Koch v. Compucredit Corp.

• Decision Date: 23 September 2008
• Docket Number: No. 07-1948.,07-1948.
• Citation: Koch v. Compucredit Corp., 543 F.3d 460 (8th Cir. 2008)
• Parties: Mary KOCH, on behalf of herself and all others similarly situated, Plaintiff/Appellee, v. COMPUCREDIT CORPORATION; Jefferson Capital Systems, LLC, Defendants/Appellants, J.A. Cambece Law Office, P.C., Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

543 F.3d 460

Mary KOCH, on behalf of herself and all others similarly situated, Plaintiff/Appellee, v.COMPUCREDIT CORPORATION; Jefferson Capital Systems, LLC, Defendants/Appellants, J.A. Cambece Law Office, P.C., Defendant.

No. 07-1948.

United States Court of Appeals, Eighth Circuit.

Submitted: January 16, 2008.

Filed: September 23, 2008.

Christopher Landau, argued, Washington DC (H. William Allen and Kevin M. Lemly, Little Rock, AR, on the brief), for appellant.

James A. Carney, argued, Little Rock, AR (Tiffany Oldham and Thomas B. Walker, on the brief), for appellee.

Before COLLOTON, SHEPHERD, Circuit Judges, and ERICKSON,¹District Judge.

COLLOTON, Circuit Judge.

Mary Koch filed suit on behalf of herself and a putative class, alleging that Compucredit Corp., Jefferson Capital Systems, LLC, and the J.A. Cambece Law Office, P.C., violated the Fair Debt Collection Practices Act (FDCPA) and the Arkansas Deceptive Trade Practices Act (ADTPA) by attempting to collect on a debt that Koch already had paid.The defendants, purported assignees of the original creditor First North American National Bank (FNANB), moved to compel arbitration under the arbitration clause contained in the credit card agreement between FNANB and Koch.The district court denied the motion, reasoning that the assignment of the credit agreement from FNANB to the defendants was invalid, and that the defendants thus did not have an agreement to arbitrate with Koch.The defendants filed this interlocutory appeal, and we reverse.

I.

In 2000, Koch entered into a credit card agreement with FNANB.Koch admits that she incurred debt from using the card, but alleges that she settled the debt in January 2003.On August 31, 2005, FNANB assigned "all rights, title, and interest" in Koch's account to Jefferson Capital.At the time of the assignment, FNANB's records presumably indicated that Koch was past due on her account, as Jefferson Capital hired the J.A. Cambece Law Office, P.C.(Cambece), to collect on the debt.Cambece sent Koch a collection notice on December 9, 2005, claiming that she owed $284.68 to Jefferson Capital as the assignee of FNANB.

Koch attempted to resolve the matter with Cambece, but the firm continued its collection efforts, allegedly making various misrepresentations in the process.Koch ultimately filed suit against Cambece, Jefferson Capital, and its corporate parent, Compucredit, claiming that the defendants had violated the FDCPA and the ADTPA.The defendants moved to stay the proceedings and compel arbitration, invoking the arbitration clause contained in the credit agreement between FNANB and Koch.Koch opposed this motion on the grounds that (1) the arbitration clause was invalid because it was unconscionable, and (2) her claims did not fall within the scope of the arbitration clause.

The district court agreed with Koch that the arbitration clause could not be invoked by the defendants, albeit for different reasons.The court focused on the purported assignment of Koch's account, accepting as true Koch's allegation that she settled her debt with FNANB in 2003.The court reasoned that absent an existing debt, FNANB had no remaining interest in Koch's account, and therefore had nothing to assign.Because the absence of a "present interest" rendered the assignment invalid under Arkansas law, the court concluded that Jefferson Capital could not be treated as a party to the credit agreement or to the arbitration clause contained therein.The court thus denied Jefferson Capital's motion to compel, relying on the rule that a party cannot compel arbitration without a valid arbitration agreement.Jefferson Capital and Compucredit appealed.We will refer to the appellants as "Jefferson Capital" for purposes of simplicity.

II.

The Federal Arbitration Act (FAA),9 U.S.C. § 4, provides that a party aggrieved by the failure of another party to arbitrate under a written agreement may petition the district court for an order compelling arbitration.The purpose of the FAA is "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible."Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765(1983).To effectuate that goal, Congress provided a limited role for courts, allowing them to "consider only issues relating to the making and performance of the agreement to arbitrate."Prima Paint Corp. v. Flood & Conklin Mfg. Co.,388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270(1967).These issues are presumptively committed to judicial determination, because "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 v. Warrior & Gulf Nav. Co.,363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409(1960).

To decide questions of arbitrability, we must determine whether a valid arbitration agreement exists between the parties and, if so, whether the subject matter of the dispute falls within the scope of the arbitration clause.United Steelworkers, Local No. 164 v. Titan Tire Corp.,204 F.3d 858, 860(8th Cir.2000).The district court concluded that there was no valid arbitration agreement between Jefferson Capital and Koch, because FNANB's assignment to Jefferson Capital was invalid.Because the district court's decision was based on the complaint alone, and did not involve any determination of disputed factual issues, we review this decision de novo, accepting as true the allegations in the complaint.SeeSuburban Leisure v AMF Bowling Prods.,468 F.3d 523, 525(8th Cir.2006).

At the outset, Jefferson Capital argues that the district court erred by considering the validity of the assignment at all, because that issue should be decided by the arbitrator.This position is in tension with our precedent in I.S. Joseph Co., Inc. v. Mich. Sugar Co.,803 F.2d 396(8th Cir.1986), where we held, in the context of a dispute between an assignee and an original contracting party, that "the enforceability of an arbitration clause is a question for the court when one party denies the existence of a contract with the other."Id. at 400.We observed that "absent some indication in the original agreement that the parties at that time provided for assignment of their interests under the agreement or otherwise intended to bind themselves to entities not then in existence, the validity of the assignment must be determined under the common law of contract."Id.Under those circumstances, referral of the assignment question to the arbitrator "would require the arbitrator to look outside the agreement to the circumstances of the contract itself and the contract law of the state in order to determine his jurisdiction in the matter."Id.That function, we said, is one reserved for the court under the FAA.AccordAmerican Safety Equipment Corp. v. J.P. Maguire & Co.,391 F.2d 821, 829(2d Cir.1968).

Jefferson Capital contends that I.S. Joseph and similar decisions do not preclude referral of the assignment dispute to the arbitrator in light of Buckeye Check Cashing, Inc. v. Cardegna,546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038(2006).The appellants note that Buckeye reiterated a rule of "severability," established by Prima Paint, that an arbitration clause is severable from the remainder of a contract.Prima Paint addressed a claim of fraud in the inducement, and held that "if the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the making of the agreement to arbitrate—the federal court may proceed to adjudicate it."Prima Paint,388 U.S. at 403-04, 87 S.Ct. 1801.But where the claim was one of fraud in the inducement of the contract generally, Prima Paint declared that the issue was for the arbitrator.Id.Buckeye, applying Prima Paint, reiterated that "unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance."546 U.S. at 445-46, 126 S.Ct. 1204(emphasis added).Jefferson Capital urges that the validity of the assignment here depends on the continuing validity of the contract as a whole, not just the arbitration clause, so the dispute should be referred to the arbitrator.

In Buckeye,the plaintiffs claimed that the defendant's check cashing agreement "violated various Florida lending and consumer protection laws," and was therefore void and illegal ab initio.Id. at 443, 126 S.Ct. 1204.The Supreme Court held that because the plaintiffs challenged "the agreement, but not specifically its arbitration provisions," the rule of severability applied, and the arbitration provisions were enforceable "apart from the remainder of the contract."Id. at 446, 126 S.Ct. 1204.The Court specified, however, that "[t]he issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded."Id. at 444 n. 1, 126 S.Ct. 1204(emphasis added).Thus, Buckeye did not speak to decisions holding that it is for a court to decide "whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal, and whether the signor lacked the mental capacity to assent."Id.(citations omitted).

Just as Buckeye did not address disputes over whether an agreement was ever concluded between an obligor and obligee, we do not think Buckeye undermines our precedent in I.S. Joseph holding that the validity of an assignment is a matter for the court.One of the principal authorities on the assignment question explains why decisions involving "severability" of arbitration clauses in challenges to contract validity are not applicable to disputes over an assignment:

This case is quite different from those involving fraud in the inducement, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co.In those cases, an agreement to arbitrate was reached...