Holmes v. Henry Legal Grp., LLP

DEBBIE HOLMES, on behalf of herself and all similarly situated individuals, Plaintiff, v. HENRY LEGAL GROUP, LLP and HEARTLAND LEGAL GROUP Defendants.

NO. 3:20-cv-00870

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION

July 6, 2021

JUDGE CAMPBELL

MAGISTRATE JUDGE NEWBERN

MEMORANDUM

Pending before the Court is Defendant's Motion to Stay and Compel Arbitration or Dismiss for Failure to State a Claim. (Doc. No. 30). Through the motion, Defendant moves to stay this action and compel arbitration pursuant to Sections 2-3 of the Federal Arbitration Act, 9 U.S.C. §§ 2-3, and Federal Rules of Civil Procedure 12(b)(1) and 12(b)(2), or, in the alternative dismiss Counts 2 and 3 under Rule 12(b)(6) for failure to state a claim. Defendant filed a memorandum (Doc. No. 31), a Declaration from Brandon Chabner (Doc. No. 32), and two exhibits - the client retainer agreement (Doc. No. 32-1) and copies of representative confirmations (Doc. No. 32-2). Plaintiff filed a response in opposition to the motion (Doc. No. 38) and a Declaration from Plaintiff (Doc. No. 38-1). Defendant filed a reply. (Doc. No. 44).

For the reasons discussed below, Defendant's Motion will be GRANTED.

I. BACKGROUND

Plaintiff Debbie Holmes is a former client of Defendant Henry Legal Group, d/b/a Heartland Legal Group ("Heartland"). Plaintiff retained Heartland to help her get out of debt and improve her credit score. Ultimately dissatisfied with Heartland's legal representation (the merits of Plaintiff's claims are not the subject of this motion), Plaintiff filed claims on behalf of herself and a putative nationwide class of Heartland clients alleging violations of the Credit Reporting Organizations Act (Count 1), and on behalf of herself and a putative Tennessee class of Heartland clients for alleged violations of the Tennessee Credit Services Business Act (Count 2) and the Tennessee Consumer Protection Act (Count 3). (Am. Compl., Doc. No. 26).

The Client Retainer Agreement between Plaintiff and Heartland contains an Arbitration Agreement. (See Doc. No. 32-1). Defendant now seeks to enforce the Arbitration Agreement, compel arbitration, and stay the case.¹ Plaintiff does not dispute that she signed the Retainer Agreement, or that the arbitration agreement, if enforceable, covers the claims in this case.

The Arbitration Agreement requires arbitration of "[a]ny controversy, claim or dispute between Client, on the one hand, and Heartland, any of its attorneys, and/or any of its third-party service providers, on the other hand, arising out of or relating to this agreement or the breach, termination, enforcement, performance, interpretation or validity thereof, including any determination of the scope or applicability of this agreement to arbitrate..." (Doc. No. 32-1 at 20). The Arbitration Agreement waives the right to pursue claims as a class action and provides that Plaintiff and Heartland will share the costs of arbitration equally up to $1,000; amounts in excess of $1,000 will be paid by Heartland. (Id.). It further provides that each party will bear their own attorneys' fees and costs. (Id.).

The Agreement explains the meaning of arbitration in boldface type as follows:

Binding arbitration means that both Client and Heartland give up the right to a trial by a jury and their rights to have a dispute resolved in a court of law. It also means that both Client and Heartland give up the right to appeal from the arbitrator's ruling except for a narrow range of issues that can beappealed, that discovery may be severely limited by the arbitrator, and that certain remedies such as statutory injunctions and fee shifting which may be available in a court of law may not be available. In addition, under the terms of this Agreement, Client also gives up the right to bring any claims on a consolidated or class basis in the arbitration.

(Id.). Plaintiff initialed at the end of the Arbitration Agreement. (Id. at 21). Just above her initials is the following notice on boldface type:

NOTICE: This agreement contains provisions requiring arbitration of fee disputes. Before you sign this agreement you should consider consulting with another lawyer about the advisability of making an agreement with mandatory arbitration requirements. Arbitration proceedings are ways to resolve disputes without use of the court system. By entering into agreements that require arbitration as the way to resolve fee disputes, you give up (waive) your right to go to court to resolve those disputes by a judge or jury. These are important rights that should not be given up without careful consideration. Please consult with independent legal counsel of your choice prior to signing this Agreement as the Class Action Waiver contained herein affects your rights. Please do not sign this Agreement if you do not understand these limitations.

In addition, immediately preceding the signature line of the Retainer Agreement, the Agreement states in boldface type:

I represent that I have read, understand and agree to be bound by the terms of this Client Representation Agreement as set forth above and in the documents incorporated in this Agreement. I further acknowledge that the terms and conditions of this Agreement have been explained to my satisfaction by a representative of Heartland and that I have no unanswered questions about the program or this Agreement. I confirm that I agree to arbitrate any claims and to waive any right to bring or participate in a class action against Heartland.

(Id. at 22).

Plaintiff initialed the Arbitration Agreement and signed the Retainer Agreement in the presence of a non-attorney Heartland representative. Plaintiff states that the representative was unable to answer her question about a specific monetary charge in the Agreement. (Comp., Doc. No. 26, ¶ 37-39). Plaintiff does not allege that she asked any other questions that the representativewas unable to answer, but states generally that the non-attorney representative was unable to provide legal advice about the documents. (Id.).

The day after she signed the Retainer Agreement, Plaintiff spoke with Brandon Chabner, a Heartland attorney. (Chabner Decl., Doc. No. 32, ¶ 5). Plaintiff did not raise any questions or concerns regarding the Arbitration Agreement at that time. (Id.).

Plaintiff states that at the time she signed the Retainer Agreement, she did not understand that she "was being asked to waive [her] right to be protected by the judicial system" and that she did not know she "was being asked to waiver important statutory protections like the ability to recover attorneys' fees under consumer protection laws." (Holmes Decl., Doc. No. 38-1, ¶¶ 3, 4). She states that she was never told that signing the agreement would waive these protections. (Id., ¶ 6).

II. STANDARD OF REVIEW

Defendant seeks to stay the case and compel arbitration pursuant to the Federal Arbitration Act ("FAA"), specifically, 9 U.S.C. §§ 2-3.² Section 2 provides that a written arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 3, which addresses "motions ... in which a defendant seeks arbitration of 'any issue' pending in an existing federal suit," provides one of the two routes by which a party may invoke arbitration under the FAA. Boykin v.Family Dollar Stores of Mich., LLC, No. 20-1153, 2021 WL 2708859, at * 2 (6th Cir. Jul. 1, 2021) (emphasis in original) (citing 9 U.S.C. § 3). Under Section 3, if the court is "satisfied" that the issue involved in the case is referable to arbitration under an arbitration agreement, the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement[.]" Id. (citing 9 U.S.C. § 3).

The FAA "expresses a strong public policy favoring arbitration of a wide class of disputes." Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 376 (6th Cir. 2005) (quoting Cooper v. MRM Invest. Co., 367 F.3d 493, 498 (6th Cir. 2004)). The Court considers the validity of the agreement to arbitrate separate from the validity of the contract as a whole. See Arnold v. Arnold Corp-Printed Comm. for Business, 920 F.2d 1269, 1277-78 (6th Cir. 1990) (citing Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)) (stating that arbitration clauses as a matter of federal law are "separable" from the contracts in which they are imbedded). While a general challenge to the enforceability of the contract as a whole must be decided by the arbitrator, a specific challenge to the arbitration agreement itself must be decided by the court before it compels arbitration. See Anderson v. Charter Comm., Inc., 2021 WL 2396231, at *2 (6th Cir. Jun. 11, 2021) (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-45 (2006)).

Whether a valid agreement to arbitrate exists is determined by state law. 9 U.S.C. § 2; Cooper, 367 F.3d at 498; Howell v. Rivergate Toyota, Inc., 144 F. App'x 475, 477 (6th Cir. 2005). In order to show that the validity of the agreement to arbitrate is "in issue," the party opposing arbitration must show a genuine issue of material fact as to the validity of the agreement to arbitrate. Great Earth Companies, Inc. v. Simons, 288 F.3d 878 (6th Cir. 2002). "The required showing mirrors that required to withstand summary judgment in a civil suit." Id. Therefore, the Court reviews the facts in the light most favorable to the Plaintiff to determine whether theevidence presented raises a genuine question of material fact such that a finder of fact could conclude that no valid agreement to arbitrate exists. Id. (citing Aiken v. City of Memphis, 190 F.3d 753, 755 (6th Cir. 1999)). Any doubts regarding arbitrability must be resolved in favor of arbitration. Glazer v. Lehman Bros., Inc., 394 F.3d 444, 451 (6th Cir. 2005) (citing Fazio v. Lehman Bros., Inc., 340 F.3d 386, 392 (6th...