Rex v. Csa-Credit Solutions of America, Inc.

• Decision Date: 27 June 2007
• Docket Number: No. 1:06-CV-633.,1:06-CV-633.
• Citation: 507 F.Supp.2d 788
• Parties: Revialo REX, an individual, Plaintiff, v. CSA-CREDIT SOLUTIONS OF AMERICA, INC., a Texas corporation, Defendant.
• Court: U.S. District Court — Western District of Michigan

507 F.Supp.2d 788

Revialo REX, an individual, Plaintiff, v. CSA-CREDIT SOLUTIONS OF AMERICA, INC., a Texas corporation, Defendant.

No. 1:06-CV-633.

United States District Court, W.D. Michigan, Southern Division.

June 27, 2007.

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Stephen P. Willison, Willison & Hellman P.C., Grand Rapids, MI, for Plaintiff.

Derek Sebastian Witte, Miller Johnson P.L.C., Grand Rapids, MI, for Defendant.

OPINION

ROBERT HOLMES BELL, Chief Judge.

This matter is before the Court on Defendant CSA-Credit Solutions of America, Inc.'s motion to compel arbitration. (Def.'s Mot. to Compel Arb., Docket # 5.) Defendant moves to compel arbitration under the Federal Arbitration Act ("FAA") and Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiff, Revialo Rex, contends that this dispute is nonarbitrable because: the agreement to arbitrate was fraudulently induced, the agreement to arbitrate is unconscionable, Defendant waived its right to arbitrate, and Plaintiff's claims under the Credit Repair Organization Act ("CROA"), 15 U.S.C. §§ 1679-1679j, are nonarbitrable. The Court heard oral argument on June 14, 2007. For the reasons that follow, the Court grants Defendant's motion to compel arbitration.

I.

Plaintiff is a resident of Edwardsburg, Michigan. Defendant is a for-profit Texas corporation that offers "debt settlement" assistance.

On February 2, 2004, after reviewing Defendant's website and speaking with a "credit specialist" employed by Defendant, Plaintiff and Defendant entered into the Client Service Agreement (the "Agreement").¹ (Agreement, Def.'s Br. in Supp., Docket # 6, Ex. A.) Under the terms of the Agreement, Defendant was to negotiate with Plaintiff's creditors (specifically, AT & T Universal, Chase, Citicard, Direct Merchants and Providian) to reduce the amount of Plaintiff's debt.

On February 19, 2004, an employee of Defendant advised Plaintiff that he should discontinue making payments to his creditors, which Plaintiff subsequently did. Plaintiff also began making monthly service payments to Defendant. After Plaintiff discontinued making payments on two different Citibank accounts, Citibank filed two separate lawsuits against Plaintiff. At the direction of Defendant's Litigation Support Team, Plaintiff filed a "pro-per answer." Citibank ultimately obtained judgments against Plaintiff in both lawsuits. Plaintiff and Defendant dispute whether Defendant was able to successfully negotiate with any of Plaintiffs creditors.

In late 2004, Plaintiff filed a complaint against Defendant with the Better Business Bureau of Metropolitan Dallas. After Plaintiff filed the complaint with the Better Business Bureau, Defendant offered to settle Plaintiffs dispute by refunding the service fees Plaintiff had paid to Defendant. Plaintiff accepted this settlement offer. Thereafter Plaintiff did not reply to the response that Defendant had filed to his original complaint. As a consequence of Plaintiff not filing a reply, the Better Business Bureau closed the complaint.

Plaintiff filed this lawsuit on September 1, 2006. Plaintiff asserts claims for: a violation of the CROA, fraudulent inducement to contract, a violation of the Michigan Credit Services Protection Act, MICH. COMP. LAWS §§ 445.1821-1826, a violation of the Michigan Consumer Protection Act, Mica COMP. LAWS §§ 445.901-922, a breach of fiduciary duty, negligence, and unauthorized practice of law.

II.

The FAA provides that arbitration clauses in commercial contracts "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.A. § 2 (West 2007). If a plaintiff's claim is governed by an arbitration clause, a court must compel arbitration. 9 U.S.C.A. § 3 (West, 2007). Under the FAA, a district court must make four threshold determinations before compelling arbitration:

"first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration."

Glazer v. Lehman Bros., Inc., 394 F.3d 444, 451 (6th Cir.2005) (quoting Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000)).

The FAA manifests "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). "As a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved In favor of arbitration." Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004). Federal law creates "a general presumption of arbitrability, and any doubts are to be resolved in favor of arbitration `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 576-77 (6th Cir.2003) (quoting AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). The party opposing an arbitration agreement bears the burden of establishing that the dispute is nonarbitrable. Green Tree Fin. Corp. — Ala. v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

III.

The Court must first "determine whether a valid agreement to arbitrate exists." Glazer, 394 F.3d at 450. The "ordinary state-law principles that govern the formation of contracts will apply to this analysis." Id. In determining what state law governs the formation of the Agreement, the inquiry begins with Michigan's choice of law rules because this Court sits in Michigan. Ruffin-Steinback v. dePasse, 267 F.3d 457, 463 (6th Cir.2001). Under Michigan law, a contractual choice of law provision is valid unless: (i) "the chosen state has no substantial relationship to the parties or the transaction," or the chosen state's law "`would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state....'" Chrysler Corp. v. Skyline Indus. Servs., 448 Mich. 113, 126, 528 N.W.2d 698 (1995) (quoting RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)(b)). The Agreement includes a choice of law provision selecting Texas law as the governing law. (Agreement ¶ 9.) As to the first condition for the enforcement of the choice of law provision, Defendant is based in Texas, so that condition is satisfied. As to the second condition for the enforcement of the choice of law provision, neither party has identified any aspect of Texas law relevant to this case that would be contrary to the fundamental policy of Michigan, which is presumably the only state that could have a materially greater interest than Texas. Under Michigan conflict of law principles, the contractual choice of law provision selecting Texas law governs this dispute. Therefore, when federal law directs the Court to refer to the state law principles governing the formation of contracts, the Court will apply Texas law.

A. Fraudulent Inducement of the Agreement to Arbitrate

In order to void an arbitration clause because the agreement to arbitrate was fraudulently induced the partying opposing arbitration must plead a "`well-founded claim of fraud in the inducement of the arbitration clause itself, standing apart from the whole agreement, that would provide grounds for the revocation of the agreement to arbitrate.'" Fazio v. Lehman Bros., Inc., 340 F.3d 386, 394 (6th Cir.2003) (quoting Arnold v. Arnold Corp.-Printed Commc'n for Bus., 920 F.2d 1269, 1278 (6th Cir.1990)).

Plaintiff contends that Defendant fraudulently induced the agreement to arbitrate because Defendant made a series of statements indicating that arbitration is not fair to consumers. Plaintiff does not allege that these statements were made directly to him, rather, Plaintiff alleges that the statements were general statements of Defendant, such as those that appear on Defendant's website. Plaintiff does not allege that any of these statements were made to him or that he was aware of these statements at the time he entered into the arbitration clause. These alleged statements do not support a well-founded claim of fraud in the inducement of the arbitration clause itself, because Plaintiff has not alleged any relationship between these statements and his decision to enter into the arbitration clause.

Plaintiff also directs the Court to a document entitled "Forced Arbitration." The "Forced Arbitration" document is purportedly from Defendant and includes statements indicating that Defendant considers arbitration to violate the "right to due process" and that arbitration is generally unfair. (Forced Arbitration, Pl.'s Br. in Opp'n, Docket # 9, Ex. A.). The "Forced Arbitration" document refers to the arbitration procedures allegedly employed by MBNA, not arbitration more generally. Plaintiff has not explained how a document that describes the arbitration procedures allegedly employed by a third-party implicates the arbitration clause in the Agreement. Arbitration under the arbitration clause in the Agreement is governed by the American Arbitration Association ("AAA"), to which the "Forced Arbitration" document makes no reference. Plaintiff's failure to establish some connection between his decision to enter into the arbitration clause in the Agreement and the "Forced Arbitration" document, precludes the "Forced Arbitration" document from providing the basis for a well-founded claim of fraud in the inducement of the arbitration clause itself.

B. Unconscionability of the Agreement to Arbitrate

Whether an arbitration clause is unconscionable is governed...