Sec. 36a-700. (Formerly Sec. 36-435l). Credit
clinics. Definitions. Contracts. Prohibited acts. Penalties. (a) As used in this section, "credit clinic"
means any person who sells, provides or performs, or who represents that such
person can or will sell, provide or perform, a service for the express or
implied purpose of correcting, changing or deleting adverse entries on a
consumer's credit record, history or rating or providing advice or assistance
to a consumer with regard to correcting, changing or deleting adverse entries
on a consumer's credit record, history or rating in return for the payment of a
fee. "Credit clinic" does not include: (1) Credit rating agencies as
defined in section 36a-695; (2) any person licensed to practice law in this
state provided such person renders services as a credit clinic, as defined in
this subsection, within the course and scope of his practice as an attorney; or
(3) any organization which is exempt from taxation pursuant to Section
501(c)(3) of the Internal Revenue Code of 1986, or any subsequent corresponding
internal revenue code of the United States, as from time to time amended.
(b) A credit clinic shall provide to each
purchaser of the services of a credit clinic a contract which contract shall
include, in bold face type a minimum size of ten points, the following
statements:
RIGHT TO REVIEW YOUR FILE
The
federal Fair Credit Reporting Act gives you the right to know what your credit
file contains and the credit rating agency must provide someone to help you
interpret the data. Sections 36a-695 to 36a-699, inclusive, of the
INCORRECT INFORMATION
If you notify the credit rating agency that you dispute the accuracy of information, the agency must reinvestigate and modify or remove inaccurate data. The credit rating agency may not charge any fee for this investigation or for modifying or removing inaccurate data. If reinvestigation does not resolve the dispute, you may enter a statement of one hundred words or less in your file, explaining why you dispute the accuracy of your record or file. This statement or a coded version of it must be included with all reports which the credit rating agency issues on you. If the error is corrected, the credit rating agency must notify any person who requested a report on you during the previous two years for employment purposes and the previous six months for any other purpose.
TIME LIMITS ON ADVERSE DATA
Most kinds of
information in your file may be reported for a period of seven years. If you
have declared personal bankruptcy, however, that fact may be reported for ten
years. After seven or ten years, the information cannot be disclosed by a
credit rating agency unless you are being investigated for a credit application
of fifty thousand dollars or more, for an application to purchase life
insurance of fifty thousand dollars or more, or for employment at an annual
salary of twenty thousand dollars or more.
(c) In addition to statements required in
subsection (b) of this section, each contract shall contain a complete,
detailed list of services to be performed by the credit clinic and the results
to be achieved by the credit clinic. A copy of the consumer's current credit
report shall be attached to the contract with the adverse entries to be
modified clearly marked.
(d) Any contract which does not comply with
the provisions of subsections (b) and (c) of this section shall be void and the
credit clinic shall return to the consumer any payments made by the consumer to
the credit clinic under the voided contract.
(e) No credit clinic may charge a fee or
receive any money or other valuable consideration for the performance of any
service the credit clinic has agreed to perform for any consumer until the
credit clinic has fully performed such service.
(f) A violation of any provision of this
section shall be deemed an unfair or deceptive trade practice pursuant to
section 42-110b.
(P.A. 87-146,
S. 1; P.A. 91-357, S. 57, 78; P.A. 97-22, S. 2; P.A. 99-40.)
History: P.A.
91-357 made a technical change in Subsec. (a); Sec. 36-435l transferred
to Sec. 36a-700 in 1995; P.A. 97-22 made technical changes in Subsec. (a); P.A.
99-40 added new Subsec. (e) prohibiting credit clinics from charging consumers
prior to fully performing services and relettered former Subsec. (e)
accordingly.
Annotations to
former section 36-435l:
Cited. 228 C. 375. Cited. 231 C. 707.
Case Law
I identified only one construing this statute.
In an unpublished decision, the federal district court for the District of Connecticut has enforced an arbitration provision in a credit services agreement that was alleged to be in violation of the Connecticut credit clinic act. Vertucci v. Orvis, Not Reported in F.Supp.2d, 2006 WL 1688078 (D.Conn.,2006).
Vertucci v. Orvis
Not
Reported in F.Supp.2d, 2006 WL 1688078
D.Conn.,2006.
May
30, 2006 (Approx. 8 pages)
D.
Scott
VERTUCCI, Plaintiff,
v.
Jayson
ORVIS, Jamis Johnson, Danell Johnson, Deon Steckling, Samuel J.
Spendlove,
Spence Bingham, Victor Lawrence, John Heath, Eric Stephenson, Paul
Johnson,
John J. Diamond and Lane Ryan P. Waters, Defendants.
No.
3:05CV1307 (PCD).
May 30,
2006.
Joanne S. Faulkner, Law Offices of Joanne Faulkner, New Haven, CT, for
Plaintiff.
Ann H. Rubin, Carmody & Torrance, Waterbury, CT, David M. Bizar, Steven M. Greenspan, Day, Berry & Howard, Hartford, CT, Kenneth D. Heath, Penny Q. Seaman, Wiggin & Dana, New Haven, CT, for Defendants.
RULING ON MOTIONS TO DISMISS, STAY, OR TRANSFER
DORSEY, J.
*1 Defendants John Heath, Lane Ryan P. Waters, Paul Johnson, John J.
Diamond, and Eric Stephenson (the "Attorney Defendants") move to
dismiss or stay, Defendant Victor Lawrence moves to stay, dismiss, or transfer,
Defendants Jayson Orvis, Deon Steckling, Samuel J. Spendlove, and Spence
Bingham (the "Orvis Defendants") move to dismiss, and all Defendants'
move to stay discovery pending resolution of the Attorney Defendants' and
Defendant Lawrence's petitions to compel arbitration in the United States
District Court for the District of Utah and for a protective order. For the
reasons stated herein, the Attorney Defendants' Motion to Dismiss or Stay [Doc.
No. 52] is granted in part, Defendant Lawrence's Motion to Stay, Dismiss, or
Transfer [Doc. No. 53] is granted in part, the Orvis Defendants' Motion to
Dismiss [Doc. No. 54] is granted in part, and all Defendants' Motion to Stay
Discovery [Doc. No. 60] is denied as moot.
I.
BACKGROUND
Plaintiff
brings claims based on violations of the Credit Repair Organizations Act, 15
U.S.C. § 1679 et seq. ("CROA"), the Connecticut Credit Clinics Act, Conn. Gen.Stat. § 36a-700, and the
This
action was transferred to this Court from the Honorable Janet C. Hall, United
States District Judge for the District of Connecticut, on May 4, 2006. An Order
to Show Cause was issued on March 31, 2006, ordering Plaintiff to show cause as
to why this case: (1) should not be transferred to the United States District
Court for the District of Utah or (2) should not be administratively closed, pending arbitration, and with the right of any party
to reopen in aid of, or upon completion of, the arbitration proceeding. See Mar. 31, 2006 Order to Show Cause [Doc. No. 93]. Plaintiff responded on or
about April 17, 2006 and Defendants responded, in three separate memoranda, on
or about April 27, 2006.
*2
Plaintiff's
Complaint, the allegations of which will be accepted as true for purposes of
this Ruling, asserts that Plaintiff is
the
victim of an elaborate system designed to undermine accurate credit reporting
and violate the [CROA], wherein defendants intentionally profit from obtaining
payment before credit repair services are fully performed, intentionally
solicit consumers on the representation that a law firm is involved
("Lexington Law Firm") and that consumers will benefit by being
represented by a law firm, intentionally and systematically deceive credit
bureaus about the source and nature of the dispute correspondence, and intentionally deceive consumers before and during the course
of their representation.
(Compl.¶
2.). Plaintiff also asserts that all of the defendants in this action
"have been associated with and profited from the 'Lexington Law
banner." ' [FN1] Plaintiff, however, does not sue Lexington directly, but sues the
defendants individually, as persons allegedly connected to Lexington. According
to the Complaint, Defendant Jayson Orvis, a non-lawyer, is the owner of the
trade name "Lexington Law firm" and owner and operator of the
FN1. According to Plaintiff's Complaint, Lexington Law Firm's web site proclaimed,
as of August 9, 2005, that "[f]or over fourteen years, credit correction
attorneys have practiced under the Lexington Law banner, establishing us as the
largest and most trusted credit report repair firm in America. We have
reinvented and improved the art of credit report repair over and over
again--giving the
Plaintiff's
relationship with
*3 You agree that any dispute arising between you and Lexington shall
be settled in Salt Lake City, Utah, by binding arbitration pursuant to the
Rules of the American Arbitration Association. You agree to abide by such rules
pertaining to the selection of arbitrators. The arbitrators have no right to
change this agreement. You agree that any decision rendered shall be filed and
adopted by any court having proper jurisdiction.
(
According
to Plaintiff's Complaint, between April 2004 and March 2005,
On or
about March 24, 2005, Plaintiff and
Plaintiff
emailed
The
Attorney Defendants have filed notices indicating that they--along with
Defendant Victor Lawrence, in a consolidated action--petitioned the United
States District Court for the District of Utah, Case No. 2:05-cv-00892-DB, to
compel arbitration of the claims Plaintiff filed against them in this Court and
that, pursuant to the forum selection clauses in the Lexington and Concord
Retainers and the Federal Arbitration Act ("FAA"), 9
U.S.C. § 4, the Utah court entered
an order granting the Attorney Defendants' petition and compelling arbitration. [FN2]
FN2. Default
was entered against Scott Vertucci in Utah District Court for failure to appear
and on January 3, 2006, a default judgment compelling arbitration was entered. See Heath v. Vertucci, No. 2:05-cv-00892-DB (D.Utah Jan. 5, 2006). Vertucci
subsequently moved to reopen the default judgment, to transfer the two
consolidated cases to
based on
his activities in the State of Utah and his consent to jurisdiction and venue
there; (2) the default judgment should not be reopened as Vertucci failed to
set forth any reason warranting relief; and (3) alternatively, even if the
court were to reopen the default judgment, it would reaffirm, on the merits,
its order granting the petitions to compel arbitration. See Heath v.
Vertucci, No. 2:05-cv-00892-DB (D.Utah Apr. 5, 2006).
II.
DISCUSSION
Defendants
argue that this Court should administratively close the case as to all
Defendants and should dismiss the action or transfer it to the Utah District
Court pursuant to the forum selection clauses in Plaintiff's contracts and 28
U.S.C. § 1404(a), so that the federal
court that has compelled arbitration and which Plaintiff's contracts specify
should be the forum for any judicial proceedings--the Utah District Court--will
have the case for any further judicial proceedings. (Defs.' Mem. Supp. Admin.
Closure 1.) Plaintiff argues that the case should neither be dismissed,
transferred, nor administratively closed, on the ground that only six of the ten
defendants obtained an arbitration order in
A.
Arbitration Clause
*4 As previously indicated, the United States District Court for the District of Utah issued an order granting the Attorney
Defendants' petition and compelling arbitration. The broad, written arbitration
clause in the Lexington Retainer falls under the FAA, which provides that
written arbitration clauses "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.
The
FAA reflects "a strong federal policy favoring arbitration," Oldroyd
v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir.1998), mandating that "district courts shall direct the
parties to proceed to arbitration on issues as to which an arbitration
agreement has been signed." Dean
Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (2d Cir.1985) (emphasis in original). This Court, however, lacks the authority
to compel the parties to proceed to arbitration in accordance with the terms of
the arbitration agreement because that agreement provides for arbitration in
Although
this Court lacks authority to compel arbitration, it possesses the authority to
stay the litigation. Section 3 of the FAA "plainly requires that a
district court stay litigation where issues presented in the litigation are the subject of an arbitration agreement." Doctor's
Assocs., Inc. v. Stuart, 85 F.3d 975, 984 (2d Cir.1996) (quoting Kroll
v. Doctor's Assocs., 3 F.3d 1167, 1171 (7th Cir.1993)); 9
U.S.C. § 3. Specifically, the
statute states:
If
any suit or proceeding be brought in any of the courts of the United States
upon any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration under
such an agreement, shall on application of one of the parties stay the trial of
the action until such arbitration has been had in accordance with the terms of
the agreement, providing the applicant for the stay is not in default in
proceeding with such arbitration.
9
U.S.C. § 3; see also Sea
Spray Holdings, Ltd. v. Pali Fin. Group, Inc., 269 F.Supp.2d 356, 363 (S.D.N.Y.2003) (holding that a federal court lacking authority to compel
arbitration outside its district may still determine that the dispute
nonetheless remains "referable to arbitration" elsewhere, and must
then order a stay, pursuant to § 3 of the FAA, leaving the parties free to pursue their contractual
rights and remedies in the appropriate venue); Snyder
v. Smith, 736 F.2d 409, 420 (7th Cir.1984) (when a district court is presented with a petition to compel
arbitration outside of the district, "the district court should dismiss
the petition or, upon motion, stay its proceedings.").
*5 This Court's authority to stay the litigation is not altered
simply because Plaintiff has sued the individual defendants rather than
Plaintiff
agrees that the action should be stayed as to the Attorney Defendants and
Defendant Lawrence, but argues that it should proceed against the four
remaining nonlawyer defendants because they have not shown that they were in an
employment relationship, a surety relationship, or an affiliate relationship
with the signatory. (
*6 The four remaining non-attorney defendants are not signatories to
the arbitration agreement, however, "under principles of estoppel, a
non-signatory to an arbitration agreement may compel a signatory to that
agreement to arbitrate a dispute where ... the issues the
nonsignatory is seeking to resolve in arbitration are intertwined with the
agreement that the estopped party has signed." JLM
Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 177 (2d Cir.2004) (internal quotation marks and citation omitted); accord Thomson-CSF,
S.A. v. American Arbitration Assoc., 64 F.3d 773, 779 (2d Cir.1995) (collecting cases); Norcom
Elecs. Corp. v. CIM USA Inc., 104 F.Supp.2d 198, 203 (S.D.N.Y.2000). Similarly, the JLM court held that "where the merits
of an issue between the parties was bound up with a contract binding one party
and containing an arbitration clause, the 'tight relatedness of the parties,
contracts and controversies' was sufficient to estop the bound party from
avoiding arbitration."
Alternatively, even if the case were not subject to a stay under § 3, this Court may stay this case--even against those Defendants not
directly subject to arbitration--under principles of comity, in order to
promote the efficient use of judicial resources, and pursuant to its inherent
authority to effectively manage its docket. See Kerotest
Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200
(1952) (holding that when two
cases presenting the same issues are pending in different federal district
courts, a federal court has the power to stay its proceedings in order to
promote the efficient use of judicial resources); Landis
v. North Am. Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 81 L.Ed. 153 (1936) ("The power to stay proceedings is incidental to the power
inherent in every court to control the disposition of the causes on its docket
with economy of time and effort for itself, for counsel, and for litigants. How
this can best be done calls for the exercise of judgment, which must weigh
competing interests and maintain an even balance."); WorldCrisa
Corp. v. Armstrong, 129 F.3d 71, 76 (2d Cir.1997) (holding that "district courts, despite the inapplicability
of the FAA, may stay a case pursuant to 'the power inherent in every court to
control the disposition of the causes on its docket with economy of time and
effort for itself, for counsel, and for litigants" ') (quoting Nederlandse
Erts-Tankersmaatschappij, N.V. v. Isbrandtsen Co., 339 F.2d 440, 441 (2d
Cir.1964)); Sea
Spray Holdings, 269 F.Supp.2d at 366 (holding that, even if a party is not bound by an arbitration provision, a district
court's inherent power to effectively manage its docket provides an independent
basis to stay litigation in contemplation of arbitration proceeding among other
parties to the litigation outside of the district). Moreover, courts within our
circuit have suggested that "the coverage of § 3 itself might extend to encompass nonparties to arbitration
agreements with relationships or interests in the arbitrable dispute,
apparently in light of the district court's inherent authority to otherwise
achieve the same result." Sea
Spray Holdings, 269 F.Supp.2d at 366; Citrus
Mktg. Bd. of Israel v. J. Lauritzen A/S, 943 F.2d 220, 224 (2d
Cir.1991) (noting that the
Seventh Circuit had interpreted § 3 as applying to nonparties to arbitration agreements, and
recognizing that the law on this matter in the Second Circuit was in development).
*7 Where, as here, the parties have submitted to arbitration, the
district court may stay the proceedings, as discussed above, or, alternatively,
where all of the claims are arbitrable, the court may dismiss the action
instead of staying it. See Lewis
Tree Serv., Inc. v. Lucent Techs., Inc., 239 F.Supp.2d 332, 340
(S.D.N.Y.2002) ("Because all of
[the plaintiff's] claims are subject to arbitration, no useful purpose will be
served by granting a stay of [the plaintiff's] claims and thus its action
against the defendants is dismissed."); Salim
Oleochemicals v. M/V Shropshire, 278 F.3d 90, 92-93 (2d Cir.2002) (discussing trial courts' ability to stay proceedings or dismiss
the action in favor of arbitration); Seus
v. John Nuveen & Co., Inc., 146 F.3d 175, 178 (3d Cir.1998) ("If all the claims involved in an action are arbitrable,
the court may dismiss the action instead of staying it."); Alford
v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir.1992) (same). The broad arbitration clause appears to encompass all of
the claims at issue here, however, it is not necessary to decide whether a stay
or dismissal is more appropriate here as this Court has determined that
dismissal is appropriate based on the presence of the forum selection clause.
B.
Forum Selection Clause
Defendants
argue that the action should be dismissed, pursuant to Federal
Rule of Civil Procedure 12(b)(3) or 12(b)(6), because of the presence of the mandatory forum selection clause
specifying that any lawsuit arising from Plaintiff's retention of Lexington
would be brought only in a court in Salt Lake County, Utah. Alternatively,
Defendants argue that the case should be transferred to Utah district court,
pursuant to 28
U.S.C. § 1404(a), where the parties have
agreed to jurisdiction and venue and which has already concluded that the
dispute must be submitted to arbitration. (Attorney Defs.' Mem. Supp. Mot.
Dismiss 23-25.)
1.
The
enforcement of forum selection clauses is governed by federal law. Jones
v. Weibrecht, 901 F.2d 17, 19 (2d Cir.1990). Forum selection clauses "are prima
facie valid and should be enforced unless enforcement is shown by the resisting
party to be 'unreasonable' under the circumstances." M/S
Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d
513 (1972). [FN3] Such clauses are to be "given full effect" absent
"fraud, undue influence, or overweening bargaining power." Bremen, 407 U.S. at 12- 13. A forum selection clause can bind the parties even where the
agreement in question is a form consumer contract and not subject to negotiation. Carnival
Cruise Lines v. Shute, 499 U.S. 585, 589-95, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991). The party resisting a forum selection clause "must overcome
a substantial presumption in favor of enforcement." Indymac
Mortgage Holdings, 167 F.Supp.2d 222, 244 (D.Conn.2001).
FN3. A forum selection clause is "unreasonable" under Bremen only if Plaintiff can demonstrate that: "(1) [its] incorporation into the agreement was the result of fraud or overreaching; (2) ... the complaining party "will for all practical purposes be deprived of his day in court," due to the grave inconvenience or unfairness of the selected forum; (3) ... the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) ... the clauses contravene a strong public policy of the forum state." Roby, 996 F.2d at 1363 (quoting Bremen, 407 U.S. at 18).
The
Second Circuit has construed