Moss v. BMO Harris Bank, N.A.

• Decision Date: 09 June 2014
• Docket Number: No. 13–cv–5438 JFBGRB.,13–cv–5438 JFBGRB.
• Court: U.S. District Court — Eastern District of New York
• Parties: Deborah MOSS and William Hillick, on Behalf of Themselves and all Others Similarly Situated, Plaintiffs, v. BMO HARRIS BANK, N.A., First Premier Bank, and Bay Cities Bank, Defendants.

24 F.Supp.3d 281

Deborah MOSS and William Hillick, on Behalf of Themselves and all Others Similarly Situated, Plaintiffs

v.BMO HARRIS BANK, N.A., First Premier Bank, and Bay Cities Bank, Defendants.

No. 13–cv–5438 JFBGRB.

United States District Court, E.D. New York.

Signed June 9, 2014.

Darren T. Kaplan, Chitwood Harley Harnes LLP, Great Neck, NY, Jeffrey Ostrow, Kopelowitz Ostrow P.A., Fort Lauderdale, FL, Hassan Zavareei and Jeffrey D. Kaliel, Tycko & Zavareei LLP, Washington, DC, Norman Siegel and Stephen N. Six, Stueve Siegel Hanson LLP, Kansas City, MO, for Plaintiffs.

Therese Craparo, Debra Bogo–Ernst, Kevin Ranlett, Lucia Nale, and Matthew Sostrin, Mayer Brown LLP, Chicago, IL, for Defendant BMO.

David Todd Feuerstein, Herrick, Feinstein LLP, New York, NY, John C. Elkman, Bryan Freeman, and James P. McCarthy, Lindquist & Vennum, Minneapolis, MN, for Defendant First Premier.

Eric Rieder, Ann W. Ferebee, Courtney Janae Peterson, and Michael P. Carey, Bryan Cave LLP, Atlanta, GA, for Defendant Bay Cities.

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

Plaintiffs Deborah Moss and William Hillick bring this action alleging violations of the Racketeer Influenced and Corrupt Organizations Act,¹ 18 U.S.C. § 1962, on behalf of themselves and a prospective class which they define as “[a]ll natural persons within the state of New York whose accounts were debited via an ACH entry originated by either BMO Harris Bank, N.A., First Premier Bank, or Bay Cities Bank as an ODFI on behalf of an Illegal Online Payday Lender in repayment of a loan which was illegal under New York law.” (Am. Compl. ¶ 109.)

In short, this action involves civil RICO claims based on defendants' alleged role in facilitating high-interest payday loans,² which have been outlawed in several states but remain available from online lenders. (Am. Compl. ¶¶ 4–5.) The two named plaintiffs are parties to five loan agreements with various online lenders (“the lenders”), and each agreement contains an arbitration clause. None of the arbitration clauses explicitly mentions defendants by name, nor are defendants signatories to any of the loan agreements. In other words, plaintiffs have elected not to sue their contractual counterparties, the lenders, but instead have sued defendants, who facilitated the funds transfers connected with plaintiff's loans.

Although defendants are not parties to the loan agreements, the agreements reflect their involvement in the loans in two ways. Each agreement contains a provision describing the function that defendants ultimately performed: an authorization section in which plaintiffs permitted the lender to initiate electronic funds transfers from plaintiffs' bank accounts. In addition, the arbitration provisions in each agreement state that plaintiffs must arbitrate not only with the lenders, but also with the lenders' “agents” and “servicers.” Defendants argue that they are agents and servicers within the meaning of the arbitration provisions, and that therefore plaintiffs should be estopped from avoiding arbitration with them. Plaintiffs argue that the arbitration provisions did not place them on notice that they were consenting to arbitrate with defendants.

For the reasons discussed below, the Court concludes that defendants may enforce the arbitration provisions against plaintiffs, because the broad arbitration provisions and the specific authorizations of electronic funds transfers made it foreseeable that entities like defendants, who are involved in those transfers, would be among the third parties with whom plaintiffs agreed to arbitrate. Accordingly, the motions to compel arbitration are granted, and this case is stayed. The Court does not reach the motions to dismiss at this juncture.³

I. Background

A. Factual Background

The following facts are taken from the complaint. The Court assumes these facts to be true for the purpose of deciding this motion, and construes them in the light most favorable to plaintiffs, the non-moving party.

This case arises out of five online payday loans. Moss applied for and received three such loans: one for $350 on June 17, 2010, one for $400 on October 15, 2010, and one for $1,000 on May 8, 2013. (Am. Compl. ¶¶ 87, 90, 94.) Hillick applied for two online payday loans: one for $550 on September 5, 2012, and one for $750 on June 1, 2013. (Id. ¶¶ 99, 104.) Each of these loans was made pursuant to a written agreement containing an arbitration provision and an authorization for the lender to initiate electronic funds transfers.⁴ Those provisions are discussed in more detail below. Plaintiffs allege that the interest rate on these loans was 30%, with annual interest rates between 438% and 780%. (Id. ¶¶ 88, 91–92, 95–96, 100–01, 105–06.)

The electronic funds transfers involved in these five loans were performed using the Automated Clearing House (“ACH”) network, “a processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing.” (Id. ¶ 35.) The transactions are the debits and credits necessary for an exchange between two parties, and they are performed by entities known as Originating Depository Financial Institutions (“ODFIs”), which are banks belonging to the ACH network who transmit the funds from one party to the other party's bank. (Id. ¶¶ 36–40.) The organization that provides governing rules for the ACH network refers to ODFIs as “the gatekeepers of the ACH Network.” (Id. ¶ 45.)

Defendants are the ODFIs that originated the five loan transactions in this case. (Id. ¶¶ 89 (First Premier); 93(BMO); 97 (Bay Cities); 103(BMO); 107(BMO).) Plaintiffs allege that defendants received fees for performing the origination of these loans, and that they are able to charge the lenders higher fees than for other ACH transactions, because of the risks inherent in online payday lending. (Id. ¶¶ 79–80; 98; 108.)

B. Procedural History

Plaintiffs filed the complaint in this action on September 30, 2013, and filed an Amended Complaint on January 3, 2014. On February 3, 2014, defendants filed separate motions to compel arbitration and motions to dismiss. Plaintiffs responded in opposition on March 3, 2014, and defendants replied in further support of their motions on March 17, 2014. The Court heard oral argument on April 9, 2014.

II. Standard of Review

“In a typical motion to compel arbitration, the Court would apply a standard similar to that of a summary judgment motion ... and some discovery may be allowable or necessary.” Lismore v. Societe Generale Energy Corp., No. 11 Civ. 6705(AJN), 2012 WL 3577833, at *1 (S.D.N.Y. Aug. 17, 2012) (citing DuBois v. Macy's East Inc., 338 Fed.Appx. 32, 33 (2d Cir.2009) ). However, when a court considers the motion to compel before discovery has taken place, and in the context of a motion to dismiss, it treats the allegations in plaintiffs' complaint as true. Id. (citing Guyden v. Aetna, Inc., 544 F.3d 376, 379 n. 1 (2d Cir.2008) ); see also Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 23, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (noting “Congress's clear intent, in the Arbitration Act, to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.... with only restricted inquiry into factual issues.”).

The following discussion is based upon the allegations in the Amended Complaint, as well as the text of the five loan agreements in this case. Those agreements are not attached to the Amended Complaint, but they are referred to throughout, including in allegations that mention the precise dates and amounts reflected in the loan agreements. (See Am. Compl. ¶¶ 87, 90, 94, 99, 104.) Therefore, the Court concludes that the five loan agreements are integral to the Amended Complaint, and proper for consideration on these motions. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir.2002) (“[T]he complaint is deemed to include any written instrument ... incorporated in it by reference ... [or] where the complaint relies heavily upon [the instrument's] terms and effect, which renders the document ‘integral’ to the complaint.”). No party disputes that conclusion; in fact, each has submitted the loan agreements as exhibits during the litigation of these motions.

III. Discussion

The Second Circuit has observed that “it is difficult to overstate the strong federal policy in favor of arbitration, and it is a policy we have often and emphatically applied.” Arciniaga v. Gen. Motors Corp., 460 F.3d 231, 234 (2d Cir.2006) (internal quotation marks omitted). “ ‘Having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.’ ” Id. at 235 (quoting Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ). Although plaintiffs argue that the strong federal policy in favor of arbitration does not apply here, because this case does not involve the scope of an arbitration clause, but instead involves which parties are bound to it, the Second Circuit has noted these same “bedrock principles of arbitration law” even in estoppel cases. See Ross v. Am. Exp. Co., 547 F.3d 137, 142 (2d Cir.2008).

Still, plaintiffs are correct that “[a]rbitration ... is a matter of consent, not coercion.” Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). Thus, “[w]hile the FAA expresses a strong federal policy in favor of arbitration, the purpose of Congress in enacting the FAA was to make arbitration agreements as enforceable as other contracts, but not more so. ” JLM Indus., Inc. v. Stolt–Nielsen SA, 387 F.3d 163, 171 (2d Cir.2004) (internal quotation marks and citations omitted) (emphasis in original).

Here, of course, plaintiffs did not contract with defendants—they contracted with the lenders, who are not parties to this...