Kiskaden v. LVNV Funding, LLC (In re Kiskaden)

571 B.R. 226

IN RE: Jimmy L. KISKADEN and Tina M. Kiskaden, Debtors

Jimmy L. Kiskaden, Plaintiff

v.LVNV Funding, LLC, Defendant

CASE NO. 16–20207

ADV. NO. 16–2008

United States Bankruptcy Court, E.D. Kentucky, Covington Division.

Signed April 07, 2017

Entered April 10, 2017

Matthew T. Sanning, Augusta, KY, Robert R. Sparks, Strauss Troy, Cincinnati, OH, for Plaintiff.

Derek W. Edwards, Stanley E. Graham, Nashville, TN, Daniel Hitchcock, Lexington, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

Tracey N. Wise, Bankruptcy Judge

This matter is before the Court on Creditor/Defendant LVNV Funding, LLC's Motion to Stay or Dismiss Pending Arbitration [ECF No. 14 ("Motion") ]. Debtor/Plaintiff Jimmy L. Kiskaden commenced this adversary proceeding by filing the Class Action Complaint [ECF No. 1 ("Complaint") ], both individually and on behalf of a defined class of persons, asserting claims against Creditor for fraud and violations of the Kentucky Consumer Loan Act, the Kentucky Consumer Protection Act, and the Fair Debt Collection Practices Act, seeking damages as well as injunctive and declaratory relief. In response, Creditor filed the Motion, requesting that the Court enforce a binding arbitration provision and dismiss Debtor's claims against Creditor or, in the alternative, enter an order staying this adversary proceeding and compelling Debtor to pursue his claims against Creditor in arbitration.

For the following reasons, the Court will compel Debtor to arbitrate Counts 2, 3, and 4, holding them in abeyance here, and deny the Motion as to Counts 1, 5, and 6.

JURISDICTION AND VENUE

This Court has jurisdiction over this adversary proceeding. 28 U.S.C. § 1334(b). Venue is proper in this District. 28 U.S.C. § 1409. The core/non-core nature of Debtor's claims in the Complaint is addressed below.

BACKGROUND

On or about June 25, 2007, Debtor executed a First Bank of Delaware Promissory Note and Disclosure Statement, which states that it was between First Bank of Delaware ("FBD") and Debtor. Creditor filed a copy of the Promissory Note and Disclosure Statement as Exhibit 2 to the Motion [ECF No. 14–3 ("Loan Agreement") ], and Debtor has not contested its accuracy. The Loan Agreement contemplates that FBD would loan Debtor the sum of $2,525.00, and Debtor would repay that sum, plus interest accruing at 96.00% per annum, via one payment of $258.15, forty monthly payments of $216.55, and one payment of $215.49 ("Loan"). As a condition of the Loan, Debtor was required to authorize the monthly payments to be withdrawn from his bank account via automatic debit. The Loan payments total $9,135.64 if paid as scheduled, in addition to a $75.00 origination fee.

The Loan Agreement contains several terms regarding arbitration ("Arbitration Provisions"), including:

Agreement to Arbitrate. The parties agree that any Dispute, except as provided below, will be resolved by Arbitration. This agreement is governed by the Federal Arbitration Act (FAA), 9 U.S.C.S. § 1 et seq. and the substantive law of the State of Delaware (without applying its choice-of-law rules).

[Loan Agmt. p. 3.]¹

The Loan Agreement also contains provisions governing the parties' choice of arbitrator, arbitration costs, location, governing law, and judicial review. The Arbitration Provisions are to survive, among other things, "the bankruptcy of any party ... and ... any transfer, sale or assignment of [Debtor's underlying] Note, or any amounts owed on [his] account, to any other person or entity." [Id. p. 4.] Debtor had the right to opt out of the Arbitration Provisions within sixty days of the date that his Loan was funded. Debtor does not assert that he opted out.

Debtor alleges that, within days of entering into the Loan Agreement, he was advised the Loan had been assigned to CashCall, Inc. ("CashCall"). Debtor made payments to CashCall through August 2007. After Debtor could no longer make payments on the Loan, CashCall continued to draft Debtor's checking account, causing Debtor to incur overdraft charges. CashCall later transferred the receivable underlying the Loan to Sherman Originator III, LLC, which ultimately transferred all of its right, title, and interest in and to the Loan to Creditor on December 9, 2011.

PROCEDURAL HISTORY

Debtor filed this current chapter 13 case in this Court on February 25, 2016. Creditor filed its proof of claim in the amount of $6,966.39 on June 22, 2016, claiming the debt is for a credit card and that the claim amount includes no interest. Debtor filed his Objection to Proofs of Claim of LVNV Funding, LLC on June 30, 2016, and he filed his Amended Objection to Proof of Claim of LVNV Funding, LLC on August 4, 2016. The Debtor's Amended Objection came on for hearing before this Court on October 18, 2016. Debtor's counsel requested that the Objection be held in abeyance pending the outcome of this adversary because the declaratory relief sought herein would be dispositive of that contested matter. Creditor opposed abeyance, suggesting a continuance instead. The Court continued the Objection generally, subject to the parties' discretion to tender any desired agreed orders.

Debtor commenced this adversary proceeding on October 12, 2016. Debtor's Complaint alleges that FBD and CashCall engaged in a scheme to avoid Kentucky usury and licensure laws. As part of that scheme, Debtor alleges that FBD and another state-chartered bank issued high-interest loans ("FBD Loans") to Kentucky residents that CashCall immediately purchased. CashCall then took the position that it was exempt from usury and licensing laws of any state other than those where the non–Kentucky banks did business because it was an assignee of those banks. Debtor asserts that Creditor is a party to and is liable for that scheme as the holder of Debtor's Loan.

The Complaint asserts six counts against Creditor. Counts 1 and 6 seek declaratory judgments. Count 1 seeks a declaration that the Loan is void under the Kentucky Consumer Loan Act ("KLCA"), and Count 6 seeks a declaration that Creditor filed materially false proofs of claim that constituted abuses of the bankruptcy claims process. Counts 2, 3, and 4 seek affirmative relief. Count 2 asserts that Creditor's loan practices violated the Kentucky Consumer Protection Act ("KCPA") and seeks damages. Count 3 asserts that Creditor committed common law fraud and seeks monetary damages and declaratory and injunctive relief. Count 4 asserts that Creditor's collection activities violated the federal Fair Debt Collection Practices Act ("FDCPA") and seeks damages, costs, and attorney's fees. Count 5 appears to frame remedies predicated upon Debtor's success under any of Counts 1–4 and does not state a specific cause of action.

Debtor commenced this adversary proceeding as a class action "on behalf of himself and all others similarly situated." [Complaint ¶ 30.] Specifically, Debtor seeks to represent all Kentucky residents "who executed a promissory note with either [FBD or the other non–Kentucky bank] who subsequently filed a petition for relief under the provisions of title 11 in the Eastern District of Kentucky, and in which [Creditor] later filed proofs of claim for such loans in the bankruptcy proceedings after having purchased such loans from CashCall." [Id. at ¶ 31.] Debtor asserts that the proposed class involves hundreds, if not thousands, of members. The Court held a hearing on Creditor's Motion on January 10, 2017.

Creditor requests that this Court enforce the Arbitration Provisions pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"), and dismiss Debtor's claims against it or, alternatively, enter an order staying this proceeding and compelling Debtor to pursue his claims against it in arbitration. Debtor argues that this Court should retain jurisdiction over his claims because there is an inherent conflict between arbitration and the purposes of the Bankruptcy Code that satisfies the U.S. Supreme Court's exception to compelling arbitration set forth in Shearson/Am. Express, Inc. v. McMahon , 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987).

ANALYSIS

The Arbitration Provisions incorporate the FAA. "Congress enacted the FAA in 1925 pursuant to its power to regulate interstate commerce ‘to ensure judicial enforcement of privately made agreements to arbitrate,’ and ‘to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate.’ " Stutler v. T.K. Constructors Inc. , 448 F.3d 343, 345 (6th Cir. 2006) (quoting Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 219–20, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) ). "The FAA creates ‘a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.’ " Evanston Ins. Co. v. Cogswell Props., LLC , 683 F.3d 684, 693 (6th Cir. 2012) (quoting Moses H. Cone Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ). Under the FAA, written commercial contract provisions to settle a controversy arising out of the contract by arbitration "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of [such] contract." 9 U.S.C. § 2. "The [FAA] also provides that a court must stay its proceedings if it is satisfied that an issue before it is arbitrable under the agreement, § 3; and it authorizes a federal district court to issue an order compelling arbitration if there has been a ‘failure, neglect, or refusal’ to comply with the arbitration agreement, § 4." McMahon , 482 U.S. at 226, 107 S.Ct. 2332. "The [FAA] thus establishes a ‘federal policy favoring arbitration’ ... requiring that ‘[courts] rigorously enforce agreements to arbitrate.’ " Id. (citations omitted).

"Like any statutory directive, the [FAA's] mandate may be overridden by a contrary congressional command." McMahon , 482 U.S. at 226, 107 S.Ct. 2332. The party opposing arbitration bears the burden "to show that Congress intended to preclude a waiver of judicial...