State high court sides with consumer in debt-fraud case

Court

Montana Supreme Court justice are, left to right, James Shea, James Rice, Laurie McKinnon, Patricia Cotter, Chief Justice Mike McGrath, Beth Baker and Mike Wheat.

The Montana Supreme Court has cleared a path to trial for a Butte woman who says she was defrauded by a company that promised to help reduce her debts.

Billings attorney Cliff Edwards, one of the lawyers for Susan Ossello, said the 5-2 decision issued last week by the state high court is “a great big deal” and a clear victory for Montana consumers.

The Supreme Court upheld a District Court ruling against Global Client Solutions, the company that promised to help Ossello get out of debt. Global had argued that its contract with Ossello should have forced her to arbitrate their dispute, rather than taking it to court.

Chief Justice Mike McGrath, writing for the majority, said Butte-Silver Bow District Judge Kurt Krueger was correct in ruling that the arbitration clause in Global’s contract with Ossello “was unconscionable and therefore unenforceable.” That means the case can go back to District Court to be decided on its merits.

Ossello, 41, was facing more than $40,000 in unsecured debt that she owed to Discover Bank and other banks in 2012, when she received an unsolicited mailing from a company called World Law, which offered to provide her with debt-relief services.

She was told that World Law attorneys would contact her creditors to negotiate reduced settlements of her credit card debt. She signed several forms, including a “client services agreement” with Global Client Solutions, under which $589 was withdrawn from Ossello’s bank account each month, and was to be used to pay her debts.

As a result of the agreement, she said, she stopped making payments on her credit card until, in September 2013, Discover Bank brought a collection action against her. Ossello said Global sent her a form to fill out, saying, among other things, that she had never applied for or received a credit card from Discover Bank and that she had never received monthly statements from Discover.

Ossello said in a telephone interview that she knew those statements were false, but that she was proceeding on the advice of Global and World Law. But she was also getting suspicious, which is why she ultimately retained Edwards and one of his partners, Triel Culver.

The complaint they filed against World Law and Global said the companies never contacted her creditors and “no payments were ever made” to her creditors from the dedicated account the companies had established. The lawsuit accused World Law and Global of violating multiple state laws, including the Montana Consumer Debt Management Services Act and the Montana Consumer Protection Act.

World Law failed to appear and defaulted in 2014, but Global filed a motion to compel arbitration under the terms of its contract with Ossello. That was the motion ruled on by Krueger and upheld by the Montana Supreme Court last week.

McGrath said the arbitration clause “makes no sense and we are unable to plainly construe its meaning,” and since the U.S. Supreme Court requires such language to be “clear and unmistakable,” Krueger appropriately made the decision that the arbitration provision was not enforceable.

The court also held that the arbitration provision was grossly unfair to Ossello because it required her to arbitrate any disputes she had with Global, while allowing Global to take her to court for any breach of the agreement.

McGrath was joined by Justices James Shea, Beth Baker, Patricia Cotter and Mike Wheat, with Justices Laurie McKinnon and James Rice in the minority. McKinnon, in a dissenting opinion, said federal rules and court precedent make it clear that in cases like Ossello’s, only an arbitrator, not a District Court judge, could decide whether the dispute had to go to arbitration.

McKinnon said Ossello should have prevailed only if she had specifically challenged the “delegation provision” within the arbitration clause—which gave authority to an arbitrator to decide if her dispute should have gone to arbitration.

The rather dense dissent ends on this note: “I would reverse the District Court’s judgment denying Global’s motion to compel arbitration and allow an arbitrator to decide the question of arbitrabilty.”

It was left to Justice Wheat, in a separate concurring opinion, to frame the debate in terms that a layperson could readily grasp. He noted that the Federal Arbitration Act requires state courts to be cautious in applying state law, lest they place undue restrictions on arbitration agreements, contrary to federal law.

But hostility toward arbitration is the not the issue here, he said: “If there is any hostility, it is toward those who hide behind the FAA, and behind the court decisions interpreting it, to escape any material consequence of running fraudulent confidence schemes.” If assent to a contract is “induced by fraud,” Wheat wrote, “there can be no contract.”

He continued: “Surely Congress, in enacting the FAA, did not intend to enable con men and charlatans to place themselves and their fraudulent schemes out of the reach of our courts simply by inserting arbitration language or a ‘delegation’ clause into an otherwise fraudulent contract.”

Global was represented by Richard Epstein, a Florida attorney, and two attorneys from the Butte firm of Poore, Roth & Robinson. Edwards said Global’s attorneys can ask the Montana Supreme Court for a reconsideration within 30 days, or appeal the case to the U.S. Supreme Court.

A query about what they might do, left with the office of Poore, Roth and Robinson, went unanswered.

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To read the majority opinion in this case, a concurring opinion and the dissenting opinion, click here.

 

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