November 04, 2015 Practice Points

Federal Court Denies Motion to Compel Arbitration

By Frank Murray

In May 2015, a federal court denied a defendant’s motion to compel arbitration because the claim in question did not arise under the parties’ arbitration clause. Savage v. Citibank N.A., No. 14-CV-03633-BLF, 2015 WL 2214229, at *2 (N.D. Cal. May 12, 2015).

The plaintiff, Savage, was a senior citizen and war veteran who became unemployed and unable to meet his payment obligations under his Macy’s credit card. The Macy’s credit card had been extended to Savage through the defendant DSNB, Macy’s financing arm, and serviced by the defendant Citibank who handled billing and collections. The defendants proceeded to attempt collection through repeated phone calls. Savage requested by telephone and in writing not to receive any more collection calls. Thereafter, however, the defendants’ collection efforts only increased.

After Savage filed suit for violations of the Fair Debt Collection Practices Act, Citibank moved to compel arbitration pursuant to an arbitration provision in a separate agreement between Citibank and Savage for a Sears credit card. The parties agreed that there was no arbitration agreement in place for the Macy’s credit card and that the question presented was whether the Sears agreement encompassed Savage’s claims. The Sears arbitration agreement stated that it not only covered claims between Savage and Citibank relating to the Sears credit card “but also Claims made by or against anyone connected with us or you or claiming through us or you, such as a co-applicant, authorized user of your account, an employee, agent, representative, affiliated company, predecessor or successor, heir assignee, or trustee in bankruptcy.”

The court looked to the Federal Arbitration Act (FAA) to determine the enforceability and scope of the arbitration agreement, stating that “arbitration under the FAA is a matter of consent and the FAA’s pro-arbitration policy does not operate without regard to the wishes of the contracting parties.” Here, the court reasoned that there was no basis for the defendants’ assertions that the plaintiff consented to engage in a relationship “ad infinitum with Citibank regardless of the subject matter of future interactions by agreeing to the Sears agreement. To hold otherwise would provide absurd consequences resulting in limitless cause of actions.” Despite the broad language of the arbitration clause, the court ultimately decided that Savage’s claims fell outside the scope of the agreement.

The Savage decision recognizes that the parties’ intent, as found in the reasonable interpretation of the words of their contract, is the basis for arbitral jurisdiction. It also recognizes that it is unreasonable to interpret a general arbitration agreement so broadly that it would subject the parties to a never-ending obligation to arbitrate their disputes, regardless of subject matter. 

Keeping this case in mind, attorneys drafting agreements for clients who want their arbitration clause to cover all future disputes in a given subject area, even disputes involving different contracts than the one in which the arbitration clause is placed, need to make the breadth of the arbitration agreement very explicit and perhaps draw special attention to it if they want the courts to respect it. Litigators should also take heed that courts are unlikely to interpret an arbitration agreement so broadly that it applies to disputes unrelated to the contract in which it appears—at least unless that intent is made very clear.

Keywords: alternative dispute resolution, adr, litigation, consent, scope of arbitration agreement, credit card

Frank Murray is a 2016 J.D. candidate at DePaul University College of Law in Chicago, Illinois.

Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).