Tuesday, July 23, 2013

Motion to Compel Arbitration & Motion to Abate the Lawsuit


The obvious vehicle to give effect to an arbitration agreement when a lawsuit is already under way is a motion to compel arbitration, which is often combined with a motion to abate.

Public policy, both as the state level and at the federal level, favors arbitration, and the case law is also very favorable for parties that want to put a stop to litigation and arbitrate.

In order to be entitled to an order compelling arbitration, the proponent must prove two elements: (1) that a valid arbitration agreement exists between the parties in the lawsuit, and (2) that dispute in the lawsuit fall within its scope. The courts treat such a motion as similar to a motion for summary judgment.

The first element is far more significant in credit card debt litigation than the second. Why?
Because the arbitration agreement is contained in a cardmember agreement that is not signed by the Defendant; which implicates the question whether it is the correct agreement.

With respect to the second element, by contrast, there will rarely be any doubt at all that a failure to make payments on the account is covered by the scope as revealed in the wording of the arb provisions. The latter is a matter contract construction that requires an examination of the contract language; the former, however, requires extrinsic proof, and creditors and assignees don’t always have that kind of proof.

It is part of the creditor’s burden to prove that a particular unsigned agreement is the agreement under which the Defendant is liable. The Defendant can therefore assert in a response to a motion for summary judgment that the Plaintiff has not met that burden unless the plaintiff adduces contract-formation evidence to prove offer and acceptance with other evidence. Other evidence is need because there is no signature on the contract document to signify assent, and in most cases the cardholder’s name is not printed on the form contract either. Nor does the account number appear on it to establish a connection to the account on which the plaintiff sues. (Recent Amex  agreements are an exception in that regard).

If the Defendant wishes to move to enforce arbitration, he or she will have to either admit that the contract produced by the plaintiff is the correct one, or the defendant will have to come forth with the correct contract that was actually mailed by the card issuer, -- likely years earlier. Most consumers, of course, don’t keep monthly statements and other mailings from credit card companies. It is almost always the creditors or their assignees that produce a contract and claim it is the correct one, and sometimes do not do so either, be it for tactical reasons, or because they cannot locate the relevant agreement.

A move by the defendant or defendant’s counsel to enforce arbitration will make it necessary to waive any complaint about the contract produced by the Plaintiff not being the correct one, or about there being insufficient evidence to that effect (particularly under the summary judgment standard, which is higher than the one that applies at trial).


A way of avoiding the concession -- and treating the version of a card agreement produced by the debt plaintiff as being the correct one -- would be to offer the arbitration argument as a fallback. It would go something like this:

Should the court determine that the Plaintiff has established that the cardmember agreement offered by it as a summary judgment exhibit is the one that governs the parties’ relationship, despite the absence of conclusive evidence of contract-formation, the court should give effect to defendant’s right to have the dispute resolved by arbitration, instead of litigation. 

But a motion to compel arbitration is only one option. Attorneys representing defendants may consider moving for outright dismissal instead, based on the plaintiff's reliance on a credit card agreement that contains an arbitration clause (or, more likely, an arbitration agreement consisting of several paragraphs, rather than merely a single clause comparable to a choice-of-law clause).

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