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Victoria Butto and Lakesha Houser, On Behalf of Themselves and All Others v. Collecto Inc.

August 15, 2011


The opinion of the court was delivered by: Arthur D. Spatt United States District Judge


By: Jonathan D. Elliot, Esq., of Counsel SPATT, District Judge.

In this putative class action, the defendant Collecto Inc., d/b/a EOS/CCA ("Collecto") seeks to compel the plaintiffs Victoria Butto and Lakesha Houser to arbitrate their present claims, pursuant to an agreement to which Collecto is not a signatory. For the reasons that follow, the Court denies Collecto's motion to compel arbitration.


In 2007 and 2009, the plaintiffs Victoria Butto and Lakesha Houser entered into cell phone service contracts with, respectively, Verizon Wireless ("Verizon") and AT&T Mobility ("AT&T"). Both Butto and Houser then failed to pay their cell phone bills, and in response, Verizon and AT&T cancelled their service. After service termination, Butto's and Houser's accounts remained unpaid, and pursuant to standing collection agreements that Verizon and AT&T had with the defendant Collecto, Verizon and AT&T each requested Collecto to attempt to collect the overdue charges. Collecto complied, and on February 10, 2010 and February 11, 2010, Houser and Butto each respectively received a "Notice of Collection Placement" in the mail from the defendant Collecto. Each letter demanded payment of both "principal" and "Fees/Coll[section] Costs", in the following amounts:

Houser: demand for principal of $378.31 and collection costs of $68.27; Butto: demand for principal of $184.94 and collection costs of $33.29. (Compl., Exs. A & B.)

In response to these letters, Butto and Houser commenced the present putative class action against Collecto on June 23, 2010. Butto and Houser do not contest the principal amounts that Collecto seeks to recover, but rather assert that Collecto's demand for collection costs was improper. The plaintiffs maintain that, at the time Collecto mailed its Notices of Collection Placement, Collecto had no valid basis for seeking to recover collection costs from the plaintiffs and that doing so (1) violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"); (2) violated New York's consumer protection statute, NYGBL § 349; and (3) constituted common law fraud.

Collecto answered the plaintiffs' complaint, and then, on February 22, 2011, moved to compel Butto and Houser to arbitrate their claims. In moving to compel arbitration, Collecto relies on arbitration agreements contained in the service contracts that Butto and Houser each entered into when they purchased cell phone services from Verizon and AT&T. Although Collecto is not a party to either of these service contracts, Collecto maintains that the arbitration provisions in both contracts are sufficiently broad so as to bind Butto and Houser to arbitration not just with Verizon and AT&T, but also with Collecto. The plaintiffs dispute this conclusion.


A. Legal Standard on a Motion to Compel Arbitration

The Federal Arbitration Act ("FAA") provides that "a written provision in . . . a 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 . . . ." 9 U.S.C. § 2. The FAA was "enacted to replace judicial indisposition to arbitration," Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008), and is an expression of "a strong federal policy favoring arbitration as an alternative means of dispute resolution." Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001). The Second Circuit has said 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., 460 F.3d 231, 234 (2d Cir. 2006) (internal quotation marks omitted).

Nevertheless, arbitration "is a matter of consent, not coercion." Ross v. Am. Exp. Co., 547 F.3d 137, 143 (2d Cir. 2008) (citing Volt Info. Scis. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989)). As such, "‗a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit,'" Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 392 (2d Cir. 2011) (citing AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986)). Thus, "[w]hile the FAA expresses a strong federal policy in favor of arbitration, the purpose of Congress in enacting the FAA ‗was to make arbitration agreements as enforceable as other contracts, but not more so.'" Ross, 547 F.3d at 142--43 (citing JLM Indus., Inc v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir. 2004)) (emphasis in original). Consistent with these principles, "[t]he party seeking to compel arbitration has the burden of demonstrating by a preponderance of the evidence the existence of an agreement to arbitrate." Tellium, Inc. v. Corning Inc., No. 03-cv-8487, 2004 WL 307238, *5 (S.D.N.Y. 2004) (citing Progressive Cas. v. C.A. Reaseguradora Nacional, 991 F.2d 42, 46 (2d Cir. 1993)).

B. As to Collecto's Ability to Enforce the Arbitration Agreements

Here, Collecto faces the burden of showing that it may enforce the arbitration provisions set forth in the plaintiffs' service agreements, in spite of the fact that Collecto is not a party to those contracts. In Collecto's favor is the fact that, just as a non-signatory to an ordinary contract may at times be deemed a party to that contract, so too may a non-signatory to an arbitration agreement be at times deemed a party to that arbitration agreement. See, e.g., Smith/Enron Cogeneration Ltd. Partnership, Inc. v. Smith Cogeneration International, Inc., 198 F.3d 88, 97 (2d Cir. 1999) ("In this circuit, we have repeatedly found that non-signatories to an arbitration agreement may nevertheless be bound according to ordinary principles of contract and agency") (internal quotations omitted). In Smith/Enron, the Second Circuit noted that the bases for enforcing an arbitration agreement with regard to a non-signatory include the principles of "(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel." Id. (internal quotations omitted).

Here, Collecto relies on two of these principles in attempting to enforce the plaintiffs' arbitration agreements: namely, agency and estoppel. However, as the Court's analysis of estoppel ultimately includes a full ...

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