Smith v. Javitch Block, L.L.C.

[Cite as Smith v. Javitch Block, L.L.C., 2021-Ohio-3344.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
KHADIJA SMITH, :
Plaintiff-Appellee, : No. 110154
v. :
JAVITCH BLOCK, L.L.C., ET AL., :
Defendants-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED AND REMANDED
RELEASED AND JOURNALIZED: September 23, 2021
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-20-935178
Appearances:
The Misna Law Firm, LLC, and Anand N. Misra; and Robert S.
Belovich Attorney LLC, and Robert S. Belovich, for appellee.
Javitch Block, L.L.C., Michael D. Slodov, and James Y. Oh, for
appellants.
SEAN C. GALLAGHER, P.J.:
Javitch Block, L.L.C., Anthony Barone II, and Erica Kravchenko
(collectively “Javitch”) appeal the trial court’s decision denying a motion to compel
arbitration, which is based on a credit cardholder agreement originally entered
between Khadija Smith and Synchrony Bank. For the following reasons, we affirm
the decision of the trial court and remand for further proceedings.
Smith opened a J.C. Penney branded credit card account through
Synchrony Bank toward the end of 2013. At the time, Smith received monthly billing
statements to and remitted payments from an address in Parma Heights, Ohio —
6410 Stumph Road, Apt. 203, Cleveland, Ohio 44130 (“Stumph Road”). Ultimately,
Smith failed to make payments on the account, which was closed, and the
outstanding balance of $559.86 charged off. There are several permanent
provisions of the account agreement under which Smith and Synchrony Bank were
operating.
Under the section heading “IMPORTANT INFORMATION ABOUT
THIS AGREEMENT” (boldface deleted), Smith was advised that Synchrony Bank
“may sell, assign or transfer any or all our rights or duties under this Agreement of
your account” without notice. Immediately after the assignment clause, the written
agreement included a section titled “RESOLVING A DISPUTE WITH
ARBITRATION” (boldface deleted). That provision provided as follows:
Please read this section carefully. If you do not reject it, this section will
apply to your account, and most disputes between you and us will be
subject to individual arbitration. This means that: (1) neither a court
nor a jury will resolve any such dispute; (2) you will not be able to
participate in a class action or similar proceedings; (3) less information
will be available; and (4) appeal rights will be limited.
The clause further described the scope of the arbitration clause, including a
provision that permitted the parties to litigate individual cases in a small claims
court and that no small claims litigation waives the right to arbitration.1 Further,
the parties agreed that if “either you or we make a demand for arbitration, you and
we must arbitrate any dispute or claim between you or any other user of your
account, and us, our affiliates, agents, and/or J.C. Penney Corporation if it relates to
your account.” There is no dispute that “you and us” refers respectively to Smith
and Synchrony Bank; the relevant choice-of-law provision provides that Utah law
controls; and the arbitration agreement arises solely under the Federal Arbitration
Act (“FAA”).
In August 2017, Synchrony Bank sold and assigned Smith’s account
to Portfolio Recovery Associates, L.L.C. (“PRA”). The extent of the assignment of
rights was set forth in a separate document that was produced under seal. A year
after the assignment, August 2018, PRA initiated a collection action in Cleveland
Municipal Court to collect the unpaid balance and interest, serving Smith at her last
known address at Stumph Road. A default judgment was entered in favor of PRA in
the amount of $743.86, and that amount was recovered through garnishment
proceedings. Six months after the satisfaction of judgment was entered in January
2020, Smith filed a motion to vacate the judgment, claiming that Cleveland
Municipal Court lacked jurisdiction over the claim since she claimed to live in Parma
Heights, Ohio. The relief was granted, and PRA returned the garnished funds.
1 Smith does not make any claims about the validity of such a clause, but instead
summarily claims that Javitch waived the arbitration provision by filing the small claims
action. Since the contractual terms control, we need not consider the waiver argument.
App.R. 16(A)(7).
That was not the only collections action with which Smith was
involved at the time. In Capital One Bank (USA) NA v. Smith, 2020-Ohio-1614, 154
N.E.3d 240 (8th Dist.), the panel noted a similar fact pattern. In March 2018, the
creditor filed a complaint against Smith in Parma Municipal Court using the Stumph
Road address as Smith’s last known residence. Id. at ¶ 2. A default judgment was
entered against Smith, and the action on garnishment proceeded in April 2019. Id.
at ¶ 3. Before the garnishment hearing, however, Smith executed a notarized, sworn
affidavit attesting to the fact that in March 2018, she resided at 3844 West 117th
Street, Cleveland, 44111 and did not “have a residence in Parma Heights[.]” Smith
further claimed that she “did not learn of the existence” of the Parma case until
receiving a notice of garnishment. Id. at ¶ 6. Relying solely on Smith’s affidavit, the
panel concluded that the trial court erred in denying a motion for relief from
judgment since the undisputed evidence demonstrated that Smith did not receive
service of the complaint at the Stumph Road address because she did not reside
there. Id. at ¶ 18-20.
Following the reopening and dismissal of PRA’s action against Smith,
Smith filed a complaint under Ohio’s Consumer Sales Practices Act against Javitch
based on its representation of PRA and the filing of the complaint against Smith in
Cleveland Municipal Court. According to Smith, Javitch filed an action against her
in a court that lacked jurisdiction over the matter since she resided in Parma
Heights, undisputedly outside Cleveland Municipal Court’s territorial jurisdiction.
Javitch, relying on the Smith decision, cited to Smith’s sworn affidavit in which she
claimed that she did not reside at the Stumph Road address, but actually lived within
the territorial jurisdiction of Cleveland Municipal Court. Before addressing the
merits of that claim, however, Javitch asserted its right to arbitrate the dispute as an
agent of PRA, which was assigned an interest in Smith’s account. The trial court
denied Javitch’s motion.
Both the FAA and Ohio’s Arbitration Act “provide that a court shall
stay proceedings and compel arbitration when ‘an issue is referable to arbitration
under an agreement in writing for arbitration.’” Sinley v. Safety Controls
Technology, Inc., 8th Dist. Cuyahoga No. 109065, 2020-Ohio-4068, ¶ 15, quoting
R.C. 2711.02 and 2711.03; Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th
Cir.2001), citing 9 U.S.C. 3, 4. Arbitration, as a matter of contract, is not required if
the party against whom the enforcement is sought did not contractually agree to
submit to arbitration. Id., citing Council of Smaller Ents. v. Gates, McDonald & Co.,
80 Ohio St.3d 661, 665, 1998-Ohio-172, 687 N.E.2d 1352. Thus, the preliminary
question when determining whether to stay an action and compel arbitration is
“whether the parties actually agreed to arbitrate the issue and not the general policy
goals of the arbitration statutes.” Id., citing UH Rainbow Babies & Children’s Hosp.
v. Caresource, 8th Dist. Cuyahoga No. 106151, 2018-Ohio-2839, ¶ 5.
The standard of review for a decision granting or denying a motion to
stay proceedings pending arbitration is generally abuse of discretion. EMCC Invest.
Ventures, LLC v. Rowe, 11th Dist. Portage No. 2011-P-0053, 2012-Ohio-4462, ¶ 18-
19, citing River Oaks Homes, Inc. v. Krann, 11th Dist. Lake No. 2008-L-166, 2009-
Ohio-5208, ¶ 41. “A trial court’s grant or denial of a stay based solely upon questions
of law, however, is reviewed under a de novo standard.” Id., citing Buyer v. Long,
6th Dist. Fulton No. F-05-012, 2006-Ohio-472, ¶ 6; Pantages v. Becker, 8th Dist.
Cuyahoga No. 106407, 2018-Ohio-3170, ¶ 7. “Although there is a presumption in
Ohio favoring arbitration, parties cannot be compelled to arbitrate a dispute they
have not agreed to submit to arbitration.” Pantages at ¶ 7, citing Natale v. Frantz
Ward, L.L.P., 8th Dist. Cuyahoga No. 106299, 2018-Ohio-1412, ¶ 9.
The question of whether a controversy is referable to arbitration
under the provisions of a contract is a question for a court to decide upon
examination of the contract. Gibbons-Grable Co. v. Gilbane Bldg. Co., 34 Ohio
App.3d 170, 171, 517 N.E.2d 559 (8th Dist.1986). “When confronted with an issue
of contract interpretation, the role of the court is to give effect to the intent of the
parties to that agreement. The court examines the contract as a whole and presumes
that the intent of the parties is reflected in the language used in the agreement.”
Martin Marietta Magnesia Specialties, L.L.C. v. PUC of Ohio, 129 Ohio St.3d 485,
2011-Ohio-4189, 954 N.E.2d 104, ¶ 22, citing Westfield Ins. Co. v. Galatis, 100 Ohio
St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256, ¶ 11. Further, “[i]n interpreting a
provision in a written contract, the words used should be read in context and given
their usual and ordinary meaning.” Carroll Weir Funeral Home v. Miller, 2 Ohio
St.2d 189, 192, 207 N.E.2d 747 (1965).
There is no dispute that Smith originally agreed to arbitrate “any
dispute or claim between” Smith and Synchrony Bank, “its affiliates, agents and/or
J.C. Penney Corporation, Inc. if it relates to [Smith’s] account.” Further, there is no
dispute that Smith agreed to permit Synchrony Bank to “sell, assign or transfer any
and all of [its] rights or duties under the Agreement or [Smith’s] account.”
Accordingly, there are two questions pertinent to the parties’ dispute: whether
Synchrony’s assignment of rights to PRA under Smith’s agreement includes the right
to enforce the arbitration agreement; and whether Javitch, as agent of the assignee,
is entitled to enforce the arbitration agreement.
With respect to the first issue, in general, the assignment of an
account that contains the provision permitting a creditor to “assign its rights and
duties” under the cardholder agreement necessarily includes the assignee’s right to
enforce the arbitration agreement within the original cardholder agreement. James
v. Portfolio Recovery Assocs., LLC, N.D.Cal. No. 14-cv-03889-RMW, 2015 U.S.
Dist. LEXIS 20786, 14 (Feb. 20, 2015); Brooks v. N.A.R., Inc., N.D.Ohio No. 3:18-
cv-362, 2019 U.S. Dist. LEXIS 86230 (May 22, 2019); Mark v. Portfolio Recovery
Assocs., LLC, N.D.Ill. No. 14-cv-5844, 2015 U.S. Dist. LEXIS 54498, 3 (Apr. 27,
2015). There is an exception to this general proposition, and that exception forms
the basis of Smith’s defense.
As other courts have recognized, in rendering a conclusion to the
question of whether an assignment of debt includes an assignment of the right to
compel arbitration focuses on the scope and extent of the assignment itself. Pounds
v. Portfolio Recovery Assocs., LLC, 851 S.E.2d 423, 429 (N.C.App.2020), citing
Lester v. Portfolio Recovery Assocs., LLC, N.D.Ala. No. 1:18-CV-0267-VEH, 2018
U.S. Dist. LEXIS 115527 (July 11, 2018). Whether explicitly or implicitly stated
within the assignment agreement, the focus of the inquiry is on the breadth of the
assignment itself. For example, in Lester, the debtor defaulted on credit card debt
originally owned by Synchrony Bank, which sold the debt to PRA. Id. at 2. The
original cardholder agreement included an arbitration provision identifying the FAA
and Utah law as the relevant choice of law. Id. In determining if PRA could compel
arbitration, the court reviewed the pertinent language of the assignment between
Synchrony Bank and PRA, which limited the extent of the assignment to “the
receivables” under the plaintiff’s account. Id. Based on that limited assignment of
rights, it was concluded that the defendant had not demonstrated the right to
compel arbitration because the assignment “only transferred to PRA the right to
collect [the plaintiff’s] receivable” and not all rights under the original cardholder
agreement in general. Id. at 20.
In this case, Synchrony Bank’s assignment of Smith’s account to PRA
was a complete assignment. According to the bill of sale, Synchrony assigned
Smith’s account “to the extent of its ownership.” The limited exception found in
Lester and Pounds is distinguishable because Smith is unable to demonstrate that
the assignment in this case was limited to the account receivables. The assignment
in this case included PRA’s and its agent’s rights to enforce the arbitration provision
in the original cardholder agreement. Ramirez v. Midland Funding, LLC, N.D.Ill.
No. 17-cv-2626, 2019 U.S. Dist. LEXIS 104038, 13 (June 21, 2019), citing Jack B.
Parson Cos. v. Nield, 751 P.2d 1131, 1133 (Utah 1988), and Gilroy v. Lowe, 626 P.2d
469, 472 (Utah 1981) (“Under Utah law, the ‘assignment of an interest in a contract
gives the assignee the same rights as the assignor and nothing more.’”). Once the
cardholder agreement was assigned to PRA, PRA stands in Synchrony Bank’s shoes
retaining all the rights under the agreement as Synchrony Bank contracted to obtain.
Because PRA has the right to enforce the arbitration provision, the
final question becomes whether Javitch, as agent of PRA, has the same right under
the provision of the arbitration clause to demand arbitration. “The weight of
authority across the nation indicates that an agent can avail itself of its principal’s
arbitration powers under a contract so long as the claim against the agent relates to
that contract.” St. Pierre v. Advanced Call Ctr. Technologies, LLC, D.Nev. No. 2:15-
cv-02415-JAD-NJK, 2016 U.S. Dist. LEXIS 162986, 6 (Nov. 22, 2016). In St. Pierre,
for example, the district court outlined the general rule, concluding that “[o]ther
courts have generally taken this same approach, finding that it is enough that an
agent is sued for conduct relating to the agreement containing the arbitration clause,
even if the claim does not directly arise from that agreement.” Id. at 8-9, citing
Lagrone v. Advanced Call Ctr. Technologies, LLC, W.D.Wash. No. C13-2136JLR,
2014 U.S. Dist. LEXIS 141497, 3 (Oct. 2, 2014) (“Accordingly, based on the available
state guidance, the court predicts that, when faced with the question, the Utah
Supreme Court would permit a nonsignatory agent to enforce an arbitration
provision in its principal’s contract.”). Under the pertinent choice-of-law provision,
therefore, the general presumption is in favor of permitting nonsignatory agents of
the creditor to invoke the arbitration agreement if so permitted under the express
terms of the arbitration agreement.
The arbitration provision to which Smith agreed, provides that “any
dispute and claim” between Smith and Synchrony Bank, “their affiliates, agents,
and/or J.C. Penney Corporation” that relates to the account will be resolved through
arbitration. (Emphasis added.) Synchrony Bank assigned its rights under the
account to PRA, permitting PRA to step into Synchrony Bank’s shoes under the
terms of the cardholder agreement. Morrison v. Midland Funding, LLC, W.D.N.Y.
No. 20-CV-6468-FPG, 2021 U.S. Dist. LEXIS 115432, 2021 WL 2529618, at *12
(June 21, 2021). Javitch represented PRA in the action seeking to enforce the
cardholder agreement against Smith in the state court proceeding. Smith’s action
against Javitch is a dispute regarding Javitch’s conduct in prosecuting the
collections case. Under the broadly phrased arbitration agreement, Smith and
Javitch’s dispute relates to the account because the collections action could not arise
but for Smith’s account.
However, the arbitration provision expressly permits either Smith or
PRA, through Synchrony Bank’s assignment of the account, to “make a demand for
arbitration” and further, that only Smith and PRA must arbitrate their disputes.
Under the express language of the arbitration provision, if “either you [(Smith)] or
we [(PRA through assignment from Synchrony Bank)] make a demand for
arbitration, you and we must arbitrate any dispute or claim * * *.” (Emphasis
added.) The agreement limited the arbitration demand to Smith and PRA, and
further limited the arbitration as occurring solely between Smith and PRA. Javitch
does not have the contractual right to demand arbitration.
In Cavlovic v. J.C. Penney Corp., 884 F.3d 1051, 1057 (10th
Cir.2018), the Tenth Circuit reached a similar conclusion based on identical
contractual language. In that case, J.C. Penney attempted to demand arbitration of
claims arising under the credit agreement between the account holder and GE
Capital Retail Bank. Id. The arbitration clause provided that “[i]f either you or we
make a demand for arbitration, you and we must arbitrate any dispute or claim
between you or any other user of your account, and us, our affiliates, agents and/or
J. C. Penney Corporation, Inc. if it relates to your account * * *.” Id. Based on that
language, it was concluded that only the account holder and GE Capital Retail Bank
could demand arbitration, and J.C. Penney, although expressly identified in the
arbitration clause, had no right to demand arbitration. Id.; but see Lagrone,
W.D.Wash. No. C13-2136JLR, 2014 U.S. Dist. LEXIS 141497, at 1 (reaching the
opposite conclusion based on the federal district court’s conclusion that the Utah
Supreme Court would resolve the unsettled issue of law in favor of the debt
collection agency).2
As Cavlovic further recognized,
Under Utah law, “only parties to the contract may enforce the rights
and obligations created by the contract.” Fericks v. Lucy Ann Soffe Tr.,
2
Lagrone has been distinguished by other federal district courts. Untershine v. Advanced
Call Ctr. Technologies, LLC, E.D.Wis. No. 18-CV-77, 2018 U.S. Dist. LEXIS 101399, 24
(June 18, 2018); Taylor v. Advanced Call Ctr. Technologies, LLC, N.D.Ill. No. 17 C 1805,
2017 U.S. Dist. LEXIS 208888, 6 (Dec. 20, 2017). Since the federal district court cases
interpreting Utah law are merely persuasive authority, none are controlling.
2004 UT 85, 100 P.3d 1200, 1205-06 (Utah 2004) (quoting Wagner v.
Clifton, 2002 UT 109, 62 P.3d 440, 442 (Utah 2002)). In rare
circumstances, a third party can also enforce the contract, but “only if
the parties to the contract clearly express an intention ‘to confer a
separate and distinct benefit’ on the third party.” Bybee v. Abdulla,
2008 UT 35, 189 P.3d 40, 49 (Utah 2008) (quoting Rio Algom Corp. v.
Jimco Ltd., 618 P.2d 497, 506 (Utah 1980)); see also Hermansen v.
Tasulis, 2002 UT 52, 48 P.3d 235, 239 (Utah 2002) (a third party may
enforce a contract provision only if “contracting parties clearly
intended” to allow the third party to exercise rights under the contract
(quoting Oxendine v. Overturf, 1999 UT 4, 973 P.2d 417, 421 (Utah
1999)). But under no circumstances can a party “change or rewrite” the
terms of an agreement to broaden the plain language — even in the face
of the policy favoring arbitration. Zions Mgmt. Servs. v. Record, 2013
UT 36, 305 P.3d 1062, 1071 (Utah 2013) (quoting Ivory Homes, Ltd. v.
Utah State Tax Comm’n, 2011 UT 54, 266 P.3d 751, 755 (Utah 2011)).
Id. at 1057-1058. The court concluded that there was no express intention to confer
a separate and distinct benefit upon J.C. Penney through GE Retail Bank and the
debtor’s agreement under the terms of the agreement.
Thus, it was concluded that J.C. Penney, as the nonsignatory of the
agreement containing the arbitration clause, was not entitled to demand arbitration
of the claims advanced. Id. That conclusion is similar to the cases in which the
arbitration agreement expressly precludes the debt collection agency or attorneys
from enforcing the arbitration agreement unless the bank is involved in the lawsuit.
Morrison, LLC, W.D.N.Y. No. 20-CV-6468-FPG, 2021 U.S. Dist. LEXIS 115432,
2021 WL 2529618 at *12 (noting that not all arbitration agreements contain the
express provision requiring arbitration only if the bank is a named defendant); see,
e.g., Wise v. Zwicker & Assocs., PC, N.D.Ohio No. 5:12-CV-01653, 2013 U.S. Dist.
LEXIS 41004, 15 (Mar. 22, 2013) (arbitration clause expressly exempted the debt
collection agents from the arbitration agreement unless the principal was a named
defendant in the lawsuit).
Under the express terms of the agreement between Smith and
Synchrony Bank, and in consideration of the assignment to PRA, only Smith or PRA
could demand arbitration of the claims as they relate to Smith’s account, and if such
demand was made, only Smith and PRA were required to arbitrate their dispute.
That condition precedent, that either PRA or Smith demand arbitration, must occur
before any dispute related to the account is arbitrated, even if that claim involves
claims involving an agent of PRA. See, e.g., Hayden v. Retail Equation, C.D.Cal. No.
8:20-cv-01203-JWH-DFMx, 2021 U.S. Dist. LEXIS 137531, 11 (July 8, 2021)
(approvingly citing to Cavlovic, 884 F.3d 1051, 1057 (10th Cir.2018), and reaching
the same conclusion therein). Javitch is not contractually entitled to demand
arbitration under the limited scope of agency law as contemplated under Utah law.
In an attempt to circumvent the express language of the arbitration
requirement, Javitch tellingly omits any reference to the first part of the arbitration
clause, the condition precedent establishing that only Smith or PRA may demand
arbitration. Instead, Javitch focuses on the second aspect of the clause setting forth
the obligation to arbitrate any claims or disputes between Smith and PRA’s agents.
Regardless of the breadth of the arbitration clause, the arbitration clause permits
Smith or PRA the right to demand arbitration. Cavlovic, 884 F.3d 1051, 1058; but
see Vanyo v. Citifinancial, Inc., 183 Ohio App.3d 612, 2009-Ohio-3905, 918 N.E.2d
178, ¶ 4 (8th Dist.) (declaring that the defendants, the creditors, were entitled to
demand arbitration under the contractual language that permitted the creditor,
expressly defined as “us” in the arbitration clause, to make the demand).
This distinction between the breadth of the arbitration clause (what
is arbitrable) as contrasted against the limitations on which parties may demand
arbitration is paramount. In Hodson v. Javitch, 531 F.Supp.2d 827, 830 (N.D.Ohio
2008), inasmuch as Javitch relies upon it, the court compelled arbitration based on
an arbitration clause that expressly provided that the bank’s “‘successors, assigns,
agents, and/or authorized representatives’” were entitled to invoke the arbitration
clause. Accordingly, it was concluded that Javitch, as an authorized representative,
contractually held the right to demand arbitration. Hodson is inapplicable to the
current case based on the differing language in the respective arbitration clauses. In
this case, only Smith and PRA have the right to demand arbitration according to the
express language of their arbitration clause, which only requires that Smith and PRA
arbitrate their disputes. Nothing in the record indicates that either PRA or Smith
has demanded arbitration of the dispute nor that Smith must arbitrate her dispute
with Javitch.
The trial court did not err in denying Javitch’s motion to stay the
proceedings and compel arbitration. All other assignments of error have been
rendered moot in light of the foregoing conclusion.3 We affirm the decision of the
trial court and remand for further proceedings.
3
Javitch additionally claims that the trial court erred in failing to settle an App.R. 9(C)
statement in which Javitch sought a journalized statement noting its compliance with the
trial court’s order to produce documents for an in camera inspection necessary to the
Affirmed and remanded.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
_______________________________
SEAN C. GALLAGHER, PRESIDING JUDGE
FRANK D. CELEBREZZE, JR., J., CONCURS;
EILEEN T. GALLAGHER, J., CONCURS IN JUDGMENT ONLY
arbitration issue, that the trial court prematurely denied the motion to stay because the
plaintiff had not filed a brief in opposition, and that the trial court erred in denying the
motion to stay as a sanction for noncompliance with the order to produce documents for
in camera inspection. In light of our conclusion that Javitch is not contractually entitled
to demand arbitration based on the express language of the arbitration clause, the
remaining assigned errors are moot. Any conclusions offered on the remainder of the
assigned error would be advisory and would not change the outcome in light of our
disposition.