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Thompson v. Ford of Augusta, Inc.

United States District Court, D. Kansas

February 15, 2019

MIRACLE THOMPSON, Plaintiff,
v.
FORD OF AUGUSTA, INC. D/B/A EDDY'S FORD OF AUGUSTA, Defendant.

          MEMORANDUM AND ORDER

          JULIE A. ROBINSON, CHIEF UNITED STATES DISTRICT JUDGE

         Plaintiff Miracle Thompson brings this action asserting claims under the Truth in Lending Act (“TILA”)[1] arising out of her purchase of a 2009 Dodge Journey from Defendant Ford of Augusta, a car dealer that extends consumer credit for the purchase of its vehicles. Before the Court is Defendant Ford of Augusta's Motion to Dismiss (Doc. 3) under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court grants in part and denies in part Defendant's motion. The Court denies Defendant's motion to dismiss for lack of subject matter jurisdiction, but when construed as a motion to compel arbitration, grants the motion.

         I. Background

         According to Plaintiff's Complaint, on September 23, 2017, Plaintiff visited Defendant's dealership to shop for an automobile to be used for personal, family or household purposes. Plaintiff selected a 2009 Dodge Journey (the “Vehicle”) and agreed to purchase the Vehicle from Defendant. During the discussions regarding the transaction, Defendant's employee stated to Plaintiff that she was required to purchase GAP coverage for the Vehicle's financing to be approved. Plaintiff purchased GAP coverage for the Vehicle based upon these representations. Plaintiff would not have purchased GAP coverage but for Defendant's representation that it was required to obtain financing.

         To finance the purchase of the Vehicle, Plaintiff executed a separate retail installment contract (the “Contract”) with Defendant, dated October 24, 2017. The Contract included a GAP insurance addendum, and an Arbitration Agreement.

         The Arbitration Agreement contains the following key provisions:

Any Claim, shall be resolved, upon election of you or Dealer, by binding arbitration pursuant to this Agreement and the applicable rules or procedures of the American Arbitration Association (“AAA”). . . . The election to arbitrate may be made even if an action has been filed in court, so long as judgment has not been entered. We agree not to invoke our right to arbitrate an individual Claim you may bring in small claims court or an equivalent court, if any, so long as the Claim is pending only in that court. You can obtain rules and forms from the AAA, (800)778-7879; www.adr.org.
. . . .
. . . In the event of a conflict or inconsistency between the rules and procedures of the arbitration administrator and this Agreement, this Agreement shall govern.
THE PARITES [sic] ACKNOWLEDGE THAT THEY HAD A RIGHT TO LITIGATE CLAIMS THROUGH A COURT BEFORE A JUDGE OR JURY, BUT WILL NOT HAVE THAT RIGHT IF EITHER PARTY ELECTS ARBITRATION. THE PARTIES FURTHER ACKNOWLEDGE THAT DISCOVERY IS MORE LIMITED IN ARBITRATION. THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE SUCH CLAIMS IN A COURT BEFORE A JUDGE OR JURY UPON ELECTION OF ARBITRATION BY EITHER PARTY.[2]

         On June 4, 2018, Plaintiff's counsel sent defense counsel a demand letter and a draft complaint alleging TILA violations arising out of her purchase of GAP insurance when financing the Vehicle.[3] Defendant responded by denying the claims and providing Plaintiff a copy of the Contract, GAP Addendum, and Arbitration Agreement.[4]

         Plaintiff subsequently submitted a demand for arbitration to the AAA, indicating the amount in dispute as $2, 000 plus attorney's fees and costs. In a letter dated September 11, 2018, the AAA notified Defendant of Plaintiff's demand for arbitration. The AAA also informed the parties that Defendant failed to previously submit the Arbitration Agreement to it for review, and that the AAA therefore would need to review it on an expedited basis. Per AAA Consumer Arbitration Rule R-12, Defendant was obliged to pay a $250 expedited review fee, as well as a $500 fee to include the Agreement on the AAA Registry.[5] These fees would be in addition to the requisite filing fees.

         Rule R-12 required Defendant to pay the requisite fees, or the AAA would decline to arbitrate:

If a business does not submit its arbitration agreement for review and a consumer arbitration then is filed with the AAA, the AAA will conduct an expedited review at that time. Along with any other filing fees that are owed for that case, the business also will be responsible for paying the nonrefundable review and Registry fee (including any fee for expedited review at the time of filing) for this initial review . . . The AAA will decline to administer consumer arbitrations arising out of that arbitration agreement if the business declines to pay the review and Registry fee.[6]

         Also in its September 11, 2018 letter, the AAA informed Defendant that

[i]n light of the claim amount under $3, 000, the parties may wish to exercise the small claims option for the parties. R-9 of the Consumer Rules states the AAA will administratively close the case upon receipt of written notice that a party wants the case decided by a small claims court. If either party would like this matter decided by a small claims court, please send your written request to the Consumer Filing Team and copy the opposing party.[7]

         Rule R-9 states in part:

If a party's claim is within the jurisdiction of a small claims court, either party may choose to take the claim to that court instead of arbitration as follows: . . . .
(b) After a case is filed with the AAA, but before the arbitrator is formally appointed to the case by the AAA, a party can send a written notice to the opposing party and the AAA that it wants the case decided by a small claims court. After receiving this notice, the AAA will administratively close the case.[8]

         The AAA set a deadline of September 25, 2018, for Defendant to make the necessary payments to proceed with arbitration.

         On September 24, 2018, Defendant notified the AAA and Plaintiff that it “would like this matter decided in small claims court.”[9] Also on September 24, the AAA administratively closed the file under Rule R-9.[10] In its September 24 letter informing the parties that it was administratively terminating the case, it advised:

In light of the small claim amount and prompt withdrawal notification, the AAA will not charge the full filing fee; we will bill the business $200 to cover the consumer's non-refundable filing fee. The AAA will refund any fees received from the consumer. Please remit payment by October 8, 2018 . . . .[11]

         Plaintiff initiated this action later in the day on September 24, 2018, alleging TILA violations arising out of Defendant's sale of GAP insurance. Plaintiff asserts jurisdiction under 15 U.S.C. § 1640(e) and 28 U.S.C. § 1331.

         II. Subject Matter Jurisdiction

         Defendant moves to dismiss for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). District courts have “original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States.”[12] “A case arises under federal law if its ‘well pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.'”[13] Plaintiff is responsible for showing the court by a preponderance of the evidence that jurisdiction is proper.[14] Mere allegations of jurisdiction are not enough.[15]

         Here, Plaintiff pleads a cause of action under TILA, a federal statute. Therefore, the Court plainly has federal question jurisdiction over her case. There is no indication that a case has been filed in small claims court that could be deemed the “first-filed” case, nor does Defendant advance that argument. The Court is not deprived of subject matter jurisdiction merely because the claims are subject to an agreement to arbitrate.[16] And Defendant fails to identify any authority that the AAA internal rules of procedure dictate this Court's subject matter jurisdiction.

         The gravamen of Defendant's motion is that the Arbitration Agreement controls the forum for Plaintiff's claims in this matter. The Federal Arbitration Act (“FAA”) applies to written arbitration agreements in any contract “evidencing a transaction involving commerce.”[17]Although the FAA “directs that a court ‘stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, '”[18] some courts have considered motions to dismiss under Rule 12(b)(1) on the basis of arbitration clauses.[19]

         Defendant does not technically seek to compel arbitration in this motion to dismiss, but does ask this Court to declare that small claims court is the appropriate forum for this dispute under the terms of the Arbitration Agreement. The Fourth Circuit court has determined that so long as the party makes clear that it is seeking enforcement of an arbitration agreement, the “motion is sufficient to invoke the full spectrum of remedies under the FAA, including a stay under § 3.”[20] To require Defendant to file either a motion to compel arbitration under § 3 of the FAA, or a petition to direct that arbitration proceed in the manner provided by the agreement under § 4, would require a “hypertechnical reading of [Defendant's] pleadings [that] would be inconsistent with the ‘liberal federal policy favoring arbitration agreements.'”[21] Where, as here, all parties are aware that the motion deals with arbitrability of the dispute and has an opportunity to respond, it is appropriate for the Court to consider arbitrability.[22] Both parties address the enforceability and construction of the Arbitration Agreement in their briefs. The Court finds that “[i]t is inconceivable that the parties did not submit everything relevant to the subject, and accordingly there is no ...


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