Berkery v. Cross Country Bank

Citations: 256 F. Supp. 2d 359; 2003 U.S. Dist. LEXIS 6629; 2003 WL 1883440Docket: CIV.A. 02-2170

Court: District Court, E.D. Pennsylvania; April 11, 2003; Federal District Court

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In the case Berkery v. Cross Country Bank, the plaintiff, John C. Berkery, alleges that the defendants, including credit card issuer Cross Country Bank (CCB) and collection agencies Applied Card Systems (ACS) and First National Collection Bureau (FNCB), as well as credit reporting agencies Equifax and Trans Union, inaccurately reported his credit history. Berkery's claims include violations of the Fair Credit Reporting Act, libel, breach of contract, and both intentional and negligent infliction of emotional distress. The court is addressing the defendants' motion to compel arbitration based on an arbitration clause in the Credit Card Agreement between Berkery and CCB and to stay the proceedings.

The court must evaluate two key agreements: the Credit Card Agreement, which includes a broad arbitration clause, and a later settlement agreement that allegedly terminated the Credit Card Agreement and its arbitration provision. CCB argues that the arbitration clause applies to any disputes arising from the credit relationship, while Berkery contends that the settlement agreement is independent and does not include an arbitration clause, thus terminating the obligation to arbitrate.

The court's decision hinges on whether the credit reporting dispute falls within the arbitration clause's scope and whether the settlement agreement rescinded the obligation to arbitrate. Ultimately, the court grants the motion to compel arbitration and stays all proceedings in the case against CCB and its co-defendants pending the outcome of the arbitration. The Credit Card Agreement specifies that all disputes related to the agreement, account usage, or collection of debt are subject to arbitration.

The Credit Card Agreement allows either party to terminate the account at any time, including upon default. To terminate, the account holder must provide written notice, return any issued cards cut in half, and pay the outstanding balance in full. A dispute arose between Berkery and CCB regarding the owed amount, with Berkery claiming $242.65 and CCB asserting $648.29. On February 22, 2000, Berkery attempted to terminate his account by cutting his card and sending a letter to CCB. Berkery continued negotiations regarding the balance, and on May 10, 2001, an external collection agency, FNCB, offered to settle the account for $342.65, which Berkery paid. Despite this payment, credit reporting agencies indicated that Berkery's debt was unpaid and classified as a "charge off." Consequently, Berkery filed a lawsuit against CCB, ACS, FNCB, Trans Union, and Equifax for violations of the Fair Credit Reporting Act, libel, breach of contract, and emotional distress. In response, CCB and ACS sought to compel arbitration based on the agreement's clause, and this motion was supported by FNCB and Equifax. According to the Federal Arbitration Act (FAA), arbitration agreements are enforceable, and a party can petition for an order to compel arbitration if another party refuses to arbitrate. The court may also stay proceedings pending arbitration or dismiss the action if all claims are arbitrable.

Congress, through the Federal Arbitration Act (FAA), aimed to eliminate judicial opposition to arbitration agreements, treating them equally to other contracts. The FAA mandates that any ambiguity regarding arbitrable issues be resolved in favor of arbitration. Federal courts must conduct a limited review before enforcing arbitration, ensuring a valid arbitration agreement exists and that the dispute falls within its scope. The court first assesses whether the claim is covered by the arbitration clause in the Credit Card Agreement between Berkery and CCB, followed by an evaluation of whether a purported settlement agreement nullified the arbitration obligations. When determining the substantive scope of the arbitration clause, the court focuses on whether the claim is governed by the contract, operating under a presumption of arbitrability. An order to arbitrate should only be denied if it's clear the clause does not cover the dispute, but absolute certainty is not required. Courts must respect the intent of the parties as expressed in the contract, since arbitration agreements are contractual in nature. The court’s primary consideration in contract interpretation is the parties' intent, evidenced by the contract's language.

The positive assurance standard mandates that disputes regarding arbitrability should favor arbitration unless there is a compelling case against it. Once a court establishes that a dispute falls within the scope of an arbitration clause, it cannot address the merits and must refer the matter to arbitration. The Credit Card Agreement at issue includes a broad arbitration clause covering "all claims, demands, or disputes" related to the agreement, the account, or the use of the card.

Berkery argues that a letter he received from FNCB, which demanded payment to close his account, constitutes a separate contract and claims that his complaint about credit reporting breaches this settlement agreement, thus lying outside the arbitration clause's scope. He asserts that he is not alleging a breach of the Credit Card Agreement but rather a violation of the Fair Credit Reporting Act after their contractual relationship had concluded.

The court disagrees, determining that Berkery's claim is governed by the Credit Card Agreement, as the debt arose from his use of the card. The arbitration clause does not limit its applicability to disputes occurring during the agreement's term; instead, it encompasses all disputes related to the cardholder's relationship with CCB. The term "arising out of" is interpreted broadly, indicating that some controversies can survive even after the termination of the agreement. Therefore, without evidence of the arbitration clause being rescinded, the court must compel arbitration in this case.

A valid arbitration agreement remains in effect despite the rescission of the original contract containing the arbitration clause. The plaintiff argues that a May 10, 2001 letter, viewed as a settlement agreement, ended the obligation to arbitrate by stating the account would be "Settled in Full" upon payment. However, this interpretation misapplies established legal principles that treat arbitration agreements as separate and enduring, even if the underlying contract is rescinded or expired. The Supreme Court's decision in Prima Paint clarifies that fraud claims regarding the arbitration clause itself may be adjudicated by the court, but general fraud claims about the contract do not affect the arbitration obligation. Additionally, the presumption is that arbitration provisions survive contract expiration unless there is clear evidence of intent to override this presumption. The May 10 letter does not explicitly mention or rescind the arbitration clause, indicating that it remains valid and enforceable. Thus, absent explicit intent to rescind, the arbitration clause from the Credit Card Agreement persists.

The May 10 letter modifies only the balance Berkery owed to CCB, and does not alter other aspects of their relationship. Citing legal precedents, the court finds that the arbitration clause in the Credit Card Agreement remains valid despite the settlement agreement regarding Berkery's debt. Consequently, arbitration must be enforced for Berkery's dispute with CCB. The court must now decide whether to stay or dismiss Berkery's claims against CCB and other defendants. Following the Third Circuit's decision in Sens v. John Nuveen Co. Inc., the court opts to stay all claims against CCB and related parties, given that they are interconnected with the arbitration outcome. 

In conclusion, the court compels arbitration of Berkery's claim against CCB and dismisses the case against CCB in court, while staying proceedings against ACS, FNCB, Trans Union, and Equifax until the arbitration concludes. An order is issued to this effect, placing the case in suspense. Notably, Berkery's prior arbitration filing is deemed legally insignificant to this case's outcome. The court emphasizes that motions to compel arbitration are examined under a summary judgment standard, requiring clear evidence from the movants.

Cross Country Bank (CCB), a Delaware-incorporated credit card issuer with a national customer base, is involved in a legal dispute with a plaintiff from Pennsylvania. Both parties agree that their contract involves interstate commerce, making the Federal Arbitration Act (FAA) applicable to the arbitration provision in question. Under the FAA, the interpretation of arbitration agreements is governed by federal law, while state law contract defenses may still be used to challenge the validity of such agreements.

The plaintiff argues that the arbitration clause does not apply to a subsequent agreement on the same subject matter, misunderstanding the court's focus on whether that subsequent agreement modified or nullified the arbitration clause itself. The case of Matterhorn, Inc. v. NCR Corp. is referenced to illustrate that the inquiry should revolve around whether the subsequent transaction invalidated the original arbitration agreement. Judge Posner highlighted that determining the applicability of the arbitration clause requires examining the intentions of the parties regarding the original agreement and any subsequent agreements.

The distinction between whether the settlement agreement is separate from the Credit Card Agreement is deemed irrelevant to the analysis of the arbitration clause's applicability since both agreements address similar subject matters that trigger arbitration. However, it does bear significance when assessing whether a valid arbitration agreement existed at the time of the dispute or if it was rescinded or superseded by later actions. Additionally, it is well established that a broadly worded arbitration clause can apply to disputes arising after the initial contract's termination.

A postexpiration grievance can arise under a contract if actions taken after its expiration infringe upon rights that accrued during the agreement. Courts have consistently ruled that brokers who signed agreements incorporating stock exchange rules for arbitration must arbitrate grievances related to post-employment defamation, even if the defamatory statements were made after the employment relationship ended. This is exemplified in cases like Fleck v. E.F. Hutton Group, where the need to evaluate the broker's performance is integral to resolving the grievance. The source of disputes is considered employment rather than the contract itself, indicating that arbitration is not limited to contractual disputes. The case of Berkery highlights that determining whether defamatory statements about his credit history were accurate requires assessing his performance while employed, thus falling under the arbitration clause. Additionally, Berkery's actions to terminate his account do not rescind the arbitration clause, as outlined in the Credit Card Agreement.

Under the Credit Card Agreement, Berkery’s actions do not aim to terminate the arbitration clause. A unilateral termination by one party cannot extinguish the other party's right to arbitration as established in *Pa. Data Entry, Inc. v. Nixdorf Computer Corp*. The plaintiff cites *Battaglia v. McKendry*, where related but distinct agreements were examined; the arbitration clause in one agreement did not automatically apply to disputes in another unless they were sufficiently related. The Third Circuit reversed a summary judgment in that case, emphasizing that inconclusive evidence regarding the relationship of the agreements prevents such judgment. In contrast, the evidence in the current case, particularly the May 10, 2001 letter, suggests it was not intended to rescind the arbitration clause. Therefore, *Battaglia* does not support the plaintiff’s position. Additionally, the Supreme Court has affirmed that the Federal Arbitration Act permits piecemeal litigation to uphold arbitration agreements and allows district courts discretion to stay litigation among non-arbitrating parties pending arbitration outcomes, particularly when interests are related, as noted in *Barrowclough v. Kidder, Peabody & Co*.

The court determined that staying proceedings against ACS, FNCB, Trans Union, and Equifax is appropriate pending the outcome of Berkery's arbitration with CCB. Berkery argues that the claims against all defendants are "inextricably intertwined." ACS is linked to CCB through its role in marketing and internal collection services, and the Credit Card Agreement specifies that ACS's involvement triggers the cardholder's duty to arbitrate. Although not explicitly argued, it is likely ACS serviced Berkery's account as CCB's agent. FNCB directly serviced Berkery's account and was responsible for a settlement agreement letter. The liability of ACS and FNCB hinges on the arbitrator's determination regarding CCB's reporting of Berkery's credit. Similarly, the claims against Trans Union and Equifax are contingent on the arbitration's outcome, as an accurate credit report from CCB could moot these claims. After arbitration, the prevailing party must notify the court for further proceedings.