Newton v. American Debt Services, Inc.
854 F. Supp. 2d 712
N.D. Cal.2012Background
- Plaintiff Heather Newton responded to ADS and was routed to a Welcome Packet from QSS; packet included Special Purpose Account and an Agreement with an arbitration clause.
- Special Purpose Account funded via RMBT and GCS; funds moved from Golden One to defendants and then to creditors as fees.
- Newton stopped communicating with creditors; Bank of America later alerted about debt and she paid $550 four times under a plan.
- Plaintiff discovered defendants did not contact creditors for eight months; refunds totaled $70.04, with most funds kept by defendants.
- Plaintiff filed a class action alleging CROA, GLBA-like, UCL, interference, and negligence; defendants moved to compel arbitration.
- Arbitration clause at issue requires Tulsa, Oklahoma arbitration and unilateral selection of an arbitrator; challenged as unconscionable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence of an arbitration agreement | August 2009 lacked integration of arbitration terms. | September 2009 agreement formed binding arbitration. | Arbitration formed as to September 2009 application; August 2009 failed. |
| Arbitration clause unconscionability | Clause is procedurally and substantively unconscionable under California law. | Standard arbitration terms are not unconscionable and can be enforced. | Arbitration clause is both procedurally and substantively unconscionable; unenforceable. |
| Severability of unconscionable terms | Unconscionable terms could be severed to save arbitration. | Some terms could be severed to preserve arbitration. | Ark: Court declines severance; entire clause deemed unconscionable. |
| Who may compel arbitration (nonsignatories) | Nonsignatories cannot compel arbitration against plaintiff. | Nonsignatories may compel arbitration when tied to contract terms. | QSS may compel arbitration; claims rely on the contract containing the clause. |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitration validity defenses severable from contract claims)
- Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir. 2010) (severability of arbitration clause raised in opposition to motion)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) (procedural and substantive unconscionability in arbitration agreements; severance limits)
- Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244 (9th Cir. 1994) (arbitration clause that omits statutory remedies may be unconscionable)
- Sanchez v. Valencia Holding Co., LLC, 201 Cal.App.4th 75 (Cal. Ct. App. 2011) (adhesion contracts and surprise regarding arbitration terms)