Harris v. Equifax Info. Servs., CIVIL ACTION NO. 2:18-cv-00558

WILLIAM HARRIS, et al., Plaintiffs, v. EQUIFAX INFORMATION SERVICES, et al., Defendants.

CIVIL ACTION NO. 2:18-cv-00558

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA CHARLESTON DIVISION

April 17, 2019

MEMORANDUM OPINION AND ORDER

Pending before the Court is Defendant Wells Fargo Bank, N.A.'s ("Wells Fargo") Motion to Compel Arbitration and Dismiss Action.¹ (ECF No. 20.) For the reasons discussed herein, the Court GRANTS the motion.² (ECF No. 20.)

I. BACKGROUND

This action arises out of a dispute between Plaintiffs William and Judy Harris ("Plaintiffs") and their loan servicer, Wells Fargo, regarding the credit reporting on Plaintiffs' mortgage loan. (See ECF No. 1.) On March 17, 2003, William Harris signed a note in favor of Wells FargoFinancial West Virginia, Inc. ("Wells Fargo Financial WV"), secured by a deed of trust on their property for a mortgage loan. (See ECF No. 21 at 2.) On the same day, both Plaintiffs signed an arbitration agreement (the "Arbitration Agreement") with Wells Fargo Financial in which Plaintiffs agreed to arbitrate any claim, dispute, or controversy of any kind arising out of Plaintiffs' loan. (See ECF No. 20-1 at 13.) Plaintiffs' loan was eventually assigned to Wells Fargo d/b/a Wells Fargo Home Mortgage. (See ECF No. 1 at 2, ¶ 3; see also ECF No. 20 at 2.)

On June 10, 2013, Plaintiffs filed an action against Wells Fargo Financial and Wells Fargo in the Circuit Court of Wood County, West Virginia, alleging that their mortgage was void due to Wells Fargo's alleged fraudulent servicing of Plaintiffs' mortgage loan. (See ECF No. 1 at 2, ¶ 5.) Plaintiffs agreed to arbitrate the dispute pursuant to the Arbitration Agreement. (See ECF No. 20-2.) On October 17, 2016, Plaintiffs and Wells Fargo entered into a settlement agreement and release (the "Settlement Agreement") in which Wells Fargo agreed, in relevant part, to request deletion of Plaintiffs' credit line and/or any negative references on Plaintiffs' trade line with Wells Fargo. (See ECF No. 1 at 2, ¶¶ 6-7.) The Settlement Agreement also included two integrating clauses that state, in part, the following:

Complete Agreement: This Agreement represents the complete agreement between the Settling Parties concerning the subject matter hereof, supersedes all prior or contemporaneous agreements, representations or negotiations, if any, and may not be modified, except by a writing signed by all Parties hereto.

. . .

Integration Clause: This Agreement contains the entire agreement between and among the Parties hereto, and supersedes all prior and contemporaneous discussions, negotiations, understandings and agreements, whether oral or written, express or implied, between or among them relating to the subject matter of this Agreement.

(ECF No. 24-1 at 4.)

On December 20, 2016, Wells Fargo advised Plaintiffs that it had requested the credit correction on November 18, 2016. (ECF No. 1 at 2, ¶ 8.) However, on or around March 2017, Plaintiffs sought a vehicle loan and were denied favorable rates and terms due to their trade line with Wells Fargo still reflecting incorrect credit information. (See id. at 3, ¶¶ 9-11.) Plaintiffs subsequently sent letters to Wells Fargo to notify them that their credit report was still incorrectly reporting that they were in arrears on their account with Wells Fargo. (Id. at ¶ 13.) Wells Fargo replied, asserting that the credit line and the negative reporting should have been removed. (Id. at ¶ 14.)

Plaintiffs also contacted TransUnion and Equifax Information Services, LLC ("Equifax") to inform them that Plaintiffs' mortgage account was being reported inaccurately. (Id. at ¶ 15.) TransUnion fixed the incorrect reporting; however, Equifax continued to report the incorrect mortgage information. (See id. at 3-4, ¶¶ 16-22.)

On April 12, 2018, Plaintiffs filed the present action against Equifax³ and Wells Fargo asserting claims of false credit reporting. (See id. at 5-11.) Most relevant here, Plaintiffs alleged a count for breach of contract and three counts for violations of the Fair Credit Reporting Act against Wells Fargo for Wells Fargo's alleged breach of the Settlement Agreement and false credit reporting. (See id. at 5-8.)

On October 16, 2018, Wells Fargo filed the present motion to compel arbitration. (ECF No. 20.) Plaintiffs timely responded to the motion, (ECF No. 24), and Wells Fargo timely replied, (ECF No. 27). As such, the motion is fully briefed and ripe for adjudication.

II. LEGAL STANDARD

The Federal Arbitration Act ("FAA") was in enacted in 1925 to "reverse the longstanding judicial hostility to arbitration agreements . . . and to place [them on] the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991). It provides that arbitration clauses in contracts concerning interstate commerce are "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. Thus, "due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration." Id. (citing Volt Info. Sciences, Inc. v. Bd. of Tr. of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989)).

Under section 4 of the FAA, "a party 'aggrieved' by the failure of another party 'to arbitrate under a written agreement for arbitration' may petition a federal court 'for an order directing that such arbitration proceed in the manner provided for in such agreement.' The court 'shall' order arbitration 'upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.'" Rent-A-Center West, Inc., v. Jackson, 561 U.S. 63, 68 (2010) (quoting 9 U.S.C. § 4). A party seeking to compel arbitration pursuant to this section must establish the following:

(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the [party] to arbitrate the dispute.

Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir. 2002) (quoting Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991)) (internal quotation marks omitted).

III. DISCUSSION

In support of its motion, Wells Fargo argues the following: (1) Plaintiffs entered into a binding arbitration agreement with Wells Fargo in which they agreed to arbitrate any claims regarding Plaintiffs' mortgage, including any future dealings, that must be enforced under the FAA; and (2) the Arbitration Agreement contains a "delegation clause" which requires the arbitrator, not the Court, to decide gateway questions of arbitrability, such as whether the Arbitration Agreement is enforceable. (See ECF No. 21 at 2, 8-9.)

As stated above, there are four factors a party must demonstrate for the Court to compel arbitration under the FAA. See supra Part II. Plaintiffs contest the second factor⁴—whether there is a binding arbitration agreement that covers the dispute—by arguing first, that the Arbitration Agreement is no longer enforceable as it was superseded by the subsequent Settlement Agreement and second, that Wells Fargo has not shown it was an intended party to the Arbitration Agreement. (See ECF No. 24 at 6-14.)

The Fourth Circuit has stated that "even though arbitration has a favored place, there still must be an underlying agreement between the parties to arbitrate." Adkins, 303 F.3d at 501 (quoting Arrants v. Buck, 130 F.3d 636, 640 (4th Cir. 1997)) (internal quotation marks omitted). "Whether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation," id. at 501 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)), and "a court will presume that it, rather than an arbitrator, will decide any disputesregarding arbitrability, such as 'whether the parties are bound by a given arbitration clause.'" Kabba v. Rent-A-Center, Inc., 730 F. App'x 141, 142 (4th Cir. 2018).

However, parties can agree to arbitrate these "gateway" questions of arbitrability through a delegation clause. See Carson v. Giant Foods, Inc., 175 F.3d 325, 329 (4th Cir. 1999); see also Rent-A-Center, 561 U.S. at 68-69. This agreement is treated as a severable, additional agreement that is valid under § 2 "save upon such grounds as exist at law or in equity for the revocation of any contract,' and federal courts can enforce the agreement by . . . compelling arbitration under § 4." See Rent-A-Center, 561 U.S. at 70 (quoting 9 U.S.C. § 2); see also Schumacher Homes of Circleville, Inc. v. Spencer, 787 S.E.2d 650, 660 (W. Va. 2016) ("Succinctly, a delegation clause is 'a distinct mini-arbitration agreement divisible from the contract in which it resides—which just so happens also to be an arbitration agreement.'" (quoting Rent-A-Center, 561 U.S. at 85)). This clause must contain "'clear and unmistakable" language showing that the parties intended "to delegate disputes regarding arbitrability to the arbitrator." Novic v. Credit One Bank, N.A., No. 17-cv-2168, 2019 WL 103878, at *2 (4th Cir. Jan. 4, 2019)

Nevertheless, a party may oppose a motion to compel arbitration by challenging the validity of the delegation provision. See Novic, 2019 WL 103878, at *3. Where a party challenges the validity of the delegation provision, a court must first determine whether the delegation clause is enforceable before compelling arbitration. See Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., 867 F.3d 449, 455 (4th Cir. 2017) (citing Rent-A-Center, 561 U.S. at 71). This challenge must be to the delegation provision specifically and not the arbitration agreement as a whole. See Minnieland, 867 F.3d at 455. Thus, a court must first decide whether the plaintiff...