitration clauses similar to the Agreement at hand, the Court cannot say with "positive assurance" that Arriaga's claims are not covered by the arbitration clause.

2. Validity of the Arbitration Clause

Arriaga also contends that even if she did agree to arbitrate these claims, the arbitration clause is void because it was made by fraudulent inducement and it is unconscionable. "Generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [the FAA]." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681 at 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). However, the Supreme Court has clearly held that on a motion to compel arbitration, a court cannot consider whether the contract as a whole is invalid. See Prima Paint, 388 U.S. 395, 403-404, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (The FAA "does not permit the federal court to consider claims of fraud in the inducement of the contract generally."); see also Three Valleys Mun. Water Dist., 925 F.2d at 1139-40 (9th Cir. 1991) ("Though Prima Paint involved a charge of fraud in the inducement of the contract, the rationale of Prima Paint extends to attempts to rescind contracts on other grounds"). Therefore, instead of attacks that are applicable to the contract as a whole, the Supreme Court demanded in Prima Paint that a plaintiff challenging the validity of an arbitration clause must direct his challenges specifically to the arbitration provision. Thus, Arriaga must...