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determining whether a contract with an arbitration provision evidences a transaction involving interstate commerce is "`not a rigorous inquiry'" and that "the contract `need only have the slightest nexus with interstate commerce.'"
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Civil Action No. 05-CV-1771 (JLL).
December 19, 2005
OPINION AND ORDER REJECTING THE REPORT AND RECOMMENDATION OF THE MAGISTRATE JUDGE
This matter comes before the Court on the objections of Plaintiffs Eleanor and Ralph Schiano (collectively "Plaintiffs") to the December 7, 2005 Report and Recommendation (amended on December 9, 2005) of United States Magistrate Judge Ronald D. Hedges regarding Defendants MBNA Corp., Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq.'s (collectively "Collection Defendants") motion to dismiss the Amended Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, or in the alternative to compel arbitration [#10]. Additionally, Magistrate Judge Hedges ruled on Plaintiffs' motion to amend the Amended Complaint [22] as part of the Report and Recommendation filed December 7, 2005. Pursuant to Local Civil Rule 72.1(c)(2), this Court has conducted a de novo review of Magistrate Judge Hedges' December 9 Report and Recommendation to which Plaintiffs have objected, and a review for clear error as to the denial of Plaintiffs' motion to amend. For the reasons set forth below, the Court affirms Magistrate Judge Hedges decision to deny Plaintiffs' motion to amend their Amended Complaint, rejects the December 9 Report and Recommendation, and compels arbitration of Plaintiffs' claims against Defendants MBNA Corp., Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq., and stays this action.
The December 7, 2005 Report and Recommendation was amended on December 9, 2005, however the amended Report and Recommendation did not make any substantive changes.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
A detailed factual background of this case is set forth in the November 16, 2005 and December 9, 2005 Report and Recommendations, and will not be repeated here, except where necessary to provide context for the de novo review of Magistrate Judge Hedges' December 9 Report and Recommendation. The Court notes that it has adopted Magistrate Judge Hedges' November 16, 2005 Report and Recommendation dismissing Defendant National Arbitration Forum ("NAF"), thus NAF will not be discussed herein.
On May 26, 2005, the Collection Defendants filed a motion to dismiss, or in the alternative to compel arbitration, which was opposed by Plaintiffs. The matter was referred to Magistrate Judge Hedges, pursuant to 28 U.S.C. § 636(b)(1)(B), Rule 72(b) of the Federal Rules of Civil Procedure and Rule 72.1(a)(2) of the Local Civil Rules, and on December 9, 2005 an Amended Report and Recommendation was issued. In his December 9 Report and Recommendation, Magistrate Judge Hedges recommended granting Defendants' motion to dismiss Counts II through VIII with prejudice, and granting Defendants' motion to compel arbitration on Count I. Although contained in the Report and Recommendation, Magistrate Judge Hedges ordered the denial of Plaintiffs' motion to amend their Amended Complaint.
Pursuant to L. Civ. R. 72.1(c)(2), Plaintiffs timely filed an objection to the entirety of Magistrate Judge Hedges' Report and Recommendation. As explained below, this Court must review the Defendants' motion de novo and owes no deference to Magistrate Judge Hedges' Report and Recommendation. In doing so, this Court has reviewed all of the submissions, the cases cited by the parties and in the Report and Recommendation, and conducted further research on the issues raised. As for Plaintiffs' objection to Magistrate Judge Hedges' ruling on their motion to amend, this Court will construe it as an appeal of that decision.
LEGAL DISCUSSION
A. Standard of Review
When the magistrate judge addresses motions that are considered "dispositive," such as to grant or deny a motion to dismiss, a magistrate judge will submit a Report and Recommendation to the district court. 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72; L. Civ. R. 72.1(a)(2). The district court may then "accept, reject or modify, in whole or in part, the findings or recommendations made by the magistrate [magistrate judge]. The judge may also receive further evidence or recommit the matter to the magistrate [magistrate judge] with instructions." 28 U.S.C. § 636(b)(1)(C);see also L. Civ. R. 72.1(c)(2). Unlike an Opinion and Order issued by a Magistrate Judge, a Report and Recommendation does not have force of law unless and until the district court enters an order accepting or rejecting it. United Steelworkers of Am. v. N.J. Zinc Co., Inc., 828 F.2d 1001, 1005 (3d Cir. 1987).
The standard of review of a Magistrate Judge's determination depends upon whether the motion is dispositive or non-dispositive. With respect to dispositive motions, the district court must make a de novo determination of those portions of the Magistrate Judge's Report to which a litigant has filed an objection. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(a); L. Civ. R. 72.1(c)(2); see also State Farm Indem. v. Fornaro, 227 F. Supp. 2d 229, 231 (D.N.J. 2002); Zinberg v. Washington Bancorp, Inc., 138 F.R.D. 397, 401 (D.N.J. 1990) (concluding that the court makes a de novo review of the parts of the report to which the parties object).
A United States Magistrate Judge may hear and determine any [non-dispositive] pretrial matter pending before the court pursuant to 28 U.S.C. § 636(b)(1)(A). The district court will only reverse a magistrate judge's decision on these matters if it is "clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72(a); L. Civ. R. 72.1(c)(1)(A). Therefore, "this Court will review a magistrate judge's findings of fact for clear error." Lithuanian Commerce Corp., Ltd. v. Sara Lee Hosiery, 177 F.R.D. 205, 213 (D.N.J. 1997) (citing Lo Bosco v. Kure Eng'g Ltd., 891 F. Supp. 1035, 1037 (D.N.J. 1995)). Under this standard, a finding is clearly erroneous when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573 (1985) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). The district court will not reverse the magistrate judge's determination, even in circumstances where the court might have decided the matter differently. Bowen v. Parking Auth. of City of Camden, 2002 WL 1754493, *3 (D.N.J. Jul. 30, 2002). "A district judge's simple disagreement with the magistrate judge's findings is insufficient to meet the clearly erroneous standard of review." Andrews v. Goodyear Tire Rubber Co., Inc., 191 F.R.D. 59, 68 (D.N.J. 2000).
Here, Plaintiffs object to Magistrate Judge Hedges' recommendation that the Collection Defendants' motion to dismiss Counts II through VIII of the Amended Complaint be dismissed and that Count I be submitted to arbitration. Therefore, this Court will examine Defendants' motion under a de novo standard of review. In conducting this review, the Court "owes no deference to the Magistrate Judge's findings and conclusions." Taberer v. Armstrong World Indus., Inc., 954 F.2d 888, 904 (3d Cir. 1992). Plaintiffs also appeal Magistrate Judge Hedges' decision to deny their motion to amend the Amended Complaint, which will be reviewed by this Court under a clearly erroneous standard.
In light of this framework, the Court turns to Plaintiffs' objections to Magistrate Judge Hedges' December 9 Report and Recommendation and Plaintiffs' appeal of the denial of their motion to amend.
B. Motion to Amend
Magistrate Judge Hedges held that Plaintiffs were not permitted to amend their Amended Complaint to include the word "vacate" which would add a claim for vacating the arbitration award. The rationale is that where there is no reasonable basis for setting the arbitration award aside, given that the award was issued almost one year before Plaintiffs filed their Complaint with this Court, permitting an amendment at this time would be futile.See Foman v. Davis, 371 U.S. 178, 182 (1962).
The legal standard governing a motion to amend is well settled. Federal Rule of Civil Procedure 15(a) provides that "leave [to amend] shall be freely given when justice so requires." Among the grounds that could justify a denial of leave to amend are undue delay, bad faith, dilatory motive, prejudice, and futility.Foman v. Davis, 371 U.S. 178, 182 (1962); Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993).
Plaintiffs cross moved to amend the Amended Complaint, to "include specific words 'to vacate' arbitration awards and to revise Third Count to include violation of Equal Credit Opportunity Act, 15 U.S.C. 1691." (Plaintiff's Mtn to Amend at 12). The Court has thoroughly read Plaintiffs' brief in support of their motion to amend [CM/ECF Docket Entry # 22] and found no legal argument supporting an amendment to add a claim for vacating the arbitration award or add a claim for violation of the Equal Credit Opportunity Act ("ECOA"). The Court did, however, find the following argument in Plaintiffs' notice of motion:
Mindful that Plaintiffs' counsel practices in federal court, the Court wishes to comment on the formatting of her briefs. A large portion of the briefs contain text that is in underlined and bold-faced type. This approach results in a document that is unnecessarily difficult to read. With all due respect to Plaintiffs' counsel, this type of formatting does not lead to effective advocacy. The Court would greatly appreciate if Plaintiffs' counsel would minimize the use of text that is in underlined or bold-faced type. Please be advised to follow the typeface conventions set forth in The Bluebook, A Uniform System of Citation (18th ed. 2005).
[P]laintiffs respectfully request that the Third Count be amended to include violation of the Equal Credit Opportunity Act, 15 U.S.C. 1691. Pursuant to law, a complaint need not specifically identify the applicable statute or law in order to properly raise a claim for relief under the notice-pleading standard embodied in the Federal Rules of Civil Procedure 8(a). Tolle v. Carroll Touch, Inc., 977 F.2d 1129 (7th Cir. 1992).
Even if notice pleading is sufficient to state a claim under the Equal Credit Opportunity Act, it would be futile to permit Plaintiffs to amend. "To establish a prima facie case under ECOA the class members must show that (1) plaintiff was a member of a protected class; (2) plaintiff applied for credit from defendants; (3) plaintiff was qualified for the credit; and (4) despite qualification, plaintiff was denied credit." In re Chiang, 385 F.3d 256, 259 (3d Cir. 2004). There are no facts on which Plaintiffs would be able to plead a prima facie case under the ECOA. In addition, the Court has not been able to find, nor have Plaintiffs pointed to, a case in which a plaintiff asserted an ECOA claim for failure to negotiate a settlement to resolve their outstanding debt with a creditor. Therefore, even though Magistrate Judge Hedges did not address the request to amend the Amended Complaint to add an ECOA claim, the Court finds that Plaintiffs' motion is denied.
As for the motion to amend to add the word "vacate," the Court finds that there is nothing in the record to lead this Court to conclude that Magistrate Judge Hedges' ruling was clearly erroneous or contrary to law. Magistrate Judge Hedges thoroughly considered Plaintiffs' request and determined that the period in which Plaintiffs could have raised any challenges contesting the arbitration award lapsed about nine months prior to Plaintiffs' Complaint being filed. Therefore, Magistrate Judge Hedges' denial of Plaintiffs' motion to amend is affirmed.
C. Motion to Dismiss, or, in the Alternative, Compel Arbitration
For the reasons that follow, this Court respectfully disagrees with Magistrate Judge Hedges' recommendations and concludes that the entire matter is subject to arbitration. In making this conclusion, the Court does not decide the merits of Plaintiffs' claims or even deem them adequately pled. Furthermore, the Court points out that Magistrate Judge Hedges' recitation of the facts is not law of the case and has no preclusive effect as Plaintiffs apparently believe. Plaintiffs' counsel must certainly be aware that, in deciding a motion to dismiss under Federal Rule 12(b)(6), all allegations in the complaint must be taken as true and viewed in the light most favorable to the plaintiff. Gomez v. Toledo, 446 U.S. 635, 636 n. 3 (1980); Robb v. Philadelphia, 733 F.2d 286, 290 (3d Cir. 1984). Therefore, Magistrate Judge Hedges was merely enunciating the facts Plaintiffs rely upon in their Amended Complaint.
In addition to moving to dismiss Plaintiffs' Amended Complaint, Defendants seek to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. Section 4 of the FAA provides in, relevant part:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.9 U.S.C. § 4. The FAA dictates that any agreement to settle a dispute by arbitration "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. The FAA permits a district court to compel, or enjoin, arbitration as circumstances may require. 9 U.S.C. §§ 3,4; John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1998). The FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). These provisions evidence a "liberal federal policy favoring arbitration agreements." Id. at 24. In order for the FAA to apply, the district court must find that the contract with the arbitration provision "evidenc[es] a transaction involving [interstate] commerce." Id. (citing 9 U.S.C. § 2). This is not a rigorous inquiry; in fact, the contract "need have only the slightest nexus with interstate commerce." Crawford v. W. Jersey Health Sys. (Voorhees Div.), 847 F. Supp. 1232, 1240 (D.N.J. 1994) (citations omitted).
In addressing a motion to compel arbitration, a court must determine: (1) whether the parties agreed to arbitrate; (2) the scope of that agreement; and (3) whether Congress intended the asserted federal claims to be nonarbitrable. Parker v. Hahnemann Univ. Hosp., 2001 WL 797247, at *5 (D.N.J. Jan. 15, 2001) (citing Hooters of Am., Inc. v. Phillips, 39 F. Supp. 2d 582, 609-10 (D.S.C. 1998)). The parties do not disagree as to these prongs. Instead, Plaintiffs maintain that they have already complied with arbitration, and that Defendants are the ones that have committed fraud in failing to comply with the arbitration award. Indeed, in their preliminary statement in opposition to Defendants' motion, Plaintiffs state:
The matter before this Court is not a difficult or complicated matter. The issue is simple: where did plaintiffs' $29,000.00 go? That is, the question becomes: (1) whether defendant attorneys, Pressler Pressler, Wolpoff Abramson, and Gerald Felt, partner Pressler Pressler, — paid MBNA the monies that they received from plaintiffs in the sum of approximately $29,000.00 in October, 2004 in satisfaction and full payment of plaintiffs MBNA accounts, as they represented to plaintiffs that they represented MBNA and would indeed pay MBNA the $29,000.00 which was more than payment in full of plaintiffs MBNA accounts and if said defendants did indeed pay MBNA plaintiffs' monies then MBNA has violated federal statutes, defrauded and defamed plaintiffs by reporting account as "delinquent and unpaid," Or (2) did attorney defendants misrepresent and defraud plaintiffs by purposefully and intentionally fail to pay plaintiffs' MBNA accounts as they had represented to plaintiffs that they would indeed pay MBNA with plaintiffs' $29,000.00 that was forwarded to Pressler Pressler in October, 2004.
[CM/ECF Docket Entry # 13] (Emphasis in original).
The FAA centers around contract interpretation. AT T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986);Harrison v. Nissan Motor Corp. in U.S.A., 111 F.3d 343, 350 (3d Cir. 1997) ("'[A]rbitration is [a] creature of contract, a device of the parties rather than the judicial process. If the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration.'") (quoting AMF, Inc. v. Brunswick Corp., 621 F. Supp. 456, 460 (S.D.N.Y. 1985)); Trap Rock Indus., Inc. v. Local 825, Int'l Union of Operating Eng'rs, AFL-CIO, 982 F.2d 884, 888 (3d Cir. 1992). State contract principles apply in ascertaining whether the parties to an action have agreed to arbitrate. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995);Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002). The New Jersey Supreme Court has held that "parties to an agreement may waive statutory remedies in favor of arbitration. . . ." Garfinkel v. Morristown Obstetrics Gynecology Assocs., P.A., 773 A.2d 665, 670 (N.J. 2001) (citations omitted).
The agreement governing the pertinent accounts with MBNA contain arbitration provisions providing that all disputes and/or claims be submitted to binding arbitration before the National Arbitration Forum. (Eastburn Aff. Ex. 1; Ex. 2, Ex.3.) The arbitration provision specifically states:
Any claim or dispute ("Claim") by either you or us against the other, or against the employees, agents, or assigns of the other, arising from or relating in any way to this Agreement or any prior Agreement or your account (whether under a statute, in contract, tort, or otherwise and whether for money damages, penalties, or declaratory or equitable relief), including Claims regarding the applicability of this Arbitration and Litigation section or the validity of the entire Agreement of any prior Agreement, shall be resolved by binding arbitration.
(Eastburn. Aff. Ex.1 at 9-10, Ex. 2 at 9-10, Ex. 3 at 9-10). Defendant MBNA is certainly contemplated by this provision. Additionally, Defendants Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. would constitute either MBNA's agents or assigns.
In New Jersey, there is a general policy in favor of arbitration of disputes. Garfinkel, 773 A.2d at 670 ("[O]ur jurisprudence has recognized arbitration as a favored method for resolving disputes.") (citing Barcon Assocs. v. Tri-County Asphalt Corp., 430 A.2d 214, 217 (N.J. 1981)). Morever, an agreement to arbitrate should be read liberally in favor of arbitration. J. Baranello Sons, Inc. v. City of Paterson, 403 A.2d 919, 921 (N.J.Super.Ct. App. Div. 1979) (citing Moreira Constr. Co. v. Township of Wayne, 238 A.2d 185, 188 (N.J.Super.Ct. App. Div.), certif. denied, 242 A.2d 15 (N.J. 1968)). In light of the relevant facts and case law, this Court holds that Defendants have met their burden of demonstrating that an agreement between Plaintiffs and these moving Defendants to arbitrate was made and that these claims are subject to arbitration.
In their objection to Magistrate Judge Hedges' recommendation that the parties be compelled to arbitrate Count I of the Amended Complaint, Plaintiffs raise a new argument as to why they should not be compelled to arbitrate. Plaintiffs contend that there is a "pre-existing financially beneficial relationship between NAF and Wolpoff Abramson," (Pl.'s Obj. to RR at 16), based solely on some allegedly momentous piece of evidence recently obtained stating that Wolpoff Abramson is the National Arbitration Forum's first Certified Arbitration Manager. On September 23, 2005, in support of the reply brief submitted in support of Defendant NAF's motion to dismiss, NAF's Managing Director, Edward C. Anderson, submitted a Certification explaining that organizations and individuals that have been designated "certified arbitration managers" with the NAF are merely organizations and individuals that have been pre-qualified to file arbitration documents electronically with the NAF. (Anderson Cert. ¶¶ 3-4). Mr. Anderson further certified that "[t]here has never been a financial relationship between the Forum and Wolpoff Abramson." (Anderson Cert. ¶ 5). Plaintiffs had this Certification in their possession since September 23, 2005, yet still raised this allegation in their objection filed December 12, 2005. Of particular concern to the Court is that Plaintiffs did not attempt to distinguish their alleged evidence of collusion from the statements made in Mr. Anderson's Certification. The Court concludes that Plaintiffs have not demonstrated a financial relationship between Wolpoff Abramson and the NAF that would demonstrate a reason for the Court not to compel arbitration with the NAF. Further, Plaintiffs' counsel is advised to heed Federal Rule 11's requirements that when she signs a document filed with this Court that she has made a "reasonable inquiry" as to the facts concerning the document. Fed.R.Civ.P. 11(b).
Given the foregoing, the proceedings must be stayed pending arbitration pursuant to the FAA. The FAA provides that:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement. . . .9 U.S.C. § 3. "If the issues in the case are within the contemplation of the arbitration agreement, the FAA's stay-of-litigation provision is mandatory, and there is no discretion vested in the district court to deny the stay." U.S. v. Bankers Ins. Co., 245 F.3d 315, 319 (4th Cir. 2001) (citingIn re Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 754 (5th Cir. 1993)); see also Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 937 (4th Cir. 1999) ("When a valid agreement to arbitrate exists between the parties and covers the matter in dispute, the FAA commands the federal courts to stay any ongoing judicial proceedings, 9 U.S.C. § 3, and to compel arbitration, id. § 4.").
As this Court has already determined that Plaintiffs' claims are arbitrable, the FAA mandates that the Court stay this proceeding and compel Plaintiffs' remaining claims to an arbitrable forum. The following claims remain to be arbitrated: Count I — Violation of Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq., as to Defendants Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count II — Violation of the Federal Arbitration Act as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count III — Violation of Plaintiffs' rights to equal protection and due process under the 14th Amendment as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count IV — Liability for Misrepresentations to the Superior Court of New Jersey as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count V — Violation of the New Jersey Consumer Fraud Act as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count VI — Defamation as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count VII — Intentional Infliction of Emotional Distress as to Defendants MBNA, Wolpoff Abramson, LLP, Pressler and Pressler, and Gerald J. Felt, Esq. Count VIII — Violation of Fair Credit Reporting Act as to only Defendant MBNA.
CONCLUSION
For the foregoing reasons, it is on this 19th day of December, 2005, hereby
ORDERED that Plaintiffs' appeal of Magistrate Judge Hedges' decision denying their motion to amend [CM/ECF Docket Entry # 22] the Amended Complaint is DENIED and Magistrate Judge Hedges' ruling is AFFIRMED; and it is further
ORDERED that the Report and Recommendation of Magistrate Judge Hedges dated December 7, 2005 and December 9, 2005 [CM/ECF Docket Entries # 34, 36] is hereby REJECTED; and it is further
ORDERED that Defendants' motion to dismiss the Amended Complaint [CM/ECF Docket Entry # 10] is DENIED, without prejudice, and their motion to compel arbitration is GRANTED; and it is further
ORDERED that this proceeding is STAYED.