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Smith v. Credit Acceptance Corp.

United States District Court, M.D. Pennsylvania

January 11, 2017

LARRY SMITH, Plaintiff,
v.
CREDIT ACCEPTANCE CORPORATION, Defendant.

          MEMORANDUM

          RICHARD P. CONABOY United States District Judge

         Here we consider the Motion of Defendant, Credit Acceptance Corporation, to Compel Arbitration and to Dismiss or, in the Alternative, to Stay All Proceedings (Doc. 5). For the reasons discussed below, the Court concludes the motion to compel is properly denied and the case will be stayed pending the outcome of arbitration.

         I. Background

         Plaintiff filed this action on August 12, 2016, asserting claims under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”), and the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. (“TCPA”).[1] (Doc. 1 at 1.) Plaintiff specifically alleges that Defendant began calling him on his cellular phone in 2014 and, despite his attempts to stop the calls, the calls continued and he received repeated harassing calls on his cellular phone between August 2015 and August 2016 in Defendant's attempt to collect an alleged debt on his auto loan. (Doc. 1 at 3.) Plaintiff also alleges that Defendant used an automatic telephone dialing system and pre-recorded messages and the calls were not made for emergency purposes. (Doc. 1 at 4.)

         In its supporting brief, Defendant asserts that Plaintiff entered into a valid agreement to arbitrate with Defendant and Plaintiff's claims are within the scope of the Agreement to Arbitrate. (Doc. 6 at 6-21.) Defendant states that Plaintiff entered into a Retail Installment Contract (“RIC”) with Gaughan Auto Store for the purchase of a used car in June 2014, Gaughan assigned the RIC to Defendant, and Plaintiff defaulted soon after entering into the RIC by failing to make all of the required monthly payments. (Doc. 6 at 6.) Defendant also avers the following: the first page of the RIC conspicuously emphasizes the existence of the Agreement to Arbitrate; a notice on the following page advises the buyer not to sign the contract in blank, that the buyer is entitled to an exact copy of the contract he signs, and he should keep it to protect his legal rights; and, below this notice and Plaintiff's signature, the following language appears in bold type: “You agree to the terms of this Contract and acknowledge that You have received a copy of this Contract with all blanks filled in and that You have read it and understand it.” (Doc. 6 at 7-8 (citing Dickson-Rekasi Aff., Ex. A [Doc. 6 at 27-30]).) Defendant summarized the Agreement to Arbitrate contained in the RIC as follows:

[T]he Agreement to Arbitrate provides that Plaintiff or Credit Acceptance may elect to arbitrate “Disputes” (which “have the broadest meaning possible”) either before or after litigation has begun; if and when arbitration is elected by either Plaintiff or Credit Acceptance, then there is no right to pursue Disputes in this (or any) Court; the RIC evidences a transaction in interstate commerce; and arbitration is governed by the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16.

(Doc. 6 at 9 (citing RIC ppg. 4-5 [Doc. 6 at 30]).) Defendant also points out several ways in which the Agreement to Arbitrate is designed to protect consumers, including that “Plaintiff had the absolute right to reject the Agreement to Arbitrate, with no consequence to the remaining terms of the RIC.” (Doc. 6 at 10.) Specifically, the Right to Reject the Agreement allows the buyer to reject the Arbitration Clause by mailing a written rejection notice to a specified address within thirty days of the date of the Contract. (Doc. 6 at 10.) Defendant notes that Plaintiff did not exercise his right to reject the Agreement to Arbitrate as it did not receive the required notice from Plaintiff. (Id.)

         In support of its motion, Defendant provides the Affidavit of Andrea Dickson-Rekasi, a Legal Assistant at Credit Acceptance Corporation, with the RIC attached as a supporting exhibit. (Doc. 6 at 24-30.) Ms. Dickson-Rekasi states that Plaintiff Larry Smith and Elizabeth Smith entered into the RIC on June 24, 2014, with Gaughan Auto Store for the purchase of a 2005 Jeep Liberty, and Gaughan Auto Store assigned all right, title, and interest in the RIC to Credit Acceptance, the RIC contains an Agreement to Arbitrate, and Credit Acceptance never received a request, written or otherwise, from Plaintiff to opt out of the Arbitration Clause. (Doc. 6 at 24-25.)

         II. Discussion

         As noted above, with this motion, Defendant asserts that Plaintiff's claims for improper phone calls are within the scope of the binding RIC and Agreement to Arbitrate. (Doc. 6 at 11.) Plaintiff avers that Defendant's motion should be denied because he has stated a claim under the TCPA, Defendant has failed to meet its burden to establish the existence of a binding and enforceable arbitration contract, and any existing arbitration contract between Plaintiff and Defendant is unconscionable. (Doc. 7 at 1-2.)

         Under the Federal Arbitration Act, a “written provision . . . to settle by arbitration a controversy . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or equity for the revocation of any contract.” 9 U.S.C. § 2; see also 42 Pa. C.S. § 7301, et seq. (Pennsylvania's Uniform Arbitration Act). Federal and Pennsylvania law strongly favor enforcement of arbitration provisions. Howsan v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82 (2002); Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa. Super. 2006) (“It is hornbook law that Pennsylvania favors the enforceability of agreements to arbitrate.”). The Third Circuit has explained that any doubts about the arbitrality of a matter should be resolved in favor of arbitration. See Brayman Construction Corp. v. Home Insurance Company, 319 F.3d 622, 625 (3d Cir. 2003).

         “To determine whether the parties agreed to arbitrate, we turn to ‘ordinary principles that govern the formation of contracts.'” Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). Contract formation under Pennsylvania law requires “(1) a mutual manifestation of an intention to be bound, (2) terms sufficiently definite to be enforced, and (3) consideration.” Id. (citing Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002)). Under Pennsylvania law, a motion to compel arbitration can only be granted if the court determines that “(1) a valid agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that agreement.” Id. (citing Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005); Quiles v. Fin. Exch. Co., 879 A.2d 281, 283 n.3 (Pa. Super. 2005)).

         The Court of Appeals for the Third Circuit clarified the appropriate standard district courts are to apply when determining whether an agreement to arbitrate was actually reached in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013). The clarification was necessary because some cases supported “‘the traditional practice of treating a motion to compel arbitration as a motion to dismiss for failure to state a claim upon which relief can be granted, ' under Rule 12(b)(6) of the Federal Rules of Civil Procedure.” Guidotti, 716 F.3d at 771 (quoting Palcko v. Airborne Express, Inc., 372 F.3d 588, 597 (3d Cir. 2004)). Other cases “said, however, ‘that when considering a motion to compel arbitration . . . [a district court] should' employ ‘the standard used . . . in resolving summary judgment motions pursuant to [Rule 56 of the Federal Rules of Civil Procedure].'” Id. (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n.9 (3d Cir. 1980) (alternation in Guidotti); citing Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 620 (3d Cir. 2009)). After noting that inconsistent pronouncements on the applicable standard for evaluating motions to compel arbitration “are perhaps explained by the FAA [Federal Arbitration Act], and by the values underlying contract interpretation, ” Guidotti summarized the reconciliation of the split pronouncements.

[W]hen it is apparent, based on the face of a complaint, and documents relied upon in the complaint that certain of a party's claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's delay. . . . But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on the ...

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