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KURZ v. CHASE MANHATTAN BANK USA

May 24, 2004.

DANIEL KURZ, Plaintiff, -against- CHASE MANHATTAN BANK USA, N.A., Defendant


The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge

OPINION AND ORDER

Plaintiff Daniel Kurz brings this action for statutory and actual damages against defendant Chase Manhattan Bank USA, N.A., alleging numerous violations of: (1) the Truth in Lending Act ("TEA"), 15 U.S.C. § 1601 et seq. and regulations promulgated thereunder; (2) the Fair Credit Billing Act ("FCBA"), 15 U.S.C. § 1666 et seq. and regulations promulgated thereunder; (3) the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq. and regulations promulgated thereunder; and (4) the New York Credit Billing Act, N.Y. GEN. Bus. LAW §§ 701-07.*fn1 (Complt. ¶¶ 9-10, 18-19, 25, 29, 31.) Plaintiff also alleges that defendant committed deceptive acts and practices in violation of N.Y. GEN. Bus. LAW §§ 349-50, and breached the contract between them. (Id. ¶¶ 35-36.) Plaintiff's claims arise from what he argues were unlawful actions taken by defendant, including the filing of counterclaims against him in an action previously brought by plaintiff against defendant in this Court and taking other discriminatory actions in retaliation for bringing that suit. Defendant has moved for an order dismissing the action and compelling arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 2-4, 6. For the reasons stated herein, we grant defendant's motion to compel arbitration and transfer the action to the Court's suspense docket pending the disposition of the arbitration proceedings.

  BACKGROUND

  Defendant is a federally chartered banking corporation with offices in New York. (Complt. ¶ 3.) Plaintiff first opened the credit account at issue with Manufacturers Hanover Trust Company in the mid-1970s. (Kurz Affm. ¶ 2.) The account agreement at that time was entitled "Retail Installment Credit Agreement" and was governed by New York law (the "original agreement"). (Id. ¶ 3.) It further provided that any amendment or modification of the agreement "may apply to, and affect, amounts owed on the date the amendment or modification is effective as well as amounts due for Cash Advances or Purchases made subsequent to such date." (Id. ¶ 3 & Ex. A, ¶ 13.) Ultimately, following a series of bank mergers and credit agreement amendments over the next two decades, in 1996, plaintiff's account was converted into a Chase MasterCard account with defendant. (Id. ¶¶ 4-6.) Since that time, plaintiff has had something less than the widely-advertised "right relationship" with defendant, which resulted in a successful action brought by plaintiff and other individuals alleging numerous TILA, FCBA and ECOA violations that was tried before Judge McMahon of this Court in July 2003. (Complt. ¶ 4.) In that action, defendant unsuccessfully asserted counterclaims against plaintiff for breach of contract, deceit and fraud, money had and received, conversion and unjust enrichment. (Id. ¶ 7.) Thereafter, plaintiff commenced the present action on July 28, 2003, alleging, inter alia, that the counterclaims were retaliatory and violated TILA, FCBA, ECOA and New York statutes. Defendant has now moved to compel arbitration and dismiss the present action pursuant to an arbitration clause in the credit agreement between the parties. Additional facts will be set forth as necessary.

  DISCUSSION

 I. Standard of Review

  The FAA provides, in relevant part: "A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA manifests "a `liberal federal policy favoring arbitration agreements.'" Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Indeed, the FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. at 24-25. Therefore, even where an arbitration agreement requires the arbitration of disputes involving a federal statute, the parties to a valid arbitration agreement are compelled to arbitrate `"so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum. . . .'" Gilmer, 500 U.S. at 28 (quoting Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 637 (1985)).

  The Second Circuit has enumerated the following factors to be considered when deciding whether to compel arbitration: (1) whether the parties agreed to arbitrate; (2) the scope of that agreement; (3) whether Congress intended the plaintiff's statutory claims to be nonarbitrable; and (4) if not all claims are arbitrable, the court must determine whether to stay proceedings on the balance of the claims. See Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 75-76 (2d Cir. 1998) (citing Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2d Cir. 1987)); Bird v. Shearson Lehman/Am. Express, Inc 926 F.2d 116, 118 (2d Cir. 1991). In the present case, the parties' dispute centers only on the first and second considerations. II. Whether the Parties Agreed to Arbitrate

  Whether the parties agreed to arbitrate is determined by state contract law. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (noting that state law governs determination of whether parties agreed to arbitrate); see also 9 U.S.C. § 2 (an agreement to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract"). This inquiry raises the threshold question of which state's law of contracts applies in the present case.

  A. Which State's Law Governs the Agreement?

  Plaintiff appears to argue, albeit without benefit of any supporting legal analysis, that whether the parties agreed to arbitrate their disputes should be resolved under New York law because he denies receipt of any notice amending the original agreement's choice-of-law provision to state that the agreement was governed by Delaware law. (PL Mem. Opp. Mot. Compel at 1-2.) Indeed, plaintiff's arguments about the enforceability of the arbitration clause are grounded in New York statutory and case law, and he does not address relevant Delaware law in his Memorandum. (Id. at 5-6.) Defendant argues in response that New York law does not apply because the choice-of-law provision in the cardholder agreement, mailed to plaintiff in and effective since 1996, expressly prescribes that the law of Delaware shall govern.*fn2 (Def. Reply Mem. Supp. Mot. Compel at 7-8.) Defendant also states that in the prior action between the parties, Judge McMahon concluded that Delaware law governed the parties' relationship, and argues that plaintiff is now estopped from arguing otherwise. (Id. at 7.)

  We conclude that Delaware law governs this dispute because Judge McMahon's determination on this issue in the prior action is entitled to collateral estoppel effect and thus may not be relitigated before this Court. In the prior action, plaintiff was one of several named plaintiffs that brought claims against defendant alleging numerous violations of TILA, FCBA and N.Y. GEN. Bus. LAW §§ 703, 349-50. Defendant moved pursuant to FED. R. Civ. P. 12(b)(6) to dismiss the plaintiffs' complaint for failure to state a claim. In ruling on that motion, Judge McMahon dismissed the plaintiffs' New York statutory claims with prejudice and concluded that they could not be sustained because "the credit agreement between plaintiffs and Chase identifies Delaware law as controlling," and "[a] state statutory claim cannot be sustained if another state's law governs the transaction." Turk v. Chase Manhattan Bank USA, No. 00 Civ. 1573, slip op. at 5 (S.D.N.Y. Feb. 16, 2001) (Def. Reply Mem. Supp. Mot. Compel, Ex. B.) In her order, she dismissed the plaintiffs' other claims with prejudice, although she granted them leave to replead claims arising under the FCBA. Turk, No. 00 Civ. 1573, at 4. Thereafter, plaintiffs reloaded the FCBA claims and prevailed on them at the subsequent bench trial. (Def. Reply Mem. Supp. Mot. Compel, Ex. A at 2-3.)

  The Second Circuit has held that for the doctrine of collateral estoppel to apply, four elements must be satisfied:

  (1) the issues of both proceedings must be identical, (2) the relevant issues were actually litigated and decided in the prior proceeding, (3) there must have been "full and fair opportunity" for the litigation of the issues in the prior proceeding, and (4) the issues were necessary to support a valid and final judgment on the merits. Cent. ...


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