Mary Koch v. Compucredit Corporation

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 07-1948
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Mary Koch, on behalf of herself and all *
others similarly situated, *
*
Plaintiff/Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
Compucredit Corporation; Jefferson *
Capital Systems, LLC, *
*
Defendants/Appellants, *
*
J.A. Cambece Law Office, P.C., *
*
Defendant. *
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Submitted: January 16, 2008
Filed: September 23, 2008
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Before COLLOTON, SHEPHERD, Circuit Judges, and ERICKSON,1 District Judge.
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COLLOTON, Circuit Judge.
Mary Koch filed suit on behalf of herself and a putative class, alleging that
Compucredit Corp., Jefferson Capital Systems, LLC, and the J.A. Cambece Law
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The Honorable Ralph R. Erickson, United States District Judge for the District
of North Dakota, sitting by designation.
Office, P.C., violated the Fair Debt Collection Practices Act (FDCPA) and the
Arkansas Deceptive Trade Practices Act (ADTPA) by attempting to collect on a debt
that Koch already had paid. The defendants, purported assignees of the original
creditor First North American National Bank (FNANB), moved to compel arbitration
under the arbitration clause contained in the credit card agreement between FNANB
and Koch. The district court denied the motion, reasoning that the assignment of the
credit agreement from FNANB to the defendants was invalid, and that the defendants
thus did not have an agreement to arbitrate with Koch. The defendants filed this
interlocutory appeal, and we reverse.
I.
In 2000, Koch entered into a credit card agreement with FNANB. Koch admits
that she incurred debt from using the card, but alleges that she settled the debt in
January 2003. On August 31, 2005, FNANB assigned “all rights, title, and interest”
in Koch’s account to Jefferson Capital. At the time of the assignment, FNANB’s
records presumably indicated that Koch was past due on her account, as Jefferson
Capital hired the J.A. Cambece Law Office, P.C. (Cambece), to collect on the debt.
Cambece sent Koch a collection notice on December 9, 2005, claiming that she owed
$284.68 to Jefferson Capital as the assignee of FNANB.
Koch attempted to resolve the matter with Cambece, but the firm continued its
collection efforts, allegedly making various misrepresentations in the process. Koch
ultimately filed suit against Cambece, Jefferson Capital, and its corporate parent,
Compucredit, claiming that the defendants had violated the FDCPA and the ADTPA.
The defendants moved to stay the proceedings and compel arbitration, invoking the
arbitration clause contained in the credit agreement between FNANB and Koch. Koch
opposed this motion on the grounds that (1) the arbitration clause was invalid because
it was unconscionable, and (2) her claims did not fall within the scope of the
arbitration clause.
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The district court agreed with Koch that the arbitration clause could not be
invoked by the defendants, albeit for different reasons. The court focused on the
purported assignment of Koch’s account, accepting as true Koch’s allegation that she
settled her debt with FNANB in 2003. The court reasoned that absent an existing
debt, FNANB had no remaining interest in Koch’s account, and therefore had nothing
to assign. Because the absence of a “present interest” rendered the assignment invalid
under Arkansas law, the court concluded that Jefferson Capital could not be treated
as a party to the credit agreement or to the arbitration clause contained therein. The
court thus denied Jefferson Capital’s motion to compel, relying on the rule that a party
cannot compel arbitration without a valid arbitration agreement. Jefferson Capital and
Compucredit appealed. We will refer to the appellants as “Jefferson Capital” for
purposes of simplicity.
II.
The Federal Arbitration Act (FAA), 9 U.S.C. § 4, provides that a party
aggrieved by the failure of another party to arbitrate under a written agreement may
petition the district court for an order compelling arbitration. The purpose of the FAA
is “to move the parties to an arbitrable dispute out of court and into arbitration as
quickly and easily as possible.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 22 (1983). To effectuate that goal, Congress provided a limited
role for courts, allowing them to “consider only issues relating to the making and
performance of the agreement to arbitrate.” Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 404 (1967). These issues are presumptively committed to
judicial determination, because “arbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which he has not agreed so to submit.”
United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).
To decide questions of arbitrability, we must determine whether a valid
arbitration agreement exists between the parties and, if so, whether the subject matter
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of the dispute falls within the scope of the arbitration clause. United Steelworkers,
Local No. 164 v. Titan Tire Corp., 204 F.3d 858, 860 (8th Cir. 2000). The district
court concluded that there was no valid arbitration agreement between Jefferson
Capital and Koch, because FNANB’s assignment to Jefferson Capital was invalid.
Because the district court’s decision was based on the complaint alone, and did not
involve any determination of disputed factual issues, we review this decision de novo,
accepting as true the allegations in the complaint. See Suburban Leisure v. AMF
Bowling Prods., 468 F.3d 523, 525 (8th Cir. 2006).
At the outset, Jefferson Capital argues that the district court erred by
considering the validity of the assignment at all, because that issue should be decided
by the arbitrator. This position is in tension with our precedent in I.S. Joseph Co., Inc.
v. Mich. Sugar Co., 803 F.2d 396 (8th Cir. 1986), where we held, in the context of a
dispute between an assignee and an original contracting party, that “the enforceability
of an arbitration clause is a question for the court when one party denies the existence
of a contract with the other.” Id. at 400. We observed that “absent some indication
in the original agreement that the parties at that time provided for assignment of their
interests under the agreement or otherwise intended to bind themselves to entities not
then in existence, the validity of the assignment must be determined under the
common law of contract.” Id. Under those circumstances, referral of the assignment
question to the arbitrator “would require the arbitrator to look outside the agreement
to the circumstances of the contract itself and the contract law of the state in order to
determine his jurisdiction in the matter.” Id. That function, we said, is one reserved
for the court under the FAA. Accord American Safety Equipment Corp. v. J.P.
Maguire & Co., 391 F.2d 821, 829 (2d Cir. 1968).
Jefferson Capital contends that I.S. Joseph and similar decisions do not preclude
referral of the assignment dispute to the arbitrator in light of Buckeye Check Cashing,
Inc. v. Cardegna, 546 U.S. 440 (2006). The appellants note that Buckeye reiterated
a rule of “severability,” established by Prima Paint, that an arbitration clause is
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severable from the remainder of a contract. Prima Paint addressed a claim of fraud
in the inducement, and held that “if the claim is fraud in the inducement of the
arbitration clause itself – an issue which goes to the making of the agreement to
arbitrate – the federal court may proceed to adjudicate it.” Prima Paint, 388 U.S. at
403-04. But where the claim was one of fraud in the inducement of the contract
generally, Prima Paint declared that the issue was for the arbitrator. Id. Buckeye,
applying Prima Paint, reiterated that “unless the challenge is to the arbitration clause
itself, the issue of the contract’s validity is considered by the arbitrator in the first
instance.” 546 U.S. at 445-46 (emphasis added). Jefferson Capital urges that the
validity of the assignment here depends on the continuing validity of the contract as
a whole, not just the arbitration clause, so the dispute should be referred to the
arbitrator.
In Buckeye, the plaintiffs claimed that the defendant’s check cashing agreement
“violated various Florida lending and consumer protection laws,” and was therefore
void and illegal ab initio. Id. at 443. The Supreme Court held that because the
plaintiffs challenged “the agreement, but not specifically its arbitration provisions,”
the rule of severability applied, and the arbitration provisions were enforceable “apart
from the remainder of the contract.” Id. at 446. The Court specified, however, that
“[t]he issue of the contract’s validity is different from the issue whether any
agreement between the alleged obligor and obligee was ever concluded.” Id. at 444
n.1 (emphasis added). Thus, Buckeye did not speak to decisions holding that it is for
a court to decide “whether the alleged obligor ever signed the contract, whether the
signor lacked authority to commit the alleged principal, and whether the signor lacked
the mental capacity to assent.” Id. (citations omitted).
Just as Buckeye did not address disputes over whether an agreement was ever
concluded between an obligor and obligee, we do not think Buckeye undermines our
precedent in I.S. Joseph holding that the validity of an assignment is a matter for the
court. One of the principal authorities on the assignment question explains why
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decisions involving “severability” of arbitration clauses in challenges to contract
validity are not applicable to disputes over an assignment:
This case is quite different from those involving fraud in the inducement,
e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co. In those cases, an
agreement to arbitrate was reached by the parties; the fraud alleged went
not to the agreement to arbitrate but to the substance of the contract. The
arbitration clauses were held separable, and the issue of fraud in the
inducement was sent to arbitration. That approach is not available here;
it accomplishes nothing to treat the arbitration clause separately if [the
purported assignee of a licensor] is not a party to it. Therefore, before
ordering [the licensee] to arbitration, the district court should have first
determined whether there was an agreement to arbitrate between [the
licensee] and [the purported assignee].
American Safety, 391 F.2d at 829 (citations omitted). Similarly here, it “accomplishes
nothing” to treat the arbitration clause of Koch’s credit agreement separately if
Jefferson Capital was never a party to it. Accordingly, we believe the district court
was correct to address in the first instance whether FNANB’s assignment to Jefferson
Capital was valid, such that Jefferson Capital was a party to the credit agreement with
Koch.
In this case, the existence of an arbitration agreement between the parties
depends on whether the assignment of Koch’s account from FNANB to Jefferson
Capital was valid. See I.S. Joseph, 803 F.2d at 399-400; Am. Safety, 391 F.2d at 829.
State law governs this determination, see Barker v. Golf U.S.A., Inc., 154 F.3d 788,
791 (8th Cir. 1998), and the parties do not dispute the district court’s decision to apply
Arkansas law. Under Arkansas law, the elements of a valid assignment are “delivery
of the subject matter with intent to make an immediate and complete transfer of all
right, title, and interest from the assignor to the assignee.” Keller v. Bass Pro Shops,
Inc., 15 F.3d 122, 125 (8th Cir. 1994). Because “an assignor can assign only what he
has,” Day v. Case Credit Corp., 427 F.3d 1148, 1153 (8th Cir. 2005) (internal
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quotations omitted), the assignor must have some “present interest in the subject
matter of the contract” to effectuate an assignment. Beal Bank, S.S.B. v. Thornton, 19
S.W.3d 48, 51 (Ark. App. 2000) (internal quotation omitted). Thus, in order to meet
the elements of an assignment under Arkansas law, FNANB must have had some
remaining interest in Koch’s account at the time of the attempted assignment.
Koch argues that FNANB had no remaining interest in her account, because she
had settled her debt with the company, and was released from her obligations under
the credit agreement. We disagree. Even if the underlying credit agreement was
terminated by the settlement, such a termination does not necessarily release the
parties from their obligations under that agreement, including the obligation to
arbitrate. See, e.g., Litton Fin. Printing v. NLRB, 501 U.S. 191, 205 (1991). To the
contrary, there is “a presumption in favor of postexpiration arbitration of matters
unless negated expressly or by clear implication.” Id. at 204 (internal quotation
omitted); see also Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery
Workers Union, AFL-CIO, 430 U.S. 243, 255 (1977); Zucker v. After Six, Inc., 174 F.
App’x 944, 947 (6th Cir. 2006) (concluding that although Litton and Nolde Bros.
involved collective bargaining agreements, “their holdings are based upon principles
applicable to arbitration agreements generally, and their application need not be
limited to the collective bargaining context.”). Because the obligation to arbitrate
those “matters and disputes arising out of the relation governed by contract” continues
even after the expiration of the agreement, Koch’s claim that she was released from
all of her obligations when she settled her debt is erroneous. Id.This continuing obligation to arbitrate gave FNANB a “present interest” in the
contract even after Koch settled her debt. Thus, FNANB had something to assign to
Jefferson Capital on August 31, 2005, and the assignment is valid. Through the
assignment, Jefferson Capital assumed all of FNANB’s remaining rights and
obligations under the contract.
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Of course, Jefferson Capital did not obtain an unlimited right to compel
arbitration against Koch. Jefferson Capital’s ability to compel arbitration is limited
to “matters and disputes arising out of the relation governed by contract.” Litton, 501
U.S. at 204. “A postexpiration grievance can be said to arise under the contract only
where it involves facts and occurrences that arose before expiration, where an action
taken after expiration infringes a right that accrued or vested under the agreement, or
where, under normal principles of contract interpretation, the disputed contractual
right survives expiration of the remainder of the agreement.” Id. at 205-06.
The question then is whether a claim for a debt incurred during the contract
period and pursuant to the credit agreement, even if ultimately unfounded, fits within
one of the three categories outlined in Litton. We think it does. Even assuming that
Koch’s debt had been extinguished before the assignment, and that the collection
attempts by the defendants were erroneous, the heart of the dispute – the occurrence
and alleged payment of the debt – is one founded in the credit agreement. Although
Koch argues that the dispute centers around the defendants’ illegal actions, and has
“nothing to do with the credit arrangement at one time defined by the Cardholder
Agreement,” she also admits that the defendants’ collection efforts were
based – rightly or wrongly – on a debt incurred under the now-defunct credit
agreement. The dispute between Koch and the defendants thus involves “facts and
occurrences that arose before expiration” of the credit agreement, making it a dispute
“aris[ing] under the contract.” Litton, 501 U.S. at 206; Berkery v. Cross Country
Bank, 256 F. Supp. 2d 359, 367-68 (E.D. Pa. 2003).
To be subject to arbitration, the dispute must also fall within the scope of the
arbitration clause. See Litton, 501 U.S. at 205; Nolde Bros., 430 U.S. at 252-53. The
arbitration clause here is broad, covering “any claim, dispute, or controversy arising
from or related to either this Agreement or the relationships that result from this
Agreement.” A dispute over the collection of a debt incurred under the credit
agreement is a “controversy arising from or related to . . . this Agreement,” so Koch’s
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claim “would have been subject to [arbitration] had it arisen during the contract’s
term.” Nolde Bros., 430 U.S. at 252. Nothing in the arbitration clause excludes from
its operation a dispute which arises under the contract, but which is based at least in
part on events that occur after its termination. Id. at 252-53. Thus, the arbitration
provision applies to the dispute between Koch and Jefferson Capital.
For these reasons, we reverse the decision of the district court and remand with
directions to grant the defendants’ motion to compel arbitration.
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