Court: District Court, M.D. Pennsylvania; September 19, 2017; Federal District Court
Defendant Alltran Financial LP seeks to dismiss the case filed by Plaintiff Francis Pacanowski and compel arbitration, or alternatively, stay proceedings pending arbitration. The Court denies Alltran's motion. Pacanowski opened a Home Depot credit card account prior to 2003, which Citibank subsequently acquired. He claims a delinquent balance exceeding $6,600. Citibank sent multiple documents altering the account's terms, the last being in May 2011, which included an arbitration provision. Pacanowski did not opt out of this provision. He filed suit against Alltran on July 20, 2016, alleging that Alltran, as a debt collector for Citibank, violated the Fair Debt Collection Practices Act (FDCPA) by sending a misleading letter regarding the debt. Alltran argues that the FDCPA claims relate to the account and fall under the arbitration agreement associated with the card agreement. Pacanowski counters that he is not bound by the arbitration provision due to several reasons, including the argument that the agreement is a contract of adhesion and that Alltran is not a party to the original contract. The Court notes that the issue of arbitrability is for the court to decide unless the parties indicate otherwise.
The Third Circuit Court of Appeals in Guidotti clarified the standard of review for motions to compel arbitration filed before discovery is complete, highlighting a conflict between the standards under Federal Rules of Civil Procedure 12(b)(6) for motions to dismiss and 56 for summary judgment. This conflict arose from the competing aims of the Federal Arbitration Act (FAA), which promotes swift resolution of arbitration enforcement issues, and the need for thorough contract interpretation. The court concluded that an unequivocal agreement to arbitrate is essential before compelling arbitration, emphasizing the need for clear evidence of such an agreement.
When the affirmative defense of arbitrability is clear from the complaint or supporting documents, the 12(b)(6) standard applies, favoring a quick resolution. Conversely, if the complaint does not clearly establish an agreement to arbitrate or if the opposing party presents credible evidence of a lack of intent to arbitrate, a more detailed examination is warranted. If the arbitrability issue is not evident from the complaint, the motion must be denied until further factual development occurs. If it is clear but challenged by evidence from the non-moving party, the motion should be assessed under the 56 standard, necessitating limited discovery on the arbitration agreement's validity.
In this case, since the parties conducted limited initial discovery, the court has sufficient factual information to apply the summary judgment standard. To compel arbitration, the court must first ascertain the validity of the arbitration agreement and whether the dispute falls within its scope.
Courts apply state law principles of contract formation to determine the validity of agreements, as illustrated in Alexander v. Anthony Int’l, L.P. The Card Agreement in question includes a choice-of-law provision indicating that federal law and South Dakota law govern its terms. South Dakota law outlines four elements necessary for contract formation: (1) capable parties, (2) mutual consent, (3) a lawful object, and (4) sufficient consideration. An objective manifestation of mutual assent is required, with the use of a credit card acting as acceptance of the agreement. In this case, Citibank and Pacanowski are capable contracting parties who provided consent through a May 2011 document that included a notice of changes to the account terms and an arbitration clause, with a specified opt-out procedure. Pacanowski’s use of the credit card shortly after receiving the updated agreement further confirms acceptance. The lawful object of the contract is the establishment of a credit card account, and consideration exists as Citibank provides credit in exchange for Pacanowski’s promise to repay. Pacanowski does not contest the existence of the Card Agreement.
Pacanowski claims the Card Agreement is a contract of adhesion, invoking the doctrine of contra proferentem, which applies to contracts drafted by a party with superior bargaining power. South Dakota law defines contracts of adhesion as those where one party imposes terms that the other can only accept or reject. However, not all "take it or leave it" contracts qualify as adhesion contracts. The Baker v. Sci. Applications Int’l Corp. case illustrates that a requirement to agree to an arbitration clause for employment does not automatically render it a contract of adhesion if the party retains bargaining power and alternative employment options.
Pacanowski argues that the contract with Citibank is a contract of adhesion due to limited choices regarding its terms and the threat of losing account access if rejected. However, the Court determines that Pacanowski was not obliged to open the credit card account and had a meaningful choice regarding acceptance of the terms, including the option to opt out of the updated provisions or discontinue account use. Therefore, the Card Agreement, including the Arbitration Provision, is deemed valid.
Alltran's attempt to compel arbitration based on its role as Citibank's agent is rejected. Alltran claims entitlement to enforce the Arbitration Provision as a representative of Citibank, which was identified as the creditor in its collection efforts. However, the Court cites a relevant Third Circuit case, White v. Sunoco Inc., where the court ruled that non-signatories, even if connected to Citibank, lack the right to compel arbitration under similar terms. The arbitration clause explicitly states that only the parties identified as "you" (the account holder) and "we" (Citibank) may elect arbitration without the other’s consent, thus reinforcing that Alltran cannot compel arbitration. Consequently, the motion to compel arbitration is denied.
The Card Agreement's plain language does not allow non-signatories to initiate arbitration, preventing Alltran from compelling arbitration against Pacanowski. There is no evidence that Citibank assigned Pacanowski’s debt to Alltran for collection, as indicated by the Collection Letter. The arbitration clause specifies that neither Citibank nor its assignees can initiate arbitration for debt collection unless a claim is asserted against them. Since Citibank did not assign the Card Agreement to Alltran, the latter is not considered a non-signatory under the arbitration agreement. Although Alltran claims to act as Citibank's "agent" for debt collection, it fails to demonstrate an agency relationship supported by an express contract, unlike the precedent case Natty-Mac, which involved a clear contractual relationship between a loan servicer and a mortgage loan purchaser. The Collection Letter only designates Citibank as Alltran's "client" and does not establish Alltran as Citibank’s designated agent. Furthermore, Alltran has not shown any significant relationship to Citibank that would connect it to the arbitration agreement, as established by relevant case law. Consequently, Alltran cannot be bound by the arbitration clause as a non-signatory and lacks sufficient ties to Citibank to invoke the agreement.
Alltran's request to compel arbitration as a non-signatory is denied, as it does not satisfy the requirements under either alternative estoppel or third-party beneficiary theories. Federal and state law allow non-signatories to be bound to contracts through several theories, including equitable estoppel, which permits a non-signatory to compel arbitration only if: (1) all claims against the non-signatory stem from alleged coordinated misconduct with a signatory, or (2) the signatory brings claims against non-signatories without allowing them to invoke the arbitration clause. In this case, the court finds that Alltran fails to meet these criteria.
Firstly, the plaintiff, Pacanowski, did not allege any concerted misconduct between Alltran and Citibank, as his claim solely concerns Alltran’s violation of the Fair Debt Collection Practices Act (FDCPA) without referencing Citibank or the Card Agreement. The court emphasizes that specific allegations of coordinated behavior are necessary for establishing interdependent misconduct, which is lacking here.
Secondly, Pacanowski's claim against Alltran is based on FDCPA violations rather than the terms of the Card Agreement with Citibank. Although the debt may have originated from the Card Agreement, Pacanowski's allegations focus on Alltran's collection practices, not any contractual obligations. Thus, his claims do not invoke the arbitration clause related to the Card Agreement, as demonstrated by precedents indicating that FDCPA claims do not necessarily intertwine with credit card agreements.
Pacanowski cannot be compelled to arbitrate based on equitable estoppel principles. Non-signatories may compel arbitration as third-party beneficiaries if the contract was primarily for their benefit, which requires more than incidental benefits. The Court found no evidence indicating Citibank intended to benefit Alltran under the Card Agreement. Alltran's argument that it acted as Citibank's agent was rejected. Additionally, the Court determined that the dispute does not fall within the arbitration agreement's scope. The agreement covers claims related to accounts and debt collection but does not explicitly address claims arising from non-assignee debt collector actions. Pacanowski's claims against Alltran under the Fair Debt Collection Practices Act (FDCPA) are not covered by the Card Agreement. Although FDCPA claims can generally be arbitrated, the specific arbitration provision does not apply here, as Alltran cannot compel arbitration as a non-signatory and has not been assigned the debt. Consequently, Alltran's Motion to Compel Arbitration is denied. Furthermore, Pacanowski contends that the lack of original contract terms undermines any claims of modifications by Citibank.
Pacanowski references the now-repealed S.D. Codified Laws § 54-11-9 concerning credit card agreement modifications but neither he nor Alltran has provided the original contract with Citibank’s predecessor. The Court will not speculate on the contract's terms and chooses not to further address this issue as subsequent arguments are conclusive. Without establishing a contract of adhesion, the Court finds no need to consider Pacanowski’s contra proferentem argument. Even if such a contract existed, Pacanowski has not sufficiently argued any ambiguities in the Card Agreement to warrant the application of contra proferentem. He contends that a choice of law analysis is unnecessary for Alltran’s third-party beneficiary argument, asserting that the binding of a non-signatory to an arbitration agreement is analyzed similarly under Pennsylvania and South Dakota law. Alltran references the estoppel standard from E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber, Resin Intermediates, S.A.S., noting that the Third Circuit clarified it did not adopt a federal standard for alternative estoppel. South Dakota's equitable estoppel principle will govern the Court's evaluation of Alltran’s argument. Pacanowski objects to who can compel arbitration regarding a "Claim," rather than the inclusion of his FDCPA claim within the arbitration agreement's scope. While the Court accepts Pacanowski’s position, it acknowledges the need to determine whether the FDCPA claim falls under the arbitration provision for its analysis.
