2023 Ohio 607
Ohio Ct. App.2023Background
- In 2013 Smith opened a J.C. Penney/Synchrony credit-card account; after defaults the account was assigned to Portfolio Recovery Associates (PRA). A cardholder agreement (governed by Utah law and the FAA) contained an arbitration clause and a class-action waiver restricting arbitration demands to "you [Smith] or we [Synchrony/PRA]."
- PRA sued in Cleveland Municipal Court; default judgment entered, later vacated for lack of territorial jurisdiction; garnished funds were returned and the municipal action dismissed.
- Smith filed a putative class action in Cuyahoga Common Pleas against Javitch (PRA’s collection counsel) alleging unlawful collection/garnishment practices. Javitch moved to stay, compel arbitration, and strike class allegations, arguing the account arbitration clause required individual arbitration.
- On first appeal (Smith I), this court held the arbitration clause applied to disputes related to the account and PRA could enforce it, but Javitch, as a nonsignatory agent, did not have contractual authority to demand arbitration or compel arbitration on its own.
- After remand PRA sent Smith a demand-to-arbitrate letter; Smith did not initiate arbitration. Javitch filed a renewed motion to compel arbitration and to strike class allegations. The trial court denied the renewed motion; this appeal followed.
Issues
| Issue | Plaintiff's Argument (Smith) | Defendant's Argument (Javitch/PRA) | Held |
|---|---|---|---|
| Whether arbitration must be ordered now that PRA sent a demand | PRA or Smith must validly demand arbitration and none has been effectively initiated; arbitration cannot be compelled by Javitch | PRA’s written demand satisfies the Agreement’s condition precedent and triggers arbitration; Javitch may enforce arbitration to avoid duplicative litigation | Court: PRA’s demand did not satisfy the Agreement’s requirements; no valid arbitration was initiated that would require staying this case |
| Whether a nonsignatory agent (Javitch) may compel arbitration or stay litigation based on the account agreement | Smith: Under Utah law an agent cannot enforce the principal’s arbitration clause for the agent’s own benefit; Smith I established Javitch lacks contractual right to demand arbitration | Javitch: Agency principles and the arbitration clause’s reference to agents allow Javitch to invoke and enforce arbitration to prevent artful pleading | Court: Javitch, a nonsignatory, has no contractual right or standing under the Agreement to demand or compel arbitration; Utah law and the Agreement’s express terms limit demand/compel rights to Smith or PRA |
| Whether the class allegations must be stricken because of the class-action waiver | Smith: The waiver prevents class actions only against PRA/Synchrony; it does not bar class claims against PRA’s agents; PRA/agent cannot expand contractual rights | Javitch: The class waiver bars class or representative claims and should be enforced to require individual arbitration | Court: The waiver applies to actions against PRA; Javitch lacks contractual authority to enforce the waiver on PRA’s behalf, so class allegations need not be stricken |
Key Cases Cited
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (Sup. Ct. 2009) (FAA requires applying state contract law to decide who can be bound by or enforce arbitration agreements)
- Crawford Professional Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir. 2014) (state law determines when a nonsignatory can enforce arbitration agreements)
- Adams v. Georgia Gulf Corp., 237 F.3d 538 (5th Cir. 2001) (historical discussion of FAA application to signatories)
- Cavlovic v. J.C. Penney Corp., 884 F.3d 1051 (10th Cir. 2018) (construing limits on third-party enforcement under similar arbitration language)
- Fericks v. Lucy Ann Soffe Trust, 100 P.3d 1200 (Utah 2004) (Utah rule: only parties may enforce contract rights unless contracting parties clearly intend to confer a separate benefit on a third party)
- Zions Mgmt. Servs. v. Record, 305 P.3d 1062 (Utah 2013) (court will not rewrite contract terms to broaden arbitration rights)