Schmitt v. Rausch

• Decision Date: 15 October 2021
• Docket Number: 8:21CV11
• Court: U.S. District Court — District of Nebraska
• Parties: VICTOR E. SCHMITT, on behalf of themselves and all others similarly situated; and CHERYL SCHMITT, on behalf of themselves and all others similarly situated; Plaintiffs, v. RAUSCH, STURM, ISRAEL, ENERSON & HORNIK, LLP, GREGORY W. ENERSON, JULIE A. RAUSCH, PAUL THIELHELM, and DISCOVER BANK, Defendants.

VICTOR E. SCHMITT, on behalf of themselves and all others similarly situated; and CHERYL SCHMITT, on behalf of themselves and all others similarly situated; Plaintiffs, v. RAUSCH, STURM, ISRAEL, ENERSON & HORNIK, LLP, GREGORY W. ENERSON, JULIE A. RAUSCH, PAUL THIELHELM, and DISCOVER BANK, Defendants.

No. 8:21CV11

United States District Court, D. Nebraska

October 15, 2021

MEMORANDUM AND ORDER

Cheryl R. Zwart United States Magistrate Judge

This matter is before the undersigned magistrate judge on Defendant Discover Bank's motion to compel arbitration. (Filing No. 37). Defendants Rausch, Sturm, Israel, Enerson & Hornik, LLP, Gregory W. Enerson, Julie A. Rausch, and Paul Thielhelm join Discover's motion (collectively “RS Defendants”). (Filing No. 42). Discover seeks to enforce the arbitration provisions contained in cardmember agreements for Plaintiffs' credit card accounts. The RS Defendants join that motion. Plaintiffs oppose the motion to arbitrate. For the reasons stated below, Defendants' motion to compel arbitration will be granted.

BACKGROUND

Plaintiffs Cheryl Schmitt and Victor Schmitt (collectively “Plaintiffs”) are Nebraska residents who were previously sued by Defendant Discover Bank (“Discover”) in Nebraska state court. Discover is a credit card company. Rausch Sturm, Israel, Enerson & Hornik, LLP is a debt collector and law firm, and the individual defendants are attorneys within that firm. The law firm and attorneys acted on behalf of Discover to recover alleged credit card debts from the plaintiffs in a state court action.

Bringing this action on behalf of not only themselves but also the putative class of all others similarly situated Plaintiffs' first claim alleges the RS Defendants violated the Fair Debt Collections Practices Act (“FDCPA") 15 U.S.C. § 1692 by communicating directly with consumers who were known to be represented by an attorney, and by adding interest to lawsuits after the alleged accounts were “charged off” with interest waived. (Filing No. 16 at CM/ECF pp. 17-18). Plaintiffs' second claim alleges violations of the Nebraska Consumer Protection Act (“NCPA”) (Neb. Rev. Stat. § 59-1601 et seq.), against both Discover and the RS Defendants. Plaintiffs allege the Defendants committed unfair or deceptive acts or practices in violation of the NCPA by filing county court debt collection complaints, sending letters, and seeking and adding unauthorized interest after the alleged accounts were charged off.

Discover argues Plaintiffs' claims are subject to arbitration under the terms in Plaintiffs' respective Cardmember Agreements. In support of its motion, Discover submitted the declaration of Janusz Wantuch^[1], the Director of Credit Risk Management for Discover Products Inc. (Filing No. 39-1 at CM/ECF pp 2-4). Wantuch attested to the contents of each Plaintiff's Cardmember Agreement.

Plaintiff Cheryl Schmitt's (“Cheryl”) original Cardmember Agreement did not contain an arbitration agreement. (Filing No. 39-1 at CM/ECF p. 3) However, the agreement contained a change of terms clause:

CHANGE OF TERMS: We may change any term or part of this Agreement … by sending notice at least 30 days before the change is to become effective. . . If you do not agree to the change, you must notify us in writing within 30 days after the mailing of the notice of change at the address provided in the notice of change. In which case your Account will be closed and you must pay us the balance that you owe us under the existing terms of the unchanged Agreement. Otherwise you will have agreed to the changes in the notice. Use of the Card after the effective date of the change shall be deemed acceptance of the new terms as of such effective date, even if you previously notified us that you did not agree to the change.

(Filing No. 39-1 at CM/ECF p. 9).

Discover changed the terms of Cheryl's Cardmember Agreement effective April 2003. Before the April 2003 agreement became effective, Discover mailed Cheryl a “Notice of Right to Reject Arbitration” and Cheryl did not send Discover correspondence indicating that she rejected the arbitration clause. (Filing No. 39-1 at CM/ECF pp. 3-4, 30).

Plaintiff Victor Schmitt (“Victor”) applied for a credit card account with Discover. In January 2005, Discover sent Victor his new card and a copy of the Cardmember Agreement, dated March 8, 2004.

In both the 2003 and 2004 agreements, the first paragraph under the heading “IMPORTANT INFORMATION ABOUT YOUR ACCOUNT” states “You have the right to reject the arbitration provision with respect to your new account within 30 days after receiving your Card . . .” (Filing No. 39-1 at CM/ECF pp. 15, 32). The first section of the Cardmember Agreement contains a boldfaced notice that “The Arbitration of Disputes Section on page 12 includes a waiver of a number of rights, including the right to a jury trial.” (Filing No. 39-1 at CM/ECF pp. 16, 33). The Arbitration of Disputes section on page 12 contains notice that if arbitration is elected by either party, there will be no right for either party to litigate in court or to have a jury trial, and no right to join or consolidate claims by or against cardmembers, or to arbitrate any claims as a representative or member of a class. (Filing No. 39-1 at CM/ECF pp. 22, 36).

In 2018, Discover amended the Cardmember Agreement. The “Acceptance of Agreement” paragraph states “You accept this Agreement if you do not cancel your Account within 30 days after receiving a Card. You also accept this Agreement if you or an Authorized User use the Account. You may, however reject the ‘Arbitration of Disputes' section as explained in that section.” (Filing No. 39-1 at CM/ECF p.42). Wantuch's affidavit states that each Plaintiff accepted the Cardmember Agreement through the use of the card, and that Discover did not receive notice that either plaintiff rejected the Arbitration of Disputes clause within the cardmember agreement. (Filing No. 39-1 at CM/ECF pp. 3-4).

The arbitration clauses in the 2003, 2004 and 2018 Cardmember Agreements allows for arbitration of any claim “arising from or relating to” Plaintiffs' accounts, if either party chooses to resolve the claim by binding arbitration instead of in court. (Filing No. 39-1 at CM/ECF pp. 22, 36, 44). Plaintiffs challenge the validity of the agreement for a number of reasons. First, they assert the agreement is both procedurally and substantively unconscionable, and that enforcement of the arbitration clause would cause logistical problems. They also assert Plaintiffs' claims are outside of the scope of the arbitration agreement, and that all Defendants have waived arbitration by filing lawsuits in county court and/or affirmatively participating in this case.

ANALYSIS

Arbitration is favored and this court's role is to engage in a limited inquiry to “determine whether there is a valid agreement to arbitrate and whether the specific dispute at issue falls within the substantive scope of that agreement.” Larry's United Super, Inc. v Werries, 253 F.3d 1083, 1085 (8th Cir. 2001). If the court so finds, Section 3 of the Federal Arbitration Act requires a stay of proceedings subject to an arbitration agreement, and Section 4 empowers the court to compel the parties to proceed with arbitration. 9 U.S.C. §§ 3, 4. “The party resisting arbitration bears the burden of demonstrating the motion to compel arbitration should be denied.” Green Tree Financial Corp. -Alabama v. Randolph, 531 U.S. 79, 91 (2000).

“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.” AT & T Technologies v. Communications Workers of Am., 475 U.S. 643, 648 (1986); Volt Information Sciences v. Board of Trustees, 489 U.S. 468, 479 (1989) (stating Arbitration is “a matter of consent, not coercion, ” and if the parties have not “agreed to arbitrate, the courts have no authority to mandate that they do so.”); see also Churchill Environmental and Indus. Equity Partners, L.P. v Ernst & Young, L.L.P., 643 N.W.2d 333, 336 (Minn.Ct.App. 2002) (citing AgGrow Oils, L.L.C. v. Nat'l Union Fire Ins. Co. of Pittsburg, PA, 242 F.3d 780, 782 (8th Cir. 2001)). When deciding whether to compel arbitration, a two-part test is applied. United Steelworkers of Am., AFL-CIO-CLC v. Duluth Clinic, Ltd., 413 F.3d 786, 787 (8th Cir. 2005). The court must first decide whether a valid agreement to arbitrate exists. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). If so, the court must then determine if the parties' dispute falls within the scope of the arbitration agreement. AT & T Technologies, 475 U.S. at 649.

Under the Federal Arbitration Act, a written arbitration agreement “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; Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). Under Section 2, an arbitration clause may be deemed unenforceable if upon application of state law, a court concludes a party was unfairly pressured to agree to a contract with an unwanted arbitration provision. Id. citing Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 at 281 (1995). The Federal Arbitration Act, as a matter of federal law, requires that any doubts concerning the scope of arbitrable issues be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983); Teamsters Local Union No. 688, 186 F.3d at 881 (“[W]hen an arbitration clause exists in a contract, there is a presumption of arbitrability unless it is clear that the arbitration clause is not susceptible of an interpretation that covers the dispute.”).

I. Valid and Enforceable Arbitration Clause

The initial...