Opinion
Civil Action 21-1135
09-23-2022
PATRICHA MCDAID, individually and on behalf of all others similarly situated, Plaintiff, v. AVANT, LLC f/k/a AVANT, INC., Defendant.
Colville, District Judge
REPORT AND RECOMMENDATION
ECF No. 48
LISA PUPO LENIHAN, United States Magistrate Judge
I. RECOMMENDATION
It is respectfully recommended that the Renewed Motion to Compel Individual Arbitration and to Dismiss (ECF No. 48) be granted. It is further recommended that this civil action be dismissed in its entirety with prejudice.
II. REPORT
A. Facts and Procedural Background
Plaintiff, Patricha McDaid (“Plaintiff” or “McDaid”), originally filed this class action Complaint in the Court of Common Pleas of Allegheny County. ECF No. 1-1. On August 26, 2021, Defendant Avant, LLC (“Defendant” or “Avant”) removed this civil action to the United States District Court for the Western District of Pennsylvania. In her Complaint, Plaintiff alleges violations of the Loan Interest Protection Law (“LIPL”), 41 P.S. §§ 201 et seq., Consumer Discount Company Act (“CDCA”) 7 P.S. §§ 6201 et seq., and Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. §§ 201 et seq. against Avant on behalf of a putative class.
Specifically, Plaintiff alleges that Avant operates an online lending platform where loan applications are accepted. Complaint, ECF No. 1-1 ¶ 16. If a loan application is approved, WebBank, a nonparty, issues the loan and sells the loan to Avant. Id. ¶¶ 17-18. Plaintiff alleges that Avant, as a non-bank that is not licensed under Pennsylvania statute, is not authorized to charge interest above the 6 percent interest rate cap included in the Loan Interest Protection Law. Id. ¶¶ 40-41. She alleges that Avant charges, collects, contracts for or receives interest and fees that aggregate in excess of 6 percent simple interest per year. Id. ¶¶ 43-44. She concludes that the Avant/WebBank partnership is a subterfuge to evade Pennsylvania law. Id. ¶ 49.
One week after Avant filed its Notice of Removal (ECF No. 1), it filed a Motion to Compel Arbitration and to Dismiss for Failure to State a Claim (ECF No. 14). After completion of Court-ordered limited discovery (ECF Nos. 27 & 41), Avant renewed its Motion to Compel Arbitration (ECF No. 48).
The parties agree that Plaintiff obtained a Loan from WebBank through Avant by electronically signing a Loan Agreement. The parties further agree that Avant is a Service Provider for the Loan. See also Marketing and Program Management Agreement between Avant and WebBank, ECF No. 60. Plaintiff admits that she applied for and obtained the Loan but does not recall the specific website she visited or the process she undertook before completing the loan application.
Avant describes in detail the online steps Plaintiff would have followed to obtain the Loan.
In support of its Renewed Motion to Compel Arbitration, Avant directs the Court to the Loan Agreement and Promissory Note in issue. At the top of the first page in large boldface capital letters, the document provides as follows: “SECTION 20 OF THIS LOAN AGREEMENT AND PROMISSORY NOTE IS AN ARBITRATION PROVISION. IN THE EVENT OF A DISPUTE, THE ARBITRATION PROVISION WILL HAVE A SUBSTANTIAL EFFECT ON YOUR RIGHTS, INCLUDING YOUR RIGHT TO BRING OR PARTICIPATE IN A CLASS ACTION.” ECF No. 50-1 at 2 (emphasis in original). Immediately thereafter, the Lender/Creditor is listed as WebBank, c/o Avant, and the Borrower is listed as the Plaintiff McDaid. On the next page at Section 1, the document defines the terms “you,” “your” and “Borrower(s)” as the Borrower defined above, Patricia McDaid. The words “we,” “us,” and “our” are defined as WebBank, “and after consummation any person who obtains WebBank's rights in this Note.” Id. at 3. In the last sentence of Section 1 (ECF No. 50-1 at 3), the Loan Agreement provides that “[a]ny of our rights, actions, privileges or obligations which are permitted or required to be determined or performed hereunder may be determined or performed by our service provider and such determinations or actions shall have the same effect as if taken by us.” ECF No. 50-1 at 3 § 1.
Under the subdivision entitled “Assignment,” WebBank is permitted to assign the Note and its “rights under this Note apply to us and each of our successors and assigns.” Id. at 6. The agreement is governed by federal law, and to the extent state law applies, Utah law controls. Id.
Section 20 of the document, the arbitration provision, indicates in the first sentence that “[b]y signing below, you agree to this Jury Trial Waiver, Class Action Waiver and Arbitration Clause (“Clause”). We have drafted this Clause in question and answer form to make it easier to understand. But, this Clause is part of this Agreement and is legally binding.” Id. at 7. Importantly, Section 20 indicates that you can opt-out of the Arbitration Clause by sending a signed opt-out notice in writing within 60 days after signing the Agreement to Avant's legal department address in Chicago, and that opting out of the arbitration provision will not affect any other term of the Agreement. This section further describes what the Arbitration Clause is about: “Unless prohibited by applicable law and unless you opt out, you and we agree that any party may elect to arbitrate or require arbitration of any “Dispute” as defined below.” “Any party” is not a defined term. In addition, within this question and answer format, Section 20 describes who the Arbitration Clause covers as follows:
This Clause governs you and us. It also covers certain “Related Parties.” These include: (1) our parent companies, subsidiaries, and affiliates; (2) our employees, directors, officers, shareholders, members, representatives and service providers; and (3) any person or company that is involved in a Dispute that you pursue relating to this Agreement or your loan with us.Id. Section 20 then sets out the definition of “Dispute”:
The Clause governs “Disputes” that would usually be decided in court and are between us (or any Related Party) and you. In this Clause, the word “Disputes” has the broadest reasonable meaning. It includes all past, present, and future claims directly or indirectly arising from or related to your application, this [Loan] Agreement, your loan and relationship with us and any communications relating to the same. It includes claims based on contract, tort, intentional tort, fraud, negligence, agency, equity, statute or regulation, or any other sources of law, claims seeking damages or injunction or declaratory relief and initial claims, counterclaims, cross-claims, third-party claims. It includes claims related to any prior applications or agreements. It includes extensions. It includes claims related to privacy and customer information. It includes claims related to the validity in general of this Agreement. But, it does not include disputes about the validity, coverage, or scope of this Clause or any part of this Clause. All such disputes are for a court and not the TPA [third party arbitrator] to decide.Id. at 8 (emphasis in original).
Section 20 further provides that “[t]he TPA is not allowed to handle any Dispute on a class or representative basis. All Disputes subject to this Clause must be decided in an individual arbitration or an individual small claims action.” Id. (emphasis in original).
Also relevant to the motion at bar is the provision in Section 20 indicating that the Loan Agreement involves interstate commerce and therefore, the Federal Arbitration Act applies. Id.
Finally, Section 20 provides that “[t]he Clause stays effective unless the parties sign an agreement stating it doesn't. This Clause stays in force even if you default under your Agreement or go into or through bankruptcy or if the Agreement is assigned, terminated or is no longer in effect.” Id. at 9.
B. Legal Standard
In Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013), the court of appeals clarified the legal standard in evaluating motions to compel arbitration:
[W]hen it is apparent, based on “the face of a complaint, and documents relied upon in the complaint,” that certain of a party's claims “are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's delay.” Somerset [Consulting, LLC v. United Capital Lenders, LLC], 832 F.Supp.2d [474] at 482 [E.D. Pa. 2011]. But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then “the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on [the] question.” Id. After limited discovery, the court may entertain a renewed motion to compel arbitration, this time judging the motion under a summary judgment standard. In the event that summary judgment is not warranted because “the party opposing arbitration can demonstrate, by means of citations to the record,” that there is “a genuine dispute as to the enforceability of the arbitration clause,” the “court may then proceed summarily to a trial regarding ‘the making of the arbitration agreement or the failure, neglect, or refusal to perform the same,' as Section 4 of the FAA envisions.” Id. (quoting 9 U.S.C. § 4).Id. at 776.
In the instant matter, the Complaint on its face fails to assert any allegations suggesting that the stated claims may be subject to an enforceable arbitration agreement. Thus, the Rule 12(b)(6) standard is not applicable here. Plaintiff requested limited discovery concerning arbitration (ECF No. 20) which the Court granted on October 26, 2021 (ECF No. 26 & 27) as instructed by Guidotti. Thereafter, Defendant renewed its Motion to Compel Individual Arbitration and to Dismiss (ECF No. 48). Plaintiff has responded to Defendant's Renewed Motion to Compel Arbitration with legal arguments challenging the enforceability of the arbitration agreement as between Plaintiff and Avant. Therefore, the Court will apply the Rule 56 standard.
The Complaint (ECF No. 1-1) does not refer to, or rely upon, any documents that indicate the claims set forth in the Complaint are subject to arbitration.
In evaluating a motion to compel arbitration under the Rule 56 standard, courts “‘may consider all affidavits, exhibits and discovery in the record.'” Quilloin v. Tenet HealthSystem Philadelphia, Inc., 763 F.Supp.2d 707, 715 (E.D. Pa. 2011) (quoting Hopkins v. New Day Fin., 643 F.Supp.2d 704, 713-14 (E.D. Pa. 2009) (citing Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n.9 (3d Cir.1980))), rev'd on other grounds, 673 F.3d 221 (2012). A motion to compel arbitration should be granted only where “‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Quilloin v. Tenet HealthSystem Philadelphia, Inc, 673 F.3d 221, 228 (3d Cir. 2012) (quoting Fed.R.Civ.P. 56). “In making this determination, the party opposing arbitration is entitled to ‘the benefit of all reasonable doubts and inferences that may arise.”' Kirleis v. Dickie, McCamey & Chilcote, 560 F.3d 156, 159 (3d Cir. 2009).
C. Analysis
The Federal Arbitration Act (“FAA”) 9 U.S.C. §§ 1-16, establishes a “strong federal policy in favor of the resolution of disputes through arbitration.” Alexander v. Anthony Int'l L.P., 341 F.3d 256, 263 (3d Cir. 2003). It “reflects the fundamental principle that arbitration is a matter of contract.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). “If a court is ‘satisfied that the making of the agreement for arbitration . . . is not in issue,' it must send the parties to an arbitrator.” Field Intelligence, Inc. v. Xylem Dewatering Solutions, Inc., No. 2087, 2022 WL 4138581, at *3 (3d Cir. Sept. 13, 2022) (precedential) (quoting 9 U.S.C. § 4).
Under the FAA, an arbitration agreement is enforceable if there is a written agreement to arbitrate, there is a nexus to interstate commerce, and the claims at issue are covered by the terms of the arbitration clause. 9 U.S.C. § 2. “To the extent that a particular ground implicates the threshold question of whether the parties are bound by an agreement to arbitrate, it is referred to as a gateway question of arbitrability and is typically resolved in court.” Singh v. Uber Technologies Inc., 939 F.3d 210, 215 (3d Cir. 2019) (citation omitted); Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 756 (3d Cir. 2016) (“Questions of arbitrability are limited to a narrow range of gateway issues, including whether the parties are bound by a given arbitration clause ....”). At issue here, in the absence of a provision delegating the issue of arbitrability to the arbitrator, is whether Plaintiff agreed that an entity other than WebBank could compel arbitration.
The arbitration provision here specifically excludes from the definition of “Disputes” governed by the arbitration Clause those “disputes about the validity, coverage, or scope of this Clause or any part of this Clause. All such disputes are for a court and not the TPA [third party arbitrator] to decide.” ECF No. 50-1 at 8 (emphasis in original).
In support of its Motion to Compel Arbitration, Avant argues that the undisputed facts reveal that through Avant, as service provider for WebBank, Plaintiff and WebBank entered into a Loan Agreement. It further argues that the Loan Agreement contains an unambiguous arbitration provision that necessarily applies to Avant, and that Plaintiff's claims in this civil action fall within the broad terms of the arbitration provision. Consequently, the Court should dismiss this case with prejudice and order the parties to individual arbitration per the unambiguous terms of the arbitration provision.
In response, Plaintiff argues that the plain language of the Loan Agreement permits only “parties” to the Loan Agreement to elect arbitration. Avant is not a “party” to the Agreement because it did not buy any rights, title or interest in the Agreement; and Avant released it right to compel arbitration pursuant to the assignment that Avant alleges granted it the power to compel arbitration.
Here, the parties agree that in August 2017, McDaid obtained a personal loan from WebBank through Avant in the amount of $4,200.00. They also agree that the Loan was transferred numerous times. The parties do not appear to dispute that the Loan Agreement affects interstate commerce because the Loan proceeds originated in Utah and Plaintiff received the funds in Pennsylvania. Finally, pursuant to the broad language of the arbitration provision, the matters placed in issue by Plaintiff in this civil action fall within its provisions:
The Loan was eventually transferred to Absolute Resolution Corporation and its affiliate Absolute Resolution Investments, LLC (collectively “ARI”). ARI sued McDaid in Washington County magisterial District Court. McDade prevailed in that civil action and later sued ARI in the Court of Common Pleas of Allegheny County. The case ended in dismissal and the parties entered into a confidential settlement agreement where the parties agreed to release each other from all rights which existed then or in the future.
The Clause governs “Disputes” that would usually be decided in court and are between us (or any Related Party) and you. In this Clause, the word “Disputes” has the broadest reasonable meaning. It includes all past, present, and future claims directly or indirectly arising from or related to your application, this [Loan] Agreement, your loan and relationship with us and any communications relating to the same. It includes claims based on contract, tort, intentional tort, fraud, negligence, agency, equity, statute or regulation.... It includes claims related to the validity in general of this [Loan] Agreement.ECF No. 50-1 at 8.
The plain language of the Loan Agreement and its Arbitration Clause is clear: Avant has the right to compel McDaid to individual arbitration. First, the plain terms of the Arbitration Clause indicate that all matters go to the arbitrator except for issues concerning the validity, coverage, or scope of the arbitration provision or any part of the arbitration provision. Therefore, the Court looks to the plain language of the Loan Agreement and its included arbitration provision to determine if Avant is within the scope of those individuals or entities who may compel arbitration. Contrary to Plaintiff's arguments, “any party” is not a defined term and does not logically relate to the terms that are clearly defined: “you,” “your” and “Borrower(s)” [McDaid] and “we,” “us,” and “our” [WebBank]. Instead, the arbitration provision defines in precise detail who is “governed” or “covered” by the arbitration provision to include McDaid, WebBank and others:
This Clause governs you and us. It also covers certain “Related Parties.” These include: (1) our parent companies, subsidiaries, and affiliates; (2) our employees, directors, officers, shareholders, members, representatives and service providers; and (3) any person or company that is involved in a Dispute that you pursue relating to this Agreement or your loan with us.ECF No. 50-1 at 7. That is, “Related Parties” is a defined term and includes Avant under the second definition as a service provider and the third definition as a company involved in a Dispute (another defined term encompassing Plaintiff's claims here) that McDaid [you] pursues relating to the Loan Agreement or Loan with WebBank [us]. Plaintiff's argument is further refuted by the plain language at the beginning of the defined term, “Disputes”: “The Clause governs “Disputes” that would usually be decided in court and are between us [WebBank] (or any Related Party) [defined above] and you [McDaid].” ECF No. 50-1 at 8. At this point in the arbitration provision, “Related Parties” has become a clearly defined term and includes Avant as a Related Party. In addition, as service provider for WebBank pursuant to Section 1 of the Loan Agreement, Avant may determine or perform “[a]ny of [WebBank's] rights, actions, privileges or obligations which are permitted or required to be determined or performed [under the Loan Agreement],” . . . “and such determinations or actions shall have the same effect as if taken by [WebBank].” ECF No. 50-1 at 3, § 1. Therefore, the plain language of the Loan Agreement and its detailed arbitration provision at Section 20 provide for Avant's authority to compel McDaid to individual arbitration.
Conversely, Plaintiff's responsive arguments distort, and in many instances, nullify, the plain language of the Loan Agreement and Arbitration Clause. Plaintiff directs the Court to the first subtitle under the heading “Additional Provisions” at the opening of the Loan Agreement and argues that this subtitle and its following narrative establish the meaning of the word “party” throughout the document, including the arbitration provision:
1. Parties, Status of the Application, Further Steps Before Approval and Funding of the Loan ...
In this Loan Agreement and Promissory Note . . .the words “you” “your” and “Borrower(s)” mean the Borrower(s) identified above [McDaid]. The words “we,” “us,” and “our” mean WebBank, and after consummation any person who obtains WebBank's rights in this Note.ECF No. 50-1 at 3.
Plaintiff then directs the Court to the following language in Section 20 of the arbitration provision: “unless prohibited by applicable law and unless you opt out, you and we agree that any party may elect to arbitrate or require arbitration of any “dispute” as defined below.” ECF No. 50-1 at 7. Plaintiff contends that this language limits who may elect arbitration to McDaid and WebBank who are set out as the parties to the Loan Agreement. This interpretation nullifies the very specific language of the next two sections immediately following: (1) that the Arbitration Clause governs not only “you” and “us” as defined at the beginning of the Loan Agreement, but also “Related Parties” defined in Section 20 (ECF No. 50-1 at 7); and (2) that the Arbitration Clause governs “Disputes” which “are between us (or any Related Party) and you.” ECF No. 50-1 at 8 (emphasis added). It also ignores Avant's function as service provider to WebBank and the powers conferred pursuant to Section 1 of the Loan Agreement to act on WebBank's behalf. See ECF No. 50-1 at 3, § 1. Plaintiff's crabbed reading of the document is contrary to the plain language of the Loan Agreement and its Arbitration Clause at Section 20.
Moreover, Plaintiff has come forward with no evidence that she opted out of the arbitration provision by sending a signed opt-out notice to Avant's Legal Department in Chicago within 60 days after signing the Agreement. See generally ECF No. 50-1 at 7.
Finally, Plaintiff's argument that her confidential settlement agreement with ARI in the Court of Common Pleas of Allegheny County extinguished any right Avant and WebBank had to compel arbitration also fails. As noted above, the Loan was bought and sold several times until it was purchased by ARI. Plaintiff contends that pursuant to the terms of a settlement agreement with ARI in the Court of Common Pleas of Allegheny County, the parties agreed to release each other from all rights which existed then or in the future. Therefore, according to Plaintiff, ARI had no arbitration rights to assign to Avant when it subsequently purchased the Loan from ARI.
Plaintiff's discussion of caselaw concerning the doctrine of assignment is inapposite. The plain language of the Arbitration Clause states that nothing a borrower does will make the Clause ineffective unless otherwise agreed: “The Clause stays effective unless the parties sign an agreement stating it doesn't. This Clause stays in force even if you default under your Agreement or go into or through bankruptcy or if the Agreement is assigned, terminated or is no longer in effect.” ECF No. 50-1 at 9. The Court must apply the provisions of the Loan Agreement and its Arbitration Clause as written, just as it would any other contract. See Singh, 939 F.3d at 214 (“The FAA places certain arbitration agreements on equal footing with all other contracts by requiring courts to enforce such agreements according to their terms.”).
In light of the plain language of the Loan Agreement and its Arbitration Clause, the Court need not reach the parties' estoppel arguments.
Avant has demonstrated that there is no genuine dispute as to any material fact regarding the applicability of the arbitration provision and that it is entitled to arbitrate Plaintiff's claims as a matter of law. Therefore, Avant's Renewed Motion to Compel Individual Arbitration and to Dismiss should be granted with prejudice because all of Plaintiff's claims are subject to arbitration.
III. CONCLUSION
For the reasons discussed above, it is respectfully recommended that the Renewed Motion to Compel Individual Arbitration and to Dismiss (ECF No. 48) be granted. It is further recommended that this civil action be dismissed in its entirety with prejudice.
In accordance with the Magistrate Judges Act, 28 U.S.C. §636(b)(1)(B) and (C), and Rule 72.D.2 of the Local Rules of Court, the parties are allowed fourteen (14) days from the date of service of a copy of this Report and Recommendation to file objections. Any party opposing the objections shall have fourteen (14) days from the date of service of objections to respond thereto. Failure to file timely objections will constitute a waiver of any appellate rights.