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Robert Townsend v. National Arbitration Forum

January 4, 2012

ROBERT TOWNSEND
v.
NATIONAL ARBITRATION FORUM, INC., ET AL.



The opinion of the court was delivered by: Honorable Valerie Baker Fairbank, U.S. District Judge

CIVIL MINUTES -- GENERAL

Joseph Remigio None Present Courtroom Deputy Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS: None Present None Present

PROCEEDINGS (IN CHAMBERS): COURT ORDER RE MOTIONS TO DISMISS PLAINTIFF'S THIRD AMENDED COMPLAINT

Before the Court are motions to dismiss plaintiff Robert Townsend's Third Amended Complaint filed by the following defendants:

1. W. Christopher Bracken III, M. Douglas Mann, and James D. Branton (Docket No. 101);

2. Palisades Collection, LLC, Asta Funding, Inc., Asta Funding Acquisition, LLC, Asta Funding Acquisition II, LLC, Asta Funding Acquisition III, LLC, Asta Commercial, LLC, and Asta Group (Docket No. 115);

3. JPMorgan Chase & Co and Chase Bank USA, N.A. (Docket No. 118);

4. Mann Bracken LLP (Docket No. 119);

5. Gerald E. Moore & Associates, P.C., Worldwide Asset Purchasing II, LLC, West Asset Management, Inc., Frederick J. Hanna and Associates, P.C., Asset Management Professionals, LLC, and Worldwide Asset Purchasing, LLC (Docket No. 125);

6. Darrell Tyrone Hanna, Frederick J. Hanna, Clayton Davis Mosely, Louis Feingold, Dennis Henry, Frank J. Hanna, III, and Gerald E. Moore (Docket No. 127);

7. Accretive, LLC, Agora Fund I GP, LLC, and J. Michael Cline (Docket No. 131);

8. First National Bank of Omaha, N.A. (Docket No. 143);

9. Bank of America, N.A. (Docket No. 146);

10. National Arbitration Forum, Inc., National Arbitration Forum, LLC, Dispute Management Services, LLC d/b/a Forthright, and Michael Kelly (Docket No. 148); and

11. First National Collection Bureau, Inc. (Docket No. 150).

Pursuant to Local Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court finds that these matters are appropriate for decision without oral argument.

Factual and Procedural Background

Plaintiff Robert Townsend ("Plaintiff") filed this action on December 21, 2009. Plaintiff filed a First Amended Complaint ("FAC") on February 12, 2010, which the Court dismissed with leave to amend on March 24, 2010, pursuant to motions filed by various defendants. Plaintiff filed a Second Amended Complaint ("SAC") on April 8, 2010, which the Court dismissed sua sponte for Plaintiff's failures to correct the deficiencies identified in the FAC. The Court wrote:

The Court has reviewed the Second Amended Complaint ("SAC") and has determined that it fails to comply with Rule 8 . . . for the same reasons set forth in the Court's orders dismissing the [FAC], and also fails to comply with the Court's orders that the SAC correct the deficiencies identified in the [FAC]. For example, the SAC does not adequately connect the 77 introductory paragraphs with its 11 causes of action against the over 40 named defendants, such that each defendant may have reasonable notice of the allegations against it. See McHenry v. Renee, 84 F.3d 1172, 1179 (9th Cir. 1996)("Prolix, confusing complaints . . . impose unfair burdens on litigants and judges"). Federal Rule of Civil Procedure 8(d), requiring each allegation "of a pleading to be 'simple, concise, and direct,' applies to good claims as well as bad, and is a basis for dismissal independent of Rule 12(b)(6)." McHenry, 84 F.3d at 1179.

Order (Docket No. 86). Plaintiff filed the Third Amended Complaint ("TAC") on April 23, 2010.

The TAC alleges nine claims against approximately forty defendants, among which are credit-card issuing banks, collection agencies, and the National Arbitration Forum ("NAF"). Plaintiff categorizes these defendants as follows:

1. The "Bank Defendants": JPMorgan Chase, Chase Bank USA, N.A., Bank of America, N.A., Wells Fargo & Company, Inc., Wells Fargo Bank, N.A., and First National Bank of Omaha;

2. The "NAF/Mann Bracken Defendants": National Arbitration Forum, Inc., National Arbitration Forum, LLC, Agora Fund 1GP, LLC, Mann Bracken, LLP, Accretive, LLC, Eskanos and Adler, P.C., Dispute Management Services, LLC, d/b/a Forthright, Inc., and Axiant, LLC;

3. The "NAF/Mann Bracken Individual Defendants": J. Michael Cline, Michael Kelly, W. Christopher Bracken III, Clayton Davis Mosely [sic], M. Douglas Mann, and James D. Branton; and

4. The "Debt Collector Defendants": Mann Bracken, LLP, 1st National Collection Bureau, Inc., Gerald E. Moore & Associates, P.C., Frederick J. Hanna & Associates, P.C., West Asset Management, Inc., Worldwide Asset Purchasing, LLC, Worldwide Asset Management, Inc., Worldwide Asset Purchasing II, LLC, Asset Management Professionals, LLC, Palisades Collections, LLC, Asta Funding, Inc., Asta Group Inc., Asta Funding Acquisition I, LLC, Asta Funding Acquisition II, LLC, Asta Funding Acquisition III, LLC, and Asta Commercial, LLC.

According to the TAC, the defendants engaged in a conspiracy to "rig" arbitration procedures by forcing consumers to agree to unfair arbitration clauses that disfavor consumers in connection with bank and credit card accounts. Various defendants filed motions to dismiss the

On June 7, 2010, the United States Judicial Panel on Multidistrict Litigation ("MDL") transferred the case to the United States District Court for the District of Minnesota, for inclusion in MDL Case No. 2122 (Docket No. 169). Following this transfer, activity in the case was stayed and the pending motions to dismiss the TAC were not ruled upon. On October 25, 2011, the case was transferred back to this Court from the MDL.

Legal Standard

Federal Rule of Civil Procedure 12(b)(6) allows dismissal of a complaint for "failure to state a claim upon which relief can be granted." In order to survive a Rule 12(b)(6) motion, typically a complaint need only give "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "All allegations of material fact are taken as true and construed in the light most favorable to the plaintiff." In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1403 (9th Cir. 1996) (quoting In re Wells Fargo Sec. Litig., 12 F.3d 922, 925 (9th Cir. 1993)).

"[A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-65, 167 L. Ed. 2d 929 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted).

With respect to antitrust claims, the allegations in the complaint "may not evade [antitrust] requirements by merely alleging a bare legal conclusion." Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 736 (9th Cir. 1987). "[A] district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed," especially in light of the fact that "antitrust discovery can be expensive." Twombly, 550 U.S. at 544. Plaintiffs alleging antitrust claims must set forth enough "factual matter" to "nudge[] their claims across the line from conceivable to plausible." Id.

III. Plaintiff's Standing to Pursue Claims

In order to properly demonstrate standing, Plaintiff must show (1) he suffered an "injury in fact;" (2) a causal connection between the alleged injury and each defendant's alleged conduct; and (3) a likelihood that the injury will be "redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).

The defendants allege that Plaintiff's TAC has failed to sufficiently amend its allegations to establish Plaintiff's standing to litigate his claims. For example, Bank of America, N.A. ("BofA") contends that each of Plaintiff's claims is based on the factual predicate that Plaintiff was forced to arbitrate certain claims relating to his credit card accounts, and because Plaintiff has failed to allege that any defendant requested or moved to compel him to such arbitration, he has failed to allege a cognizable "injury in fact."

However, because "a plaintiff must demonstrate standing for each claim he seeks to press," and for "each form of relief sought," the Court will address Plaintiff's standing in the context of each specific

DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006) (citations omitted); Maya v. Centex Corp., 658 F.3d 1060, 1069 (9th Cir. 2011) (same).

IV. Plaintiff's First Claim: CLRA

Plaintiff's CLRA claim alleges that all defendants violated Section 1770(a) of the California Civil Code. Specifically, Plaintiff alleges that (1) the Bank Defendants and NAF/Mann Bracken Defendants each misrepresented its affiliation with the other; (2) the Bank Defendants, NAF/Mann Bracken Defendants, and Debt Collector Defendants each misrepresented the characteristics of NAF arbitrations, (3) the Bank Defendants, NAF/Mann Bracken Defendants, and Debt Collector Defendants each advertised NAF arbitrations deceptively; and (4) the Bank Defendants, NAF/Mann Bracken Defendants, and Debt Collector Defendants each misrepresented the rights and remedies conferred by NAF arbitrations. TAC ¶¶ 79-82.

As an initial matter, none of the NAF/Mann Bracken Individual Defendants are specifically alleged to have violated the CLRA. The Court has twice dismissed Plaintiff's complaint with leave to amend, explaining that Plaintiff had inadequately provided reasonable notice to each defendant of the specific allegations as to each defendant. Accordingly, Plaintiff's first claim is DISMISSED with prejudice as to each of the NAF/Mann Bracken Individual Defendants, as it finds that amendment would be futile.

Plaintiff's CLRA claim alleges that had Plaintiff known allegedly concealed information concerning NAF arbitration procedures, he would not have entered into the cardholder agreements with the various Bank Defendants. TAC ¶ 83. The Court finds this insufficient to confer standing on Plaintiff as to this claim. For example, Plaintiff fails to allege that he read the cardholder agreements before signing them, or that the representations concerning the NAF were a factor in Plaintiff's decision to enter into the cardholder agreements. See, e.g., Sickrath v. Globalstar, Inc., 527 F. Supp. 2d 992, 996 (N.D. Cal. 2007). Thus, Plaintiff has not sufficiently demonstrated Article III standing for his CLRA claim.

Plaintiff's CLRA claim also fails for another reason. In order to implicate the CLRA, the alleged violations must be actions "undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer." Cal. Civ. Code § 1770. CLRA further defines "services" as "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." Id. at §

Here, while Plaintiff alleges his CLRA claim relates to NAF arbitration services (TAC ¶ 76), this is insufficient. In Berry v. American Express Publishing, Inc., 147 Cal. App. 4th 224 (2007), the California Court of Appeal considered whether an arbitration clause and class action waiver in a cardholder agreement entered into between the plaintiff and defendant American Express could violate the CLRA. Id. at 227. After determining that a credit card was not a "good" under the CLRA, the court considered whether defendant's issuance of credit could constitute a "service." Id. at 229. After examining the text of the CLRA and its legislative history, the court concluded that "neither the express text of CLRA nor its legislative history supports the notion that credit transactions separate and apart from any sale or lease of goods or services are covered under the act." Id. at 233.

Berry is analogous to the present situation, in that Plaintiff contends that an arbitration procedure to determine amounts owed under a cardholder agreement constitutes a "service" under the CLRA. For the same reasons articulated in Berry, the Court concludes that it does not. Also persuasive by analogy is Fairbanks v. Superior Court, 46 Cal. 4th 56 (2009), in which the California Supreme Court ruled that "life insurance" was not a "service" under the CLRA, because "[a]n insurer's contractual obligation to pay money under a life insurance policy is not work or labor, nor is it related to the sale or repair of any tangible chattel." Id. at 61. Plaintiff's contractual obligation to arbitrate before the NAF is, similarly, not "work or labor, nor is it related to the sale or repair of any tangible chattel." Accordingly, Plaintiff's first claim for CLRA violations is DISMISSED as to all defendants with prejudice.

V. Plaintiff's Fourth Claim: Bus. & Prof. Code Section 17500

California Business & Professions Code section 17500 makes it unlawful for a business to disseminate any statement which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading. See Ariz. Cartridge ...


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