Nelson v. Liberty Acquisitions Servicing , 374 P.3d 27 ( 2016 )

2016 UT App 92THE UTAH COURT OF APPEALS
JASON NELSON AND GALEN LEITH,
Appellees,
v.
LIBERTY ACQUISITIONS SERVICING LLC, LIBERTY ACQUISITIONS I
LLC – JEFFERY W. BUSCH AND MARK CANNON, RYAN BOLANDER,
SCOTT SKEEN, AND BRIAN R. BECKER,
Appellants.
Opinion
No. 20141004-CA
Filed May 5, 2016
Third District Court, Salt Lake Department
The Honorable Todd M. Shaughnessy
No. 130908649
Ronald F. Price, Attorney for Appellants
Lester A. Perry, Attorney for Appellees
JUDGE MICHELE M. CHRISTIANSEN authored this Opinion, in
which JUDGE GREGORY K. ORME and SENIOR JUDGE PAMELA T.
GREENWOOD concurred. 1
CHRISTIANSEN, Judge:
¶1 After the cessation of a debt collection company’s
litigation efforts against them, two individuals brought suit
against that company for violations of federal and state statutes
governing debt collection practices. The company sought to
enforce arbitration clauses in the underlying credit card
agreements allegedly entered into by the individuals and the
1. Senior Judge Pamela T. Greenwood sat by special assignment
as authorized by law. See generally Utah R. Jud. Admin. 11-
201(6).
Nelson v. Liberty Acquisitions Servicing
company’s predecessor-in-interest. The district court ruled that
the company had waived the right to enforce the arbitration
clauses by filing and pursuing the original debt collection
actions. The company appeals from that ruling.
BACKGROUND
¶2 Liberty Acquisitions Servicing LLC is a company engaged
in the collection of consumer debts. Liberty Acquisitions bought
a tranche of overdue Best Buy credit card accounts issued by
HSBC Bank Nevada NA. Among these were accounts opened in
the names of Jason Nelson and Galen Leith. In January 2013,
Liberty Acquisitions filed complaints seeking to collect on both
the Nelson and Leith accounts (the Collection Actions).
¶3 Nelson moved for summary judgment on statute of
limitations grounds. He argued that, pursuant to Utah’s
statutory scheme, California’s statute of limitations governed the
case because the account documents stated that payment was to
be sent to California. The California statute of limitations is four
years. The district court agreed that the four-year statute of
limitations applied and that collection on the Nelson account
was therefore time-barred. Liberty Acquisitions’ appeal of that
ruling to the Utah Supreme Court is currently pending.
¶4 In the Leith action, the district court entered a default
judgment in favor of Liberty Acquisitions. Leith moved to set
aside that default judgment, and argued that because Liberty
Acquisitions had not provided a copy of the credit card
agreement with his signature, he believed the account might not
be his. 2 Leith and Liberty Acquisitions filed a joint motion to set
aside the default judgment and to dismiss the Leith action.
2. Leith did not explicitly claim that the account was not his.
20141004-CA 2 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
Accordingly, the district court dismissed the Leith action with
prejudice.
¶5 Nelson and Leith (Plaintiffs) then filed a complaint
against Liberty Acquisitions from which this appeal is taken (the
2014 Action). The complaint also named as defendants Brian R.
Becker, Ryan Bolander, and Scott Skeen, three employees of
Liberty Acquisitions. We refer to the company, together with its
employees, as the LA Defendants. The complaint alleged that the
LA Defendants violated the federal Fair Debt Collection
Practices Act (the FDCPA) and the Utah Consumer Sales
Practices Act (the UCSPA) by filing the Collection Actions
despite the expiry of the time bar. Plaintiffs also sought to bring
these claims as a class action on behalf of an unspecified number
of similarly situated individuals. Leith further asserted an
individual claim against the LA Defendants for violating the
FDCPA and the UCSPA by serving a writ of garnishment on
Leith’s employer eleven or twelve days after the court dismissed
the Leith action with prejudice. 3
¶6 The LA Defendants moved to stay the 2014 Action
pending the resolution of Nelson’s statute-of-limitations case by
the Utah Supreme Court. The district court denied that motion.
The LA Defendants then filed a motion to compel arbitration
and to stay the proceedings pending the outcome of arbitration.
The LA Defendants pointed to the account agreements, which
allowed either party to resolve disputes by arbitration:
Any claim, dispute, or controversy between you
and us (whether based upon contract; tort,
intentional or otherwise; constitution; statute;
3. The complaint concedes that Liberty Acquisitions “released
the garnishment upon being informed that it was served on Mr.
Leith’s employer.”
20141004-CA 3 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
common law; or equity and whether pre-existing,
present or future), including initial claims, counter-
claims, cross-claims and third party claims, arising
from or relating to this Agreement or the
relationships which result from this Agreement,
and except as provided below, the validity,
enforceability, or scope of this arbitration
provision, any part thereof or the entire Agreement
(“Claim”), shall be resolved, upon the election of
you or us, by binding arbitration pursuant to this
arbitration provision and the applicable rules or
procedures of the arbitration administrator
selected at the time the Claim is filed.
The account agreements further provided that the Federal
Arbitration Act would govern any arbitration proceedings.
¶7 Plaintiffs opposed the motion to compel arbitration,
arguing among other things that Leith was not bound by the
agreement because he had not signed the agreement; that
Liberty Acquisitions was not the successor-in-interest or
assignee of HSBC; that Becker, Bolander, and Skeen were not
employees of Liberty Acquisitions; that Plaintiffs’ claims did not
fall within the scope of the arbitration provision; and that
Liberty Acquisitions waived the right to arbitration by forgoing
arbitration and instead filing and pursuing the Collection
Actions in court.
¶8 After a hearing, the district court denied the motion to
compel. It noted that the LA Defendants had “filed two lawsuits
against [Plaintiffs] to collect monies allegedly owed on HSBC
credit cards” and that the LA Defendants had “substantially
pursued litigation of the two lawsuits.” The court ruled that,
“[h]aving chosen to pursue litigation in those collection actions,
[the LA Defendants] waived the right to assert the arbitration
20141004-CA 4 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
provision against the plaintiffs in the present case.” The LA
Defendants appeal.
ISSUE AND STANDARD OF REVIEW
¶9 The LA Defendants contend that waiver is the intentional
relinquishment of a known right, and thus that any waiver of the
right to arbitrate in the Collection Actions could not be valid as
to rights arising in this subsequent lawsuit. “Whether a
contractual right of arbitration has been waived presents mixed
questions of law and fact[.]” Central Florida Invs., Inc. v. Parkwest
Assocs., 2002 UT 3, ¶ 20, 40 P.3d 599 (existing brackets, citation,
and internal quotation marks omitted). Whether the district
court employed the proper standard for determining whether a
right to arbitrate has been waived is a legal question, and we
review the court’s ruling for correctness. Id. But where the
actions or events allegedly constituting waiver are contested, we
review the district court’s findings of fact for an abuse of
discretion. Id.ANALYSIS
I. Waiver of a Known Right
¶10 The LA Defendants first contend that any waiver of the
right to arbitrate the Collection Actions cannot constitute a
waiver of the right to arbitrate the 2014 Action because the LA
Defendants “could not intentionally and knowingly waive their
right to arbitrate claims that did not exist, and which were not
raised, asserted or at issue in the prior collection actions.”
¶11 The Utah Supreme Court “has recognized the important
public policy behind enforcing arbitration agreements as an
approved, practical, and inexpensive means of settling disputes
and easing court congestion.” Cedar Surgery Ctr., LLC v. Bonelli,
20141004-CA 5 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
2004 UT 58, ¶ 14, 96 P.3d 911 (citation and internal quotation
marks omitted). The supreme court has “also acknowledged that
there is a strong presumption against waiver of the right to
arbitrate.” Id. (citation and internal quotation marks omitted).
Consequently, a court may only infer such waiver where “the
facts demonstrate that the party seeking to enforce arbitration
intended to disregard its right to arbitrate.” Id. (citation and
internal quotation marks omitted). To establish waiver of the
right to arbitrate, a party must show “(1) that the party seeking
arbitration substantially participated in the underlying litigation
to a point inconsistent with the intent to arbitrate[] and (2) that
this participation resulted in prejudice to the opposing party.”
Id.
¶12 The LA Defendants assert that the district court failed to
examine whether the LA Defendants participated “in the
underlying litigation.” In their view, the district court “based its
ruling entirely on [the LA Defendants’] conduct in other, prior
lawsuits”—namely, the Collection Actions. Central to the LA
Defendants’ claim is their apparent assertion that the Collection
Actions were not “underlying litigation” to the 2014 Action.
However, the LA Defendants provide no authority interpreting
the term “underlying litigation.” See Brigham v. Moon Lake Elec.
Ass’n, 470 P.2d 393, 397 (Utah 1970) (“On appeal, the burden is
upon the appellant to convince us that the trial court committed
error . . . .”). Rather, they simply assert that Plaintiffs’ “claims in
[the 2014 Action] did not exist, and were not raised, asserted or
at issue in the prior [Collection Actions].”
¶13 We do not agree with the LA Defendants that the claims
raised in the 2014 Action did not exist at the time of the
Collection Actions. The Collection Actions originated when
Liberty Acquisitions sought to recover money it believed Nelson
and Leith owed. Liberty Acquisitions elected to litigate the
claims, thus waiving its contractual right to arbitrate them. In
response to the suit against him, Nelson claimed that Liberty
20141004-CA 6 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
Acquisitions’ claim was time-barred by the California statute of
limitations. The district court agreed and granted summary
judgment to Nelson. Liberty Acquisitions then stipulated to the
dismissal of its case against Leith with prejudice, apparently
because the Leith action suffered from the same infirmity. The
time-bar was therefore central to the Collection Actions, and
Liberty Acquisitions waived its right to arbitrate those cases.
Nelson and Leith then filed the 2014 Action, in which they
argued that Liberty Acquisitions and its employees had violated
federal and state law by suing Nelson and Leith on time-barred
claims. Thus, in both the Collection Actions and the 2014 Action,
the applicability and effect of the time-bar was at issue. Indeed,
the basis of the 2014 Action is the allegedly wrongful conduct of
the LA Defendants in filing the Collection Actions. It follows that
if the LA Defendants, as Plaintiffs allege in the 2014 Action, filed
time-barred collection actions, the FDCPA and UCSPA violation
claims did not just exist at the time of the Collection Actions but
were in fact created by the filing of the Collection Actions. 4
4. Under these facts, it is also difficult to understand how, for
purposes of the 2014 Action, the LA Defendants can assert rights
granted by the arbitration provision of the credit card
agreements while further asserting that the earlier suits based on
the alleged breach of those agreements were not related to the
2014 Action. The arbitration provision is part of the credit card
agreements Nelson and (allegedly) Leith each signed with
Liberty Acquisitions’ predecessor-in-interest. The arbitration
provision stated that it applied to suits “arising from or relating
to this Agreement or the relationships which result from this
Agreement.” Thus, in order for the arbitration provision to apply
to this case, the LA Defendants needed to establish that the 2014
Action arose from or related to the credit card agreements. The
LA Defendants’ position must therefore be that the 2014 Action
is related to the credit card agreements for purposes of invoking
the arbitration provision. However, to avoid waiver, the LA
(continued…)
20141004-CA 7 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
¶14 The LA Defendants have also failed to show that the
Collection Actions were not “underlying litigation” to the 2014
Action. See Cedar Surgery Ctr., 2004 UT 58, ¶ 14. This contention
appears to present an issue of first impression in Utah. The LA
Defendants reference a number of similar trial court cases where
courts have determined that the right to arbitrate a later claim
was not waived by litigating an earlier claim. See, e.g., Cage v.
CACH, LLC, No. C13-01741RSL, 2014 WL 2170431, at *1 (W.D.
Wash. May 22, 2014) (“Bringing a lawsuit for debt collection may
result in defendants’ waiver of arbitration for that case, but it
does not . . . bar defendants from invoking arbitration in all
future separate causes of action that plaintiffs assert against
them.” (emphasis added)); see also James v. Portfolio Recovery
Assocs., LLC, No. 14-cv-03889-RMW, 2015 WL 720195, at *5 (N.D.
Cal. Feb. 20, 2015) (same); Schwartz v. CACH, LLC, No. 13-12644-
FDS, 2014 WL 298107, at *3 (D. Mass. Jan. 27, 2014) (“The
collection actions, which CACH brought against plaintiff, are
distinct from the claims brought by plaintiff here. CACH did not,
therefore, waive its right to arbitrate the present dispute.”
(emphasis added)); Funderburke v. Midland Funding, LLC, No. 12-
2221-JAR/DJW, 2013 WL 394198, at *7 (D. Kan. Feb. 1, 2013)
(“The specific claims at issue in this case were not litigated in
that action and so Midland’s litigation enforcing Plaintiff’s debt
does not support a finding of waiver here.”). In each of these
cases, the court stated that the claim(s) for which arbitration was
sought were separate or distinct from the claim(s) previously
litigated.
(…continued)
Defendants’ position must also be that the Collection Actions
predicated on alleged violations of those credit card agreements
did not constitute “underlying litigation” to the 2014 Action.
Where the central issue of the later case is based on the
dispositive issue of the earlier case, these positions appear
contradictory.
20141004-CA 8 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
¶15 However, under Utah law, the relevant inquiry is not
simply whether the later claim was separate or distinct from the
earlier claim but rather whether the later claim was part of the
“underlying litigation.” See Cedar Surgery Ctr., 2004 UT 58, ¶ 14.
The cases cited above therefore do not shed light on whether the
district court here erred by determining that the “underlying
cases” to the 2014 Action were the Collection Actions “brought
on the same account agreement with the same arbitration clause
in it.”
¶16 Utah courts have often used the term “underlying
litigation” in other contexts to refer to earlier, but related, cases
that concerned claims and parties not before the court. For
example, in the context of legal malpractice actions, Utah courts
have repeatedly used the term to mean the earlier suit upon
which the later claim was based. See, e.g., Crestwood Cove Apts.
Bus. Trust v. Turner, 2007 UT 48, ¶ 13, 164 P.3d 1247 (noting that
under certain circumstances, “the abandonment doctrine
provides that a client forfeits any legal malpractice claims arising
from an attorney’s alleged mishandling of litigation when the
client settles the underlying litigation before final judicial review”
(emphasis added)); Harline v. Barker, 912 P.2d 433, 441 (Utah
1996). The Utah Supreme Court has also used the term in an
action by a public defender association against a judge to refer to
a post-conviction relief case litigated before that judge. See Salt
Lake Legal Defender Ass’n v. Uno, 932 P.2d 589, 591 (Utah 1997).
And the Utah Supreme Court has used the term in a spoliation
case brought against a third party to mean the case in which the
spoliated evidence would have been introduced. See Hills v.
United Parcel Serv., Inc., 2010 UT 39, ¶ 23, 232 P.3d 1049.
¶17 In their reply brief, the LA Defendants assert that “the
United States District Court, Southern District of Indiana,
applying Utah law, recently rejected Nelson/Leith’s exact
argument.” See Cox v. CA Holding Inc., No. 1:13-cv-01754-JMS-
TAB, 2015 WL 631393 (S.D. Ind. Feb. 13, 2015). There, several
20141004-CA 9 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
plaintiffs opened credit card accounts with HSBC Nevada. Id. at
*2–*5. One of the accounts was governed by Utah law. Id. at *13.
The defendants acquired the account and filed a collection action
against the plaintiff in state court, thus waiving the right to
arbitrate the claim. Id. The plaintiff later filed suit against the
defendants, alleging several violations of the FDCPA. Id. at *6.
The defendants filed a motion to compel arbitration, which the
plaintiff opposed. Id. at *1. The trial court noted that the
plaintiffs “ha[d] not cited any case law indicating that a party to
an arbitration provision waives the provision by initiating a
lawsuit involving different claims than the claims it seeks to
arbitrate.” Id. at *15. The trial court therefore determined that the
defendants were entitled to arbitrate claims relating to that
account. Id. at *16.
¶18 The key distinction between Cox and the case at bar is
whether the earlier claims (upon which the right to arbitrate was
waived) are properly part of the “underlying litigation.” See
Cedar Surgery Ctr., LLC v. Bonelli, 2004 UT 58, ¶ 14, 96 P.3d 911(explaining that, to infer waiver of the right to arbitrate, the court
must determine that “the party seeking arbitration substantially
participated in the underlying litigation”). The district court in
the case before us implicitly determined that the Collection
Actions were part of the “underlying litigation” when it ruled
that waiver in the Collection Actions amounted to waiver in the
2014 Action. In contrast, the Cox court did not analyze at all
whether the claims before it stemmed from the “underlying
litigation.” Rather, it simply began with the proposition that the
claims were “different” than the earlier claims. 5 Cox, 2015 WL
5. This omission may be the result of the nature of the claims
raised. We note that the filing of the Collection Actions was
central to the 2014 Action because the 2014 Action alleged that
the LA Defendants had wrongfully filed time-barred debt
collection suits. In contrast, the FDCPA causes of action before
(continued…)
20141004-CA 10 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
631393, at *15. In essence, the Cox court equated “underlying
litigation” with litigation of the same claim without considering
whether Utah law mandated that result. As we have explained,
we are not aware of any Utah case or statute that has so limited
the term “underlying litigation.” And the Utah cases discussed
above, supra ¶ 16, suggest just the opposite. We therefore agree
with Cox only to the extent that, where a court determines that
new claims are not based on the underlying litigation, a waiver
of the right to arbitrate the prior claims does not effect a waiver
as to the new claims.
¶19 Utah is not the only jurisdiction to weigh the relationship
of the earlier claims to the later claims rather than follow a
bright-line “different claims” analysis. For example, a somewhat
similar situation confronted the Florida Fourth District Court of
Appeal in Owens & Minor Medical, Inc. v. Innovative Marketing
& Distribution Services, Inc., 711 So. 2d 176 (Fla. Dist. Ct. App.
1998). There, the appellant had sued the appellee for breach of a
contract that contained an arbitration clause. Id. at 177. The
appellant later amended its complaint and sought discovery. Id.The appellee eventually filed an answer, alleging as both an
affirmative defense and as a counterclaim that the contract had
been fraudulently induced. Id. The appellant then filed a motion
to compel arbitration, which the district court denied. Id. On
appeal, the appellant argued “that it did not participate in the
litigation in relation to the counterclaim, so that claim should
[have been] subject to arbitration.” Id. The Florida Court of
Appeal noted that “[t]he matters raised in the counterclaim are
(…continued)
the Cox court were less specifically tied to the earlier cases there
because those causes alleged that the defendants had not
obtained a debt collection license as mandated by Indiana law,
had failed to register as mandated by Indiana law, and did not
actually own the debts in question.
20141004-CA 11 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
intertwined with issues raised in the amended complaint.” Id.Accordingly, the court rejected the appellant’s argument on the
ground that “the counterclaim [did] not involve issues separate
and distinct from those raised in [the appellant’s] amended
complaint.” Id.
¶20 To show that a defendant’s waiver of the right to arbitrate
in an earlier case extends to claims raised later, the party
opposing arbitration must show “(1) that the party seeking
arbitration substantially participated in the underlying litigation
to a point inconsistent with the intent to arbitrate[] and (2) that
this participation resulted in prejudice to the opposing party.”
See Cedar Surgery Ctr., 2004 UT 58, ¶ 14. The district court here
determined that this burden was satisfied due to the Collection
Actions. The LA Defendants have not demonstrated on appeal
that the Collection Actions did not constitute “underlying
litigation” to the 2014 Action. We therefore conclude that the LA
Defendants have failed to show error in the district court’s ruling
that Liberty Acquisitions’ election to pursue litigation in the
Collection Actions constituted waiver of its right to arbitration in
the 2014 Action. See Brigham v. Moon Lake Elec. Ass’n, 470 P.2d
393, 397 (Utah 1970) (“On appeal, the burden is upon the
appellant to convince us that the trial court committed
error . . . .”).
II. Other Issues
¶21 In order to preserve an issue for appeal, the issue must be
presented to the district court in such a way that the district has
an opportunity to rule on the issue. 438 Main St. v. Easy Heat,
Inc., 2004 UT 72, ¶ 51, 99 P.3d 801. “Issues that are not raised at
trial are usually deemed waived.” Id. For this reason, the Utah
Rules of Appellate Procedure require that an appellant’s opening
brief contain a statement of the issues presented for review,
including for each issue the standard of appellate review and
either a citation demonstrating preservation or a statement of
20141004-CA 12 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
grounds to seek review of an unpreserved issue. See Utah R.
App. P. 24(a)(5).
¶22 The LA Defendants contend that Plaintiffs “have not
suffered the requisite prejudice necessary to find a waiver of the
right to arbitrate.” The LA Defendants do not identify this
contention in their statement of issues, do not set forth a
standard of review for it, and do not provide a citation to the
record showing where this argument was preserved. Although
we are under no obligation to do so, we have reviewed the
record and are unable to see where the issue of prejudice was
brought to the district court’s attention. See Wohnoutka v. Kelley,
2014 UT App 154, ¶ 6, 330 P.3d 762. We consequently deem this
issue unpreserved and decline to address it further.
¶23 Becker, Bolander, and Skeen (the Individual Defendants)
contend that they did not waive their individual rights to
arbitrate the 2014 Action by appearing as Liberty Acquisitions’
counsel in the Collection Actions. According to the LA
Defendants’ opening brief, this contention was preserved in the
LA Defendants’ memorandum in support of the motion to
compel arbitration or in their reply memorandum in support of
the same. However, the initial memorandum did not raise any
argument resembling this contention. And the reply
memorandum only mentions, with respect to the Individual
Defendants, that “there is no question that the arbitration clause
applies to them as well.” Accordingly, while the issue of whether
the Individual Defendants had a right to arbitrate was preserved
for appeal, the issue actually raised on appeal—whether the
Individual Defendants then waived that right—was not before
the district court. Accordingly, we decline to address it further.
CONCLUSION
¶24 The LA Defendants have not shown error in the
conclusion that the Collection Actions were “underlying
20141004-CA 13 2016 UT App 92Nelson v. Liberty Acquisitions Servicing
litigation” to the 2014 Action. They have therefore failed to carry
their burden of demonstrating error in the district court’s ruling
that their participation in the Collection Actions waived their
right to arbitrate the 2014 Action. The LA Defendants’ remaining
contentions were not raised below and were consequently not
preserved for appeal; we therefore decline to address them.
¶25 Affirmed.
20141004-CA 14 2016 UT App 92