Case Name: ??? Lore Emily Karamcheti v. Midland Funding, LLC, et al.
Case No.:??????? 2015-1-CV-283437
Currently before the Court is defendant Midland Funding, LLC?s (?Defendant?) petition to compel arbitration.
- Factual and Procedural Background
This is a consumer class action. On July 22, 2015, plaintiff Lore Emily Karamcheti (?Plaintiff?), on behalf of herself and others similarly situated, filed her complaint against Defendant, asserting one cause of action for violation of the California Fair Debt Buying Practices Act (the ?Act?). In the complaint, Plaintiff alleges the following: Plaintiff purportedly incurred a financial obligation in the form of a consumer credit account issued by Citibank, N.A. (?Citibank?). (Compl., ? 11.) After Citibank sold the debt to Defendant for collection, Defendant sent a communication to Plaintiff without providing the disclosure required by the Act. (Compl., ?? 14, 18.)
On April 4, 2016, Defendant filed the instant petition to compel arbitration. Plaintiff filed her opposition on April 13, 2016. On April 19, 2016, Defendant filed its reply. On April 26, 2016, the Court requested supplemental briefing from the parties concerning the choice of law provision in the arbitration agreement. The parties both filed supplemental briefs on May 9, 2016.
- Request for Judicial Notice
In support of its petition, Defendant asks the Court to take judicial notice of the complaint and a discovery order in this action. The request for judicial notice is GRANTED. (See Evid. Code, ? 452, subd. (d) [stating that the court may take judicial notice of court records].)
In connection with its reply brief, Defendant requests that the Court take judicial notice of Citibank?s 2011 Form 8-K submitted to the Securities and Exchange Commission. The request is GRANTED only as to the existence of the document. (See StorMedia, Inc. v. Sup. Ct. (1999) 20 Cal.4th 449, 456, fn. 9 [taking judicial notice of the existence of proxy statement and registration statement filed with SEC].)
III. Petition to Compel Arbitration
??????????? Defendant moves for an order compelling Plaintiff to arbitrate her claims under Code of Civil Procedure sections 1281.2 and 1281.4.
- Legal Standards
Pursuant to Code of Civil Procedure section 1281.2, a court must grant a petition to compel arbitration ?if it determines that an agreement to arbitrate?exists?.? On a motion to compel arbitration, the moving party must prove by a preponderance of the evidence the existence of the arbitration agreement and that the dispute falls within the scope of the agreement. (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842; see also Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396 [stating that under both federal and state law, ?the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate?].) The burden then shifts to the resisting party to prove by a preponderance of the evidence a ground for denial such as waiver or revocation. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413).
If a court ?has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.? (Code Civ. Proc.,??? ? 1281.4.)
- Existence of An Arbitration Agreement Between the Parties
??????????? Defendant asserts that an agreement to arbitrate exists between the parties governed by the Federal Arbitration Act (?FAA?) and South Dakota law. In particular, it contends that Plaintiff agreed to terms of a credit card account agreement, which includes an arbitration provision, by using the credit card. In opposition, Plaintiff asserts that no such contract was formed between the parties because she never manifested her assent to be bound by the arbitration provision.
- Choice of Law
??????????? Preliminarily, the Court must determine whether to apply federal, California or South Dakota law in determining the existence of the agreement.
Defendant asserts that the Court must apply federal law in determining whether an arbitration agreement exists between the parties because the arbitration agreement at issue references the FAA. This argument lacks merit because it is well-established that courts must apply state law governing the formation of contracts to determine whether the parties agreed to arbitration. (See First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944 [stating that ?[w]hen deciding whether the parties agreed to arbitrate a certain matter, courts generally ? should apply ordinary state-law principles that govern the formation of contracts?]; Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1466 [stating that ?the FAA relies on state-law contract principles in determining whether an arbitration agreement exists? because ?there is no federal general common law under the FAA?]; Comedy Club, Inc. v. Improv West Associates (9th Cir. 2009) 553 F.3d 1277, 1284 [same]; Douglas v. U.S. Dist. Court for Cent. Dist. of California (9th Cir. 2007) 495 F.3d 1062, 1067, fn. 2 [same].) Accordingly, the FAA is inapplicable.
Whether to apply California or South Dakota contract law is a closer inquiry. Courts have characterized this type of determination as a quintessential ?chicken-and-egg? question because ?to determine whether a valid agreement exist[s], the Court must decide which state?s contract law applies; to decide which state?s contract law applies, the Court must determine whether a valid agreement exist[s].? (Campos v. Bluestem Brands, Inc. (D. Or., Sept. 30, 2015, No. 3:15-CV-00629-SI) 2015 WL 5737601, at *5.) However, the Court need not engage in this circular inquiry as long as both California and South Dakota law dictate the same outcome. (See Nguyen v. Barnes & Noble Inc. (9th Cir. 2014) 763 F.3d 1171, 1175 [stating that the court ?need not engage in this circular inquiry because both California and New York law dictate the same outcome?]; see also Wynn v. Five Star Quality Care Trust (M.D. Tenn., June 5, 2014, No. 3:13-CV-01338) 2014 WL 2560603, at *5 [applying both Tennessee and Maryland contract law].) Since the parties do not identify any difference between South Dakota and California law as relevant to this determination, and no such difference is reasonably apparent, the Court will apply both South Dakota and California law in determining whether the parties entered into an agreement to arbitrate.
- Legal Standards Re: Existence of Contract
?[T]he threshold question presented by petition to compel arbitration is whether there is an agreement to arbitration. This threshold inquiry stems from the basic premise that arbitration is consensual in nature. The fundamental assumption of arbitration is that it may be invoked as an alternative to the settlement of disputes through the judicial process solely by reason of an exercise of choice by [all] parties. Thus, notwithstanding the cogency of the policy favoring arbitration and despite frequent judicial utterances that because of that policy every intendment must be indulged in favor of finding an agreement to arbitrate, the policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate.? (Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, 861, internal citations omitted; see also Masteller v. Champion Home Builders, Co. (S.D. 2006) 723 N.W.2d 561, 564 [stating that ?[w]hile arbitration agreements are favored, they are a matter of consent not coercion? and ?the law requires that there be a valid agreement to arbitrate before parties will be compelled to arbitrate a dispute?].) ?[M]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.? (Nguyen v. Barnes & Noble Inc. (9th Cir. 2014) 763 F.3d 1171, 1175.) ?Mutual assent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions or understandings.? (HM DG, Inc. v. Amini (2013) 219 Cal.App.4th 1100, 1109, internal citations omitted; see also Read v. McKennan Hosp. (S.D. 2000) 610 N.W.2d 782, 786 [stating that mutual assent to a contract does not exist unless the parties all agree upon the same thing in the same sense and must be determined by considering the parties? words and actions].)
- Summary of Evidence
In support of its petition, Defendant principally relies on the declaration of Mike Burger and the attachments thereto. In his declaration, Mr. Burger states the following: (1) he is a duly authorized custodian of records for Midland Credit Management, Inc. (?MCM?), a corporate affiliate of Defendant; (2) as a custodian of records, he is knowledgeable about how MCM maintains and oversees credit card agreements, loan agreements, terms and conditions governing each account, debt collection records, account purchase and transfer information, billing records, and other account information relevant to the accounts and debts Defendant purchases; (3) when Defendant purchases a pool of accounts, MCM receives the name of the debtor on the account, the account number, the amount of the debt, the date of the last payment on the account and the date of charge off; (4) MCM receives documentation from the original creditor including billing records and the terms and conditions to which the account was subject at the time of charge-off; (5) on January 30, 2014, Defendant purchased from Citibank a pool of charged-off accounts including the account ending in account number 763 (the ?763 account?); (6) the sale was memorialized on January 20, 2015 via a bill of sale and assignment between the parties; (7) MCM requested and received certain billing records and a card agreement applying to the 763 account at the time of the last purchase on the account; (8) based on his review of the records received from Citibank, the card agreement was sent to Plaintiff; and (9) the account agreement was sent to Plaintiff in 2010 because it appears to be dated ?10/10.?
Attached to Mr. Burger?s declaration are the following: (1) a business records affidavit signed by Daniel J. Fisher, a document control officer for Citibank, which states that there are 39 pages of records from ?the business records of Citibank, or a predecessor in interest, for the account of Lore E. Karamcheti, account number ending in 763?; (2) a card agreement containing an arbitration clause; (3) account statements addressed to Lore E. Karamcheti, 2415 Rinconada Dr. Apt. 19, San Jose, CA 95125-2830; and (4) a bill of sale and assignment of certain accounts signed by Patricia Hall on behalf of Citibank.
Defendant also submits the declaration of its counsel, Thomas Landers, attaching the same business records, letters between counsel in this action, and a discovery order.
In support of her opposition, Plaintiff exclusively relies on her declaration, in which she states that she did not receive or agree to be bound by the terms of the card agreement presented in support of the petition. (Karamcheti Decl., ? 4.)
- Evidentiary Objections
??????????? Plaintiff asserts several objections to the evidence submitted in support of Defendant?s motion on the grounds of lack of foundation, hearsay, the secondary evidence rule, conclusory statements of law, and the rule of completeness.
- Lack of Foundation and Hearsay
??????????? Plaintiff objects to the banking records attached to Mr. Burger?s and Mr. Lander?s declarations on the grounds of hearsay and lack of foundation. In response, Defendant contends that Mr. Burger is a qualified witness sufficiently knowledgeable to lay the foundation for the introduction of these records.
- Legal Standards Governing Business Records
?? Exception
California Evidence Code section 1271 provides that evidence of a writing made as a record of an act, condition, or event is not made inadmissible by the hearsay rule when offered to prove the act, condition, or event if: (a) The writing was made in the regular course of a business; (b) The writing was made at or near the time of the act, condition, or event; (c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and (d) The sources of information and method and time of preparation were such as to indicate its trustworthiness. (See also S.D.C.L., ? 19-19-803 [employing almost identical language in enumerating the business records exception to the hearsay rule].)
- Analysis
??????????? The Court?s analysis of these objections is guided by two recent appellate division opinions, Sierra Managed Asset Plan, LLC v. Hale (2015) 240 Cal.App.4th Supp. 1 (?Hale?) and Unifund CCR, LLC v. Dear (2015) 243 Cal.App.4th Supp. 1 (?Dear?), which address whether a custodian of records for a collection company could lay a foundation for billing statements received from the original creditor.
In Hale, the plaintiff, a collection company, submitted a declaration in support of a limited civil action for non-payment of a credit card debt. (Hale, supra, 240 Cal.App.4th Supp. at p. 3.) In his declaration and subsequent testimony, the plaintiff?s witness stated that he was thoroughly familiar with the manner and method by which the plaintiff collection company maintained its books and records and the documents the plaintiff received from the underlying creditor accurately reflected the creation of the account as well as the charges, billing, and balances due on the account. (Id. at pp. 8-9.)? The Hale court found that the declaration and testimony could not lay a foundation for the application of the business records exception to the hearsay rule because the information provided did not permit the court ?to determine that ?[t]he sources of information and method and time of preparation were such as to indicate its trustworthiness.?[Citation omitted.]? (Id. at p. 9.)
In Dear, the plaintiff submitted a similar declaration in support of a limited civil action for the non-payment of a credit card debt. (Dear, supra, 243 Cal.App.4th Supp. at p. 5.) The Dear court expressly disagreed with Hale, explaining that ?the criteria for establishing that a document is subject to the business records exception to the hearsay rule may be inferred from the circumstances? and ?it is presumed that in the preparation of [banking] records not only that the regular course of business is followed but that the books and papers of the business truly reflect the facts set forth in the records brought to the court.? (Id. at p. 8, internal citations omitted.) Accordingly, the court found that the ?credit card statements issued by the bank are admissible as the mode and method of preparation can be inferred from the circumstances and the identity of the documents themselves.? (Id. at p. 11.)
The Court finds Dear to be more consistent with the policy underlying the business records exception than Hale. The purpose of business records exception is to eliminate the necessity of calling all witnesses who were involved in a transaction or event ?based on the recognition that records made and relied upon in the regular course of business may be regarded as trustworthy without verification by all the persons who contribute to them.? (People v. Crosslin (1967) 251 Cal.App.2d 968, 975; see also Bentz v. Cimarron Ins. Co. (1962) 79 S.D. 510, 516-517 [stating that the business records hearsay exception is ?based on the premise that entries and memoranda made in the regular course of business contemporaneously with an act, condition or event are circumstantially trustworthy having been made before any issue arises and before any motive to misrepresent occurs? and ?[t]o effectuate its purpose the act should be liberally construed?]; Gee v. Timineri (1967) 248 Cal.App.2d 139, 146 [stating that there is ?a policy of great liberality regarding the foundational requirements for use of evidence pertaining to business records?].) As such, the mere fact that a declarant is not an employee or agent of the originator of the records does not render business records inadmissible. (See People v. Lugashi (1988) 205 Cal.App.3d 632, 641 [finding that an experienced credit card fraud investigator could authenticate bank records even though she was not an official custodian of the records].)
In addition, courts have consistently found these types of bank records to be admissible under the business records exception because the source, manner, and time of preparation of bank records are well-established. (See Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 524 [stating that ?[b]ank records are admissible as business records?]; Bentz v. Cimarron Ins. Co. (1962) 79 S.D. 510, 517 [finding letters, inter-office memoranda and even recordings of telephone conversations by bank employees admitted as business records].) The Court of Appeal in People v. Dorsey (1974) 43 Cal.App.3d 953, 960-961 explained the rationale supporting these decisions as follows: ?[W]e believe that bank statements prepared in the regular course of banking business and in accordance with banking regulations are in a different category than the ordinary business and financial records of a private enterprise. It is common knowledge that bank statements on checking accounts are prepared daily and that they consist of debit and credit entries based on the deposits received, the checks written and the service charges to the account. We fail to see where appellant has been prejudiced by the absence of testimony as to the ?method? of preparation of the records, i.e., whether by hand or by computer and from what sources. Such testimony would not have any bearing on the basic trustworthiness of the records. While mistakes are often made in the entries on bank statements, such matters may be developed on cross-examination and should not affect the admissibility of the statement itself.?
The same rational applies here. Given that the source of information, method, and time of preparation of the banking records at issue are considered sufficiently trustworthy to support their admissibility, excluding these records on the sole ground that Mr. Burger is not an agent or employee of Citibank is unwarranted. Accordingly, Plaintiff?s objections on the grounds of hearsay and lack of foundation are OVERRULED.
- Remaining Objections
Plaintiff?s remaining objections on the grounds of the secondary evidence rule, conclusory statements of law, and the rule of completeness are OVERRULED. (See People v. Garcia (1988) 201 Cal.App.3d 324, 329 [stating that the burden is on the objecting party to raise a genuine issue under the secondary evidence rule as to the authenticity of the original document or to demonstrate it would be unfair to use the duplicate]; Colombo v. BRP US Inc. (2014) 230 Cal.App.4th 1442, 1485 [indicating that the rule of completeness does not apply unless objecting party moves to admit purportedly excluded evidence].)
- Discussion
Defendant contends that Plaintiff agreed to the arbitration agreement at issue because she used a Citibank credit card and Citibank sent the instant arbitration agreement to her in 2010.[1]
Under both California law and South Dakota law, the acceptance of the benefit of a transaction constitutes consent to all the obligations arising from it so far as the facts are known or ought to be known to the person accepting. (S.D.C.L, ? 53-5-5; Civ. Code, ? 1589; see also Masteller, supra, 723 N.W.2d at p. 565 [stating that ?[a]n offeree that takes the benefit of services offered is bound by the terms of the offer if the offeree had a reasonable opportunity to reject them?].) Thus, Plaintiff?s use of a Citibank credit card coupled with knowledge of the terms of the account agreement and a reasonable opportunity to reject those terms could constitute assent to the agreement. That being said, Defendant does not produce sufficient evidence to demonstrate by a preponderance of the evidence that Plaintiff used the credit card or that she had a reasonable opportunity to reject the terms of the arbitration agreement.
With respect to the use of the credit card, the only evidence Defendant provides is a series of account statements from 2014 addressed to ?Lore E Karamcheti,? 2415 Rinconada Dr., Apt. 19, San Jose, CA. (Burger Decl., Ex. 4.) It submits no evidence, however, linking Plaintiff to that address or the payments disclosed on those account statements. (See Sierra Managed Asset Plan, LLC v. Hale (2015) 240 Cal.App.4th Supp. 1, 4 [indicating that account statements with the same name and address as the litigant tend to establish the use of the account].) Accordingly, since Defendant presents no evidence establishing that Plaintiff actually used the credit card, it fails to demonstrate that she accepted the benefits of the transaction, a necessary predicate of the manifestation of consent to the terms of the arbitration agreement.
More significantly, Defendant provides no evidence indicating that Plaintiff ever had a ?reasonable opportunity to reject the agreement.? (Masteller, supra, 723 N.W.2d at p. 565.) Specifically, Defendant does not establish that Citibank ever sent the arbitration agreement to Plaintiff for her review. In his declaration, MCM?s custodian of records, Mr. Burger, suggests that the account agreement must have been sent to Plaintiff because Citibank provided MCM with ?the card agreement that applied to Plaintiff?s Citibank account at the time of Plaintiff?s last purchase on the account and at the time of charge-off.? (Burger Decl., ? 8.) This argument lacks merit because Citibank?s mere possession of a standard account agreement does not demonstrate that said agreement was ever sent to Plaintiff. Next, Mr. Burger asserts that the date reflected on the account agreement suggests that it was sent to Plaintiff. In this respect, he states that, since the agreement is dated ?10/10,? the agreement was in existence in 2010. (Burger Decl., ? 11.) He apparently posits that since the agreement was created in 2010, it must have been sent to Plaintiff in 2010. Again, evidence that the card agreement existed in 2010 does not establish that it was sent to Plaintiff. Given that Defendant does not show that Citibank ever sent the arbitration agreement Plaintiff for her review, Defendant does not meet its burden of establishing that Plaintiff entered into the arbitration agreement at issue.
In reply, Defendant first argues that Plaintiff is presumed to have received the account agreement because there is a rebuttable presumption that an item properly mailed is received by the addressee. This argument is not well-taken because Defendant does not submit any evidence indicating that the account agreement was properly addressed or mailed. (See Cal. Evid. Code, ? 641 [stating that only a letter correctly addressed and properly mailed is presumed to have been received in the ordinary course of mail]; Ebert v. Fort Pierre Moose Lodge No. 1813 (S.D. 1981) 312 N.W.2d 119, 126 [stating that no presumption will arise that a letter sent was received unless it is shown that it was properly addressed and stamped].)
Next, Defendant contends that federal district courts have granted motions to compel arbitration even where the plaintiff did not sign, read, or receive the credit card agreement. These cases are distinguishable as none of them apply California or South Dakota contract law. (See Ineman v. Kohl?s Corp. (W.D. Wis., Mar. 26, 2015, No. 14-CV-398-WMC) 2015 WL 1399052, at *4 [applying Delaware, Ohio and Wisconsin law]; Brown v. Federated Capital Corp. (S.D. Tex. 2014) 991 F.Supp.2d 857, 861 [applying Texas law]; Karmolinski v. Equifax Information Services, LLC (D. Or., Oct. 31, 2005, No. CIV. 04-1448-AA) 2005 WL 7213289, at *2 [applying Delaware law].) As previously discussed, the Court is obligated to apply either California or South Dakota law, which state an offeree is only bound by the terms of the offer if the offeree had a reasonable opportunity to reject them. (Masteller, supra, 723 N.W.2d at p. 565; see also Long, supra, 245 Cal.App.4th at p. 865 [stating that ?an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware??].) As such, these federal cases are inapplicable on this basis alone.
In addition, in several of the cases relied upon by Defendant, the federal district courts base their decisions on the ground that the party opposing arbitration at least had the opportunity to review the credit card agreement. (See Decker v. Advanced Call Center Technologies, LLC (W.D. Mich., Oct. 3, 2014, No. 1:14-CV-795) 2014 WL 4976771, at *2 [stating that the bank mailed the plaintiff a copy of the agreement; Karmolinski, supra, (D. Or., Oct. 31, 2005, No. CIV. 04-1448-AA) 2005 WL 7213289, at *3 [the bank submitted evidence of the usual business of mailing a copy of the card member agreement to new card holders].) Since Defendant fails to present evidence indicating that Citibank ever provided Plaintiff with the opportunity to read the card agreement at issue, these cases are simply inapposite.
In sum, Defendant fails to demonstrate by a preponderance of the evidence that Plaintiff ever used the credit card or provided Plaintiff with the opportunity to review the account agreement at issue. Accordingly, Defendant does not establish that an agreement to arbitrate exists between the parties and, therefore, the petition to compel arbitration is DENIED.
[1] Defendant does not argue or attempt to prove that Plaintiff executed an express written contract with Citibank.