Jallo v. Resurgent Capital Servs., LP, CASE NO. 4:14–CV–449

131 F.Supp.3d 609

Bryan Jallo

v.Resurgent Capital Services, LP and LVNV Funding, LLC.

CASE NO. 4:14–CV–449

United States District Court, E.D. Texas, Sherman Division.

Signed August 7, 2015

Aaron David Radbil, Greenwald Davidson PLLC, Boca Raton, FL, for Bryan Jallo.

Derek W. Edwards, Todd Ryan Hambidge, Waller Lansden Dortch & Davis, Nashville, TN, for Resurgent Capital Services, LP and LVNV Funding, LLC.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court is Defendants Resurgent Capital Services, LP ("Resurgent") and LVNV Funding, LLC's ("LVNV") Motion to Compel Arbitration and Stay or Dismiss this Action (Dkt.# 58). After considering the motion, the responses, and the relevant pleadings, the Court finds the motion should be denied.

BACKGROUND

Plaintiff Bryan Jallo initiated this action alleging that Defendants violated the Fair Debt Collection Practices Act ("FDCPA") and Texas Debt Collection Act ("TDCA") by attempting to collect a debt on his Best Buy branded credit card that, according to Plaintiff, included improper interest. On March 10, 2001, Plaintiff opened up a Best Buy branded credit card account by signing a contract (the "Account Application") (Dkt. # 58, Saxena Decl., Ex. 1 at p. 2).

The Account Application reads, in part: "By a) signing, using, or permitting others to use this Card ... you agree to the terms and conditions of the Cardholder Agreement and Disclosure Statement, (which includes an arbitration provision), which shall be sent to you with the credit card" (Dkt. # 58, Saxena Decl., Ex. 1 at p. 2). The Cardholder Agreement and Disclosure Statement (the "Original Cardholder Agreement") is a separate document from the Account Application, and possession and passage of this document is at issue in the current matter.

LVNV claims to have acquired Plaintiff's account on July 14, 2009 (Dkt. # 51, Ex. Mem. at p. 1). On August 23, 2013, Resurgent, as servicer of Plaintiff's account owned by LVNV, sent a letter to the Better Business Bureau of Upstate South Carolina in which it states that Resurgent responded to Plaintiff's June 19, 2013, request for verification of debt on July 9, 2013, "advising that there was insufficient information to resolve Mr. Jallo's dispute and enclosed the credit application " (Dkt. # 55, Sealed Ex. C at p. 1) (emphasis added).

On July 8, 2014, Plaintiff filed a class action claim ("Complaint") alleging Defendants violated eight statutes related to the FDCPA, 15 U.S.C. § 1692 et seq., and the TDCA Tex. Fin. Code § 392.001 et seq. (Dkt. # 1 at p. 11–17). On August 15, 2014, Defendants filed a Joint Answer to the Complaint that included several defenses but notably did not include any mention of arbitration as an affirmative defense (Dkt.# 12). On September 5, 2014, Defendants filed an Amended Answer to the Complaint, again failing to mention arbitration as a defense to the claims (Dkt.# 15). On October 9, 2014, Defendants participated in a Report of Rule 26(f) Planning Meeting, briefly making a statement of relevant facts and a statement of defenses without mention of arbitration (Dkt.# 17). On December 15, 2014, Defendants filed a Motion for Judgment on the Pleadings to Dismiss Plaintiff's Complaint, asking the Court to dismiss all of Plaintiff's claims with prejudice (Dkt. # 22). On December 17, 2014, Defendants filed a Motion to Stay Discovery Pending Resolution of the Defendants' Motion for Judgment on the Pleadings to Dismiss Plaintiff's Complaint (Dkt.# 25). On January 5, 2015, Defendants filed a brief supporting their motion to dismiss (Dkt.# 28), and, on January 9, 2015, a brief supporting their motion to stay discovery (Dkt.# 30). Defendants did not discuss arbitration at any point in any of these filings. On January 22, 2015, the Court denied both the motion to stay and the motion to dismiss (Dkts. # 32, 33).

Defendants contend that on April 27, 2015, a third-party's counsel ("Capital One") disclosed, and claimed to be able to authenticate, what Defendants argue is the Original Cardholder Agreement (Dkt. # 59 at p. 3). On that same day, Defendants provided the document (the "Presented Agreement") to Plaintiff's counsel as supplemental production (Dkt. # 59 at p. 3). Defendants assert that they did not produce the Original Cardholder Agreement early in the litigation because it was not among the records they acquired when they purchased Plaintiff's account (Dkt. # 59 at p. 3). Defendants argue that all parties in the litigation have had similar difficulties obtaining the Original Cardholder Agreement, subpoenaing multiple parties without success (Dkt. # 51, Ex. Mem. at p. 2).¹ The Presented Agreement contains an arbitration clause that states: "Any claim, dispute, or controversy ... including initial claims, counter-claims, cross-claims and third party claims, arising from or relating to this Agreement ... shall be resolved ... by binding arbitration pursuant to this arbitration provision ..." (Dkt. # 58, Mem. in Supp., Ex. B at p. 1).

The next day, April 28, 2015, Defendants filed a Motion for Leave to File an Amended Answer in part in order to include the following as an affirmative defense: "Plaintiff's claims are subject to binding arbitration. Defendants intend to move to compel arbitration of this dispute." (Dkt. # 51 at p. 2). On May 20, 2015, Defendants filed a Motion to Compel Arbitration and Stay or Dismiss this Action, asking the Court to compel arbitration pursuant to the arbitration clause in the Presented Agreement (Dkt. # 58 at p. 2).

On May 29, 2015, Plaintiff filed a Response to Defendants' motion to compel arbitration (Dkt.# 60). In the response, Plaintiff argues that the Court should not compel arbitration because: (1) Defendants waived their right to arbitrate; (2) the arbitration clause was not authenticated; and (3) assuming arguendo that Defendants had properly authenticated the agreement, the arbitration clause was unilateral in nature, thus rendering it unenforceable (Dkt. # 60 at p. 1). On June 8, 2015, Defendants filed their Reply (Dkt.# 63).

LEGAL STANDARD

When considering a motion to compel arbitration, the Court must address two questions. Graves v. BP Am., Inc., 568 F.3d 221, 222 (5th Cir.2009). "First, whether there is a valid agreement to arbitrate, and second, whether the dispute in question falls within the scope of the arbitration agreement." Id . (citing Fleetwood Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002) ). In regard to the first question of contract validity, the Court should apply "ordinary state-law principles that govern the formation of contracts." Id . (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). The second question of scope is answered "by applying the ‘federal substantive law of arbitrability....’ " Id . (quoting Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ).

ANALYSIS

Defendants argue that the Court should compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 –16 (Dkt. # 58, Mem. in Supp. at p. 7). Defendants contend that Plaintiff's claims are subject to a mandatory arbitration clause in the Presented Agreement, and point out that Plaintiff consented to the terms and conditions, including the arbitration clause, when he signed the Account Application and used the issued credit card (Dkt. # 58, Mem. in Supp. at pp. 8–9). Second, Defendants argue that there are not any external legal constraints that would foreclose arbitration of Plaintiff's claims.

Plaintiff, however, contends that the Court should not compel arbitration because Defendants have failed to authenticate the Presented Agreement, and therefore, have not properly introduced a valid agreement to arbitrate (Dkt. # 60 at p. 7). Plaintiff further holds that the "unilateral modification clause" in the Presented Agreement renders the arbitration provision illusory and unenforceable (Dkt. # 60 at p. 11). Finally, Plaintiff states that even if the Court finds the arbitration provision enforceable and properly introduced, Defendants have waived any right they may have had to arbitrate the matter (Dkt. # 60 at p. 1).

The Court finds that Defendants have waived their right to compel arbitration. Because the Court finds an independent basis for denying the motion to compel arbitration and stay or dismiss this action, the Court need not address Plaintiff's additional arguments.

The right to arbitrate a dispute is subject to waiver. Nicholas v. KBR, Inc., 565 F.3d 904, 907–08 (5th Cir.2009) (citing Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986) ).² Though the courts indicate a presumption against finding waiver, "[w]aiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Miller, 781 F.2d at 497. Therefore, there are two questions at issue: (1) have Defendants substantially invoked the judicial process, and if so, (2) has the Plaintiff been prejudiced thereby? See, e.g.,Nicholas, 565 F.3d at 907–08.

As a first issue, Defendants argue that they cannot have waived arbitration because they did not have the Original Cardholder Agreement or an authenticated copy of the agreement until Capital One produced the Presented Agreement in April 2015 (Dkt. # 63 at p. 1). Plaintiff posits that, regardless of actual possession of the Original Cardholder Agreement or an authenticated copy, Defendants had knowledge of an existing right to compel arbitration since August 2013 at the latest, evidenced by letters sent to the Better Business Bureau of Upstate South Carolina (Dkt. # 60 at p. 2). In these documents, Defendants claim to be in possession of Plaintiff's Account Application, which reads, in part, "... you agree to the terms and condition of the Cardholder Agreement and Disclosure Statement, which includes an arbitration provision...." Plaintiff questi...