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Caudill v. Cavalry Spv I, LLC

United States District Court, E.D. Kentucky, Central Division, Lexington

August 25, 2014

CAVALRY SPV I, LLC, et al., Defendants.


AMUL R. THAPAR, District Judge.

Contracts, by their nature, sometimes require and other times foreclose a desired course of action. In doing so, they reduce uncertainty for both parties, creating a predictable framework in which to pursue common interests. If one party could throw off such constraints at will, uncertainty would reign, rendering the contract as ineffectual as a modern-day challenge to duel.[1] Fortunately, contracts still have consequences.

Defendants Cavalry SPV I ("SPV") and Cavalry Portfolio Services ("CPS") have asked the Court to enforce the arbitration clause of a contract between GE Capital Retail Bank ("the Bank") and Billy Caudill. R. 18. Caudill seeks to avoid arbitration. R. 19. However, because Caudill entered into a valid arbitration agreement and his claims fall within the scope of that agreement, the Court will grant the motion to compel arbitration and stay Caudill's suit.


Like many Americans, Billy Caudill struggled financially in the wake of the 2008 economic downturn. R. 1 ¶ 1. During that time, he defaulted on a credit card issued by the Bank. See id. ¶ 11; R. 18-1 at 21. By May of 2012, SPV had purchased Caudill's debt from the Bank. R. 1 ¶ 22; R. 18-1 at 21 (certifying that the Bank's collections operations representative, David Stransky, had reviewed Caudill's account, which had been "sold to [SPV]"). According to SPV's authorized representative, Terry Rivera, SPV then assigned the debt to CPS for collection. R. 18-1 at 16 ("SPV assigned the Caudill Account to CPS, including an assignment of its servicing, collection, and enforcement rights."). A letter from CPS to Caudill puts the transfer in slightly different terms: "SPV... has referred your account to [CPS] for servicing." R. 19-2 at 1. Caudill claims that he owed a total of $1, 294.00 at the time of the debt transfer and that SPV and CPS charged him an additional $1, 452.00 in interest between May 2012 and December 2013. R. 1 ¶¶ 21-26. Rather than pay the full amount, Caudill filed nine claims against SPV and CPS, alleging that they charged exorbitant interest, and violated both the credit card agreement ("the Agreement") and the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("FDCPA"). R. 1 ¶¶ 28-29.

The defendants responded to Caudill's suit by moving to compel arbitration, citing a provision in the Agreement: "Any past, present or future legal dispute or claim of any kind, including statutory and common law claims and claims for equitable relief... will be resolved by binding arbitration if either you, we, or [the credit card company] elects to arbitrate." R. 18-1 at 1, 24. The Agreement defines "we" as "[the Bank] and all of its respective parents, subsidiaries, affiliates, predecessors, successors, assigns, employees, officers and directors." R. 19-3 at 5. The Agreement then expressly provided that the Bank had the right to "sell, assign or transfer any of [its] rights or obligations under [the] Agreement." Id. at 6.

The defendants assert that (1) SPV assumed the Bank's contractual rights under the arbitration clause when it purchased Caudill's account from the Bank, R. 20 at 4-5, and (2) CPS acquired contractual rights under the arbitration clause when SPV assigned Caudill's account to CPS for collection. Id. at 9-11. As a result, they argue, the Court must enforce the arbitration provision pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. R. 18-1 at 1. Caudill contends that because SPV and CPS were not parties to the original Agreement they cannot enforce the arbitration clause. R. 19.


The Federal Arbitration Act of 1925 ("FAA") enshrines in the United States Code "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). See also Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001) ("[T]he FAA compels judicial enforcement of a wide range of written arbitration agreements."). Under Section 2 of the FAA, an arbitration provision in a contract "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. When a party violates an agreement to arbitrate by instead bringing claims in a civil suit, the aggrieved party may ask a federal court to compel arbitration if there is an independent basis for jurisdiction. 9 U.S.C. § 4. To defeat a motion to compel arbitration, "the party opposing arbitration must show a genuine issue of material fact as to the validity of the agreement to arbitrate." Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002). The standard to defeat a motion to compel arbitration "mirrors that required to withstand summary judgment in a civil suit." Id. (citing Doctor's Assocs. v. Distajo, 107 F.3d 126, 129-30 (2d Cir. 1997)).

To determine whether there is a genuine issue about whether the plaintiffs violated a valid agreement to arbitrate, the Court applies a two-prong test inquiring whether (1) there is a valid agreement to arbitrate between the parties and (2) the specific dispute falls within the substantive scope of that agreement. Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003). State contract law governs the first prong-"the validity, revocability, and enforceability" of the contract itself. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996) (internal quotation marks omitted). Courts then examine the second prong in light of a strong "presumption of arbitrability." Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 301 (2010). "[A]ny ambiguities... should be resolved in favor of arbitration." Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). Where claims are premised upon a federal statute, that presumption shifts the burden to the party seeking to avoid arbitration, requiring it to demonstrate that "Congress intended to preclude arbitration of the statutory claims at issue" or that the parties did not intend to arbitrate statutory claims. Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 91-92 (2000).

For this Court, and for SPV, this inquiry covers familiar ground.[2] See Martin v. Cavalry SPV I, LLC, Civil No. 13-88-GFVT, 2014 WL 1338702 (E.D. Ky. Mar. 31, 2014). Here, Caudill argues under the first prong that no valid arbitration agreement exists between the parties. Under the second prong, he argues that, even if a valid arbitration clause exists, his claims fall outside the scope of the Agreement. Because Caudill fails to demonstrate a genuine dispute of a material fact under either prong, both arguments fail.

I. Whether A Valid Agreement Exists Between the Parties.

Caudill makes numerous arguments against the existence of a valid arbitration agreement between himself and the defendants. He claims that the defendants fail to establish that SPV purchased Caudill's debt from the Bank. R. 19 at 5. Even if SPV did purchase Caudill's debt, he argues, SPV did not properly document the assignment of the debt from SPV to CPS. Id. at 3. He argues that the transfer of debt from the Bank to SPV included receivables only, not any rights under the arbitration clause. Id. at 15. Finally, Caudill alleges a genuine dispute as to whether SPV ...

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