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Mason v. CreditAnswers

September 4, 2008


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Pending before the court is Defendant's motion to dismiss for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3). Plaintiff opposed the motion. For the reasons which follow, the motion is DENIED.

Plaintiff, an individual who resides in San Diego County, alleges that he responded to Defendant's radio advertisement which allegedly stated that consumers with more than $10,000 in debt could reduce their debt by 60%. (Compl. at 5.) As prompted by the ad, Plaintiff called Defendant and eventually entered into a contract with Defendant. (Id.; see also Mason Decl. at 1.) Defendant is a Texas corporation located in Dallas, Texas. (Brown Decl. at 1.) Plaintiff alleges that although it was difficult for him to pay his debts, he had a good credit score. (Compl. at 6.) Plaintiff told Dan Adams, Defendant's representative with whom he spoke that he contacted Defendant in the hope he could reduce his debt payments without jeopardizing his credit score. (Id.) Mr. Adams instructed him, based on Defendant's "proven system" to immediately stop paying bills and not to communicate with his creditors. (Id.; see Mason Decl. at 2.) Mr. Adams further represented that Defendant would contact Plaintiff's creditors to arrange a payment plan which would ultimately save Plaintiff a lot of money and improve his credit. (Compl. at 6, 8; see also Mason Decl. at 2.) Pursuant to Defendant's instruction, Plaintiff provided Defendant with pertinent information about his debts and paid Defendant a $2,512.31 fee for its services. (Compl. at 6-7; see also Mason Decl. at 2.) Defendant also instructed Plaintiff to open a checking account wherein he was to deposit monthly payments as calculated by Defendant and to which Defendant would have access. (Compl. at 6-7; see also Mason Decl. at 2.) Plaintiff complied with the instructions. (Compl. at 6-7.) Subsequently, Defendant sent Plaintiff a written description of the settlements it purportedly negotiated with Plaintiff's creditors. (Id. at 7.)

Defendant sent Plaintiff a set of documents entitled "Welcome to DTS Debt Termination Program!" wherein Defendant represented, among other things, that it would improve Plaintiff's credit. (Id. at 11.) Contrary to Plaintiff's understanding, Defendant allowed Plaintiff's obligations to go into default and subjected Plaintiff to a creditor lawsuit. (Id. at 9, 11-12; see Mason Decl. at 2.) Eventually, Defendant told Plaintiff that it had done all it could and that Plaintiff should either file for bankruptcy or hire counsel. (Compl. at 12.) As a result of Defendant's "services," Plaintiff is worse off than he was before. (Mason Decl. at 2.)

Plaintiff filed a complaint in this district seeking damages against Defendant under 15 U.S.C. § 1692 et seq. (Fair Debt Collection Practices Act), California Civil Code § 1788 et seq. (Rosenthal Fair Debt Collection Practices Act), 15 U.S.C. § 1679 et seq. (Credit Repair Organization Act), California Civil Code § 1789.10 et seq. (Credit Services Act of 1984), and for negligence, fraud, negligent misrepresentation and breach of fiduciary duty.

Defendant's motion is based on a contractual forum selection clause. According to Defendant, the clause provides for dispute resolution in Texas under certain circumstances. (Brown Decl. Ex. 1, CreditAnswers LLC Service Agreement at 5.) Defendant seeks dismissal and does not seek to transfer venue to Texas. This is apparently motivated by the agreement's arbitration clause. (See id.; see also Def.'s Mem. of P.&A. at 4 ("the case should be dismissed because in addition to choosing the forum for any dispute, the parties also agreed to submit all disputes to binding arbitration.") .) However, Defendant does not seek to compel arbitration with this motion. Accordingly, the court does not address the issue whether arbitration should be compelled in this case.

Because Defendant's motion is made pursuant to Rule 12(b)(3), the allegations in the complaint need not be accepted as true and the court may consider facts outside the complaint. Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1137 (9th Cir. 2004). "[I]n the context of a Rule 12(b)(3) motion based upon a forum selection clause, the trial court must draw all reasonable inferences in favor of the non-moving party and resolve all factual conflicts in favor of the non-moving party . . .." Id. at 1138.

Federal law governs the enforceability of the forum selection clause in this case. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 590 (1991) (federal question cases); ManettiFarrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 513 (9th Cir. 1988) (diversity cases). "[F]orum selection clauses are presumptively valid" and "should be honored absent some compelling and countervailing reason." Murphy, 362 F.3d at 1140, quoting Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) (internal quotation marks omitted). Three factors make enforcement of a forum selection clause unreasonable:

(1) if the inclusion of the clause in the agreement was the product of fraud or overreaching; (2) if the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced; and (3) if enforcement would contravene a strong public policy of the forum in which suit is brought.

. at 1140 (internal citation and quotation marks omitted). The fact that the forum selection clause is contained in a form contract which was not subject to negotiation does not defeat enforceability. Id. at 1141.

Plaintiff argues that enforcing the clause would be improper because it would effectively deprive him of his day in court, the term was not negotiable, and he did not receive adequate notice of the forum selection clause. The court agrees.

That Plaintiff is financially distressed is obvious from the nature of this action. Plaintiff has limited income and he could not pursue his case in Texas. (Mason Decl. at 3.) Plaintiff presented evidence of his financial inability, which Defendant does not controvert. Where a party's financial circumstance would effectively preclude him from a day in court, enforcing the forum selection clause would be unreasonable. Murphy, 362 F.3d at 1142.

In the alternative, enforcement is unreasonable in the absence of sufficient notice. Plaintiff did not have the opportunity to negotiate any of the terms of the Service Agreement and the agreement was a form. (Mason Decl. at 3 & Brown Decl. Ex. A.) Although non-negotiability does not by itself defeat enforcement of a forum selection clause, such clauses contained in form contracts are subject to judicial scrutiny for fundamental fairness. Shute, 499 U.S. at 595. Providing sufficient notice is required for the clause to comport with fundamental fairness. See id.; see also Wallis v. Princess Cruises, Inc., 306 F.3d 827, 839-40 (9th Cir. 2002).

Plaintiff received the agreement by e-mail which spelled out the contract summary but not the Service Agreement. (Mason Decl. at 3.) He was not required to and did not sign the agreement, but merely had to check a box that he agreed to the terms. (Id.) Defendant does not dispute this evidence. Furthermore, the Service Agreement does not emphasize or draw attention to the forum selection clause in any way. (See Brown Dec. Ex. A.) Consequently, Plaintiff did not receive adequate notice of the forum selection clause. See Effron v. Sun Line Cruises, Inc., 67 F.3d ...

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