Manley v. Diversified Recovery Bureau, LLC

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NEW YORK

_____________________________________

SOLICITY MANLEY, DECISION

Plaintiff, and

v. ORDER

DIVERSIFIED RECOVERY BUREAU, LLC

20-CV-551Si(F)

Defendant.

_____________________________________

APPEARANCES: HILTON PARKER LLC

Attorneys for Plaintiff

JONATHAN L. HILTON, of Counsel

7544 Slate Ridge Blvd.

Reynoldsburg, Ohio 43068

LIPPES MATHIAS WEXLER FRIEDMAN LLP

Attorneys for Defendant

BRENDAN H. LITTLE,

SEAN M. O'BRIEN, of Counsel

50 Fountain Plaza

Suite 1700

Buffalo, New York 14202

In this FDCPA action, by papers filed October 20, 2020 (Dkt. 17), Defendant

moves to compel arbitration1 or to dismiss the Complaint for lack of subject matter

jurisdiction or failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(a), (6); alternatively,

Defendant moves to stay the action pending arbitration (“Defendant’s motion”). On

November 20, 2020, Plaintiff filed Plaintiff’s opposition to Defendant’s motion,

contending Defendant’s failure to register the arbitration agreement with the American

Arbitration Association (“AAA”) and pay the AAA registration fee constituted a breach of

1 Motions to compel arbitration are non-dispositive. Kiewit Constructors, Inc. v. Franbilt, Inc., 2007 WL

2461919, at *1 n. 1 (W.D.N.Y. Aug. 24, 2007) (citing Herko v. Metropolitan Life Ins. Co., 978 F.Supp. 141,

142 n. 1 (W.D.N.Y. 1997)).

the arbitration agreement rendering the agreement unenforceable thereby allowing

Plaintiff to proceed with the instant action. Plaintiff’s underlying debt was initially

incurred as a result of Plaintiff’s retail installment purchases of a cellphone from seller

Purchasing Power (“Purchasing Power”) on March 29, 2018 , Dkt. 17-3 at 2; 3. Plaintiff

does not dispute that the retail installment purchase agreement contains an arbitration

provision which covers Plaintiff’s failure to make payments required under the terms of

the agreement or that the arbitration agreement applies to an assignee of Purchasing

Power such as Defendant. Nor does Plaintiff dispute Plaintiff’s FDCPA claims are

within the scope of the arbitration agreement. Specifically, the arbitration agreement

requires either Plaintiff or Defendant to seek arbitration of any dispute arising under the

retail installment purchase agreement including “contract claims, tort claims, violations

of laws or regulations, or any other legal theories.” Dkt. 17-3 at 12. As relevant to

Defendant’s motion to compel arbitration, the arbitration agreement specifies a request

to arbitrate a dispute between the parties may be made to the AAA (or other arbitration

service approved by Defendant) and that Defendant, as assignee of Purchasing Power,

will pay the costs and fees required for the arbitration. Id.

Preliminarily, contrary to Defendant’s argument that mandatory arbitration divests

the court of subject matter jurisdiction over this action, Dkt. 17-1 at 6-7, the Second

Circuit has held that unlike subject matter jurisdiction which can never be waived, the

right to arbitrate is an affirmative defense that can be waived. Brookridge Funding

Corp. v. Northwestern Human Resources, Inc., 170 Fed.Appx. 170, 171 (2d Cir. 2006)

(rejecting argument that court lacks subject matter jurisdiction based on contractual

arbitration clause). There thus is no merit to this argument. Further, as discussed,

infra, because Defendant’s motion to compel arbitration should be granted and the

action stayed pending arbitration, the court need not address whether Defendant’s

alternative motion to dismiss for failure to state a claim should be granted.

As noted, Plaintiff does not dispute the Plaintiff’s FDCPA claims are subject to

the arbitration agreement as Plaintiff previously stipulated to dismiss Plaintiff’s earlier

FDPCA action, 20-CV-551, “so the matter could proceed to arbitration,” Dkt. 19 at 3; in

particular, Plaintiff’s stipulation to dismiss “reaffirms the ‘agreement of the parties to

arbitration.’” Dkt. 19 at 3. After Plaintiff initiated arbitration with the AAA and paid the

$200 fee required by the AAA despite the Defendant’s obligation to cover such costs

under the arbitration agreement, the AAA declined to accept the requested arbitration

because Defendant had failed to register the arbitration agreement as required by the

AAA and refunded Plaintiff’s fee. Dkt. 19 at 3. According to Plaintiff, after being so

advised, Defendant nevertheless failed to promptly register with the AAA and pay the

required registration fee. Id. Defendant disputes Plaintiff’s characterization and

represents it has not refused arbitration or to pay all required fees but has attempted,

albeit so far without success, to comply with all AAA requirements. See Dkt. 20 at 2.

Defendant also asserts the AAA would proceed with arbitration if court ordered, Dkt. 20

at 5, an assertion not disputed by Plaintiff. See also Dkt. 17-15 at 2 (June 1, 2020 e-

mail from AAA stating the AAA “would comply with a court order compelling arbitration

between the parties.”).

Arbitration agreements are enforceable in federal court pursuant to the Federal

Arbitration Act (“FAA”) Section 2. Salerno v. Credit One Bank, NA, 2015 WL 6554977,

at *3 (W.D.N.Y. Oct. 29, 2015). Arbitration is strongly favored by federal courts. Moses

H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); State of

New York v. Oneida Indian Nation of N.Y., 90 F.3d 58, 61 (2d Cir. 1996). Whether an

agreement to arbitration is enforceable is determined by reference to state contract law.

Id. (quoting Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002) (citing First Options

of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). As relevant, a material breach of

an otherwise valid arbitration provision will vitiate the agreement. Nadeau v. Equity

Residential Properties Management, 251 F.Supp.3d 637, 641 (S.D.N.Y. 2017)

(“Nadeau”). In addition to compelling arbitration, the FAA also permits the court to stay

judicial proceedings pending arbitration provided the applicant is not in default. See 9

U.S.C. § 3; see Baker & Taylor, Inc. v. AlphaCraze.com Corp., 602 F.3d 486, 492 (2d

Cir. 2010) (concluding defendant defaulted and waived right to compel arbitration by

proceeding to litigate in district court for eight months during which time the plaintiff

engaged in discovery and motion practice with other defendants yet the defendant

never appeared, never sought to defend itself in any way, and never moved to compel

arbitration). Such a stay is favored by federal courts. See Salerno, 2015 WL 6554977,

at *6 (citing Katz v. Cellco P’Ship, 794 F.3d 341, 346 (2d Cir. 2015)).

Here, the record supports that Defendant’s difficulties in obtaining registration of

the arbitration agreement for the AAA’s due process review and Defendant as a

business entity with the AAA as well as payment of the requisite registration fees do not

indicate a material breach of the arbitration agreement or that Defendant is in default for

purposes of a stay of proceedings in the action. Although the communications between

Defendant and the AAA leave one perplexed as to why the AAA registration

requirements were not expeditiously satisfied at that time, it is reasonably clear that the

failure does not bespeak a refusal by Defendant to proceed to arbitration or pay the

required fees; rather, it supports, at most, Defendant’s lack of sufficient persistence to

accomplish what should be a routine process of administrative compliance.

Accordingly, Defendant’s failure to satisfy AAA requirements cannot support that

Defendant is in material breach of the arbitration agreement based on refusal to

arbitrate. Defendant’s undisputed continued willingness to pay the required fees as well

as the AAA’s willingness, Dkt. 20 at 5, to entertain arbitration of the matter in the event

of a court order compelling arbitration supports this conclusion. Additionally, the AAA

stated it will renew its consideration of Plaintiff’s claims upon completion of the

registration process and payment of AAA fees by Defendant. See Dkt. 17-15 at 1.

Plaintiff’s reliance on Nadeau does not require a different result as in that case

the defendant was found to have waived arbitration based on defendant’s refusal to pay

the required arbitration administration fee. See Nadeau, 251 F.Supp.3d at 641-42; see

also Spano v. V&J Nat’l Enterprises, LLC, 264 F.Supp.3d 440, 454 (W.D.N.Y. 2017)

(“Nadeau found the defendant had materially breached the arbitration agreement by

failing to pay the arbitration fee before AAA closed the case.” (citing Nadeau, 251

F.Supp.3d at 641-42)). Here, the AAA refused to accept the case because in addition

to a failure to pay the arbitration fee, the arbitration agreement had not been properly

registered with AAA as the AAA required and Defendant needed to obtain such

registration as a participating business which Defendant also sought to accomplish,

however unsuccessfully at that time. In Nadeau, the defendant’s indifference to AAA

filing and fee payment requirements contrasts sharply with Defendant’s efforts to

comply with AAA prerequisites to proceed with arbitration in this case. Nor does Pre-

Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287, 1294 (10th Cir.) cert. denied, 877 U.S.

940 (2015) (“Pre-Paid Legal Servs.”), also relied on by Plaintiff, Dkt. 19 at 7, support

Plaintiff’s opposition to Defendant’s motion as in that case plaintiff, as the applicant for

arbitration, was guilty of a “repeated refusal” to pay AAA’s fees despite plaintiff’s

obligation to do so under the arbitration agreement and the AAA determined arbitration

“had gone as far as it could” warranting termination of the proceedings. Here, by

comparison, the matter had not been docketed for arbitration by the AAA and Defendant

certainly has not refused to pay AAA’s fees. Thus, unlike the record in the instant case,

the facts in Pre-Paid Legal Servs. supported finding plaintiff’s failures to comply with

AAA’s fee requirements was “‘tantamount to a repudiation of the arbitration agreement.’”

Pre-Paid Legal Servs., Inc., 786 F.3d at 1294 (quoting Brown v. Dillard’s Inc., 430 F.3d

1004, 1011 (9th Cir. 2005)). Defendant’s delay in completing necessary arrangements

to AAA arbitration therefore should not frustrate the strong policy favoring arbitration,

particularly as in this case where Plaintiff sought arbitration of her claims at the outset.

See Moses H. Memorial Hospital, 460 U.S. at 24-25; Oneida Indian Nation of N.Y., 90

F.3d at 61. Instead, Defendant should be given a ‘last chance’ to arrange to have the

matter lodged with the AAA for arbitration. Plaintiff does not cite to any Second Circuit

authority requiring a different result.

CONCLUSION

Based on the foregoing, Defendant’s motion to compel arbitration (Dkt. 17) is

GRANTED; Defendant’s alternative motion to dismiss (Dkt. 17) is DISMISSED without

prejudice. Defendant shall complete all prerequisites for arbitration of Plaintiff’s claims

with the AAA within 30 days of this Decision and Order. Further proceedings of this

action are hereby STAYED pending arbitration and confirmation of the award pursuant

to FAA § 9. Should Defendant fail to do so, Plaintiff may request the STAY be vacated

and the action restored to the calendar for further proceedings.

SO ORDERED.

/s/ Leslie G. Foschio

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LESLIE G. FOSCHIO

UNITED STATES MAGISTRATE JUDGE

Dates: September 23, 2021

Buffalo, New York