Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01952/USCOURTS-azd-2_06-cv-01952-7/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:1692 Fair Debt Collection Act

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Pamela Balezos and Peter Balezos, on

behalf of themselves and all others

similarly situated,

Plaintiffs, 

v.

Cavalry Portfolio Services, LLC, Ewing &

Ewing Attorneys, P.C., and Nelson Ewing

II,

Defendants. ________________________________

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Case No. CV 06-1952-PHX-SMM

ORDER

Pending before the Court is the Motion to Compel Arbitration (Doc. 44) filed by

Defendants Cavalry Portfolio Services, Ewing & Ewing, and Nelson Ewing (“Defendants”).

This action arises out of Plaintiffs' Discover Card debt (the debt) that went delinquent and was

eventually written off by Discover Card and purchased from Discover Bank by Ecast

Settlement Corp. (Ecast). The debt was then assigned to Cavalry SPLV, and thereafter,

assigned to Cavalry Portfolio Services (Cavalry). Cavalry retained Ewing & Ewing and

Nelson Ewing to recover the debt. 

BACKGROUND

Procedural History

In or around 2002, Plaintiffs defaulted on their Discover Card. (SMF ¶ 12).

Consequently, Discover sold the plaintiffs’ delinquent account to eCast Settlement Corp.,

which thereafter assigned the debt to Cavalry SPV I, LLC, which in turn assigned the debt to

Case 2:06-cv-01952-SMM Document 71 Filed 08/15/07 Page 1 of 7
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Defendants allege that Plaintiffs are wrong in their assertion that compound interest

is prohibited under these circumstances in Delaware.

2

Defendants also filed a Motion for Summary Judgment on June 13, 2007 as an

alternative to Defendants' Motion to Compel Arbitration.

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Cavalry. Cavalry then obtained a small claims default judgment against Plaintiffs for the

balance due. (SMF ¶ 13). 

In August 2006, Plaintiffs initiated the current suit against Cavalry and its counsel in

the collection suit, Ewing & Ewing Attorneys, P.C. In October 2006, Plaintiffs filed an

Amended Complaint against Defendants. It alleges that Defendants violated the following

provisions of the Fair Debt Collection Practices Act: §1692e(2), which prohibits

misrepresenting the amount or legal status of a debt; § 1692e(5), which prohibits taking or

threatening to take an action that cannot legally be taken; § 1692e and e(10), which generally

prohibit unfair and deceptive collection practices; and § 1692f(1), which prohibits the

collection of any amount, unless it is authorized by the agreement creating the debt or

permitted by law. (Amended Complaint, Docket (..Doc...) # 14, ¶ 29). Plaintiffs purport to

bring their claims on behalf of a class of Arizona residents from whom the Defendants sought

to collect a debt arising from a Discover credit card that Plaintiffs allege included compound

interest prohibited under Delaware law.1

 (Doc. # 14 ¶ 20).

Defendant Cavalry Portfolio Services filed an Answer to Plaintiff’s Amended

Complaint on December 12, 2006 (Doc. 17). Thereafter, on May 1, 2007, Defendants Ewing

& Ewing and Nelson Ewing filed their Answer to Plaintiffs' Amended Complaint.(Doc. 33).

Pursuant to the terms of the agreement between Plaintiffs and Discover Card, and in

accordance with the Federal Arbitration Act (FAA), on June 13, 2007, Defendants then filed

the pending Motion to Compel Arbitration.2

 (Doc. 44). 

MOTION TO COMPEL ARBITRATION

The threshold inquiry in deciding a motion to compel is whether the parties agreed to

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arbitrate in the event that a dispute should arise. Leicht v. Bateman Eichler, Hill Richards,

Inc., 848 F.2d 130, 132 (9th Cir.1988); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). "Under § 4 of the

FAA, a district court must issue an order compelling arbitration if the following two-pronged

test is satisfied: (1) a valid agreement to arbitrate exists; and (2) that agreement encompasses

the dispute at issue." United Computer Systems, Inc. v. AT & T Corp., 298 F.3d 756, 766 (9th

Cir. 2002). Plaintiffs do not challenge the existence of the arbitration clause or Defendants’

standing to enforce that clause. However, Plaintiffs contend that Defendants have waived

their rights to arbitration.

According to Ninth Circuit jurisprudence, arbitration rights are subject to constructive

waiver if three conditions are met: (1) the waiving party must have knowledge of an existing

right to compel arbitration; (2) there must be acts by that party inconsistent with such an

existing right; and (3) there must be prejudice resulting from the waiving party's inconsistent

acts. See Hoffman Const. Co. v. Active Erectors, 969 F.2d 796, 798-99 (9th Cir.1992); United

Computer Systems, Inc. v. AT & T Corp., 298 F.3d 756, 765 (9th Cir. 2002). “[A]ny doubts

concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether

the problem at hand is the construction of the contract language itself or an allegation of

waiver...” Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25, 103 S.Ct. 927. Waiver of the

right to arbitrate is disfavored because it is a contractual right, and thus “any party arguing

waiver of arbitration bears a heavy burden of proof.” Ness Townhouses v. Mar Industries

Corp., 862 F.2d 754, 758 (9th Cir. 1988). In the case at bar, the arbitration clause was

included in the original contract entered into between Plaintiff and Discover Card.

Furthermore, it is Plaintiffs who have raised the issue of waiver, therefore Plaintiff’s carry

the burden of proof. The Court finds that, based on the following, Plaintiffs have failed to

meet their burden.

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Plaintiffs cite a plethora of non-binding authority wherein the court found that certain

conduct amounted to inconsistent acts. For example, inconsistent acts were found when a

party asked for arbitration after filing two demurrers, one cross complaint and a motion to

transfer, in addition to compelling arbitration ten months after service. Sobremonte v. Super.

Ct., 61 Cal.App.4th 980, 71 Cal. Rptr.2d 43 (1998). Plaintiffs also cite a case wherein the

court found that waiver occurred where a party appeared in six pretrial hearings, moved to

compel arbitration sixteen months after notice, and made no reference to their right to

arbitrate until making a motion to compel. Lewallen v. Green Tree Servicing, 487 F.3d 1085

(8th Cir. 2007).

4

Defendants have filed a Request for Production (Doc. 27); however, one request in

pursuit of discovery does not make all of Defendants' actions inconsistent with their rights

to arbitrate. See Lake Communications, 738 F.2d 1473 (9th Cir. 1984) (Overruled on other

grounds); Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005). 

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Knowledge of an Existing Right to Compel Arbitration

It is undisputed that Defendants knew of their existing right to compel arbitration.

Thus, Plaintiff’s have satisfied the first prong the test for waiver. United Computer Systems,

Inc., 298 F.3d 756, 765 (9th Cir. 2002).

Acts Inconsistent with Existing Right

Plaintiffs contend that because Defendants have filed stipulations, answered the

Complaint, participated in limited discovery, and moved for summary judgment, they have

acted inconsistently with their right to arbitrate. The Court respectfully disagrees.3

Defendants initially raised their right to arbitrate in their Answer as an affirmative defense.

(Doc. 17, pg 4). They have appeared in only one pretrial hearing and have merely produced

required disclosures in compliance with the rules of law.4

 Fed.R.Civ.P. 26 (a), Fed.R.Civ.P.

7.1. Defendants have agreed to produce a Rule 30(b)(6) witness in compliance with an Order

of the Court, and the Court finds that a party seeking arbitration should not lose its

contractual right by prudently pursuing discovery in the face of a court-ordered deadline.

Furthermore, although Defendants have agreed to produce a witness, as of the date the

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Motion to Compel Arbitration was filed, no depositions had been conducted. Therefore, the

Court finds that Defendants have not acted in a manner that is inconsistent with arbitration.

In support of their argument, Plaintiffs depend on United Computer Systems, Inc. V.

AT&T Corp., 298 F.3d 756 (9th Cir. 2002), wherein the court found that Plaintiffs acted

inconsistent with their existing rights when they filed suit instead of paying the

administrative fee to commence arbitration. However, this Court finds distinguishable the

fact that in the case at bar, it was not Defendants who initiated suit, rather it was Plaintiffs.

Thus, the Court finds that Defendants have not acted inconsistently with their existing right

to arbitrate simply by complying with the local and federal rules during the course of the

lawsuit commenced by Plaintiffs.

Prejudice Against Plaintiffs

Plaintiffs cite to Lewallen v. Green Tree Servicing, an Eighth Circuit case, wherein

the Court agreed with the plaintiff that prejudice resulted when “[1] parties use discovery not

available in arbitration, [2] when they litigate substantial issues on the merits, or [3] when

compelling arbitration would require a duplication of efforts.” Lewallen, 487 F.3d at 1093.

First and foremost, this Court points out that Eighth Circuit case law is not binding on this

Court. Second, even assuming the case was binding, none of the three aforementioned

circumstances apply to the case at bar. With regard to discovery, initial discovery has been

conducted, however as of the date the motion was filed, depositions had merely been noticed.

There has been no assertion made that the parties have used discovery that will not be

available in arbitration, and it is undisputed that there has been no litigation on the merits of

this case. Moreover, the Court finds no support for the argument that compelling arbitration

would require a “duplication of efforts.” Furthermore, in Lake Communications Inc. v. ICC

Corp., the court found that the compelling party had not waived their right to arbitration

despite having participated in limited discovery and having deposed the opposing party's

president prior to moving to compel arbitration. Lake Communications v. ICC Corp., 738

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F.2d 1473 (9th Cir. 1984) (Overruled on other grounds). Courts are reluctant to find

prejudice to plaintiffs who have chosen to litigate, simply because the defendant litigated

briefly in response (e.g., by filing a motion to dismiss or requesting limited discovery) before

moving to compel arbitration. Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005).

Plaintiffs contend that they are prejudiced by the amount of time and expense of

litigation. However, Plaintiffs were not required to respond Defendants' Motion for

Summary Judgment, as Defendants' Motion to Compel Arbitration was filed

contemporaneously, and thus there were a variety of options available to Plaintiffs in order

to conserve resources. For example, Plaintiffs might have sought leave of Court to stay

discovery pending resolution of this motion, or might have filed a motion for extension fo

time to respond to any other motions or requests until the Court had decided the motion to

compel. 

Finally, Plaintiffs argue that they have spent time and resources in discovery activity

and motions practice over a period of two years, and would thus be prejudiced if forced to

arbitrate the matter. However, the costs they incurred in pursuing litigation will not count

against Defendants' effort to avoid litigation, commenced by Plaintiffs. Britton v. Co-op

Banking Group, 916 F.2d 1405, 1413 (9th Cir. 1990). Generally, limited discovery, such as

that presented in this case, is also available in arbitration. Thus, the Court finds that Plaintiffs

have not and would not be prejudiced by arbitration.

CONCLUSION

Accordingly,

IT IS HEREBY ORDERED that Defendants’ Motion to Compel Arbitration (Doc.

44) is GRANTED. 

IT IS FURTHER ORDERED that Defendants’ Motion for Summary Judgment is

DENIED as MOOT (Doc. 42). 

///

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The contract provides in pertinent part: 

If either you or we elect arbitration, neither you nor we shall have the right to litigate that

claim in court or to have a jury trial on that claim. Prehearing discovery rights and posthearing appeal rights will be limited. Neither you nor we shall be entitled to join or

consolidate claims in arbitration by or against other cardmembers with respect to other

accounts, or arbitrate any claims as a representative or member of a class or in a private

attorney general capacity...(Doc. 44)

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IT IS FURTHER ORDERED that the Plaintiff’s Motion for Class Certification

(Doc. 59) is DENIED as MOOT.5

DATED this 14th day of August, 2007.

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