SEAN F. COX, District Judge.
Plaintiff Law Offices of Daniel C. Flint ("Plaintiff") filed this class action against Defendant Bank of America ("BOA") asserting several counts relating to BOA's alleged unconscionable overdraft policies and practices. The matter is currently before the Court on BOA's Motion to Compel Arbitration. The motion has been fully briefed and the Court entertained oral argument as to this motion on March 24, 2016. For the reasons set forth below, the Court shall
In support of its Motion to Compel Arbitration, BOA submitted a Declaration from Willard Andrew Barr, employed as Senior Vice President for BOA. (Ex. 1 to Def.'s Br., Barr's Decl.).
Barr's Declaration states that, in March 2012, Plaintiff opened a new business deposit account at a Bank of America branch in Michigan. (Barr's Decl. ¶ 4). According to Barr, "the Bank's normal practice is to provide the holder of a new deposit account, including the holder of a new business deposit account, with a packet of materials applicable to the new account." Id. ¶ 5. The Bank's Deposit Agreement and Disclosures (the "Deposit Agreement") are among the documents contained within the provided packet. Id. On March 29, 2012, Daniel C. Flint, Plaintiff's CEO, signed a corporate signature card. Id. ¶ 6. Right above Flint's signature, the document reads, in pertinent part, "
Since March 2012, the Deposit Agreement governing Plaintiff's account with BOA has been modified four times. (Barr's Decl. ¶¶ 7-10). However, the Deposit Agreement of March 1, 2012, which became applicable to Plaintiff's account on the date it was opened (Ex. A to Barr's Decl.), and the four subsequent Deposit Agreements (Ex. B-E to Barr's Decl.), which became applicable to Plaintiff's account on their effective dates, contained no substantive changes to the provisions at issue here. (Barr's Decl. ¶ 11).
At all relevant times, the governing Deposit Agreement contained the same arbitration clause and waiver provision.
The Deposit Agreement's arbitration clause can be found in its Resolving Claims section, which states, in pertinent part:
(Deposit Agreement, at 43-44) (emphasis added in italics only, bold text in original).
The Deposit Agreement also provides, in bold and capital letters, that BOA and its business account holders are precluded from class-wide and jury trial resolution of claims:
(Deposit Agreement, at 43-45) (bold and capital text in original).
The section also contains the following delegation provisions:
Id. at 44-45 (emphasis added in italics only, bold text in original).
Accordingly, the Deposit Agreement delegates to the arbitrator the task of resolving issues pertaining to the applicability of the Resolving Claims section and the validity of the deposit agreement, while reserving for the court the task of resolving issues pertaining to the waiver provisions. Id.
Plaintiff filed this class action on August 25, 2015, alleging the following claims: Count I — Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing; Count II — Unconscionability; Count III — Statutory Conversion; Count IV — Unjust Enrichment; and Count V — Violations of State Unfair Trade Practice Laws. (Docket Entry No. 1, Compl.). Plaintiff's claims pertain to BOA's assessment of overdraft fees on business deposit accounts. Plaintiff alleges that BOA utilizes a system that "intentionally maximizes the number of overdrafts in order to charge each business customer the maximum amount of fees." Id. at ¶ 11.
In its Complaint, Plaintiff references the Deposit Agreement governing its relationship with BOA. Id. at ¶¶ 22, 25. In alleging breach of contract against BOA, Plaintiff maintains that it has performed all, or substantially all, of the obligations under the Deposit Agreement. Id. at ¶ 25. However, the Complaint makes no mention of the arbitration clause, the delegation provision, or the class action waiver contained within the Deposit Agreement.
BOA filed its "Motion to Compel Arbitration and Stay Proceedings on October 19, 2015. (Docket Entry No. 5). The motion has been fully briefed by the parties and oral argument as to the motion was heard on March 24, 2016.
Federal courts apply state law to determine whether contract defenses may invalidate arbitration agreements. See Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996). Federal substantive law, however, governs questions pertaining to the interpretation and construction of arbitration agreements. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 25 (1983). The burden is on the party opposing arbitration to show that the agreement is not enforceable. Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000).
BOA seeks to enforce the delegation provision and class action and jury trial waiver contained in the Deposit Agreement between Plaintiff and BOA. It maintains that the only issues properly before the Court are: 1) whether the delegation provision in the arbitration clause is valid and enforceable; and 2) whether the waiver provision is valid and enforceable. (Docket Entry No. 5, Def.'s Motion Br. at 9, 13).
Plaintiff claims that "the issue of the validity of the arbitration clause, including the class action and jury trial waiver, is one that is properly before this Honorable Court." (Docket Entry No. 12, Pl.'s Resp. Br. at 7).
For the reasons below, the Court shall limit its discussion to the issues as they are properly presented by BOA.
BOA's motion relies on the Federal Arbitration Act ("FAA"), § 9 U.S.C. 1 et seq., which provides that a written agreement to arbitrate disputes arising out of a transaction in interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2; see also Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003). The Supreme Court has recognized that the FAA "places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms." Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). "To enforce this dictate, the Federal Arbitration Act (FAA) provides for a stay of proceedings when an issue is referable to arbitration and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement." Javitch, 315 F.3d at 624 (citing 9 U.S.C. §§ 3 and 4).
"Section 4 of the FAA sets forth the procedure to be followed by the district court when presented with a petition to compel arbitration." Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 888 (6th Cir. 2002). That section provides, in pertinent part, that:
9 U.S.C. § 4. "Thus, `[w]hen asked by a party to compel arbitration under a contract, a federal court must determine whether the parties have agreed to arbitrate the dispute at issue.'" Great Earth Companies, Inc., 288 F.3d at 889 (quoting Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000)). "If the district court is satisfied that the agreement to arbitrate is not `in issue,' it must compel arbitration. If the validity of the agreement to arbitrate is `in issue,' the court must proceed to a trial to resolve the question." Id.
But, "[b]efore compelling an unwilling party to arbitrate, [a] court must engage in a limited review to determine whether the dispute is arbitrable; meaning [1] that a valid agreement to arbitrate exists between the parties and [2] that the specific dispute falls within the substantive scope of that agreement." Javitch, 315 F.3d at 624 (citations omitted). Here, the second prong of the above analysis is undisputed. Plaintiff only contests the validity of the arbitration clause, asserting that the clause is invalid and unconscionable.
A party may contest an arbitration agreement in one of two ways. The first type of challenge seeks to invalidate the underlying contract in its entirety, while the second type of challenge seeks to invalidate the arbitration clause specifically. Because arbitration agreements are separable from the underlying contract, "attacks on the validity of an entire contract [are] distinct from attacks aimed at the arbitration clause." Preston v. Ferrer, 552 U.S. 346, 353 (2008) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967)); see also Prima Paint Corp., 388 U.S. at 402 ("arbitration clauses as a matter of federal law are `separable' from the contracts in which they are embedded, and that where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud."). Accordingly, an arbitrator is tasked with resolving claims against the entire contract, while claims against the validity of the arbitration clause will be reserved for the court. Prima Paint Corp., 388 U.S. at 402-04.
With Plaintiff's argument so framed, the Court would typically be tasked with determining the validity of the arbitration agreement. However, where an arbitration clause contains a delegation provision, the analysis is different. Here, BOA seeks to enforce a provision in the Deposit Agreement that reserves for the arbitrator any challenges against "the applicability of this Resolving Claims section [arbitration clause] and the validity of the deposit agreement . . ." (Deposit Agreement, at 44). Thus, "unless [Plaintiff] challenged the delegation provision
Relevant to the Court's discussion here is the Supreme Court's decision in Rent-A-Center. There, the contract at issue required that all disputes arising from the employment relationship be arbitrated. Id. at 65-66. The arbitration clause also contained a delegation provision. Id. The issues before the Supreme Court in Rent-A-Center mirror the issues presently before the Court here: the plaintiff opposed arbitration, asserting that the arbitration clause was unconscionable; and the defendant argued that, in light of the delegation provision, the issue of the arbitration clause's validity was not properly before the court.
In resolving the issues before it, the Supreme Court extended the separability rule advanced in Prima Paint Corp. to delegation provisions within arbitration agreements. The Court treated the arbitration agreement as though it contained two separate arbitration provisions rather than one. The Court explained that the arbitration agreement: "[first, provides] for arbitration of all disputes arising out of [plaintiff's] employment . . . and [second, gives] the `Arbitrator . . . exclusive authority to resolve any dispute relating to the [Agreement's] enforceability . . . including . . . any claim that all or any part of this Agreement is void or voidable.'" Id. at 63. Because the plaintiff in Rent-A-Center had not challenged the validity of the delegation provision specifically, the Court concluded that the provision was enforceable, notwithstanding the plaintiff's unconscionability claim against the arbitration clause as a whole. Id. at 72.
Up until the Court's decision in Rent-A-Center, the relationship between a contract and the arbitration clause contained therein was twofold: first there was the arbitration clause, and then there was the rest of the contract. Each was separate and distinct from the other and challenges targeting either of the above would be reserved for court and the arbitrator, respectively. However, Rent-A-Center has changed the way courts now approach claims against arbitration:
Rai v. Ernst & Young, LLP, No. 09-13194, 2010 WL 3518056, at *4 (E.D. Mich. Sept. 8, 2010) (emphasis added). The Supreme Court recognized that a "delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement." Rent-A-Center, 561 U.S. at 68. The Court cited various cases, which upheld the concept "that parties can agree to arbitrate `gateway' questions of `arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Id. (citations omitted). "An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on the additional arbitration agreement just as it does on any other." Id. at 70. Thus, a delegation provision, being an additional agreement to arbitrate, "is valid under § 2 `save upon such grounds as exist at law or in equity for the revocation of any contract . . .'" Id.
Where, as here, an arbitration clause contains a delegation provision, the question properly before the court becomes "whether the
The Court must now examine Plaintiff's claims to determine whether its challenges are directed at the arbitration agreement as a whole, or the delegation provision specifically. If Plaintiff fails to challenge the latter, then the delegation provision remains enforceable and the issue of unconscionability is reserved for arbitration.
Here, Plaintiff contests the validity of the arbitration clause, arguing that it is "undoubtedly unconscionable." (Pl.'s Resp. Br. at 8). Plaintiff asserts that "grounds exist that are sufficient to deem the arbitration clause, including the class action and jury trial waiver, unenforceable as a matter of law." Id. However, Plaintiff's opposition to BOA's motion to compel makes no reference or mention of the delegation provision that BOA seeks to enforce. Like the plaintiff in Rent-A-Center, "`[Plaintiff's response] fails to rebut or otherwise address in any way [BOA's] argument that the Arbitrator must decide [Plaintiff's] challenge to the enforceability of the Agreement.'" Rent-A-Center, 561 U.S. at 73. Moreover, Plaintiff fails to address Rent-A-Center's holding, the effect of which directly applies to the issues presented here.
As required under Michigan law, Plaintiff argues that the arbitration clause is both procedurally and substantively unconscionable. Plaintiff asserts that it is procedurally unconscionable "because of Plaintiff's complete lack of bargaining power, economic strength and alternative sources." (Pl.'s Resp. at 11). Just as in Rent-A-Center, the Court need not consider this claim since none of Plaintiff's substantive unconscionability challenges are specific to the delegation provision.
Plaintiff argues that "substantive unconscionability is satisfied because the challenged term is su[b]stantively unreasonable and relieves BOA of all liability." Id. at 14. Plaintiff asserts that:
Id. at 14-15 (emphasis added). It is clear that the argument advanced here does not go to the validity of the delegation provision. Rather, it goes toward the validity of the class action waiver, an issue which BOA admits is properly before the Court and will be discussed below. Plaintiff then argues that it "could not proceed on an individual basis because it would be unable to bear the costs and fees associated with the individual action, whether by arbitration or not." Id. at 15 (emphasis added). Again, Plaintiff is challenging the validity of the class action waiver, not the delegation provision. Finally, Plaintiff argues that "BOA's liability with regard to Plaintiff as an individual is pennies compared to BOA's liability towards the entire potential class — which liability is expected to be in the multi-millions of dollars . . . [w]hen considered in light of these facts, enforcing the arbitration clause at issue would . . . completely relieve BOA from all liability." Id. (emphasis added). This argument fails on the same basis as the arguments above: it does not challenge the validity of the delegation provision specifically.
Because Plaintiff has failed to challenge the delegation provision specifically, BOA's argument that the delegation provision is enforceable remains uncontested.
Pursuant to the governing Deposit Agreement, Plaintiff's challenge against the class action and jury trial waiver provision is properly before the Court. (Deposit Agreement, at 44-45) ("you and we both acknowledge and agree that the validity and effect of the class action and jury trial waiver for business accounts . . . may be determined only by a court or judicial referee and not by an arbitrator.").
Plaintiff's position is that the arbitration clause, including the class action and jury trial waiver provision, is unconscionable. The waiver provision at issue states, in relevant part, that: [y]ou and we acknowledge and agree that under no circumstances will a class action be arbitrated. (Deposit Agreement, at 45). Plaintiff asserts that "BOA cannot avoid class-wide liability by attempting to hide behind the FAA . . ." (Pl.s Resp. Br. at 11). Plaintiff alleges both procedural and substantive unconscionability. For the reasons below, Plaintiff has failed to satisfy the substantive unconscionability prong under Michigan law.
The Michigan Court of Appeals has succinctly set forth the standard for determining whether a contract provision is unconscionable:
Clark v. DaimlerChrysler Corp., 268 Mich.App. 138, 143-44 (2005).
Plaintiff argues that under Michigan law, a challenged term is substantively unreasonable when it "`relieves the defendant from all liability . . .'" (Pl.'s Resp. Br. at 14) (quoting Allen v. Michigan Bell Tel. Co., 18 Mich.App. 632, 640 (1969)). Although Plaintiff does not explicitly state which challenged term relieves BOA of "all liability," the Court presumes that Plaintiff is referring to the class action waiver.
To substantiate the claim that BOA will "essentially avoid all liability," Plaintiff argues that: (1) an individual claimant is unlikely to spend the time, money and effort necessary to challenge BOA's unconscionable conduct when damages on an individual basis are expected to be extremely low; (2) Plaintiff, and all others similarly situated, could not proceed on an individual basis because it would be unable to bear the costs and fees associated with the individual action; (3) Plaintiff, and all others similarly situated, will be financially unable to individually invoke any of their legal or equitable rights; and (4) because "BOA's liability with regard to Plaintiff as an individual is pennies compared to BOA's liability towards the entire potential class . . .," BOA is "completely relieve[d] . . . from all liability." (Pl.'s Resp. Br. at 14-15).
The arguments advanced by Plaintiff in this regard are not persuasive and are not properly fleshed out. Plaintiff's argument appears to be that under Michigan law, the prevention of class-wide resolution of small claims is substantively unreasonable because it relieves the defendant of all liability. Id. However, Plaintiff does not make very clear how proceeding individually satisfies the substantive unconscionability prong under Michigan's doctrine. Nothing in the class action waiver provision prohibits Plaintiff from bringing a claim against BOA. Plaintiff has not challenged a term that actually relieves BOA from liability. Plaintiff does nothing more than make conclusory assertions, which are not substantiated by authority.
Most detrimental to Plaintiff's argument is its failure to acknowledge the Supreme Court decision in Concepcion,
Plaintiff has not apprised the Court of one valid reason as to why Concepcion's holding should not apply here. The only relevant dissimilarity that strikes the Court between Plaintiff and the plaintiffs in Concepcion appears to be the fact that, here, Plaintiff does not rely on a Michigan judicial rule that
A few years after Concepcion, the Supreme Court in American Exp. Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013)
In light of Italian Colors, the Sixth Circuit has also rejected the argument that an arbitration agreement was unconscionable because it did not permit class-wide arbitration. Reed Elsevier, Inc. ex Rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 600 (6th Cir. 2013). There, the court admitted that the clause was as one-sided as the plaintiff had alleged. Id. However, the court acknowledged "that all of these things-the one sided nature of the arbitration clause, and its adhesive nature-were also present in [Italian Colors]. And [there,] the Supreme Court held that, all of those concerns notwithstanding, the absence of a class action right does not render an arbitration agreement unenforceable." Id.
For these reasons, the Court finds the class action waiver valid and enforceable.
In its final argument, Plaintiff asserts that "even if [the Court] does not find that the arbitration clause is unconscionable, BOA's Motion must still be denied because it is based upon the FAA, which is unconstitutional and void." (Pl.'s Resp. Br. at 17). Specifically, Plaintiff argues that the waiver provision violates the Seventh Amendment because it denies parties the right to trial by jury. In making its argument, Plaintiff has not cited one case to substantiate its claim. As BOA correctly points out, this argument is without merit.
The waiver here is clear and unambiguous. The Sixth Circuit has acknowledged, that "the loss of the right to a jury trial is a necessary and fairly obvious consequence of an agreement to arbitrate." Cooper v. MRM Investment Co., 367 F.3d 493, 506 (6th Cir. 2004) (internal citations and quotations omitted). "The Seventh Amendment confers not the right to a jury trial per se, but rather only the right to have a jury hear the case once it is determined that the litigation should proceed before a court. If the claims are properly before an arbitral forum pursuant to an arbitration agreement, the jury trial right vanishes." Id. (internal citations and quotations omitted).
In light of the above findings, the Court shall grant BOA's request to stay these proceedings pending arbitration. See Javitch, 315 F.3d at 624 (the FAA "provides for a stay of proceedings when an issue is referable to arbitration and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement."); see also 9 U.S.C. § 3 (when a party establishes that a lawsuit brought in court involves claims covered by an arbitration agreement, the court "shall on application of the one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.").
For the reasons set forth above, the Court shall
