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Lomeli v. Midland Funding, LLC

United States District Court, N.D. California, San Jose Division

September 26, 2019

MIDLAND FUNDING, LLC, et al., Defendants.


          Lucy H. Koh United States District Judge.

         This is a putative class action brought by Plaintiff Jamie Lomeli against Midland Funding, LLC (“Midland Funding”), Midland Credit Management, Inc. (“MCM”), Hunt & Henriques (“H&H”), Michael Scott Hunt, and Janalie Ann Henriques (collectively, “Defendants”). Plaintiff alleges that Defendants committed violations of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. in connection with Defendants’ efforts to collect a consumer debt from Plaintiff. Before the Court are Defendants’ motions to compel arbitration. ECF Nos. 42, 51. Having considered the parties’ submissions, the relevant law, and the record in this case, the Court hereby grants the motions to compel arbitration and stays the action.

         I. BACKGROUND

         A. Factual Background

         The following facts come from several sources, including the Complaint and the evidence Defendants have submitted in support of their motions. The Court focuses upon the undisputed facts and notes which facts come only from the moving parties, Defendants.

         This lawsuit stems from a debt collection action brought by Defendants against Plaintiff. In 2004, Plaintiff opened a Shell credit card with Citibank, N.A. (“Citibank”). ECF No. 51-2, Ex. A (“Peck Decl.”) ¶ 9; see also ECF No. 1 (“Compl.”) ¶ 13. Defendants aver that the card was subject to a written card agreement (“Card Agreement”), which set forth the terms and conditions for the credit card account. Peck Decl. ¶ 7, Ex. 1. According to Defendants, it is Citibank’s regular business practice to send the applicable card agreement to the customer when the account is opened.

         The Card Agreement contains three provisions relevant to the instant motions: (1) an arbitration agreement, (2) a choice of law provision, and (3) an assignment clause. As to the arbitration agreement, the Card Agreement proffered by Defendants states:

Agreement to Arbitrate. Either you or we may, without the other’s consent, elect mandatory, binding arbitration for any claim, dispute, or controversy between you and us (called “Claims”).

ECF No. 42-1, Ex. 1 (“Card Agreement”) at 4. The Card Agreement elaborates on the claims covered by the arbitration clause and explains how arbitration works. Id. In particular, a section titled “What Claims are subject to arbitration?” clarifies that “[a]ll Claims relating to your account” are subject to arbitration, “including Claims regarding the application, enforceability, or interpretation of this Agreement and this arbitration provision.” Id. Additionally, there is a section titled “Whose Claims are subject to arbitration?” which states:

Not only ours and yours, but also Claims made by or against anyone connected with us or you or claiming through us or you, such as a co-applicant or authorized user of your account, an employee, agent, representative, affiliated company, predecessor or successor, heir, assignee, or trustee in bankruptcy.


         Second, the Card Agreement contains the following choice of law provision: “Federal law and the law of South Dakota, where we are located, govern the terms and enforcement of this Agreement.” Id. at 5.

         Lastly, the purported assignment clause states: “We may assign any or all of our rights and obligations under this Agreement to a third party.” Id.

         At some point, Plaintiff allegedly incurred a debt on his credit card. Compl. ¶ 13. He subsequently defaulted on the debt. Id. ¶ 14. On May 25, 2016, Midland Funding, LLC (“Midland Funding”), purchased Plaintiff’s debt from Citibank. Id. ¶ 14; Peck Decl. ¶ 12. Defendants proffer what they assert is the Purchase and Sale Agreement (the “Purchase Agreement”) assigning Plaintiff’s account to Midland Funding and containing the terms of the transaction. See ECF No. 42-1, Ex. A to Ex. C; ECF No. 51-2, Ex. A to Ex. B (“Purchase Agreement”). The Purchase Agreement states that Citibank “agrees to sell, assign and transfer” to Midland Funding “all right, title and interest of Bank in and to the Accounts.” Id. at 2. According to Defendants, Midland Credit Management, Inc. (“MCM”) is “the servicer and authorized agent for Midland Funding and manages debts that Midland Funding purchases, ” which Plaintiff does not dispute. ECF No. 51-2, Ex. B (“Mulcahy Decl.”) ¶ 2.

         H&H is a company[1] “engaged in the collection of outstanding financial obligations.” ECF No. 28 (“H&H Def. Answer”) ¶ 9. At some point after Plaintiff defaulted, H&H was retained by Midland Funding for the purpose of collecting Plaintiff’s outstanding credit card debt. Compl. ¶ 16-17. On or about October 16, 2017, Midland Funding filed suit against Plaintiff in Santa Clara Superior Court in order to collect Plaintiff’s debt. Id. ¶ 17; Midland Funding, LLC v. Jamie Prieto, et al., No. 17-CV-317436 (Cal. Super. Ct. 2017). Defendants state that H&H filed the suit on Midland Funding’s behalf. See ECF No. 51-1 at 2; ECF No. 42-1 at 3. In connection with that suit, Emily Walker executed a Declaration in Lieu of Testimony as an officer for Midland Funding. Compl. Ex. 1. In the Declaration, Walker indicated that her business address is 16 McLeland Road Suite 101, St. Cloud, Minnesota, 56303. Id.

         B. Procedural History

         On February 28, 2019, Plaintiff filed the Complaint in the instant case. ECF No. 1. In his Complaint, Plaintiff alleges that the Declaration in Lieu of Testimony is invalid because Walker’s address “is located more than 150 miles from the place of trial” and that Defendant’s attempt to use the Declaration in Lieu of Testimony “is false, misleading, and unconscionable.” Plaintiff therefore asserts a claim under the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA”) on behalf of himself and all others similarly situated.[2] Compl. at 1, ¶¶ 50-63.

         On June 25, 2019, Midland Funding and MCM (collectively, the “Midland Defendants”) filed a Motion to Compel Arbitration. ECF No. 42 (“Midland Def. Mot. to Compel”). H&H, Hunt, and Henriques (collectively, the “H&H Defendants”) joined in that motion on July 22, 2019. ECF No. 52. On the same day, the H&H Defendants also filed their own Motion to Compel Arbitration. ECF No. 51 (“H&H Def. Mot. to Compel”). Plaintiff opposed both motions. See ECF Nos. 49, 57. The two Motions to Compel Arbitration have been fully briefed, ECF Nos. 42, 49, 50, 52, 57, 59, and are now before the Court.

         Relevant here, both the Midland Defendants and the H&H Defendants filed redacted versions of the exhibits attached to their Motions to Compel Arbitration. Therefore, on September 18, 2019, the Court ordered Defendants to produce the complete, unredacted Purchase Agreement to Plaintiff, ECF No. 73, and Defendants complied on September 19, 2019, ECF No. 74. In its order, the Court gave Plaintiff an opportunity to file a supplemental briefing based upon the unredacted Purchase Agreement, and Defendants an opportunity to respond to Plaintiff’s supplemental brief. ECF No. 73 at 2. Plaintiff declined to file a supplemental brief. ECF No. 78.


         The Federal Arbitration Act (“FAA”) “is a congressional declaration of a liberal federal policy favoring arbitration agreements.” Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983) (referencing 9 U.S.C. § 2). Courts must therefore “rigorously enforce arbitration agreements according to their terms.” Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013) (internal quotation marks omitted). In particular, the Act provides that suits brought “upon any issue referable to arbitration under an agreement in writing for such arbitration” must be stayed “until such arbitration has been had . . ., providing the applicant for the stay is not in default in proceeding with such arbitration” and the court has been “satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement.” 9 U.S.C. § 3. The United States Supreme Court has emphasized that the Act speaks in mandatory terms. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).

         This command only comes into play, however, when there is an enforceable arbitration agreement. Italian Colors, 570 U.S. at 233 (“[A]rbitration is a matter of contract.”). “Accordingly, the first task of a court asked to compel arbitration . . . is to determine whether the parties agreed to arbitrate that dispute.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). Specifically, the court’s role is to determine “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If the court is satisfied that the answer to both questions is yes, then “the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4.

         In some cases, however, the second question-“whether the parties have submitted a particular dispute to arbitration”-is beyond the court’s domain. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotation marks omitted). The parties can delegate threshold questions of arbitrability to the arbitrator through a “delegation provision.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-70 (2010). The parties must demonstrate “clearly and unmistakably” that it is their intent to do so. Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1208 (9th Cir. 2016) (quoting Howsam, 537 U.S. at 83). If the delegation provision is valid and enforceable, then the Court must refer the case to arbitration. See Brennan v. Opus Bank, 796 F.3d 1125, 1132 (9th Cir. 2015). Of course, a delegation provision “is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, ” Rent-A-Ctr., 561 U.S. at 70, and the court must assure its existence and validity as the court would any other purported arbitration agreement.

         In determining the existence and validity of an agreement to arbitrate, “a court applies a standard similar to the summary judgment standard of Fed.R.Civ.P. 56.” Concat LP v. Unilever, PLC, 350 F.Supp.2d 796, 804 (N.D. Cal. 2004) (internal quotation marks omitted). The party seeking to compel arbitration bears “the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.” Norcia v. Samsung Telecommunications Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). Accordingly, a court should grant the motion to compel arbitration only “when there is no genuine issue of material fact concerning the formation of an arbitration agreement.” Concat, 350 F.Supp.2d at 804.

         To briefly review the Rule 56 standard, the court at the summary judgment stage “does not assess credibility or weigh the evidence, but simply determines whether there is a genuine factual issue for trial.” House v. Bell, 547 U.S. 518, 559-60 (2006). A fact is “material” if it “might affect the outcome of the suit under the governing law, ” and a dispute as to a material fact is “genuine” if there is sufficient evidence for a reasonable trier of fact to decide in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record.” Fed.R.Civ.P. 56(c)(1)(A). Moreover, “the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Liberty Lobby, 477 U.S. at 255. The nonmoving party’s opposition, however, must consist of more than unsupported allegations or denials. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (nonmoving party must present specific, significant probative evidence, not simply “some metaphysical doubt”). It must, through affidavits, declarations, or other competent evidence, set forth “specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250; see Fed. R. Civ. P. 56(e). “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249-50. (citations omitted).

         As for interpretive issues, courts generally should apply state law principles of contract interpretation. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). At the same time, though, the FAA creates a body of federal substantive law of arbitrability that requires a “healthy regard for the federal policy favoring arbitration” and preempts state law to the contrary. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 475-79 (1989). Hence, in determining whether parties have agreed to arbitrate a particular issue, the court applies “general state-law principles of contract interpretation, while giving due regard to the federal ...

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