Court Opinion

ID: 4147432
Source: CourtListenerOpinion
Date Created: 2017-02-22 18:01:02.449489+00
Date Added: 2024-06-11T07:46:27.558202
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 17a0119n.06

                                            No. 16-1670

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

                                                                                     FILED
JACOB J. DANLEY; JEFFREY J. McINTYRE, JR.,                 )                   Feb 22, 2017
                                                           )               DEBORAH S. HUNT, Clerk
       Plaintiffs-Appellants,                              )
                                                           )
               v.                                          )
                                                                   ON APPEAL FROM THE
                                                           )
                                                                   UNITED STATES DISTRICT
ENCORE CAPITAL GROUP, INC.; MIDLAND                        )
                                                                   COURT FOR THE EASTERN
CREDIT MANAGEMENT, INC.; MIDLAND                           )
                                                                   DISTRICT OF MICHIGAN
FUNDING, LLC.,                                             )
                                                           )
       Defendants-Appellees.                               )
                                                           )

BEFORE: GILMAN, GRIFFIN, and STRANCH, Circuit Judges.

       GRIFFIN, Circuit Judge.

       Defendants purchased plaintiffs’ stale debts and attempted to collect, in addition to the

debts, post-“charge off” interest. In this action, plaintiffs claim that this practice violates federal

and Michigan debt-collection laws. Based on arbitration provisions contained in plaintiffs’

various account agreements, the district court compelled the parties to arbitrate, ruling that the

agreements were enforceable and that the parties expressly authorized—via a delegation

clause—an arbitrator to consider plaintiffs’ various “gateway” challenges to the arbitration

provisions. In a separate order, the district court sealed several documents on the basis that the

documents fell within the purview of the parties’ protective order. For the reasons set forth, we
No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

affirm the district court’s order compelling arbitration, but reverse the district court’s order

denying in part plaintiffs’ motion to unseal documents.

                                                I.

       In the 2000s, plaintiffs Jacob Danley and Jeffrey McIntyre opened credit-card accounts

(both with Citibank, and McIntyre additionally with Chase) and, after they stopped making

payments on their respective accounts, their creditors “charged off” these debts. See Stratton v.

Portfolio Recovery Assocs., LLC, 770 F.3d 443, 445 (6th Cir. 2014) (discussing “charging off”

uncollectable consumer debts). Defendants purchased plaintiffs’ debts years later, seeking to

collect these debts and accrued interest post-charge off, totaling approximately $2,000 for each

account.

       Plaintiffs commenced this putative class action in 2015, claiming defendants’ attempts to

collect charged-off interest violates the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et

seq., and the Michigan Collection Practices Act, M.C.L. § 445.251, et seq. Defendants moved to

compel arbitration based upon the binding arbitration agreements in plaintiffs’ respective credit-

card account agreements. These arbitration agreements provide that they are governed by the

Federal Arbitration Act, are assignable and survive assignment, and contain what are known as

“delegation provisions”—agreements “to arbitrate threshold issues concerning the arbitration

agreement.” See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68 (2010).

       Danley and McIntyre raised two main points in response to defendants’ motion. First,

they challenged defendants’ reliance upon exemplar agreements and other records concerning

plaintiffs’ account activities and the assignment of their accounts to defendants to establish the

existence of the arbitration agreements instead of the original agreements. Second, they argued

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

that, as set forth in the purchase agreements, defendants purchased only “the rights to debts” and

not the financial institutions’ “contract documents” that include the arbitration agreements.

       The district court disagreed and ordered arbitration. On the first issue, it ruled that the

exemplar agreements were more than satisfactory, especially because plaintiffs did “not come

forward with any evidence to rebut that the agreements that have been produced are the same as

those entered between plaintiffs and the original creditors.” Regarding the second issue, it

concluded that plaintiffs did “not mention, let alone challenge the delegation provision[s,]” and

thus, under Rent-A-Center, referred plaintiffs’ enforceability arguments to the arbitrator.

       Plaintiffs also challenged the district court’s order sealing certain documents. In support

of their motion to compel arbitration, defendants filed under seal various documents subject to

the parties’ stipulated protective order regarding the sale and assignment of the debts. They did

so after seeking plaintiffs’ stipulation to file these documents under seal, to which plaintiffs did

not respond. It appears that the district court advised defendants that because the parties agreed

to a protective order, there was “no need to submit a motion, nor stipulated order to file items

under seal.” Plaintiffs moved to unseal some of these documents, arguing that the terms of the

parties’ protective order provided that “no document may be filed under seal without leave of

court” and that the district court had not so provided. The district court granted in part and

denied in part plaintiffs’ motion (because defendants conceded some should not have been

sealed). In doing so, the district court reasoned as follows:

       The stipulated protective order in this case spells out exactly how a dispute over a
       protected designation is to be handled by the parties. It is clear in this case that
       plaintiffs did not follow the terms of the stipulated protective order, jumping
       straight to filing a motion to unseal without trying to work the issue out with
       opposing counsel and without certifying the issue to the court. The court finds
       that plaintiffs therefore waived their right to object to the protected designation of
       the documents at issue.

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

       With regard to filing Protected Materials and Information with the court, the
       stipulated protective order provides that to the extent any information to be filed
       with the court reveals information claimed to be confidential under the terms of
       the protective order, it must be filed under seal. “However, no document may be
       filed under seal without leave of court.” The term “leave of court” refers to
       judicial permission to follow a nonroutine procedure. While this could be
       accomplished with the filing of a motion seeking leave, as urged by plaintiffs, the
       fact that defendants followed a different path to filing the sealed documents does
       not require the court to order that the documents be unsealed. Considering the
       matter in the manner in which it was raised by plaintiffs in this case, the court
       accepts defendants’ filing of Exhibits A, B, C, H, I, L, and M under seal in support
       of their motion to compel arbitration. To their credit, in their response brief,
       defendants agree that Exhibits D, G, J, K, and N are not properly designated as
       confidential because they had previously been filed as unprotected exhibits to the
       original motion to compel arbitration. As such, those exhibits shall be re-filed
       without the confidential designation.

(Emphasis added.)

       Plaintiffs appeal the orders granting arbitration and denying their motion to unseal

documents.

                                                 II.

       The Federal Arbitration Act “embodies the national policy favoring arbitration and places

arbitration agreements on equal footing with all other contracts.” Buckeye Check Cashing, Inc.

v. Cardegna, 546 U.S. 440, 443 (2006). It provides that a “written provision in . . . a contract

evidencing a transaction involving commerce to settle by arbitration a controversy thereafter

arising out of such contract or transaction, . . . or an agreement in writing to submit to arbitration

an existing controversy arising out of such 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. Courts must, consistent with this text, “‘rigorously enforce’ arbitration

agreements according to their terms.” Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304,

2309 (2013) (citation omitted).

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

       On de novo review, Huffman v. Hilltop Cos., 747 F.3d 391, 394 (6th Cir. 2014), we can

quickly dispense with the argument that the district court erred in relying upon an exemplar

agreement and other pertinent account records defendants used to establish the validity of the

arbitration agreement for McIntyre’s Chase account. In order to defeat defendants’ motion to

compel arbitration, it was McIntyre’s burden to “show a genuine [dispute] of material fact as to

the validity of the agreement to arbitrate.” Great Earth Cos., Inc. v. Simons, 288 F.3d 878, 889

(6th Cir. 2002). This “showing mirrors that required to withstand summary judgment in a civil

suit.” Id. Thus, we must determine, viewing the facts in the light most favorable to McIntyre,

“whether the evidence presented is such that a reasonable finder of fact could conclude that no

valid agreement to arbitrate exists.” Id.

       The district court correctly ruled McIntyre did not meet this burden, and we need not add

to its analysis. Moreover, McIntyre concedes in his appellate brief that he “did not demonstrate

that the exemplar was not his agreement.” Instead, McIntyre asks that we require defendants to

“complete the circle” and, barring proof of the original agreement, deny arbitration. But it was

McIntyre’s burden to present facts such that a reasonable factfinder could conclude the

arbitration agreement did not exist.        Id.   Upon presentment of the exemplar agreement,

McIntyre’s account records, and other business records regarding the transfer of his account to

defendants, the district court correctly concluded McIntyre did not satisfy his burden.

                                                  III.

       Normally, it is within the district court’s province to “determine whether the parties have

agreed to arbitrate the dispute at issue.” Id. (citation omitted). In particular, challenges to the

formation of an arbitration agreement (whether it was in fact agreed to by the parties) are

“generally for courts to decide.” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 296

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

(2010). Here, Danley and McIntyre had the opportunity to challenge the formation of their

arbitration agreements. The district court took the contractual relationship seriously, requiring

defendants to place substantial documentary evidence into the record before proceeding with

motion practice. On appeal, however, Danley and McIntyre do not clearly argue that their

challenges go to the formation of the arbitration agreements, and they do not cite Granite Rock

or explain its principles.

        Danley and McIntyre do raise enforceability issues that relate to the validity of the

arbitration agreements. Whether a court or an arbitrator decides the validity of an arbitration

agreement with a delegation provision is governed by Rent-A-Center. In Rent-A-Center, the

Supreme Court reiterated that “parties can agree to arbitrate ‘gateway’ questions of

‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement

covers a particular controversy.” 561 U.S. at 68–69. The Rent-A-Center arbitration agreement

provided that it was for an arbitrator, not any other forum, to decide “any dispute relating to the

interpretation, applicability, enforceability or formation of th[e] Agreement, including . . . any

claim that all or any part of this Agreement is void or voidable.” Id. at 66. Such a “delegation

provision” is a separately enforceable provision under the Federal Arbitration Act, held the

Supreme Court, because under the Federal Arbitration Act, “an arbitration provision is severable

from the remainder of the contract.” Id. at 70–71 (citation omitted). Put differently, “a party’s

challenge to another provision of the contract, or to the contract as a whole, does not prevent a

court from enforcing a specific agreement to arbitrate.” Id. at 70. And this severability rule

applies even if the delegation provision is contained within the arbitration agreement. Id. at 72.

“That,” wrote Justice Scalia for the majority, “makes no difference.” Id.

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

       Delegation to an arbitrator of gateway issues does not mean that a federal court should

automatically grant a motion to compel arbitration, because the party seeking to avoid arbitration

may still raise defenses to the agreement to delegate. Id. Here, however, one absolute precludes

granting plaintiffs’ requested relief: a party seeking to avoid the effects of a delegation provision

must “challenge[] the delegation provision specifically.” Id. If that party fails to do so, a court

must treat the delegation provision as valid and enforce it as written. Id.

       In the present case, as in Rent-A-Center, the parties “clearly and unmistakably” provided

for an arbitrator to determine various “gateway issues” relative to their claims. Id. at 69 n.1, 70;

AT&T Techs., Inc. v. Comm’ns Workers of Am., 475 U.S. 643, 649 (1986); see also Milan

Express Co., Inc. v. Applied Underwriters Captive Risk Assur. Co., Inc., 590 F. App’x 482, 484–

85 (6th Cir. 2014). The delegation provision at issue for the Citibank accounts state that “[a]ll

claims relating to your account, a prior related account, or our relationship are subject to

arbitration, including Claims regarding the application, enforceability, or interpretation of this

Agreement and this arbitration provision.” (Emphasis added.) McIntyre’s Chase account terms

are similar:   “Claims subject to this Arbitration Agreement include Claims regarding the

applicability of this Arbitration Agreement or the validity of the entire Cardmember Agreement

or any prior Cardmember Agreement.”           (Emphasis added.)      Plaintiffs’ various arguments

regarding the validity of the assignment of the arbitration agreements as a whole—whether

Chase bank voluntarily forfeited its right to enforce the arbitration agreement (and thus did not

transfer it to defendants), whether the Uniform Commercial Code permits assignment of

arbitration agreements, and whether defendants purchased just plaintiffs’ debts and not their

underlying purchase agreements—all fit well within the language of the delegation provisions.

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

       Like the petitioner in Rent-A-Center, Danley and McIntyre did not acknowledge their

delegation provisions, let alone challenge them (below, or on appeal). They also admit that they

“never argued that there were provisions in or parts of the arbitration agreements, themselves”—

i.e., the delegation provisions—“that were not enforceable.” Given this concession, the district

court correctly concluded the Supreme Court’s decision in Rent-A-Center precludes challenges

to the enforceability of the delegation provisions. 561 U.S. at 72–73.

                                                 IV.

       Finally, plaintiffs raise an issue recently addressed by our court: the need for the district

court to give adequate and specific reasons for sealing court records. See, e.g., Rudd Equip. Co.,

Inc. v. John Deere Constr. & Forestry Co., 834 F.3d 589, 593 (6th Cir. 2016); Shane Grp., Inc.

v. Blue Cross Blue Shield of Mich., 825 F.3d 299, 305–09 (6th Cir. 2016); United States v.

DeJournett, 817 F.3d 479, 484 (6th Cir. 2016). Here, the district court authorized the sealing of

seven documents without “set[ting] forth specific findings and conclusions ‘which justify

nondisclosure to the public.’” Shane Grp., 817 F.3d at 306 (quoting Brown & Williamson

Tobacco Corp. v. F.T.C., 710 F.2d 1165, 1176 (6th Cir. 1983)). We review this decision for

abuse of discretion. Rudd Equip. Co., 834 F.3d at 593. This “decision is not accorded the

deference that standard normally brings,” however, given the “strong presumption in favor of

openness as to court records.” Shane Grp., 825 F.3d at 305–06.

       In Shane Group, issued after the district court’s ruling, we held that “a court’s failure to

set forth [its] reasons . . . as to why the interests in support of nondisclosure are compelling, why

the interests supporting access are less so, and why the seal itself is no broader than necessary

. . . is itself grounds to vacate an order to seal.” Id. at 306 (emphasis added). In the present

case, the district court made no such findings and instead criticized plaintiffs for failing to follow

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No. 16-1670, Danley, et al. v. Encore Capital Group, et al.

the terms of the parties’ protective order and for failing to work out their differences with

defendants.   However, despite plaintiffs’ actions or inactions, a district court has its own

“obligation to explain the basis for sealing court records [that] is independent of whether anyone

objects to it.” Id. Defendants’ attempts to distinguish Shane Group are not convincing.

                                               V.

       For these reasons, we affirm the district court’s order compelling arbitration, but reverse

the district court’s order granting in part and denying in part plaintiffs’ motion to unseal, and

remand for further proceedings consistent with this opinion.

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