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Rio v. CreditAnswers

May 27, 2010


The opinion of the court was delivered by: Hayes, Judge


The matter before the Court is Defendant's Petition to Compel Arbitration and Stay Pending Action, Or in the Alternative, to Stay Federal Action Pending Resolution of Parallel State Action ("Petition to Compel Arbitration"). (Doc. # 10).

I. Background

On February 11, 2010, Plaintiff Luis Del Rio ("Del Rio") initiated this action by filing a Complaint in this Court. (Doc. # 1). The Complaint alleges that Defendant CreditAnswers, LLC ("CreditAnswers") "operates a for-profit debt settlement company," which offers a "debt settlement program ... targeted to consumers with thousands of dollars of unsecured debt." (Id. ¶ 21).

The Complaint alleges that "[s]ometime before or during April 2008, Plaintiff contacted Defendant after viewing Defendant's website," (id. ¶ 33), and, after consultation with an employee of Defendant, "Plaintiff agreed to CreditAnswers' standard form contract of adhesion to enter CreditAnswers' Program." (Id. ¶ 42). The Complaint alleges that "CreditAnswers ... proceeded to conjure the illusion that Plaintiff's financial worries were a thing of the past, and all Plaintiff had to do was pay CreditAnswers over $4,000, before CreditAnswers resolved a single debt...." (Id. ¶ 32).

The Complaint asserts seven causes of action: (1) violation of California Business and Professions Code § 17200; (2) violation of the Consumer Legal Remedies Act, Cal. Civ. Code § 1770(a)(7), 1770(a)(19); (3) violation of the Credit Repair Organizations Act, 15 U.S.C. § 1678; (4) intentional interference with contractual relations; (5) tort in essence; (6) negligence per se; and (7) declaratory relief. The Complaint includes class action allegations related to three putative classes consisting of "all persons in California" who have "engaged the ... services of CreditAnswers" in the four years preceding the filing of the Complaint. (Id. ¶ 68). The Complaint seeks compensatory and punitive damages, a permanent injunction, attorney's fees, and "the Contract [between Plaintiff and Defendant] be adjudged rescinded and canceled." (Id. at 35). The Complaint alleges that "Plaintiff seeks actual, statutory and punitive damages in excess of $5,000...." (Id. ¶ 12).

Attached to the Complaint is a Debt Settlement Agreement ("Agreement"), which is dated June 19, 2009, and has the "electronic signature" of Plaintiff. (Swigart Decl., Ex. A, Doc. # 1 at 44 of 57). The Agreement states:

9. Arbitration of Dispute. In the event of controversy, claim or dispute between the parties arising out of or relating to this agreement or the breach, termination, enforcement, interpretation or validity thereof, including the termination of the scope or applicability of this agreement to arbitrate, shall be determined exclusively by arbitration in Collin County, Texas, or in the county in which the Client resides, in accordance with the laws of the State of Texas or agreements to be made in and to be performed in Texas. The parties agree, the arbitration shall be administered by the American Arbitration Association ('AAA') pursuant to its rules and procedures.... The parties agree that either party may bring claims against the other only in his/her or its individual capacity and not as a plaintiff or class member in any purported class or representative proceeding. Further, the parties agree that the arbitrator may not consolidate proceedings of more than one person's claims, and may not preside over any form of representative or class proceeding. The parties shall share the cost of arbitration, not to include attorney's fees, equally. If the Client's share of the costs is greater than $1,000.00 (one thousand dollars), the company will pay the Client's share of costs in excess of that amount. In the event a party fails to proceed with arbitration, unsuccessfully challenges the arbitrator's award, or fails to comply with the arbitrator's award, the other party is entitled to costs of suit, including a reasonable attorney's fee for having to compel arbitration or defend or enforce the award.

(Swigart Decl., Ex. A, Doc. # 1 at 43 of 57; see also Burton Decl., Ex. A at 4, Doc. # 10-2 (same)).

On February 15, 2010, CreditAnswers filed a complaint against Del Rio in Texas state court, seeking declaratory relief related to the Agreement between Del Rio and CreditAnswers. (Doc. # 4, Ex. A ¶ 8).

On April 5, 2010, CreditAnswers filed the Petition to Compel Arbitration in this Court. (Doc. # 10). CreditAnswers "move[s], pursuant to the Federal Arbitration Act, for an order

(i) compelling arbitration of the instant action and (ii) staying this Federal Court action until arbitration is completed. In the alternative, ... CreditAnswers ... move[s] for a stay of the instant action pending resolution of a parallel case between these parties currently pending in Texas state court." (Id. at 1-2). CreditAnswers contends that "Plaintiff entered into a valid and enforceable arbitration agreement," and Plaintiff's "claims are within the scope of [the] arbitration agreement." (Doc. # 10-1 at 5).

On April 23, 2010, Plaintiff filed an opposition to the Petition to Compel Arbitration. (Doc. # 12). Plaintiff contends that "California law applies in determining the enforceability of the arbitration provision," and "under California law, Defendant's arbitration agreement is unconscionable" and ...

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