Opinion
Case No. 3:19-cv-00157-AC
01-09-2020
TIFFANY HOPKINS, Plaintiff, v. GENESIS FS CARD SERVICES, INC., Defendant.
FINDINGS AND RECOMMENDATION :
Introduction
Plaintiff Tiffany Hopkins ("Hopkins") filed this action against defendant Genesis FS Card Services ("Defendant"), asserting Defendant's conduct violated the Telephone Consumer Protection Act, 47 U.S.C. § 227 ("TCPA"), the Oregon Fair Debt Collection Practices Act, OR. REV. STAT. § 646.639 ("OFDCPA"), and the common law doctrine of "Intrusion Upon Seclusion." (Compl., ECF No. 1, at 1-2.) Defendant moves to compel arbitration pursuant to the terms of an arbitration clause ("Provision") governing disputes arising out of the Cardholder Agreement ("Agreement") which Hopkins entered into with Celtic Bank ("Celtic"). (Def. Mem. of P. & A. in Supp. of Mot. to Compel Arbitration and Dismiss, ECF No. 15 ("Def. Mem."), at 3, 8.)
Though the court finds the Provision is valid, the court concludes Defendant cannot enforce the Provision because Utah state law does not provide Defendant with such relief. Accordingly, Defendant's motion to compel arbitration should be denied.
Hopkins also asserts an Equal Protection claim against the Provision. This is discussed infra and separately from the arguments addressing the validity and enforceability of the Provision.
Factual Background
On January 2, 2018, Hopkins submitted an online application for an Indigo Platinum MasterCard issued by Celtic ending in the number 6045 ("Account"). (Decl. of Evan Bryman in Supp. of Def. Genesis FS Card Services, Inc. Mot. to Compel Arbitration and Dismiss, ECF No. 15 ("Bryman Decl."), 6). During the application process, Hopkins checked a box, also referred to as a "click-wrap agreement," which indicated Hopkins read and agreed to the Terms and Conditions and Important Disclosures of the Agreement ("Terms and Conditions"). (Id. ¶ 7; Bryman Decl. Ex. A-1, at 7.) The Terms and Conditions included a paragraph, set off in all-capitalized, bold text, which read:
"Clickwrap" agreements are contracts formed on the internet, "in which website users are required to click on an 'I agree' box after being presented with a list of terms and conditions of use[.]" Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175-76 (9th Cir. 2014).
Arbitration of Disputes.
PROVISION PLEASE READ THIS ARBITRATION OF DISPUTES PROVISION CAREFULLY. UNLESS YOU SEND US THE REJECTION NOTICE DESCRIBED BELOW, THIS PROVISION WILL APPLY TO YOUR ACCOUNT, AND MOST DISPUTES BETWEEN YOU AND US 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 ARBITRATION OF DISPUTES PROVISION DOES NOT APPLY TO YOU IF, AS OF THE DATE
YOU ARE APPROVED FOR AN ACCOUNT, YOU ARE A MEMBER OF THE ARMED FORCES OR A DEPENDENT OF SUCH MEMBER ENTITLED TO PROTECTION UNDER THE FEDERAL MILITARY LENDING ACT. PLEASE SEE THE SECTION OF THIS DOCUMENT LABELED "MILITARY LENDING ACT."(Bryman Decl., Ex. A-1, at 9.)
The Terms and Conditions also stated Celtic would send, if approved, the Agreement to Hopkins. (Id.) The Agreement also included instructions on how Hopkins could "opt out" of the Provision within sixty days of receiving the Agreement. (Id.) In order to reject the Provision, the Agreement provided that an applicant "must send [Celtic] a notice within [sixty] days after [applicant] opens [their] Account or [Celtic] first provide[s] [applicant] with a right to reject this provision." (Bryman Decl. Ex. A-2, at 2.) The Agreement further indicated transmission of the opt-out notice was the only method of rejection, listed the necessary information to include in the opt-out notice, and specified the address to which Hopkins was to transmit the opt-out notice. (Id.) Hopkins did not send Celtic an opt-out notice. (Bryman Decl. ¶ 9.)
The Agreement also indicated "[applicant] and [Celtic] acknowledge and agree that the transactions contemplated by this Agreement, and any controversy that may arise under or relate to this Agreement, [applicant's] Account, or the services or other agreements described above involve "commerce" as that term is defined and used in the FAA." (Bryman Decl. Ex. A-2, at 2.) The Agreement further stated and identified Utah as the governing state law and allows Celtic or its agents to contact Hopkins by text message, use automated telephone dialing systems to initiate such contacts, and/or leave recorded messages. (Id.) The Provision also included a class action waiver. (Def. Mot. at 6.) Notably, the Provision stated the cardholder would not be required to arbitrate: "(1) any individual [c]laims in small claims court . . . (2) any [c]laim by [Celtic] that only involves [Celtic's] effort to collect money you owe us. However, if you respond to a collection lawsuit by claiming that we engaged in wrongdoing, we may require you to arbitrate." (Compl. at 7.)
Following receipt of the Agreement and the Indigo Platinum MasterCard, Hopkins made purchases using the newly acquired line of credit, which resulted in a balance of $581.22 by January 19, 2019. (Bryman Decl. ¶ 8; Bryman Decl. Ex. A-3 at 41.) The Account became overdue as of the June 20, 2018 statement. (Bryman Decl. Ex. A-3 at 26.) Celtic, however, assigned the rights of "all servicing, collection, and enforcement rights" related to the Account to Defendant. (Bryman Decl. ¶ 12.)
Hopkins alleges that in approximately July of 2018, Defendant began calling Hopkins on her personal cell phone from multiple numbers. (Compl. ¶¶ 13-14.) Toward the end that month, Hopkins spoke with one of Defendant's agents, whom Hopkins informed of the financial difficulty she was experiencing, and explained the same financial difficulty was the reason for the inability to make a payment on the Account. (Id. ¶¶ 16-17.) Over the course of the next few months, Hopkins repeatedly informed Defendant's agents she revoked her consent to be contacted on her cell phone. (Id. ¶¶ 18-20.) Hopkins further alleges that, despite the repeated revocations of consent to be contacted by phone, Defendant contacted her approximately sixty-five times between July 25, 2018, and October 4, 2018, which exacerbated Hopkins's stress of caring for her disabled child. (Id. ¶¶ 21, 26.) As a result of the repeated collection calls, Hopkins allegedly suffered emotional distress, mental anguish, sleepless nights, invasion of privacy, and actual damages. (Id. ¶ 27.) Hopkins then filed a complaint in this court on February 1, 2019 (the "Complaint"). (Compl. at 7.)
Preliminary Procedural Matters
When evaluating the validity or enforceability of an arbitration agreement, district courts should apply state law. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-40 (2011) (applying California state law to determine validity and enforceability of arbitration agreement); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (state-law principles governing formation of contracts used to decide whether parties agree to arbitrate a matter). "In a federal question action where the federal court is exercising supplemental jurisdiction over state claims, the federal court applies the choice-of-law rules of the forum state . . . ." MRO Commc'ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1282 (9th Cir. 1999) (quotation and citation omitted).
Here, Hopkins brings a TCPA claim accompanied by additional state claims. Accordingly, the court will look to Oregon's choice-of-law rules to determine whether Oregon or Utah law applies. Under Oregon law, OR. REV. STAT. 15.350 governs contracts containing a choice-of-law provision. Johnson v. J.G. Wentworth Originations, LLC, 284 Or. App. 47, 53 (2017) (citing OR. REV. STAT. 15.350 as a basis to apply California law pursuant to the contract's choice-of-law provision); see also M+W Zander, U.S. Operations, Inc. v. Scott Co. of California, 190 Or. App. 268, 272 fn.1 (2003) (noting the Oregon Legislature codified Oregon's choice-of-law for contracts under former OR. REV. STAT. 81.100-81.135, now renumbered OR. REV. STAT. 15.300-15.380). Oregon's choice-of-law rules, however, have been applied in a less-than-consistent manner with various state opinions applying the Restatement (Second) of Conflict of Laws without citing the choice-of-law statutes. Compare Mid-Century Ins. Co. v. Perkins, 344 Or. 196, 205-06, opinion modified on reconsideration, 345 Or. 373 (2008) (affirming the Court of Appeals' choice-of-law analysis using a "most significant relationship" restatement approach and not referencing the enacted Oregon choice-of-law statutes); with AS 2014-11 5W LLC v. Caplan Landlord, LLC, 273 Or. App. 751, 768 (2015) (relying on M+W Zander v. Scott Co. of California, 190 Or. App. 268, 272 (2003), which cited section 187(2) of the Restatement (Second) of Conflicts of Laws (1971), to determine whether to give effect to a choice-of-law provision); and Yoshida's Inc. v. Dunn Carney Allen Higgins & Tongue LLP, 272 Or. App. 436, 448 (2015) (stating because defendant failed to demonstrate "whether there [was] a material difference between Oregon substantive law and the law of the other forum[,]" the court refused to take up the choice-of-law question) (citing Angelini v. Delaney, 156 Or. App. 293, 300 (1998) (stating Oregon courts look first to whether there is a material difference between Oregon and law of the other forum to determine whether California or Oregon law applied); but cf. Capital One Bank v. Fort, 242 Or. App. 166, 170 (2011) (noting former OR. REV. STAT. 81.100 to 81.135, now renumbered as OR. REV. STAT. 15.300 to 15.380, is what Oregon courts analyze to determine choice-of-law questions in contracts)).
Though Hopkins does not state as much in the Complaint, the court will assume supplemental jurisdiction over the OFDCPA and common law tort claims pursuant to 28 U.S.C. § 1367(a). Moreover, the court is not required to analyze sua sponte whether the state claims should be dismissed under § 1367(c) in order to exercise jurisdiction under § 1367(a). Acri v. Varian Assocs., Inc., 114 F.3d 999, 1000 (9th Cir. 1997), supplemented, 121 F.3d 714 (9th Cir. 1997), as amended (Oct. 1, 1997).
Though decisions in this district similarly have used a less-than-consistent approach to Oregon choice-of-law questions, more recent district court opinions tend to rely on the statutory approach in cases involving contracts. See Campos v. Bluestem Brands, Inc., No. 3:15-CV-00629-SI, 2016 WL 297429, at *6 (D. Or. Jan. 22, 2016) (determining whether to give effect to a choice-of-law provision under the Second Restatement framework); see also Doral Money, Inc. v. HNC Properties, LLC, No. 3:14-CV-00545-BR, 2014 WL 3512501, at *3 (D. Or. July 10, 2014) (determining a choice-of-law issue in a tort claim turned on, first, whether there was a material difference between the laws of the two states, and second, whether both states had "substantial interests" such that Oregon courts would employ the "most significant relationship" test under the Second Restatement); but cf. Clement v. Ecolab, Inc., 341 F. Supp. 3d 1205, 1212-13 (D. Or. 2018) (stating Oregon courts "respect and enforce contractual choice of law provisions" under OR. REV. STAT. 15.350); and Morasch Meats, Inc. v. Frevol HPP, LLC, No. 3:16-CV-0269-PK, 2018 WL 1434814, at *7 (D. Or. Mar. 22, 2018) (applying the statutory framework to a contract claim). Considering the Oregon Supreme Court has not yet ruled definitively on which approach Oregon courts are required to follow, this court will analyze the choice-of-law issue under the Oregon statutory framework.
Under Oregon law, "contractual rights and duties of the parties are governed by the law or laws that the parties have chosen . . .," but the "choice of law must be express or clearly demonstrated from the terms of the contract." OR. REV. STAT. 15.350 (1)-(2)(2018). If one party primarily drafts a standard-form contract containing a choice-of-law provision, the choice-of-law provision must be "express and conspicuous." OR. REV. STAT. 15.350 (2).
Here, the choice-of-law provision selecting Utah as the governing state law is clearly labeled "Governing Law" and appears in bold type. (Pl. Mem. in Opposition to Mot. to Compel Arbitration and Dismiss, ECF No. 17, ("Pl. Resp."), Ex. A. at 2.) Accordingly, OR. REV. STAT. 15.350 requires the application of Utah law unless another choice-of-law statute limits its applicability.
OR. REV. STAT. 15.350 does not apply "to the extent that its application would[] . . . [c]ontravene an established fundamental policy embodied in the law that would otherwise govern the issue in dispute under ORS 15.360." OR. REV. STAT. 15.355 (1)(c)(2018). "[A]n established policy is fundamental only if the policy reflects objectives or gives effect to essential public or societal institutions beyond the allocation of rights and obligations of parties to a contract at issue." OR. REV. STAT. 15.355 (2). The parties, however, have not identified, nor has the court found, Utah state law principles that would contravene established fundamental policies which give effect to public or societal institutions under Oregon law. Accordingly, OR. REV. STAT. 15.355 does not limit the applicability of OR. REV. STAT. 15.350.
OR. REV. STAT. 15.360 provides the "rights and duties of the parties with regard to an issue in a contract are governed by the law, in light of the multistate elements of the contract, that is the most appropriate for a resolution of that issue. The most appropriate law is determined by: (1) Identifying the states that have a relevant connection with the transaction or the parties, such as the place of negotiation, making, performance or subject matter of the contract, or the domicile, habitual residence or pertinent place of business of a party; (2) Identifying the policies underlying any apparently conflicting laws of these states that are relevant to the issue; and (3) Evaluating the relative strength and pertinence of these policies in: (a) Meeting the needs and giving effect to the policies of the interstate and international systems; and (b) Facilitating the planning of transactions, protecting a party from undue imposition by another party, giving effect to justified expectations of the parties concerning which state's law applies to the issue and minimizing adverse effects on strong legal policies of other states."
The law of Oregon, however, applies to consumer contracts if the consumer is a resident of Oregon, and the consumer's "assent to the contract is obtained in Oregon, or the consumer is induced to enter into the contract in substantial measure by an invitation or advertisement in Oregon." OR. REV. STAT. 15.320 (4)(a)(2018). A consumer contract, for purposes of OR. REV. STAT. 15.320, is a "contract for the supply of goods or services that are designed primarily for personal, familial or household use." OR. REV. STAT. 15.320 (4)(b)(2018).
On its face, the Agreement is likely to fall under OR. REV. STAT. 15.320 (4), because Hopkins is a resident of Oregon and the facts suggest that Hopkins assented to the Agreement while in Oregon. Moreover, the Agreement, which allows a financial institution to provide credit card services, satisfies the definition of a consumer contract, as it appears the credit card was for personal use and the Agreement was for the service of credit extended to Hopkins.
It is not clear, though, what the phrase "obtained in Oregon" precisely means.
A credit card agreement containing a choice-of-law provision, which selects non-Oregon law, inherently creates tension between OR. REV. STAT. 15.350 and OR. REV. STAT. 15.320 (4), considering the former would respect the non-Oregon law selection and the latter would require the application of Oregon law. An exception exists in OR. REV. STAT. 15.305, which provides OR. REV. STAT. 15.320 "does not apply to any contract in which one of the parties is a financial institution, as defined by 15 U.S.C. 6827." Generally, a financial institution is "engaged in the business of providing financial services to customers who maintain a credit . . . or other financial account or relationship with the institution." 15 U.S.C. § 6827 (4)(A)(2019). A debt collection company, however, is not explicitly listed as a financial institution. 15 U.S.C. § 6827 (4)(B)(2019) (stating the term "financial institution" includes "any loan or finance company, any credit card issuer or operator of a credit card system . . . .")
Though not directly deciding the issue, Oregon courts have suggested the phrase "financial institution" extends to a credit-card debt collector when the original party to the credit card agreement is a financial institution. See CACV of Colorado, LLC v. Stevens, 248 Or. App. 624, 629 n.6 (2012) (finding former OR. REV. STAT. 81.100 to 81.135 (2009), now renumbered OR. REV. STAT. 15.300 to 15.380 (2011), did not apply because although plaintiff-debt-collector was not a financial institution, Chase, a financial institution under 15 U.S.C. § 6827 (4)(A), was a party to the underlying credit card agreement, thus triggering former OR. REV. STAT. 81.102); see also Unifund CCR Partners v. Deboer, 249 Or. App. 136, 138 n.1 (2012) (citing footnote six in Stevens and applying the same reasoning); see also Portfolio Recovery Assocs., LLC v. Sanders, 292 Or. App. 463, 469 & n.6 (2018), review allowed, 364 Or. 680 (2019) (holding because debt-collector-plaintiff's claim was based on an agreement between defendant and Capitol One, a financial institution, the OR. REV. STAT. 15.300 to 15.380 framework applied, and that OR. REV. STAT. 15.320 did not apply because the original party to the agreement, Capitol One, was a financial institution).
One distinction between the former OR. REV. STAT. 81.102 (2009), now renumbered OR. REV. STAT. 15.305 (2011), is that if the "financial institution" exception in former OR. REV. STAT. 81.102 was triggered, former OR. REV. STAT. 81.100 to 81.135 did not apply in its entirety, whereas the "financial institution" exception in OR. REV. STAT. 15.305 would only apply OR. REV. STAT. 15.320.
Although a credit card agreement containing a choice-of-law provision selecting non-Oregon law could fall under OR. REV. STAT. 15.320(4), any tension is avoided when a party to the underlying agreement is a financial institution. Thus, where a debt collection company is a party to claim and the underlying agreement is between the cardholder and a financial institution, the "financial institution" exception to OR. REV. STAT. 15.320 applies. See Portfolio Recovery Assocs., LLC, 292 Or. App. at 469 n.6. Here, even if the Agreement were to constitute a consumer contract under OR. REV. STAT. 15.320 (4), OR. REV. STAT. 15.320 would be inapplicable because Celtic is a financial institution and a party to the underlying agreement, thus triggering the financial institution exception in OR. REV. STAT. 15.305. Accordingly, OR. REV. STAT. 15.350 is the appropriate choice-of-law statute in this case and requires the application of Utah law pursuant to the choice-of-law provision in the Agreement.
Legal Standard
The Federal Arbitration Act (9 U.S.C. §§ 1-16) (the "Act") provides that arbitration agreements "shall be 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 (2019). The Supreme Court has stated "arbitration is a matter of contract" and district "courts [should] place arbitration agreements on equal footing with other contracts." United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293 (2002). Accordingly, arbitration agreements are subject to all defenses to enforcement that apply to contracts in general. Indeed, "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
Section 2 of the Act provides that arbitration agreements in commercial contracts "shall be 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, "[i]n determining the validity of an agreement to arbitrate, federal courts 'should apply ordinary state-law principles that govern the formation of contracts.'" Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 782 (9th Cir. 2002) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). But, "[b]efore a federal court may apply state-law principles to determine the validity of an arbitration agreement, it must determine which state's laws to apply." Pokorny v. Quixtar, Inc., 601 F.3d 987, 994 (9th Cir. 2010) (citation omitted). Here, Oregon's choice-of-law statutes dictate the court comply with the choice-of-law provision in the Agreement and apply Utah state law.
"Evaluating a motion to compel arbitration requires a court to determine: '(1) whether a valid agreement exists, and if it does, (2) whether the agreement encompasses the dispute at issue.'" Dimpson v. Lifestyles, LLC, Civil No. 07-1251-HA, 2008 WL 1882838, at *2 (D. Or. Apr. 24, 2008) (quoting Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000)). If the agreement is valid and encompasses the dispute, the court must "enforce the arbitration agreement in accordance with its terms." Id. The Act expresses the strong federal policy in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Any doubts with regard to the arbitrability of a party's claims should be resolved in favor of arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985).
Discussion
Defendant moves this court to compel arbitration pursuant to the Provision and asserts dismissal of Hopkins's claim is appropriate. (Def. Mot. at 8.) Alternatively, Defendant requests this case be stayed pending arbitration. (Id.) Hopkins attacks the Provision on various grounds, but generally, Hopkins's arguments address whether the Provision is valid and whether the scope of the Provision captures the claims brought by Hopkins. In arguing against the validity of the Provision, Hopkins asserts it is unconscionable. (Pl. Resp. at 10.) Regarding the scope of the Provision, Hopkins argues: (1) its terms do not encompass the claims at issue, and (2) Defendant is unable to enforce the Provision against Hopkins because Defendant is a non-signatory to the Agreement. (Pl. Resp. at 7, 14.)
I. Validity of the Provision
Hopkins argues that the Provision is invalid as it is both procedurally and substantively unconscionable. (Pl. Resp. at 10.) Defendant argues to the contrary. (Reply in Supp. of Def. Mot. to Compel Arbitration and Dismiss, ECF No. 18 ("Def. Reply"), at 4-9.) Though the rights of parties to contract is fundamental, Utah courts recognize the right to contract is limited to the extent which a "party may be compelled to perform an unconscionable duty." Res. Mgmt. Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028, 1040 (Utah 1985). Under Utah law, courts analyze contracts for unconscionability using a two-pronged analysis. Ryan v. Dan's Food Stores, Inc., 972 P.2d 395, 402 (Utah 1998). The first prong - substantive unconscionability - focuses on the contents of the agreement, whereas the second prong - procedural unconscionability - looks to the formation of the agreement. Id. Because Utah courts can determine an agreement is unconscionable on the substantive prong alone, whereas procedural unconscionability alone will "rarely render a contract unconscionable," the court will examine the substantive prong first, then the procedural prong. Id.
A. Substantive Unconscionability
Hopkins argues the Provision is substantively unconscionable for two reasons: (1) the Provision does not afford Hopkins a neutral arbitrator, as the it provides that "arbitration will be administered by the American Arbitration Association ("AAA");" and (2) the Provision affords Defendant the unilateral right to sue Hopkins and seek recovery in court while limiting her options to only arbitration. (Pl. Resp. at 12-13.) In response, Defendant asserts the Agreement is not substantively unconscionable because it allows an individual claim to be brought in small claims court, if the cardholder does not elect to arbitrate, and a cardholder could elect to opt out of the arbitration provision within sixty days. (Def. Reply at 8.) The court agrees with Defendant that the Agreement is not substantively unconscionable.
1. Election of a Neutral Arbitrator
Under Utah law, courts examine an agreement for substantive unconscionability by determining whether the "terms [are] so one-sided as to oppress or unfairly surprise an innocent party or whether there exists an overall imbalance in the obligations and rights imposed by the bargain." Sosa v. Paulos, 924 P.2d 357, 361 (Utah 1996) (internal quotation and citation omitted). Hopkins's argument that the term selecting the AAA as the arbitrator is unilateral and, therefore, so one-sided that it constitutes substantive unconscionability, is not supported by Utah law.
Though Hopkins provides case law that would support her position, the case law provided does not interpret Utah state law regarding contracts.
That a party unilaterally drafts a term which affects the selection of an arbitrator is not enough, standing alone, to find an arbitration clause substantively unconscionable. In Sosa, the plaintiff, Ms. Sosa, brought a medical malpractice suit against her orthopedic surgeon, Dr. Paulos, following a knee surgery Dr. Paulos performed on Ms. Sosa. 924 P.3d at 359-60. Prior to the surgery, Dr. Paulos's office provided Ms. Sosa with three forms for her signature, one of which was the arbitration agreement in question. Id. The agreement provided a panel composed of three arbitrators would govern the claim. Id. at 360. The provision further provided each party would select their own arbitrator, and the third arbitrator would be selected by both parties. Id. Importantly, the arbitration agreement stipulated that "[e]ach arbitrator shall be a board-certified orthopedic surgeon." Id.
The Utah Supreme Court held the requirement that the "arbitration panel consist of neutrally selected orthopedic surgeons [did not rise] to the level of substantive unconscionability." Id. at 361. The Sosa court reasoned the requirement of electing orthopedic surgeons, standing alone, would not result in structural bias against Ms. Sosa. Id. at 361-62. Further, the court found any potential bias or advantage to one party resulting from the physician-arbitrator requirement did not constitute substantive unconscionability. Id. at 362. Consequently, a term that is drafted unilaterally and ultimately affects the selection of the arbitrator, does not, by itself, rise to the level of substantive unconscionability, even when potential bias could result from the unilaterally drafted term. See id. at 361-62.
Here, the Provision provides the arbitration will be "administered by the American Arbitration Association (the "AAA") under its rules . . . that are applicable to the resolution of consumer disputes." (Pl. Resp., Ex. A, at 2.) Moreover, the Provision states "[e]ach arbitrator shall be a licensed attorney who has been engaged in the private practice of law continuously during the ten years immediately preceding the arbitration or a retired judge of a court of general or appellate jurisdiction." (Id.)
Though Hopkins argues the section requiring the AAA to administer the arbitration is one-sided and substantively unconscionable, Hopkins fails to show administration by the AAA would result in the asserted one-sidedness. Indeed, the AAA's rules regarding arbitrator selection still promote neutrality and independence of the arbitrator from either party. Rule 12 of the AAA governs appointment of an arbitrator from a national register, which is maintained by the AAA. AMERICAN ARBITRATION ASSOCIATION, COMMERCIAL RULES AND MEDIATION PROCEDURES, at 15 (2013). Rule 13, on the other hand, governs the scenario where parties agree on an arbitrator, but the arbitrator is still required to meet the standards of impartiality and independence. Id. at 16. Additionally, a party can disqualify an arbitrator if a party can show: "partiality or lack of independence;" "inability or refusal to perform his or her duties with diligence and in good faith;" or "any grounds for disqualification provided by applicable law." Id. at 18. Under either selection procedure, the AAA does not limit a party's ability to choose an arbitrator. On the contrary, the rules set forth a procedure, placing emphasis on the impartiality and independence of the arbitrator, and have safeguards in place in the event the parties cannot agree or an arbitrator is shown to no longer be impartial or independent.
Applying the reasoning of the Sosa court, the potential for bias or advantage is not enough to find substantive unconscionability, as Hopkins has not made a showing of even the potential for advantage. Rather, Hopkins would have this court hold the mere designation of rules governing the selection of an arbitrator rises to the level of substantive unconscionability. Similar to Sosa, although the requirement the AAA administer the arbitration does, ultimately, affect the selection of the arbitrator, the AAA rules still promote Hopkins's ability to select a neutral arbitrator. This is hardly evidence of a term "so one-sided" so as to constitute substantive unconscionability.
2. Right to Sue and Opt-Out Provision
Hopkins further argues the terms of the Provision allow Defendant to bring an action in court while limiting Hopkins to arbitrate her claims. (Pl. Resp. at 13.) Defendant asserts the terms of the Provision actually allow Hopkins to bring suit in small claims court and the opt-out provision provides Hopkins with a meaningful choice. (Def. Reply at 8.) As Defendant points out, Hopkins fails to mention that the Provision allows for a cardholder to initiate a claim in small claims court rather than by arbitration. (Pl. Resp., Ex. A, at 2.) The court finds the option to pursue arbitration or bring a suit in small claims court does not rise to the level of substantive unconscionability.
An exception to an arbitration clause allowing either party to bring a claim in small claims court has been found to be a valid and enforceable. Cline v. Chose Manhattan Bank USA, No. CIV 2:07-CV-00728BSJ, 2009 WL 236696, at *5-6 (D. Utah Jan. 30, 2009) (finding an arbitration clause, which included a small claims court exception, valid and enforceable). As Defendant correctly points out, the small claims exception does allow Hopkins to bring a claim in small claims court and does not limit her to arbitration only, as counsel suggests. Though it is more appropriate evidence of procedural conscionability, arbitration clauses containing an opt-out provision, such as the provision here, have been held to be valid and enforceable when a cardholder does not opt out of the arbitration agreement. Morales v. Cont'l Fin. Co., LLC, No. 1:09-CV-6 CW, 2009 WL 2579093, at *2 (D. Utah Aug. 19, 2009); see also Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199-200 (9th Cir. 2002) (finding an arbitration clause was not a contract of adhesion because plaintiff "was given the opportunity to opt-out of the Circuit City arbitration program by mailing . . . a form"); see also Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1211 (9th Cir. 2016) (holding that an arbitration agreement is not adhesive if there is an opportunity to opt out). Accordingly, for the reasons discussed above, the court finds the Provision is not substantively unconscionable.
B. Procedural Unconscionability
Hopkins argues that because the Agreement containing the Provision did not have a signature line, Hopkins could not have been expected to read the Agreement, which amounts to surprise. (Pl. Resp. at 11-12.) Defendant argues the Agreement is not procedurally unconscionable for three reasons: (1) Hopkins had a meaningful choice to contract with Celtic, further supported by the opt-out option contained in the Provision; (2) Hopkins indicated she read and consented to the relevant Terms and Conditions, which also contained the Provision, by completing the click-wrap agreement found in the online application Hopkins completed; and (3) Hopkins cannot argue she did not intend to agree to the Provision because she did not read the Terms and Conditions. (Def. Reply at 5-7.)
Though Hopkins cites Oregon case law to support the proposition that lack of a signature line is evidence of procedural unconscionability, the cited authority states that a signature only establishes a presumption the signer is familiar with the contents of the signed document, not a preclusive requirement. Motsinger v. Lithia Rose-FT, Inc., 211 Or. App. 610, 616-17 (2007) (citation omitted). Moreover, under Utah law, a party does not have a duty to ensure the other party fully understands the terms of the contract, and "[e]ach party has the burden to understand the terms of a contract before he affixes his signature to it and may not thereafter assert his ignorance as a defense." Russ v. Woodside Homes, Inc., 905 P.2d 901, 906 n.1 (Utah Ct. App. 1995).
Even if Celtic mailed the Agreement lacking a signature line to Hopkins, Defendant relies on Hopkins's indication in the online application that she understood the Terms and Conditions, which contained the Provision. In determining the validity and enforceability of a "clickwrap" agreement, "[c]ourts evaluate whether a clickwrap agreement's terms were clearly presented to the consumer, the consumer had an opportunity to read the agreement, and the consumer manifested an unambiguous acceptance of the terms." Hancock v. Am. Tel. & Tel. Co., 701 F.3d 1248, 1256 (10th Cir. 2012); see also Hugger-Mugger, L.L.C. v. Netsuite, Inc., No. 2:04-CV-592TC, 2005 WL 2206128, at *6 (D. Utah Sept. 12, 2005) (holding that a party's agent agreed to a contract via a clickwrap agreement, which was valid and enforceable).
Here, the terms of the Agreement were clearly presented to Hopkins, as the online application included the Terms and Conditions containing the Provision. (Def. Mot., Ex. A-1, at 7.) The facts before the court do not suggest Hopkins did not have an opportunity to read the Agreement. Lastly, the online application indicates Hopkins selected the option stating she read and agreed to the enclosed Terms and Conditions. (Id.) Thus, even if the copy of the Agreement mailed to Hopkins did not contain a signature line, she clearly assented to the Provision in the Terms and Conditions when she submitted the online application. Moreover, as discussed above, Hopkins's to opt out of the arbitration clause supports a finding that the agreement is procedurally conscionable. Accordingly, for the reasons discussed above, the Provision is both substantively and procedurally unconscionable, and, thus, the Provision is valid.
The validity of the Provision, however, does not speak to whether a non-signatory defendant can enforce the Provision against a signatory plaintiff, which is the case before the court. Because the answer to that question is potentially dispositive and analytically distinct from the Provision's validity, the court will examine whether Defendant can compel arbitration as a non-signatory before proceeding to analyzing the scope of the Provision.
Defendant argues it can enforce the Provision because the terms of the Provision encompass the claims against Defendant. (Def. Mot. at 14-15.) Because the scope of an arbitration clause is also analytically distinct from whether a non-signatory can compel arbitration, the court discusses the Provision's scope in the following section. See Rajagopalan v. NoteWorld, LLC, 718 F.3d 844, 847 (9th Cir. 2013) (distinguishing the issue before the court as a question not about whether a particular issue is arbitrable, but whether a particular party was bound by the arbitration clause).
II. Can Defendant Compel Arbitration as a Non-Signatory?
Hopkins argues Defendant cannot enforce the Provision because Defendant is a non-signatory to the Agreement. (Pl. Resp. at 7.) Hopkins further argues the doctrine of equitable estoppel is inapplicable and does not bar her from bringing the asserted claims. (Id. at 8.) In response, Defendant argues Celtic properly assigned the Agreement to Defendant, conferring on Defendant the ability to enforce the Provision. (Def. Reply at 2-3.)
"The United States Supreme Court has held that a litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement." Murphy v. DirecTV, Inc., 724 F.3d 1218, 1229 (9th Cir. 2013) (internal quotations and citation omitted.); see also Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 449 F. App'x 704, 708 (10th Cir. 2011) (stating the governing state contractual law determines who is bound to an arbitration provision) (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630-31 (2009). Discussed supra, Utah law governs the enforceability of the Provision.
"Under Utah law, only parties to the contract may enforce the rights and obligations created by the contract." Cavlovic v. J.C. Penney Corp., Inc., 884 F.3d 1051, 1057 (10th Cir. 2018) (citation and internal quotations omitted). "In rare circumstances, a third party can also enforce the contract, but only if the parties to the contract clearly express an intention to confer a separate and distinct benefit on the third party." Id. at 1057-58 (citing Bybee v. Abdulla, 2008 UT 35, ¶ 36, (internal quotations omitted)). "But under no circumstances can a party change or rewrite the terms of an agreement to broaden the plain language—even in the face of the policy favoring arbitration." Id. at 1058 (quoting Zions Mgmt. Servs. v. Record, 2013 UT 36, ¶ 32 (internal citations omitted)). Though the parties provide some case law on this issue, the parties fall short of adequately framing the issue before the court. Discussed infra, the relevant query is whether, under Utah law, a third party can enforce an arbitration clause, either as an assignee of a signatory to the contract or under a theory of non-signatory estoppel. Accordingly, the court will first address Defendant's assignment argument. Next, the court will examine Utah's law on non-signatory estoppel.
The case law provided by both parties does not interpret Utah case law on this particular issue.
1. Can Defendant Compel Arbitration as an Assignee?
Defendant relies on Celtic assigning the Agreement as the basis for Defendant's right to enforce the arbitration clause. Under Utah law, "[a]n assignment is a transfer of . . . [a] right from one person (the assignor) to another (the assignee), which confers a complete and present right in the subject matter to the assignee." Timber Lakes Prop. Owners Ass'n v. Cowan, 2019 UT App 160, ¶ 32. A third party can enforce the contract provided the "parties to the contract clearly express an intention to confer a separate and distinct benefit on the third party." Cavlovic, 884 F.3d at 1057-58 (citation and internal quotations omitted). Assignment of contractual rights does not require a particular form or formal language, but the assignment must show "an intention by the owner to transfer his right or interest [in the contract]." Lone Mountain Prod. Co. v. Nat. Gas Pipeline Co. of Am., 710 F. Supp. 305, 309 (D. Utah 1989), aff'd, 984 F.2d 1551 (10th Cir. 1992). Once a valid assignment is made, the "assignee stands in the shoes of the assignor." Id.
The Provision contemplates a claim would be arbitrated between the cardholder, Hopkins, and "[Celtic], [their] affiliates and agents." Supra, at 18. The Agreement does not, however, refer to, or confer, a separate and distinct benefit to Defendant, as a purported assignee. Rather, Defendant indicates through the declaration of its Chief Operating Officer that "Celtic conveyed the Account to [Defendant] and all servicing, collection, and enforcement rights with respect to the Account were assigned to [Defendant]" on December 21, 2018. (Bryman Decl. ¶ 12.) Defendant provides no other supporting documentation of the assignment of the Agreement.
However, even assuming the contract was assigned to Defendant, simply because a contract is assigned does not mean the assignee can enforce the contract in its entirety. See Tomlinson v. Douglas Knight Constr., Inc., 2017 UT 56, ¶ 19 (holding home buyer did not acquire right to sue construction company when the parent company assigned its contract to homebuyer in bankruptcy proceeding). Defendant is still required to demonstrate it, as the assignee, specifically can enforce the Provision against Hopkins.
Moreover, the question of whether a non-signatory can enforce an arbitration clause is a question Utah courts have directly addressed, discussed infra. Utah courts and courts interpreting Utah law on this issue have not held that mere assignment of a contract containing an arbitration provision entitles the assignee to enforcement powers of the arbitration clause. Indeed, Defendant may have a acquired the right to receive payment pursuant to the contract, but the court would still need to determine whether Utah law provides for a non-signatory to enforce the Provision. Defendant has not shown the Provision can be enforced against Hopkins' claims simply because Celtic assigned the contract to Defendant.
2. Can Defendant Compel Arbitration as a Non-Signatory Defendant?
Utah law recognizes five theories by which a non-signatory can enforce or be bound to an arbitration clause: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter-ego; and (5) estoppel. Belnap, 844 F.3d at 1294. Utah courts have seldom encountered circumstances involving the recognized theories other than agency and estoppel. However, in holding state law determines which parties are bound to an arbitration clause, the U.S. Supreme Court noted the same categories referenced by Utah's highest court. Arthur Andersen LLP, 556 U.S. at 631 (citing 21 R. LORD, WILLISTON ON CONTRACTS § 57:19, p. 183 (4th ed. 2001)).
The Ellsworth court also referenced a sixth category, third-party beneficiary, but noted that category was "closely analogous" to estoppel. Ellsworth, 148 P.3d at 989 n.11.
The theories other than agency and estoppel are not applicable in this case. Under a theory of incorporation by reference, "a nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relation with the nonsignatory which incorporates the existing arbitration clause." Thomson-CSF, S.A. v. Am, Arbitration Ass'n, 64 F.3d 773, 777 (2d Cir. 1995). The theory of assumption involves subsequent conduct by the non-signatory indicating the non-signatory is assuming an obligation to arbitrate, despite being a non-signatory. Id. Under a veil-piercing theory, a party may be bound by its subsidiary when there is a complete lack of separateness between the parent and the subsidiary. Id.; See also Janvey v. Alguire, 847 F.3d 231, 242 (5th Cir.), cert. denied, 138 S. Ct. 329 (2017) (stating when the veil-piercing theory applies to bind a non-signatory to an arbitration clause). The parties do not fall under any of the above-mentioned categories.
Under the theory of non-signatory estoppel, however, Utah courts have recognized three circumstances where it is applicable. Belnap, 844 F.3d at 1294 & fn.17. The first circumstance the Ellsworth court contemplates is where a "nonsignatory [is] estopped from avoiding arbitration when the nonsignatory seeks to benefit from some portions of the contract but avoid the arbitration provisions." Ellsworth v. Am. Arbitration Ass'n, 2006 UT 77, ¶ 20 (citing Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000)). In other words, "the nonsignatory has sued a signatory on the contract to his benefit but sought to avoid the arbitration provision of the same contract." Id. (citing Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 361-62 (5th Cir. 2003)). Another circumstance is "when the nonsignatory sues the signatory on the agreement after receiving 'direct benefits' but seeks to avoid arbitration." Id. (citing Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999)).
The last circumstance involves a "signatory plaintiff [suing] the non-signatory defendant on the contract[,] but [the signatory-plaintiff] seeks to avoid the contract-mandated arbitration by relying on the fact that the defendant is a nonsignatory." Id. ¶ 20 n.12; see also Inception Mining, Inc. v. Danzig, Ltd., 311 F. Supp. 3d 1265, 1277 (D. Utah 2018) (stating "[t]he applicability of the estoppel theory depends on the situation, i.e., whether the nonsignatory is suing or being sued and whether the nonsignatory is seeking to compel or resisting arbitration").
The only circumstance potentially applicable to this case is the third circumstance, where a signatory-plaintiff sues a non-signatory-defendant on the contract, but signatory-plaintiff aims to avoid arbitration by asserting the defendant is a non-signatory. However, this is not the case here. Hopkins has not brought suit based on the contract; rather, Hopkins brings suit on statutory claims related to the collection of a debt. Courts that have examined similar scenarios have gone separate ways, and most notably, courts that have compelled arbitration have done so under agency theory, not assignment or non-signatory estoppel. Compare St. Pierre v. Advanced Call Ctr. Techs, No. 215CV02415JADNJK, 2016 WL 6905377, at *4 (D. Nev. Nov. 22, 2016) (compelling arbitration between non-signatory defendant and signatory-plaintiff on theory of agency); with Cavlovic, 884 F.3d at 1058 (holding non-signatory defendant could not compel arbitration); and Lagrone v. Advanced Call Ctr. Techs., LLC, No. C13-2136JLR, 2014 WL 4966738, at *5 (W.D. Wash. Oct. 2, 2014) (noting the scarcity of case law on the topic and holding non-signatory defendant could enforce arbitration clause under agency theory of non-signatory estoppel).
The Utah Supreme Court has not ruled whether a non-signatory defendant can enforce an arbitration clause against a signatory plaintiff not suing the defendant on the contract itself. See Ellsworth, 2006 UT 77, ¶ 20 n.12; see also Belnap, 844 F.3d at 1295 (refusing to expand Utah state law by holding that parent-subsidiary theory of estoppel is not supported by Utah state law); see also Howard v. Navient Sols., LLC, No. C18-5333 BHS, 2018 WL 5112634, at *4 (W.D. Wash. Oct. 18, 2018) (interpreting Utah law and refusing to expand exceptions under non-signatory estoppel outlined by Ellsworth). When interpreting state law, the federal courts are bound by the "pronouncements of the state's highest court on applicable state law." Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001) (citation and internal quotations omitted). "Where the state's highest court has not decided an issue, the task of the federal courts is to predict how the state high court would resolve it." Id. (citation omitted). In doing so and absent controlling state authority, federal courts look to "existing state law without predicting potential changes in that law." Id. (citation omitted); see also Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1280 (10th Cir. 2000) (stating it is not the place of the federal court to expand Utah state law beyond the bounds of the Utah Supreme Court).
This court finds, consistent with various other courts examining Utah contract law, that, under a theory of non-signatory estoppel, Utah courts have not ruled whether a non-signatory defendant can compel arbitration against a signatory plaintiff who sues the non-signatory defendant, not on the contract, but on a related statutory claim. Compare St. Pierre v. Advanced Call Ctr. Techs., LLC, No. 215CV02415JADNJK, 2016 WL 6905377, at *2 (D. Nev. Nov. 22, 2016) (addressing, under Utah law, a similar question and fact pattern of debt-collector-defendant and debtor-plaintiff and holding defendant could compel arbitration clause under agency theory of estoppel, noting defendants' assignment argument was not addressed); with CollegeAmerica Servs., Inc. v. W. Ben. Sols., LLC, No. 2:11CV01208 DS, 2012 WL 1559745, at *2-3 (D. Utah May 2, 2012) (denying motion to enforce mediation and compel arbitration agreement by non-signatory-defendant where signatory-plaintiff brought suit against non-signatory-defendant because defendants did not fall under the three circumstances set forth in Ellsworth); and Cavlovic v. J.C. Penney Corp., Inc., 884 F.3d 1051, 1058 (10th Cir. 2018) (interpreting Utah law and holding non-signatory defendant could not compel arbitration clause in a credit card agreement against signatory-plaintiff who brought a fraudulent advertising practices claim against non-signatory defendant); and Untershine v. Advanced Call Ctr. Techs., LLC, No. 18-CV-77, 2018 WL 3025074, at *9-10 (E.D. Wis. June 18, 2018) (holding signatory-plaintiff's Fair Debt Collection Practices Act claim did not fall under arbitration clause and non-signatory-defendant could not enforce arbitration clause because the third category of non-signatory estoppel considered by Utah courts presumes the signatory-plaintiff sues on the contract itself).
The reasoning infra would be equally applicable to Hopkins' common law claim of Intrusion Upon Seclusion because the claims are not on the contract but on non-contractual claims, which are the scenarios the Ellsworth court considered. Moreover, even if Defendant could enforce the Provision, the claims would not fall under the scope of the Provision, discussed in section III.
Without clear guidance from the Utah Supreme Court, the court finds that relevant state law does not provide a non-signatory defendant the right to enforce an arbitration clause, where signatory plaintiff does not sue a non-signatory defendant on the contract that contains the arbitration clause. Accordingly, this court cannot hold, as a matter of law, that Defendant can enforce this arbitration clause because: (1) Utah state law does not provide Defendant with such remedy, and (2) holding otherwise would run counter to Ninth and Tenth Circuit precedent instructing federal courts to refrain from expanding state law past the bounds set by the highest court. One notable consequence, though, is that signatory plaintiffs could effectively escape valid arbitration clauses with non-signatory defendants by bringing statutory claims against those same defendants. In addressing this same concern, courts have decided this question on a theory of agency, finding the non-signatory-debt-collector defendant could enforce the arbitration clause against signatory plaintiff. See St. Pierre, No. 215CV02415JADNJK, 2016 WL 6905377, at *4 (holding plaintiff must arbitrate Fair Debt and Consumer Protection Act claim against debt-collector defendant because defendant was an agent of principal who issued the credit card); see also Lagrone, No. C13-2136JLR, 2014 WL 4966738, at *7 (same); see also Educators Mut. Ins. Ass'n v. Evans, 258 P.3d 598, 614 (Utah Ct. App. 2011) (holding plaintiff, acting as agent of the city, waived principal's right to enforce arbitration when plaintiff waived its right to enforce arbitration by engaging in litigation).
Granting a motion to compel arbitration under a theory of agency is not a prohibited expansion of Utah state law because doing so is supported by current state law, whereas compelling arbitration under non-signatory estoppel is not equally supported under current Utah law. Notably, the appreciable difference between the two theories is that the Utah Supreme Court explicitly outlined circumstances where non-signatory estoppel was applicable. Ellsworth, 2006 UT 77, ¶ 20 & n.12. In contrast, the Ellsworth court stated that the plaintiff was not bound under a theory of agency because there was no evidence that the party who entered into the arbitration clause acted as an agent of plaintiff. Id. ¶¶ 19-20.
In Ellsworth, plaintiff, Stanford Ellsworth ("Ellsworth"), married Carol Lee Fairbanks Naylor ("Naylor"), who owned, prior to the marriage, the home at which the couple resided throughout the marriage. Id. ¶ 3. In the years following the marriage, Naylor contracted with Gary Evershed ("Evershed"), an agent for the company Lowell, to repair damage to her home caused by a tree that fell on Naylor's home. Id. ¶¶ 3-4. Though Ellsworth was present for conversations between Naylor and Evershed, Ellsworth never represented that he was a party to the contract, that he was an owner of the home, or that Naylor had authority to act as his agent. Id. ¶ 4. Following negotiations between Naylor and Evershed, Evershed provided to Naylor a contract which contained an arbitration clause and listed both Naylor and Ellsworth as owners, but contained only one signature line. Id. ¶ 5. Only Naylor signed the agreement. Id.
Although disputed, Ellsworth contended that whenever discussions between Evershed and Ellsworth arose, he deferred questions about the remodeling to Naylor. Id. ¶ 7. Lowell filed a demand for arbitration, naming both Ellsworth and Naylor as parties (following a dispute between Naylor and Lowell over contested charges related to the project) Id. Ellsworth filed for declaratory judgment, representing he was not a party to the arbitration proceeding and requesting both a stay of the proceedings and a permanent injunction against Lowell from involving him in the proceedings. Id. ¶ 9.
After a contentious procedural path to the state's highest court, the Utah Supreme Court ultimately held that Ellsworth was not bound to the arbitration clause under a theory of non-signatory estoppel or agency. Id. ¶ 20. With respect to non-signatory estoppel, the court explicitly outlined the three circumstances where this exception would apply. Supra, at 25-26. The court determined Ellsworth did not fall under the listed circumstances and proceeded to the agency exception. Ellsworth, 2006 UT 77, ¶ 20 & n.12. In concluding Ellsworth was also not bound under the agency exception, the court, notably, found "no evidence of an agency relationship between the spouses[.]" Id. ¶ 21.
The court's reasoning with respect to both theories is instructive. Although the Ellsworth court does not state the circumstances under non-signatory estoppel are exhaustive, the court, equally, does not indicate it would be willing to expand on those circumstances. Indeed, the Tenth Circuit noted this and refused to adopt a circumstance other than those three scenarios delineated by the Ellsworth court. Belnap, 844 F.3d at 1295 (noting the three Ellsworth circumstances and refusing, "absent a strong showing to the contrary," to include a parent-subsidiary circumstance to trigger non-signatory estoppel). Further, all three circumstances contemplate scenarios where parties bring suit on the contract itself and attempt to avoid arbitration, not on statutory claims where an underlying contract contains an arbitration clause. Thus, compelling arbitration in this circumstance would not only expand Utah law by including a circumstance distinct from those currently recognized, but doing so would also incorporate a scenario involving a different theory than the Ellsworth court contemplated. This would be the expansion of state law the Ninth and Tenth Circuits preclude, as there is no evidence to suggest that Utah's highest court intended non-signatory estoppel to address this type of scenario.
Under a theory of agency, however, the Ellsworth court does suggest an agency relationship could be sufficient where the agent binds the principle to an arbitration clause. Indeed, this is the scenario the Ellsworth court examined. By holding Ellsworth was not compelled to arbitrate because there was no evidence to support an agency relationship, the Ellsworth court implied that evidence of an agency relationship and evidence the agent's conduct bound the principal could be sufficient to bind the principal to an arbitration clause. Unlike the non-signatory estoppel theory, compelling arbitration under agency theory is not an expansion of Utah law because the Ellsworth court indicated that the relationship itself could suffice to compel a non-signatory to arbitrate. Considering other courts interpreting Utah law have similarly concluded, the existence of an agency relationship would allow for an agent to compel arbitration against a signatory if the principal was also a signatory to the arbitration clause.
Though Defendant does not argue as much, Defendant would still not prevail under a theory of agency because there is no evidence of an agency relationship between Defendant and Celtic. Lagrone, No. C13-2136JLR, 2014 WL 4966738, at *6 (stating Utah agency law requires "three elements must exist: (1) the principal must manifest its intent that the agent act on its behalf, (2) the agent must consent to so act, and (3) both parties must understand that the agent is subject to the principal's control"). There is no evidence that Defendant was collecting the debt on behalf of Celtic, as was the case in Lagrone. At most, Defendant is an assignee, and there is no evidence Celtic had any control over Defendant's conduct in collect Hopkins' debt. Thus, Defendant cannot establish an agency relationship under Utah law.
Accordingly, the court cannot conclude, as a matter of law, that Defendant can enforce the arbitration clause against Hopkins under these circumstances because Utah law is silent on the issue, current state law does not support compelling arbitration, and holding otherwise would be a prohibited expansion of Utah state law. Consequently, Defendant's motion to compel arbitration should be denied. Even if Defendant could enforce the Provision, Hopkins' asserted claims would still not fall under the scope of the Provision.
III. Scope of the Provision
The parties dispute whether the Provision encompasses Hopkins's claims. Hopkins asserts the subject matter of the claims does not fall within the scope of the Provision because the conduct underscoring the TCPA claim is distinct from the Agreement. (Pl. Resp. at 14-15.) Moreover, Hopkins argues Defendant cannot enforce the Provision because Defendant is not a signatory to the Agreement. (Id. at 7-9.)
Hopkins argues her claims fall outside of the scope of the Provision because her claims are based on Defendant's conduct, not on the underlying Agreement. (Pl. Resp. at 14-15.) Defendant argues the language of the Provision is broad, giving rise to a presumption of arbitrability, and the claims Hopkins asserts "arise out of or [are] related to" a relationship resulting from the Agreement or a breach of the Agreement. (Def. Mot. at 10.)
Specifically, the Provision in the Agreement provides:
Except as expressly provided below, you and we must arbitrate . . . any dispute or claim between you and any joint cardholder 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: (1) any individual Claims in small claims court or your state's equivalent court, so long as it remains an individual case in that court; or (2) any Claim by us that only involves our effort to collect money you owe us. However, if you respond to a collection lawsuit by claiming that we engaged in wrongdoing, we may require you to arbitrate.(Pl. Resp., Ex. A, at 3.)
In determining the scope of an arbitration clause, federal substantive law governs the question of arbitrability. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999). Generally, there are two types of inquires a court may encounter: (1) "who (primarily) should decide arbitrability" and (2) "whether a particular . . . dispute . . . is within the scope of a valid arbitration agreement[.]" First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995). Regarding the first inquiry, determining "who has the primary power to decide arbitrability turns upon what the parties agreed about that matter." Kaplan, 514 U.S. at 943 (internal quotations omitted) (emphasis in original). Moreover, the "question of arbitrability . . . is undeniably an issue for judicial determination . . . [u]nless the parties clearly and unmistakably provide otherwise . . . ." AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986). Regarding the second inquiry, any doubts as to whether a dispute is arbitrable, should be "resolved in favor of arbitration[.]" Moses, 460 U.S. at 24-25 (1983). Accordingly, the court will examine the two inquiries in turn.
A. Who May Determine Arbitrability?
"We have construed broad arbitration clauses as granting an arbitrator authority to decide his or her own jurisdiction." United Bhd. of Carpenters & Joiners of Am., Local No. 1780 v. Desert Palace, Inc., 94 F.3d 1308, 1310 (9th Cir. 1996); see also New England Mech., Inc. v. Laborers Local Union 294, 909 F.2d 1339, 1345 (9th Cir. 1990) (stating "the parties may empower the arbitrator to decide arbitrability through the use of a broad arbitration clause"). This presumption, however, does not flow from a narrow arbitration clause. Chelsea Family Pharmacy, PLLC v. Medco Health Sols., Inc., 567 F.3d 1191, 1197 (10th Cir. 2009) (stating that a narrow arbitration clause does not create a presumption of arbitrability). Consequently, whether the terms of the arbitration clause are interpreted as broad or narrow is relevant to the parties' intent to clearly and unmistakably reserve the question of arbitrability for an arbitrator.
Here, the parties agreed to a broad arbitration agreement. Compare Cavlovic v. J.C. Penney Corp., Inc., 884 F.3d 1051, 1059 (10th Cir. 2018) (noting "[the 10th Circuit] previously held 'arising out of or relating to' is 'broad language'"); with Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (noting that "arising out of or relating to this agreement" had been labelled a "broad arbitration clause"); and United States ex rel. Welch v. My Left Foot Children's Therapy, LLC, 871 F.3d 791, 798-99 (9th Cir. 2017) (noting that although the phrase "related to" is broader than "arising out of," both phrases serve as an outer boundary by indicating a direct relationship and are considered broad). The arbitration clause indicates that "if the dispute or claim arises out of or is related to" a relationship resulting from the Agreement or its breach, then it must be arbitrated.
Though the terms of the Provision are broad, which indicates the parties agreed to arbitrate arbitrability, the Provision does not "clearly and unmistakably" indicate Hopkins and Defendant agreed to such terms. See Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1127 (9th Cir. 2013) (stating "the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable"). Consequently, where an arbitration clause contains broad language but a non-signatory seeks to enforce it, the court retains jurisdiction to determine arbitrability.
B. Do the Asserted Claims Fall under the Scope of the Provision?
"Although the Agreement provides that state law governs its construction, federal law determines the scope of the Agreement's arbitration clause." Innovative Eng'g Sols., Inc. v. Misonix, Inc., 458 F. Supp. 2d 1190, 1194 (D. Or. 2006). Relying on In re Jiffy Lube Int'l, Inc., Text Spam Litig., 847 F. Supp. 2d 1253, 1262-63 (S.D. Cal. 2012), Hopkins argues the phrase "any dispute or claim" in the Provision does not contain a limiting clause and should not capture the asserted claims as a matter of public policy. (Pl. Resp. at 15-16.) Hopkins's reliance on Jiffy Lube, however, is misplaced. As the Jiffy Lube court noted, the arbitration clause at issue purported to apply to "any and all disputes" and was "not limited to disputes arising from or related to the transaction or contract at issue." In re Jiffy Lube, 847 F. Supp. 2d at 1262.
The concern the Jiffy Lube court faced regarding an arbitration clause without limiting language is not present here. Indeed, both the Ninth and Tenth Circuits have found the phrases "arising out of and "related to" to limit the scope of arbitrability. Thus, the Provision does contain limiting language that the clause examined by the Jiffy Lube court lacked; the relevant query here is whether the Provision captures claims brought against a non-signatory debt-collector when the Provision does not reference Defendant. See Charles v. Portfolio Recovery Assocs., LLC, No. 3:17-CV-0955-YY, 2018 WL 5660747, at *14 (D. Or. Aug. 1, 2018), report and recommendation adopted, No. 3:17-CV-0955-YY, 2019 WL 722561 (D. Or. Feb. 20, 2019) (holding arbitration clause was broad enough to include plaintiff's FDCPA claim); but cf. Jenkins-Brown v. Liberty Acquisitions Servicing, LLC, No. 03:14-CV-01610-ST, 2015 WL 1757220, at *5 (D. Or. Apr. 16, 2015) (holding arbitration clause did not express contemplate future assignees or arbitration of FDCPA claims against a future third-party); and Villanueva v. Liberty Acquisitions Servicing, LLC, 319 F.R.D. 307, 324 (D. Or. 2017) (discussing, in the context of a motion for class certification, that FDCPA claims brought by plaintiffs were not subject to arbitration because the arbitration clause did not contemplate FDCPA claims against future third parties).
The Provision does not clearly evidence the parties' intent to arbitrate claims against future third-parties. The Provision contemplates that Hopkins would be required to arbitrate claims between her and "[Celtic], our affiliates and agents." Supra, at 30. The Provision makes no reference to future assignees or future debt-collection entities. Moreover, the Provision does not reference Defendant, nor does Defendant provide support it was an affiliate or agent of Celtic. On the contrary, Defendant argues it acquired the standing to enforce the Provision as an assignee, not as an agent or affiliate.
Additionally, the Provision further provides "[Celtic] will not require [Hopkins] to arbitrate . . . any Claim by [Celtic] that only involves our effort to collect money you owe us. However, if you respond to a collection lawsuit by claiming that we engaged in wrongdoing, we may require you to arbitrate." Supra, at 30. The Provision explicitly contemplates a debt collection claim is not subject to the Provision. Even if the Provision contemplated Defendant as a party intended to fall under the Provision, the terms of the Provision do not clearly state that the parties agreed to arbitrate a claim concerning a third-party's attempts to collect a debt. Indeed, the terms state if Hopkins responded to a collection lawsuit, which is not subject to arbitration, by alleging wrongdoing in the collection attempts, Celtic may require Hopkins to arbitrate that claim. The terms suggest that, at most, it was possible to require arbitration of claims concerning collection practices. Possibly requiring arbitration is distinct from clear intent to arbitrate a claim concerning collection practices. Thus, even if Defendant could enforce the Provision and was contemplated as a party in the Provision, the claims asserted by Hopkins do not fall within the scope of the Provision. Accordingly, Defendant's motion to compel arbitration should be denied even if Defendant could enforce the Provision against Hopkins.
IV. Equal Protection Claim Against the Provision
Lastly, Hopkins asserts a constitutional claim that because the Military Lending Act, 10 U.S.C.A. § 987 ("MLA"), affords protection to active duty military members from creditors and the same protection is not afforded to the average consumer, the difference in statutory protection is a violation of the Equal Protection Clause of the Fifth Amendment. (Pl. Resp. at 13-14.) Defendant argues Hopkins' argument does not satisfy Equal Protection Clause analysis. (Def. Reply at 9.)
The first step in analyzing an Equal Protection Clause claim is to determine the distinct groups of similarly-situated persons drawn out by the law. Arizona Dream Act Coal. v. Brewer, 855 F.3d 957, 966 (9th Cir. 2017), cert. denied, 138 S. Ct. 1279 (2018). The second step is to determine the applicable level of scrutiny. Id. at 969. Unless a fundamental right is at issue or a suspect classification is involved, rational basis is the appropriate level of scrutiny. Gallinger v. Becerra, 898 F.3d 1012, 1016 (9th Cir. 2018). "[L]egislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate [government] interest." Id. at 1017 (citing and quoting City of Cleburne, Tex. v. Cleburne Living Ctr., 473 U.S. 432, 440 (1985)).
Here, Hopkins has not identified groups of similarly-situated persons. Presumably, Hopkins intends to identify the groups of similarly-situated persons as civilian-debtors and active-duty-debtors. Hopkins does not point to a fundamental right, nor is a suspect classification at issue here. Thus, rational-basis review is the appropriate level of scrutiny.
Even if Hopkins properly asserted an Equal Protection claim, Hopkins's constitutional claim would still fail because the classification drawn by the statute is rationally related to a legitimate government interest. In response to a Department of Defense ("DOD") report finding that certain predatory lending tactics undermined military readiness and morale of troops and their families, Congress passed the MLA in order to protect service members and their dependents from the identified predatory lending tactics. Huntco Pawn Holdings, LLC v. U.S. Dep't of Def., 240 F. Supp. 3d 206, 211 (D.D.C. 2016). The government interest underscoring the MLA is to support the military readiness of the U.S. Armed Forces and protect those same members from predatory lending tactics. If predatory tactics are employed against active duty members while overseas or while based outside the United States, those tactics could result in significant legal and monetary obligations on either the active duty member upon their return or on their family remaining in the U.S. during their deployment. This not only would affect military readiness by forcing military members to engage in judicial proceedings during deployment, but also it would affect their, or their family's, morale by having to address these tactics while in active duty. Thus, the statutory protections against predatory lending tactics are rationally related to the legitimate government interest of supporting military readiness and the morale of active duty service members. The challenged legislation was enacted in response to valid concerns raised by the DOD. Accordingly, Hopkins' Equal Protection claim fails.
As Defendant correctly points out, even if Hopkins's claim was successful, the claim would only invalidate the MLA to the extent that service members would no longer be exempt from arbitration clauses. This would not affect Hopkins's arguments against the Agreement at issue.
Recommendation
For the reasons stated above, this court recommends that Defendant's motion to compel arbitration be denied as Defendant does not have power to enforce the arbitration clause against Hopkins under Utah law.
Scheduling Order
The above Findings and Recommendation are referred to a United States District Judge for review. Objections, if any, are due in fourteen days. If no objections are filed, review of the Findings and Recommendation will go under advisement that date.
A party may respond to another party's objections within 14 days after the objections are filed. If objections are filed, review of the Findings and Recommendation will go under advisement upon receipt of the response, or on the latest date for filing a response.
DATED this 9th day of January, 2020.
/s/_________
JOHN V. ACOSTA
United States Magistrate Judge