MEMORANDUM AND ORDER
Plaintiffs Deborah Moss and William Hillick bring this action alleging violations of the Racketeer Influenced and Corrupt Organizations Act,
In short, this action involves civil RICO claims based on defendants’ alleged role in facilitating high-interest payday loans,
Although defendants are not parties to the loan agreements, the' agreements reflect their involvement in the loans in two ways. Each agreement contains a provision describing the function that defendants ultimately performed: an authorization section in which plaintiffs permitted the lender to initiate electronic funds transfers from plaintiffs’ bank accounts. In addition, the arbitration provisions in each agreement state that plaintiffs must arbitrate not only with the lenders, but also with the lenders’ “agents” and “servi-cers.” Defendants argue that they are agents arid servicers within the meaning оf the arbitration provisions, and that therefore plaintiffs should be estopped from avoiding arbitration with them. Plaintiffs argue that the arbitration provisions did not place them on notice that they were consenting to arbitrate with defendants.
For the reasons discussed below, the Court concludes that defendants may enforce the arbitration provisions against plaintiffs, because the broad arbitration provisions and the specific authorizations of electronic funds transfers made it fore
I. ÉACKGROUND
A. Factual Background
The following facts are taken from the complaint. The Court assumes these facts to be true for the purpose of deciding' this motion, and construes them in the light most favorable to plaintiffs, the non-moving party.
This case arises out of five online payday loans. Moss applied for and received three such loans: one for $350 on June 17, 2010, one for $400 on October 15, 2010, and one for $1,000 on May 8, 2013. (Am. Comрl. ¶¶ 87, 90, 94.). Hillick applied for two online payday loans: one for $550 on September 5, 2012, and one for $750 on June 1, 2013. (Id. ¶¶99, 104.) Each of these loans was made pursuant to a written agreement containing an arbitration provision and an authorization for the lender to initiate electronic funds transfers.
The electronic funds transfers involved in these five loans were performed using the Automated Clearing House (“ACH”) network, “a processing system in which financiаl institutions accumulate ACH transactions throughout the day for later batch processing.” (Id. ¶ 35.) The transactions are the debits and credits necessary for an exchange between two parties, and they are performed by entities known as Originating Depository Financial Institutions (“ODFIs”), which are banks belonging to the ACH network who transmit the funds from one party to the other party’s bank. (Id. ¶¶ 36-40.) The organization that provides governing rules for the ACH network refers to ODFIs as “the gatekeepers of the ACH Network.” (Id. ¶ 45.)
Defendants are the ODFIs that originated the five loan transactions in this case. (Id. ¶¶ 89 (First Premier); 93(BMO); 97 (Bay Cities); 103(BMO); 107(BMO).) Plaintiffs allege thаt defendants received fees for performing the origination of these loans, and that they are able to charge the lenders higher fees than for other ACH transactions, because of the risks inherent in online payday lending. (Id. ¶¶ 79-80; 98; 108.)
Plaintiffs filed the complaint in this action on September 30, 2013, and filed an Amended Complaint on January 3, 2014. On February 3, 2014, defendants filed separate motions to compel arbitration and motions to dismiss. Plaintiffs responded in opposition on March 3, 2014, and defendants replied in further support of their motions on March 17, 2014. The Court heard oral argument on April 9, 2014.
II. STANDARD OF REVIEW
“In a typical motion to compel arbitration, the Court would apply a standard similar to that of a summary judgment motion ... and some discovery may be allowable or necessary.” Lismore v. Societe Generate Energy Corp., No. 11 Civ. 6705(AJN),
The following discussion is based upon the allegations in the Amended Complaint, as well as the text of the five loan agreements in this case. Those agreements are not attached to the Amended Complaint, but they are referred to throughout, including in allegations that mention the precise dates and amounts reflected in the loan agreements. (See Am. Compl. ¶¶ 87, 90, 94, 99, 104.) Therefore, the Court con-eludes that the five loan agreements are integral to the Amended Complaint, and proper for consideration on these motions. See Chambers v. Time Warner, Inc.,
III. Discussion
The Second Circuit has observed that “it is difficult to overstate the strong federal policy in favor of arbitration, and it is a policy we have often and emphatically applied.” Arciniaga v. Gen. Motors Corp.,
Still, plaintiffs are correct that “[arbitration ... is a matter of consent, not coercion.” Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ.,
Here, of course, plaintiffs did not contract with defendants' — they contracted with the lenders, who are not parties to this action.
Our cases have recognized that under principles of estoppel, a nonsignatory to an arbitration agreement may compel a signatory to that agreement to arbitrate a dispute where a careful review of the relationship among the parties, the contracts they signed ..., and the issues that had arisen among them discloses that the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.
Ross,
The Second Circuit has been careful to note that its estoppel doctrine does not
On the other hand, and in accordance with the strong federal policy in favor of arbitration, many cases in this circuit have accepted claims of estoppel and allowed non-signatories to compel arbitration. See, e.g., Ross,
Since Ross clarified the “basic doctrine” quoted above, district courts within this circuit have formulated “a two-part inter
(1) Arising Under the Loan Agreements
Although plaintiffs argue that their causes of action do not arise under the loan agreements, the Court disagrees. Every one of plaintiffs’ causes of action requires the conclusion that the loan agreements are invalid. {See Am. Compl. ¶¶ 123 (“BMO has used its role within the ACH Enterprise to conduct and participate in the collection of unlawful debts”); 140 (same for First Premiere); 157 (same for Bay Cities); 169 (“Defendants ... receipt of money ... was improper because the money representеd repayment of debts that were illegal and unenforceable”); 177 (alleging that defendants “aided and abetted the ... Lenders’ violations of New York civil usury law”); 185 (“BMO, First Premier and Bay Cities used their roles as ODFIs to originate debt entries ... that were in violation of state law.”); 196 (“Defendants’ deceptive business practices include ... repeatedly conspiring ... to charge illegal, usurious, unconscionable fees for payday loans.”).) Thus, like in A2P, “plaintiffs’ factual allegations, alone, indicate that the claims premised upon these same facts ‘arise from the subject matter’ of the ... Agreement.”
Plaintiffs argue that they could still pursue their claims against defendants even if the loan agreements were invalidated, but that is not a definitive test under this prong. In the case relied on by plaintiffs for that argument, Denney v. Jenkens & Gilchrist, the plaintiffs did not allege that the underlying agreements were integral to the fraudulent scheme.
The Court concludes that plaintiffs’ claims do arise from the same subject matter as the loan agreements, in no small part because the putative class “is premised upon the relationships entered into through the ... Agreement and is a status only conferred to those who have assented to the terms of that agreement.” A2P,
(2) Close relationship
The primary dispute between the parties concerns the “[t]he second prong of the equitable estoppel test[:] ... whether there exists a sufficiently ‘close relationship’ between the signatory and the non-signatory who seeks to compel arbitration.” A2P,
Here, the language of the five loan agreements reveals that plaintiffs consented to arbitrate not only with the signatory lenders, but also with the lenders’ agents and servicers. (PI. Ex. 1 at 645 (“any of [the lenders’] agents or servicers ... or any affiliated entities (hereinafter collectively referred to as “related third parties”).”); PI. Ex. 2 at 659 (same); PI. Ex. 3 at 689 (same); PI. Ex. 4 (“or the agents, [or] servicers ... of the other”); PL Ex. 5 (same).)
The question is whether it was foreseeable that defendants would be included among the lenders’ agents and servicers, and the Court concludes that it was foreseeable based on the language of the loan agreements. All five loan agreements include authorizations by plaintiffs for the lenders to receive payments via electronic funds transfers. In four of the five agreements, plaintiffs explicitly authorized the lender’s “servicer” or “agent” to perform the ACH debit entries, and these are the same words contained in the arbitration provisions quoted above. Therefore, plain
The fifth agreement did not use the terms “servicer” or “agent” in the payment authorization provision, but it did refer to. the “network” and described the lender’s role as “initiating]” the electronic funds transfers, which suggests that the task would be completed by a third party. (Pl. Ex. 3 at 690.) Furthermore,, the fifth agreement contained the type of broadest arbitration provision, in which plaintiff Moss agreed to arbitrate “all claims against ... agents ... or affiliated entities.” (Id. at 694.) By agreeing to that term, plaintiffs explicitly consented to arbitrate with an indeterminate but broad class of entities doing business with the lenders. In other words, plaintiffs knowingly agreed that, in the future, they would have to arbitrate with a party who is not named in the loan documents, and having made that agreement, plaintiffs cannot now deny the foreseeability of BMO’s involvement, since its function and the existence of a “network” were explicitly mentioned in the contract. (See Am. Compl. ¶ 93 (naming BMO as the ODFI for the fifth loan).)
The foreseeability of defendants’ involvement in the loan transactions here is distinguishable from Ross, on which plaintiffs have relied, and which held that American Express could not compel arbitration with holders of other companies’ credit cards, who alleged that American Express had conspired with the other companies to artificially inflate certain transaction fees.
Plaintiffs have also argued that the Court should not enforce the arbitration provisions because they are contained in usurious loans, and that, for the same reason, defendants have unclean hands and may not avail themselves of the equitable doctrine of estoppel. However, the legality of the loan agreements is first a question for the arbitrator, and plaintiffs have not made a distinct challenge to the validity of the arbitration provisions themselves. See Buckeye Check Cashing, Inc. v. Cardegna,
In sum, the Court concludes that estop-pel is appropriate here because all defendants are “linked textually” to the arbitration provisions. Choctaw,
IV. Conolusion
The broad arbitration provisions in the loan agreements, and the specific authorizations of electronic funds transfers, made it foreseeable that entities like defendants, who are involved in those transfers, would be among the third parties with whom plaintiffs agreed to аrbitrate. Accordingly, the motions to compel arbitration are granted, and this case is stayed. See 9 U.S.C. § 3. The Court does not reach the motions to dismiss.
The parties are hereby ordered to proceed to arbitration, as required by the provisions in the loan agreements. This case is stayed, and the Court will not consider the motions to dismiss until the case has proceeded through arbitration.
SO ORDERED.
Notes
. The Amended Complaint also includes various state-law claims, the nature of which do not affect the Court’s analysis of the motions to compel arbitration.
. The Amended Complaint defines a paydаy loan as “a short-term (typically a matter of weeks) high fee, closed-end loan, traditionally made to consumers to provide funds in anticipation of an upcoming paycheck.” (Am. Compl. ¶ 27.)
. The Court is aware that defendants and counsel for plaintiffs are involved in similar cases around the country, and defendants have cited one case in which another federal court likewise granted motions to compel arbitration. See Elder v. BMO Harris Bank, Civil No. JFM-13-3043,
. Plaintiffs argue that the presence of the authorizations creates a question of fact, specifically whether the loans were illegally conditioned on plaintiffs’ authorizing the fund transfers. Plaintiffs cite no authority in support of that argument, nor do they identify any fact or evidence suggesting that the loans were, so conditioned. Nothing on the face of the authorizations suggests that the loans were illegally conditioned upon them, and thus the Court concludes that the authorizations raise no question of fact.
. Bay Cities argues that the very question оf plaintiffs’ obligation to arbitrate with the non-signatoiy defendants should be decided by the arbitrator. However, in the primary case on which Bay Cities relies, Contec Corp. v. Remote Solution, Co., Ltd., the Second Circuit still employed the same intertwined-ness test used herein to determine if the parties’ relationship was close enough to justify compelling arbitration, even of the question of arbitrability. See
. In Arthur Andersen LLP v. Carlisle, the Supreme Court held that state contract law provides the "traditional princiрles ... [that] allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.”
. The Court also notes that in ILM, the Second Circuit cited favorably an Eleventh Circuit case which applied equitable estoppel because the plaintiff's claims made reference to and arose directly out of a written agreement containing an arbitration clause. JLM,
. To the extent that defendants have argued that Hoffman — a single New York Supreme Court case — supports the existence of a separate ground for estoppel outside of the intertwined-ness test, the Court disagrees. In addition to the proposition discussed supra at note 7, Hoffman suggests that "equitable es-toppel applies ... when the signatory to the contraсt containing the arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.”
. Plaintiffs contend that Cardegna only applies between signatoriеs to a contract, but they cite no authority for limiting its holding in that way. Given the Supreme Court's repeated emphasis on the strong federal policy in favor of arbitration, which requires that arbitration agreements be placed "upon the same footing as other contracts,” Carlisle,
. As an alternative to estoppel, defendants also argue that they may compel arbitration as third-party beneficiaries of the loan agreements. However, "it remains an open question in this Circúit whether the non-signatory may proceed upon any theory other than es-toppel.” Ross,