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Rizzo v. Kohn Law Firm S.C.

United States District Court, W.D. Wisconsin

February 12, 2018

SASHA RIZZO, on behalf of herself and all others similarly situated, Plaintiff,
v.
KOHN LAW FIRM S.C., Defendant.

          OPINION & ORDER

          JAMES D. PETERSON, District Judge

         This proposed class action arises out of a credit card that plaintiff Sasha Rizzo applied for and received from Discover Bank. Rizzo alleges that she failed to repay the balance on her credit card account, so both Discover and defendant Kohn Law Firm S.C., a law firm that regularly engages in the collection of consumer debts, sued Rizzo in the Circuit Court for Eau Claire County, Wisconsin. Attached to the complaint was a copy of Rizzo's monthly billing statement for her Discover account and included in the statement was Rizzo's credit score, which was not redacted. Rizzo contends that publishing her credit score qualifies as unlawful debt collection activity under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692d, 1692e(1), and 1692f, and was an impermissible use of a “consumer report” under the Fair Credit Reporting Act, 15 U.S.C. § 1681b.

         Before the court is Kohn's motion under 9 U.S.C. §§ 3 and 4 to compel arbitration and stay the proceedings in this court. Dkt. 21. Rizzo objects to Kohn's motion on several grounds, but the court need only consider one of them, which is that Rizzo's claim is not subject to an arbitration agreement. Because Kohn is not a party to the agreement at issue and Kohn has not otherwise shown that it has the right to enforce the agreement, the court will deny Kohn's motion to compel.

         ANALYSIS

         The first question in resolving a motion to compel is determining whether the parties have an agreement to arbitrate their dispute. Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir. 2006). Although questions about the scope of an arbitration clause are resolved in favor of arbitration as a matter of federal law, Gore v. Alltel Commc'ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012), the presumption in favor of arbitration does not apply “when deciding whether there is an agreement to arbitrate in the first instance.” Druco Restaurants, Inc. v. Steak N Shake Enters., Inc., 765 F.3d 776, 782 (7th Cir. 2014). That question is answered by applying state principles of contract law. Faulkenberg v. CB Tax Franchise Systems, LP, 637 F.3d 801, 809 (7th Cir. 2011).

         In this case, Kohn is relying on an arbitration clause in the cardmember agreement between Rizzo and Discover.[1] Kohn is not a party to that agreement, but it says that it nevertheless has the right to enforce the arbitration clause.

         “[A] litigant who was not a party to the relevant arbitration agreement may [enforce the agreement] if the relevant state contract law allows him to” do so. Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009). Although the cardmember agreement contains a Delaware choice of law provision, neither party makes an argument regarding choice of law. Because both parties rely primarily on Wisconsin law and neither party suggests that there is any difference between Wisconsin and Delaware law on the issues debated by the parties, the court will look to Wisconsin law. RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir. 2008) (“When neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits.”).

         Various state law doctrines allow nonparties to enforce contracts under certain circumstances, including “assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary, waiver, . . . estoppel . . . and agency.” Scheurer v. Fromm Family Foods LLC, 863 F.3d 748, 753 (7th Cir. 2017). Kohn does not rely on most of these doctrines. In fact, it expressly disavows any reliance on estoppel in its reply brief in attempting to distinguish cases that Rizzo cites discussing that doctrine. Dkt. 32, at 6 (distinguishing In re Henson, 869 F.3d 1052 (9th Cir. 2017), Cox v. ScreeningOne, Inc., No. 14-cv-229, 2015 WL 413812 (N.D. Ohio Jan. 30, 2015), and Pagan v. Integrity Sol. Servs., Inc., 42 F.Supp.3d 932 (E.D. Wis. 2014)). Instead, Kohn says that it is entitled to enforce the arbitration clause because it is a third-party beneficiary of the cardmember agreement.[2] The court will follow Kohn's lead and consider only the issues raised in its briefs.

         “A person may enforce a contract as third-party beneficiary if the contract indicates that he or she was either specifically intended by the contracting parties to benefit from the contract or is a member of the class the parties intended to benefit.” Milwaukee Area Tech. Coll. v. Frontier Adjusters of Milwaukee, 2008 WI.App. 76, ¶ 20, 312 Wis.2d 360, 377, 752 N.W.2d 396, 404.

         In support of its contention that it is a member of the class the arbitration clause is intended to benefit, Kohn relies on the following language in the clause:

Other beneficiaries of this Provision. In addition to [the cardholder] and [Discover], the rights and duties described in this arbitration agreement apply to: our Affiliates and our and their officers, directors and employees; any third party co-defendant of a claim subject to this arbitration provision; and all joint Accountholders and Authorized users of your Account(s).

Dkt. 24-1, at 4.

         Kohn says that it is entitled to invoke the arbitration clause because it is a “third party party co-defendant of a claim subject to this arbitration provision.”[3] The court will assume for the purpose of Kohn's motion that Rizzo's claims fall within the subject matter of those that are “subject to th[e] arbitration provision, ” but this assumption does not help Kohn because Kohn is the only defendant in the case. It is not a “third party co-defendant” with Discover.

         Kohn asks the court to overlook Discover's absence from the case because Discover was a defendant when Rizzo first filed her complaint. But Rizzo has since dismissed Discover from the case, Dkt. 19, and she did so before Kohn filed its motion to compel. Thus, Kohn no longer qualifies as a “third party co-defendant.” Kohn does not contend that it would have a right to invoke the arbitration clause if Discover had never been a defendant and the court sees no logical difference between that situation and the situation in this ...


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