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Atkinson v. Harpeth Financial Services, LLC

United States District Court, M.D. Tennessee, Nashville Division

May 22, 2017

WENDY ATKINSON, individually and on behalf of other members of the general public similarly situated, Plaintiff,
v.
HARPETH FINANCIAL SERVICES, LLC, MICHAEL HODGES, and TINA HODGES, Defendants.

          MEMORANDUM

          ALETA A. TRAUGER United States District Judge.

         The defendants have filed a Petition to Compel Arbitration and Dismiss Plaintiffs' Complaint or, in the Alternative, Stay the Action Pending Resolution of Arbitration (the “Petition”) (Docket No. 11), to which the plaintiff has filed a Response in Opposition (Docket No. 15), and the defendants have filed a Reply (Docket No. 20). For the reasons stated herein, the Petition will be granted.

         PROCEDURAL & FACTUAL BACKGROUND

         Harpeth Financial Services, LLC (“Harpeth Financial”) is a Tennessee limited liability company that does business under the name Advance Financial and provides short-term loans to consumers. (Docket No. 1 ¶¶ 8, 10.) The plaintiff, Wendy Atkinson, alleges that Harpeth Financial and its co-owners - Michael and Tina Hodges - engaged in an extortionate scheme whereby they refused to service their customers' existing loans and, by threatening default on those loans, forced their customers to take out additional “FLEX” loans with far more onerous terms. (Id. ¶¶ 10-13.) Ms. Atkinson brings claims against Harpeth Financial for breach of contract and against the Hodges for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., on behalf of herself and “[a]ll Advance Financial customers who entered into a short-term loan agreement, and subsequently transferred the balance of the short-term loan to a FLEX loan, after Advance Financial stopped servicing its short-term loan products.” (Id. ¶¶ 48-87.) The defendants now seek an order compelling arbitration of Ms. Atkinson's claims and dismissal of this action or, in the alternative, a stay of the matter pending resolution of the arbitration. (Docket No. 11.)

         I. The Petition

         On April 6, 2017, the defendants filed the Petition (Docket No. 11), accompanied by a Memorandum in Support (Docket No. 12) and the Affidavit of Michael Hodges (the “First Hodges Affidavit”), which attaches two loan agreements between Ms. Atkinson and Advance Financial (Docket No. 13).[1] The first of these attached agreements demonstrates that, on May 15, 2015, Ms. Atkinson took out a short-term loan for $1025 from Harpeth Financial at an annual percentage rate of 104.63%, to be repaid in installments. (Docket No. 13-2.) The instrument memorializing this loan (the “Installment Agreement”) contains an arbitration clause that provides, in part, that:

Any Dispute by either [the plaintiff] or [Advance Financial] against the other, or against the employees, agents, or assigns of the other, will, upon election by either [the plaintiff] or [Harpeth Financial], be resolved by binding arbitration, including the applicability of this arbitration provision or the validity of the entire [Agreement].

(Id. at p. 2.) This arbitration clause defines the term “Dispute” broadly, to include, “without limitation, any claim, dispute or controversy arising from or relating, directly or indirectly, to this [Agreement].” (Id.) Ms. Atkinson's signature appears at the end of this arbitration clause and again at the end of the Installment Agreement. (Id. at p. 3.)

         The second of the agreements attached to the First Hodges Affidavit demonstrates that, on May 29, 2015, Ms. Atkinson converted the remaining balance on her installment loan into a flexible loan - called a FLEX loan - with a credit limit of $1450 at an annual percentage rate of 279.50%. (Docket No. 13-5.) The instrument memorializing this loan (the “FLEX Agreement”) contains an arbitration clause providing that the parties will resolve all “Dispute[s]” through arbitration, with the term “Dispute” defined as follows:

In this Clause, the word “Disputes” has the broadest possible meaning. This Clause governs all “Disputes” involving the parties. This includes all claims even indirectly related to your application and agreements with us. This includes claims related to information you previously gave us. It includes all past agreements. It includes extensions, renewals, refinancings, or payment plans. It includes all claims related to collections, privacy, and customer information. It includes claims related to setting aside this Clause. It includes claims about the Clause's validity and scope. It includes claims about whether to arbitrate.

(Id. at p. 4.) The FLEX Agreement also provides a 60-day period during which a customer can inform Advance Financial in writing that she chooses to opt out of the arbitration clause. (Id. at p. 5.) At the end of the Flex Agreement is a statement indicating that it was electronically signed by Ms. Atkinson. (Docket No. 13-5, p. 6.)

         On March 27, 2017 - shortly after Ms. Atkinson filed this action - the defendants initiated arbitration of her claims. (Docket No. 12, p. 4.) The defendants then filed the Petition, requesting that the court compel arbitration of Ms. Atkinson's claims and dismiss the Complaint for lack of subject-matter jurisdiction, or - in the alternative - stay this action pending resolution of the arbitration. (Docket No. 11.) The defendants argue that Ms. Atkinson's claims are properly subject to the FLEX Agreement's arbitration clause, which “[b]y its terms, . . . supersedes the dispute resolution procedures set forth in ‘all past agreements' between the parties, including [the] prior Installment Agreement[].” (Docket No. 12, pp. 3, 5-6). The defendants acknowledge that Ms. Atkinson has challenged the application of this arbitration clause to her claims, but they argue that the “delegation provision” contained in that clause - which requires the parties to arbitrate “claims related to setting aside [the Clause[, ] . . . claims about the Clause's validity and scope[, ] . . . [and] claims about whether to arbitrate” - requires that an arbitrator, and not this court, determine the arbitrability of Ms. Atkinson's claims. (Id. at p. 7 (quoting Docket No. 13-5, p. 4).) As support for this argument, the defendants cite the Supreme Court's decision in Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), which held that, when a party opposing arbitration raises no specific challenge to the enforceability of a delegation provision in an arbitration clause, the provision is enforceable and threshold questions concerning the arbitrability of the parties' claims must be referred to arbitration. (Id. at pp. 7-9.)

         Even if the court were to determine that the FLEX Agreement or its arbitration clause were invalid, the defendants argue that this matter must still be referred to arbitration. (Id. at pp. 10-11.) If the FLEX Agreement or its arbitration clause are not valid, the defendants contend, then it cannot supersede the dispute resolution procedures set forth in the parties' previous Installment Agreement, which also contains an arbitration clause and delegation provision. (Id.) Moreover, the defendants argue that Ms. Atkinson alleged no basis for setting aside the arbitration clause or delegation provision found in the Installment Agreement but, rather, “affirmatively suggest[s] [the contract's] validity by claiming that the Installment Agreement[] [is a] ‘valid contract[], supported by good consideration.'” (Id. (quoting Docket No. 1 ¶ 81).) Accordingly, the defendants argue that, no matter which of the two agreements currently governs the relationship between the parties, Ms. Atkinson's claims are subject to a valid arbitration agreement that requires the delegation of all issues of arbitrability to an arbitrator.

         Finally, the defendants request that the court dismiss Ms. Atkinson's claims. The defendants acknowledge that “the FAA mandates, at a minimum, that this action be stayed pending the resolution of arbitration.” (Id. at p. 11 (citing 9 U.S.C. § 3).) Arguing that dismissal may be appropriate when a plaintiff's claims, “on their face, . . . so clearly fall within the scope of an arbitration clause that there [is] no question as to their arbitrability, ” the defendants contend that the court should dismiss the Complaint against them, rather than merely staying the case. (Id. (quoting Dearmon v. Bestway Rent-To-Own, No. 3:14-cv-900, 2014 WL 1961911, at *2 (M.D. Tenn. May 15, 2014)).) According to the defendants, Ms. Atkinson's claims are “clearly governed” by the FLEX Agreement's arbitration clause - or, in the alternative, by the arbitration clause found in the Installment Agreement - and the entire action, therefore, should be dismissed rather than stayed. (Id. at pp. 12-15.)

         II. Ms. Atkinson's Response in ...


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