Comrey v. Discover Financial Servs., Inc.

• Decision Date: 15 April 2011
• Docket Number: Civil Action No. 1:10–CV–2414.
• Citation: 806 F.Supp.2d 778
• Parties: Kimberly COMREY, Plaintiff v. DISCOVER FINANCIAL SERVICES, INC., and Discover Bank, Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

806 F.Supp.2d 778

Kimberly COMREY, Plaintiff

v.DISCOVER FINANCIAL SERVICES, INC., and Discover Bank, Defendants.

Civil Action No. 1:10–CV–2414.

United States District Court, M.D. Pennsylvania.

April 15, 2011.

Vicki A. Piontek, Piontek Law Office, Lansdale, PA, for Plaintiff.

Marc J. Weinstein, Martin C. Bryce, Jr., Ballard Spahr LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

CHRISTOPHER C. CONNER, District Judge.

This action arises in the context of a dispute between plaintiff Kimberly Comrey (“Comrey”) and defendant Discover Products, Inc., successor to DFS Services LLC, formerly known as Discover Financial Services, Inc., and Discover Bank (collectively, “Discover”). Comrey alleges that Discover furnished information specific to Comrey's Discover credit card account to credit reporting agencies in violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. Discover, invoking the arbitration clause contained in Comrey's cardmember agreement, moves the court to compel arbitration and to stay all proceedings pending completion of arbitration (Doc. 7). Comrey contends that she did not expressly agree to the terms of the arbitration clause because Discover failed to provide her sufficient notice of the provision. For the reasons that follow, the motion will be granted.

I. Statement of Facts & Procedural History ¹

Comrey opened a credit card account with Discover Bank in October of 1991. (Doc. 7–3 ¶ 6). Upon the approval of her application, a credit card and cardmember agreement were mailed to Comrey's residence. ( Id. ¶ 7). Comrey agreed to the terms of the cardmember agreement when she first utilized the card. ( Id. ¶ 8). Pursuant to the “Change of Terms” provision included in the 1991 cardmember agreement,² Discover has modified the cardmember agreement numerous times between 1991 and 2006. ( Id. at ¶ 10). Discover cardholders received notices of amendment to their cardholder agreements, via mail, with each modification. ( Id.) Notices of amendment provided information on changes to the cardmember agreement and included instructions for rejecting the amendments. ( See Doc. 7, Ex. 2).

In February of 2003, Discover amended its cardmember agreement and mailed a Notice of Amendment (“2003 Amendment”) to customers. (Doc. 7–3 ¶ 11). The 2003 Amendment contained a provision for arbitration of all disputes pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. (Doc. 7, Ex. 4 at 7–8). The 2003 Amendment included a Notice of Right to Reject Arbitration (“2003 Notice”), whereby cardholders had the option to reject the arbitration agreement in writing if they so desired.³ (Doc. 7, Ex. 3). The 2003 Notice also advised customers that they had the option of retaining their accounts even if they rejected the terms of the arbitration agreement. ( Id.) Discover's records reflect that Comrey failed to provide such notice of her rejection of the arbitration agreement. (Doc. 7–3 ¶ 14).

Similarly, in March of 2006, Discover mailed to cardholders a Notice of Amendment (“2006 Amendment”) to the cardmember agreement. ( Id. ¶ 16). This amendment also contained an arbitration clause that required binding arbitration of any claims and disputes relating to cardholders' accounts:

ARBITRATION OF DISPUTES. In the event of any past, present or future claim or dispute (whether based upon contract, tort, statute, common law or equity) between you and us arising from or relating to your Account, any prior account you have had with us, your application, the relationships which result from your Account or the enforceability or scope of this arbitration provision, of the Agreement or of any prior agreement, you or we may elect to resolve the claim or dispute by binding arbitration.

(Doc. 7, Ex. 6 at 8). The provision stated that Discover's rights and obligations extended to its parent corporations and subsidiaries.⁴ ( Id.) Finally, the 2006 Amendment delineated a cardholder's right to reject the amendments and provided instructions for closing an account. (Doc. 7, Ex. 5). Discover's records indicate that Comrey never notified Discover in writing of any objections to the 2006 Amendment. (Doc. 7–3 ¶ 18).

In October of 2010, Comrey filed a complaint against Discover in Pennsylvania state court, asserting violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., in connection with her Discover credit card account. (Doc. 3 ¶ 6–15). Discover subsequently filed a notice of removal to this court pursuant to 28 U.S.C. § 1446. (Doc. 1). Thereafter, Discover answered the complaint and asserted as an affirmative defense that Comrey was party to a binding and enforceable arbitration agreement, as provided in Discover's cardmember agreement. (Doc. 4 at 7). Discover also filed a motion to compel arbitration, and stay all proceedings pending completion of arbitration, on January 19, 2011. (Doc. 7). Comrey filed an opposing brief on February 10, 2011. (Doc. 8). The motion has been fully briefed and is now ripe for disposition.

II. Standard of Review

Granting a motion to compel arbitration effects a “summary disposition of the [factual] issue” of the existence of an agreement to arbitrate, and, for this reason, courts should consider the facts in the light most favorable to the nonmoving party, giving that party “the benefit of all reasonable doubts and inferences that may arise.” Par–Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n. 9 (3d Cir.1980), quoted with approval in Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 106 (3d Cir.2000). In the context of such a motion, the court may consider the pleadings, documents of uncontested validity, and affidavits or depositions submitted by either party. See id. (citing Fed. R. Civ. P. 56(c)).

III. Discussion

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16, provides a framework for the implementation of private arbitration agreements and establishes a strong federal policy in favor of arbitration. Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir.2010) (citing Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir.2003)). Indeed, “federal law presumptively favors the enforcement of arbitration agreements.” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 178 (3d Cir.1999). When adjudicating a motion to compel arbitration, the court must address two issues: (1) whether the parties have entered into a valid written agreement to arbitrate, and (2) whether the dispute in question falls within the scope of that agreement. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.2005); Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 202 (3d Cir.2001); 9 U.S.C. § 2 (addressing the validity, irrevocability, and enforcement of written agreements to arbitrate). Absent language in the parties' agreement clearly providing otherwise, the arbitrability of a dispute is a question of law for the court to determine. U.S. Small Bus. Admin. v. Chimicles, 447 F.3d 207, 209 (3d Cir.2006); General Electric Co. v. Deutz AG, 270 F.3d 144, 154 (3d Cir.2001). Mindful of these principles, the court turns to the arbitration clause in the present matter.

A. Application of the FAA to the Arbitration Agreement

The parties do not dispute that the credit card agreement and transactions involve “commerce,” as defined in 9 U.S.C. § 1 (“commerce among the several States”). Hence, the instant arbitration clause falls within the scope of the FAA, and thus the FAA applies to the action. See Gov't of the Virgin Islands v. United Indus. Workers, N.A., 169 F.3d 172, 176 (3d Cir.1999) (“the FAA's reach coincides with that of the Commerce Clause”) (citing Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)).

B. Existence of a Valid and Enforceable Arbitration Agreement

The FAA provides that arbitration agreements are enforceable according to their construction: “A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... 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. In determining their enforceability, arbitration agreements are placed on equal footing with other contracts. Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)). The party seeking to avoid arbitration bears the burden of proving invalidity of an arbitration agreement. Id. at 92, 121 S.Ct. 513.

The Supreme Court has held that “generally applicable contract defenses,” including unconscionability, “may be applied to invalidate arbitration agreements without contravening § 2” of the FAA. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). Unconscionability is satisfied by two requirements: first, “that the contractual terms are unreasonably favorable to the drafter”; and second, “that there is no meaningful choice on the part of the other party regarding acceptance of the provisions.” Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 265–66 (3d Cir.2003) (quoting Harris, 183 F.3d at 181).

The reviewing court must apply federal substantive law to “determine [ ] whether an issue governed by the FAA is referable to arbitration[,]” but the court may apply state law when assessing issues of contract formation and defenses to enforcement. Gay v. CreditInform, 511 F.3d 369, 388 (3d Cir.2007); Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 214 (3d Cir.2003). By its express terms, Delaware law governs state law issues arising under the cardmember agreement,⁵ and therefore, the court will apply Delaware law to determine validity of the arbitration agreement.

Comrey contends that the agreement is unconscionable because Discover failed to provide her with proper notice of the proposed...