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Gray v. Midland Funding, LLC

United States District Court, W.D. Kentucky, Paducah Division

April 4, 2017

EDITH GRAY, PLAINTIFF
v.
MIDLAND FUNDING, LLC, DEFENDANT

          MEMORANDUM OPINION AND ORDER

          THOMAS B. RUSSELL, SENIOR JUDGE.

         This matter is before the Court on several pending motions, most notably Defendant Midland Funding, LLC's Motion to Compel Arbitration and Stay or Dismiss the Proceeding Pending Arbitration, [DN 17], pursuant to the parties' written Credit Agreements and the Federal Arbitration Act, 9 U.S.C. § 3. Because there are disputed questions of fact concerning the formation of those Agreements, however, the Court SHALL hold an evidentiary hearing before resolving Midland's motion.

         BACKGROUND

         In December 2010, Gray opened a MetaBank credit card account with Bluestem Brands, Inc. f/k/a Fingerhut Direct Marketing ("Bluestem"). [DN 17 at 2.] It is unclear how exactly Gray opened this account; that is, whether she opened it online or over the phone. Gray used the "account exclusively for personal, family, and household purposes . . ." [DN 12 at 2.] At the time Gray opened her account, the applicable credit agreement was the MetaBank Fingerhut Credit Account Agreement (the "MetaBank Credit Agreement"). [DN 17-1 at 4.] The MetaBank Agreement contained an arbitration provision which stated, in pertinent part:

if a dispute of any kind arises out of this Agreement, either you or we, at our sole discretion, can choose to have that dispute resolved by binding arbitration. If arbitration is chosen by any party, neither you nor we will have the right to litigate that claim in court or to have a jury trial on that claim, or to engage in prearbitration discovery, except as provided for in the arbitration rules. In addition, you will not have the right to participate as a representative or member of any class of claimants pertaining to any claim subject to arbitration ....

[Id. at 8.]

         Then, pursuant to an Account Transfer Agreement, "MetaBank sold, assigned, and conveyed" multiple accounts, including Gray's, to WebBank. [Id. at 4.] The applicable credit agreement remained the same in substance but was updated in form and re-titled the "WebBank Fingerhut Credit Account Agreement" in July 2012 (the "July 2012 WebBank Credit Agreement"). [Id.] That agreement was then updated in March 2013 (the "March 2013 WebBank Credit Agreement"), and Midland claims that Bluestem sent notice of these changes to Gray. [Id. at 3-4.] The March 2013 WebBank Credit agreement contained the following arbitration provision:

Arbitration. Please review this provision carefully. It provides that any dispute may be resolved by binding arbitration. Arbitration replaces the right to go to court and the right to have a jury decide a dispute. Under this provision, your rights may be substantially limited in the event of dispute. You may opt out of this Arbitration provision by following the instructions below.
By accepting this Agreement, unless you opt out by following the instructions below, you agree that either you or we, at our sole discretion, can choose to have any dispute arising out of or relating to this Agreement of our relationship resolved by binding arbitration. If arbitration is chosen by any party, neither you nor we will have the right to litigate that dispute in court or to have a jury trial on that dispute. Pre-arbitration discovery will be permitted only as allowed by the arbitration rules. In addition, you will not have the right to participate as a representative or member of any class of claimants pertaining to any dispute subject to arbitration.

[Id. at 16.] The March 2013 WebBank Credit Agreement went on to explain that,

[f]or purposes of this Arbitration provision, "dispute" shall be construed as broadly as possible, and shall include any claim, dispute or controversy (whether in contract regulatory, tort or otherwise, whether pre-existing, present or future and including constitutional, statutory, common law, intentional tort and equitable claims) arising from or relating to this Agreement, the credit offered or provided to you, or the goods or services you purchase; the actions of yourself, us, or third parties; or the validity of this Agreement or this Arbitration provision . . . Disputes brought as part of a class action or other representative basis are subject to arbitration on an individual (non-class, non-representative) basis.
You have the right to opt out of this Arbitration provision, but you may only do so in the first 30 days after the first transaction is posted to your Account ...
This Arbitration provision shall survive repayment of your extension of credit and termination of your Account.

[Id.] The March 2013 WebBank Credit Agreement, in a separate provision, stated that WebBank "may sell, assign or transfer your Account or any portion thereof without notice . . . ." [Id. at 17.]

         Gray made her final purchase by telephone on January 2, 2013, before the March 2013 changes went into effect. [DN 17-1 at 4 (Svenson affidavit).] Her last payment posted to her account on April 3, 2013. [Id. at 5.] Eventually, Gray defaulted on her credit card debt, resulting in WebBank charging off her account on November 11, 2013 with a balance of $1, 472.97.[1][Id. at 5.] In a Bill of Sale dated November 25, 2013, WebBank sold certain accounts, including Gray's, to Bluestem. [Id. at 22.] The Bill of Sale provided that "FOR VALUE RECEIVED . . . [WebBank] does hereby transfer, assign and convey to Bluestem Brands, Inc., as of the date hereof, all right, ...


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