Ford v. Genesis Fin. Sols.

1

STEVE FORD, INDIVIDUALLY, AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiff, v. GENESIS FINANCIAL SOLUTIONS, INC., et al., Defendants.

Civ. No. DLB-23-2156

United States District Court, D. Maryland

March 28, 2024

MEMORANDUM OPINION

Deborah L.Boardman, United States District Judge

In this purported class action, Steve Ford claims that Genesis Financial Solutions, Inc. (“Genesis”) and Spring Oaks Capital SPV, LLC (“Spring Oaks”) marketed and collected on credit card loans and acted as lenders without the required licenses in violation of the Maryland Credit Service Business Act, Md. Code Ann., Com. Law § 14-1901 et seq., and the Maryland Consumer Loan Law Md. Code Ann., Com. Law § 12-301 et seq. ECF 2. On behalf of a class of similarly situated consumers, Ford seeks damages and a declaration that the loans are void and unenforceable. The defendants have moved to dismiss and compel arbitration. ECF 9, 9-1. The motion is fully briefed. ECF 11, 15, 20, 21. No hearing is necessary. See Loc. R. 105.6. For the following reasons, the Court denies the motion.

I. Background

Steve Ford is a resident of Maryland who applied for and received a credit card loan from Genesis, a subprime credit card loan originator. ECF 2, ¶¶ 29-30, 34. Genesis markets credit cards to consumers, underwrites the loan applications for the cards, approves loan applications and extensions of credit, and collects payments on the loans. Id. ¶ 36. According to Ford, Genesis is not a chartered bank and therefore “is subject to state usury laws which limit the amount of interest and fees that can be collected on loans.” Id. ¶ 3. To evade these limits, Genesis has devised a work around: third-party banks issue the loans and then Genesis immediately purchases them. Id. ¶¶ 4, 37. This arrangement, Ford claims, makes Genesis a loan broker, because the company assists consumers like Ford in obtaining these third-party loans. Id. ¶ 4. Under Maryland law, loan brokers must be licensed. Id. ¶¶ 5-6. Genesis is not. Id. ¶ 11. So on Ford's account, Genesis is in violation of Maryland law. Ford also alleges Genesis collects on the loans it helps originate. Id. ¶¶ 34-36. This too, he claims, violates Maryland law, because entities that “arrange and collect on loans” must be licensed as well. Id. ¶ 7.

On June 23, 2019, Genesis opened Ford's account through one of its “third party financial partners” and mailed him the underlying credit card and the Genesis Credit Account Agreement (“the Credit Agreement”), which governs the terms of the card's use. Id. ¶¶ 119-20; ECF 9-4. The Credit Agreement was accompanied by a cover letter bearing Genesis letterhead. ECF 9-4, at 1-2. Even though Genesis mailed the agreement and placed its name in the title of the agreement, the Credit Agreement defines “we” as First Electronic Bank, not Genesis. ECF 9-4, at 2.

The Credit Agreement is a three-and-a-half page, single-spaced document that establishes the parties' rights and obligations. See id. The agreement becomes operative upon the cardholder's receipt and use of the credit card or the approval of the application, whichever is earlier. Id. Three provisions are relevant to the pending motion.

First is the “Arbitration of Disputes Provision.” Id. at 4. It states, in relevant part:

PLEASE READ THIS ARBITRATION OF DISPUTES PROVISION CAREFULLY. UNLESS YOU SEND U.S. THE REJECTION NOTICE DESCRIBED BELOW, THIS PROVISION WILL APPLY TO YOUR ACCOUNT, AND MOST DISPUTES BETWEEN YOU AND U.S. WILL BE SUBJECT TO INDIVIDUAL ARBITRATION. THIS MEANS THAT: (1) NEITHER A COURT NOR A JURY WILL RESOLVE ANY SUCH DISPUTE;

(2) YOU WILL NOT BE ABLE TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING; (3) LESS INFORMATION WILL BE AVAILABLE; AND (4) APPEAL RIGHTS WILL BE LIMITED

....

This provision replaces any existing arbitration provision with us and will stay in force no matter what happens to your Account, including the closing of your Account. Except as expressly provided below, you and we must arbitrate individually, by binding arbitration under the Federal Arbitration Act (“FAA”), any dispute or claim between you, any joint Accountholder and/or Authorized User, on the one hand, and us, our affiliates and agents, on the other hand, if the dispute or claim arises out of or is related to (a) this Agreement (including without limitation, any dispute over the validity of this Agreement to arbitrate disputes or of this entire Agreement), or (b) your Account, or (c) any relationship resulting from this Agreement, or (d) any insurance or other service related to your Account, or (e) any other agreement related to your Account (including prior agreements) or any such service, or (f) breach of this Agreement or any other such agreement, whether based on statute, contract, tort or any other legal theory (any ‘Claim”). However, we will not require you to arbitrate any individual Claims in small claims court or your state's equivalent court, so long as it remains an individual case in that court.

YOU AGREE NOT TO PARTICIPATE IN A CLASS, REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL ACTION AGAINST U.S. IN COURT OR ARBITRATION. ALSO, YOU MAY NOT BRING CLAIMS AGAINST U.S. ON BEHALF OF ANY ACCOUNTHOLDER WHO IS NOT A JOINT ACCOUNTHOLDER WITH YOU OR AN AUTHORIZED USER ON YOUR ACCOUNT (AN ‘UNRELATED ACCOUNTHOLDER”), AND YOU AGREE THAT NO UNRELATED ACCOUNTHOLDER MAY BRING ANY CLAIMS AGAINST U.S. ON YOUR BEHALF. CLAIMS BY YOU AND AN UNRELATED ACCOUNTHOLDER MAY NOT BE JOINED IN A SINGLE ARBITRATION. THE ARBITRATOR WILL NOT HAVE THE POWER TO CONSIDER SUCH CLASS, REPRESENTATIVE OR PRIVATE ATTORNEY GENERAL ACTIONS OR ANY SUCH CLAIMS YOU BRING ON BEHALF OF AN UNRELATED ACCOUNTHOLDER.

....

Id. The Court refers to this provision as the “arbitration clause.”

Next is the “Change of Terms” clause, which states:

Subject to the limitations of applicable law, we may, at any time, change or remove any of the terms and conditions of, or add new terms and conditions to, this Agreement. If required by applicable law, we will mail written notice of such a change to you in the manner required by such law. As of the effective date, the changed or new terms will apply to new purchases and to the outstanding balance of your Account, subject to the limitations of applicable law.

Id. at 3-4. The Court refers to this provision as the “change clause.”

Finally, the “Governing Law” clause states:

Except as expressly set forth in the Arbitration of Disputes Provision in the Agreement, this Agreement and the interpretation and enforcement thereof (including but not limited to the exportation of interest rates) will be governed by Federal law that applies to us, and to the extent not preempted by Federal law, the laws of the State of Utah, without regard to its conflicts of law provisions and principles. If there is any conflict between any of the terms and conditions of this Agreement and applicable Federal or State law, this Agreement will be considered changed to the extent necessary to comply with the applicable law.

Id. at 4. The Court refers to this provision as the “choice-of-law clause.”

Ford received the credit card and made two purchases with the card. ECF 2, ¶ 119; ECF 9 2, ¶ 5. In July 2020, First Electronic Bank conveyed the account and the underlying receivables to Genesis FS Card Services, Inc, a wholly owned subsidiary of Genesis. ECF 9-6; ECF 9-2, ¶ 1. After a series of additional transactions, Spring Oaks became the owner of Ford's debt. ECF 2, ¶¶ 31, 125-127.

In July 2023, Ford filed suit in state court, on behalf of himself and a purported class, seeking damages and a declaration that the loan agreements Genesis executed with class members are “void and unenforceable.” Id. at 33. The defendants removed the action to this Court. ECF 1. Then the defendants moved to dismiss and compel arbitration based on the arbitration clause. ECF9. Ford opposed the motion. ECF 11. The defendants replied. ECF 15. Ford filed a surreply with the consent of the defendants, ECF 20, and the defendants responded, ECF 21.

II. Standard of Review

Under the Federal Arbitration Act (“FAA”), a party to an arbitration agreement may ask the Court “to move . . . an arbitrable dispute out of court and into arbitration as quickly and easily as possible” by either staying the litigation or compelling arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983) (citing 9 U.S.C. §§ 3-4). A motion to compel arbitration “call[s] for an expeditious and summary hearing, with only restricted inquiry into factual issues.” Id.; see also 9 U.S.C. § 4 (“If the making of the arbitration agreement . . . [is] in issue, the court shall proceed summarily to the trial thereof.”).

“Motions to compel arbitration exist in the netherworld between a motion to dismiss and a motion for summary judgment.” PC Constr. Co. v. City of Salisbury, 871 F.Supp.2d 475, 47778 (D. Md. 2012). When, as here, the formation of an arbitration agreement is in dispute, “[t]reating [the] motion to compel arbitration as a motion for summary judgment is proper.” Cherdak v. ACT, Inc., 437 F.Supp.3d 442, 454 (D. Md. 2020) (quoting Caire v. Conifer Value Based Care, LLC, 982 F.Supp.2d 582, 589 (D. Md. 2013)); see Berkeley Cnty. Sch. Dist. v. Hub Int'l Ltd., 944 F.3d 225, 233-34 (4th Cir. 2019) (“To decide whether ‘sufficient facts' support a party's denial of an agreement to arbitrate, the district court is obliged to employ a standard such as the summary judgment test.”). In this context, “the court is entitled to consider materials other than the complaint and its supporting documents.” Berkeley Cnty. Sch. Dist., 944 F.3d at 233.

III. Discussion

To prevail on a motion to compel arbitration, a party must show:

(1) the existence of a dispute between the parties, (2)

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