McMahan v. Byrider Sales of Indiana S, LLC
3:17-cv-00064
W.D. Ky.Sep 14, 2017Background
- In Nov. 2015 McMahan bought a 2010 Chevrolet Malibu from J.D. Byrider (BSI) under a Retail Installment Contract that included a broad arbitration clause; the contract was later assigned to Byrider Finance, LLC (CNAC).
- McMahan received a Chapter 7 bankruptcy discharge in June 2016 that eliminated her personal liability on the debt; the contract contained an express clause stating the arbitration provision survives bankruptcy discharge.
- In Jan. 2017 BSI made a hard credit inquiry and CNAC made a soft/account-review inquiry on McMahan’s credit report; McMahan alleges these were impermissible under the FCRA.
- McMahan filed suit in federal court asserting FCRA violations; defendants moved to compel arbitration and dismiss.
- The parties disputed (1) whether the arbitration agreement covered McMahan’s FCRA claims (e.g., whether the inquiries were part of a new transaction or related to the original contract), (2) whether the agreement survived assignment to CNAC, and (3) whether the bankruptcy discharge prevented enforcement of arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a valid agreement to arbitrate exists | McMahan acknowledged the contract but contended her FCRA claims arose from a separate/new transaction outside the contract’s scope | The Contract contains a clear, broad arbitration clause covering any dispute related to the vehicle, financing, servicing, collection, or reporting | Valid agreement exists; parties agreed to arbitrate |
| Whether the arbitration clause covers McMahan’s FCRA claims (scope) | The Jan. 2017 credit inquiries were for a new credit transaction and thus outside the Contract’s arbitration scope | The inquiries were made to locate/recover the vehicle and related to collection under the original Contract | Claims fall within the broad arbitration clause; arbitration compelled |
| Whether assignment to CNAC prevents enforcement | McMahan argued assignment might affect enforceability | Contract expressly preserved arbitration rights after assignment; assignee stands in assignor’s shoes | Assignment does not bar enforcement; CNAC may enforce arbitration |
| Whether bankruptcy discharge or public policy prevents arbitration | McMahan relied on discharge to argue arbitration shouldn’t be enforced post-discharge | Discharge removes personal liability but does not inherently void contractual arbitration provisions; Contract expressly preserved arbitration post-bankruptcy | Discharge does not prevent enforcement; arbitration survives and must be enforced |
Key Cases Cited
- Stout v. J.D. Byrider, 228 F.3d 709 (6th Cir. 2000) (FAA requires arbitration agreements be enforced unless legal/equitable grounds revoke them)
- Great Earth Cos. v. Simons, 288 F.3d 878 (6th Cir. 2002) (party opposing arbitration must show a genuine issue of material fact on validity of agreement)
- Fazio v. Lehman Bros., Inc., 340 F.3d 386 (6th Cir. 2003) (state contract law governs formation/enforceability of arbitration agreements absent arbitration-specific rules)
- AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986) (broad arbitration clauses carry a strong presumption of arbitrability)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (arbitration is a matter of contract; courts enforce arbitration according to contract terms)