CRYSTAL DERBIN v. EXPERIAN INFORMATION SOLUTIONS INC (2025)

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Crystal Derbin sued Experian Information Solutions, Inc., and Ally Financial, Inc., for alleged violations of the Fair Credit Reporting Act. Dkt. 1. Ally Financial moved to compel arbitration. Dkt. 21; see Dkts. 23 (Derbin's response), 24 (Ally Financial's reply). The court will recommend that the motion be granted.

BACKGROUND

Derbin bought a truck from Patterson Motors of Longview with the help of an installment loan, signing a contract with Patterson Motors that laid out the financing terms. Dkt. 21-1 at 5–10. Patterson Motors exercised its right to transfer the contract to Ally Bank, and a power of attorney authorized Ally Financial to step into Ally Bank's shoes. See id. at 5; id. at 1–4 (uncontested affidavit of Jakayla Smith); id. at 11–12 (uncontested power of attorney).

Derbin later sold the truck to another dealership as a trade-in. That dealership sent a cashier's check to Ally Financial to pay off Derbin's loan. According to Derbin, Ally Financial reported to Experian that her loan payments were past due even though the dealership had paid them in full.

Derbin alleges that she disputed the inaccurate reporting and that Ally Financial and Experian failed to resolve the disputes to her satisfaction. So she sued them. Ally Financial moved to compel arbitration based on an arbitration provision in the loan contract.

LAW

The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., provides that “an agreement in writing to submit to arbitration ․ shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Id. § 2. The statute “reflects the fundamental principle that arbitration is a matter of contract” and “places arbitration agreements on an equal footing with other contracts.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). “Consequently, the first question in any arbitration dispute must be: What have these parties agreed to?” Coinbase, Inc. v. Suski, 602 U.S. 143, 148 (2024).

To answer that question, the court looks to “ordinary principles of state contract law.” Halliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co., 921 F.3d 522, 530 (5th Cir. 2019). Texas contract law, which applies here by virtue of an unchallenged choice-of-law provision in the contract, requires the party moving to compel arbitration to establish “the existence of a valid and enforceable arbitration agreement” and that “the claims at issue ․ fall within the arbitration agreement's scope.” Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 633 (Tex. 2018).

If those showings are made, court proceedings should generally be stayed. 9 U.S.C. § 3.

DISCUSSION

I. The Existence of a Valid, Enforceable, and Applicable Arbitration Agreement

In its motion to compel arbitration, Ally Financial argues that Derbin agreed to arbitrate her disputes with Patterson Motors arising out of the financing of the truck and that Ally Financial now has the right to compel arbitration through an assignment of that agreement. It attaches a “retail installment sales contract,” signed by Derbin and a representative of Patterson Motors, that includes an arbitration provision. Dkt. 21-1. The motion also attaches an affidavit of Jakayla Smith, which states that the contract was assigned to Ally Bank, and a power of attorney in which Ally Bank appointed Ally Financial to act as its agent and lienholder under any retail installment-sale contract. Dkt. 21-1 at 1–4, 11.

As explained below, Ally Financial has demonstrated the existence of a valid agreement to arbitrate. It properly relies on an assignment entitling it to enforce the agreement. And Derbin's unconscionability argument fails.

A. The contract's validity

The party moving to compel arbitration “must show that the agreement meets all of the requisite contract elements.” Huckaba v. Ref-Chem, L.P., 892 F.3d 686, 688 (5th Cir. 2018). Under Texas law, those elements are (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) mutual assent or a “meeting of the minds”; (4) each party's consent to the contract's terms; and (5) execution and delivery of the contract with intent that it be mutual and binding. USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018). The moving party “need only prove the existence of an agreement to arbitrate by a preponderance of the evidence.” Grant v. Houser, 469 F. App'x 310, 315 (5th Cir. 2012).

Ally Financial argues that all five elements of contract formation are present. It relies on the signed contract attached to its motion and on Derbin's recitation of facts in her complaint.

Derbin does not challenge the existence of an offer, acceptance, consent to terms, or execution and delivery. She contests only mutual assent. But she presents no argument or evidence on that point. See Dkt. 23 at 2–3. She just asserts that Ally Financial has not proven her intent to agree to the arbitration clause. But when, as here, the moving party presents evidence of an agreement, “the burden shifts to the party opposing arbitration to demonstrate ․ that the agreement is invalid.” Grant, 469 F. App'x at 315. Derbin failed to do so.

B. The agreement's assignment

Ally Financial argues that it should benefit from the arbitration agreement because Patterson Motors's rights under it were assigned to Ally Bank and Derbin's relationship to Ally Financial is encompassed by the contract's reference to “relationship[s]” that “arise[ ] out of or relate[ ] to” the transaction and contract. Dkt. 21-1 at 9. And as already noted, Ally Bank executed a power of attorney authorizing Ally Financial to enforce its rights with respect to all retail installment-sale contracts.

Derbin does not argue that Ally Financial cannot benefit from the contract through the assignment and power of attorney. Ally Financial has sufficiently demonstrated its authority to do so.

C. The absence of unconscionability

Derbin next argues that the agreement is unconscionable because it violates public policy. Unconscionable contracts are “unenforceable under Texas law.” In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008). A contract is unconscionable if, “given the parties' general commercial background and the commercial needs of the particular trade or case,” “it is grossly one-sided.” Id. (quotation marks omitted). “The burden of proving unconscionability rests on the party seeking to invalidate the arbitration agreement.” Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 301 (5th Cir. 2004).

Derbin's entire argument on unconscionability is that “[t]here are both elements of procedural and substantive unfairness.” Dkt. 23 at 4. She does not elaborate, much less offer proof. She has not met her burden.

II. The Broad Scope of the Arbitration Agreement and the Failure of Derbin's Efforts to Resist Arbitration

The contract's arbitration agreement provides that

[a]ny claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.

Dkt. 21-1 at 9. “[Y]ou” means Derbin, “us” means Patterson Motors, and, once again, the parties agree that Ally Financial acquired Patterson Motors's contract rights.

Ally Financial argues that Derbin's claims fall within the scope of the arbitration provision—or, at the very least, that any dispute about arbitrability must be resolved by the arbitrator. But there is no such dispute; Derbin offers no argument that her claims are outside the scope of the agreement.

She does make a few arguments in an effort to avoid arbitration. Each fails.

Derbin first asserts that the Consumer Financial Protection Bureau brought enforcement actions against Ally Financial in 2013 and 2016 for “deceptive and discriminatory practices.” Dkt. 23 at 4. But she does not connect the dots between those actions and her effort to avoid arbitration. Ally Financial argues that the 2013 enforcement action was resolved through a consent decree without any admission of wrongdoing, that the Bureau did not bring an enforcement action against it in 2016, and that, in any event, enforcement actions are irrelevant to whether Derbin's claims should be submitted to arbitration.

That last point is what matters. Derbin cannot avoid arbitration based on past Bureau action (or inaction) against Ally Financial.

Derbin next argues that Ally Financial's request to arbitrate is “untimely” and an “improper gamesmanship tactic that will greatly prejudice” her. Id. But she cites no authorities setting deadlines for arbitration requests. She instead quotes from In re Mirant Corp., which discussed a party's waiver of its right to arbitrate. 613 F.3d 584, 588 (5th Cir. 2010). The court assumes she means to argue that Ally Financial likewise waived its right to arbitrate.

Waiver is the “intentional relinquishment or abandonment of a known right.” United States v. Olano, 507 U.S. 725, 733 (1993). A party waives its right to arbitration by “substantially invok[ing] the judicial process.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999). It used to be that the party resisting arbitration had to show prejudice to establish waiver. See id. But not anymore. See Morgan v. Sundance, Inc., 596 U.S. 411, 417–18 (2022) (holding that a rule requiring prejudice to show that a party waived arbitration violated the principle that arbitration agreements must be enforced just like any other contract). That said, there is still a “strong presumption against finding a waiver of arbitration.” Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004). The party asserting it “bears a heavy burden.” Id.

Derbin's waiver argument boils down to two assertions: prejudice to her and a purported “lack of participation in litigation and discovery” by Ally Financial. Dkt. 23 at 4. Prejudice is off the table, see Morgan, 596 U.S. at 417–18, and any lack of participation in litigation by Ally Financial could only hurt Derbin's cause, as a finding of waiver would need to be based on Ally Financial's substantial invocation of the judicial process. Subway, 169 F.3d at 326. Derbin has not met her heavy burden on this point.

Finally, Derbin argues that Ally Financial should not be allowed to rely on the installment-loan contract. But that argument depends on her assertion that Ally Financial did not attach the complete agreement to its motion. Dkt. 23 at 2. Derbin is wrong about that. Ally Financial did attach the complete agreement, so that argument also fails.

III. The Need for an Arbitration-Based Stay as to Ally Financial

Citing § 3 of the FAA, Ally Financial requests a stay of court proceedings pending arbitration. Derbin argues that a stay would harm her and would not serve judicial economy, but she cites no applicable authority supporting denial of Ally Financial's request.

Section 3 provides that, if it is “satisfied that the issue involved in [a] suit or proceeding is referable to arbitration under [a written] agreement,” the court “shall on application of one of the parties stay the trial of the action.” 9 U.S.C. § 3. “That plain statutory text requires a court to stay the proceeding.” Smith v. Spizzirri, 601 U.S. 472, 476 (2024).

RECOMMENDATION

It is RECOMMENDED that the motion to compel arbitration, Dkt. 21, be GRANTED and that the case against Ally Financial be STAYED pending arbitration. The parties should notify the court of the outcome of arbitration no later than 30 days after its completion.

* * *

Within 14 days after service of this report, any party may serve and file written objections to the findings and recommendations of the magistrate judge. 28 U.S.C. § 636(b)(1)(C).

A party is entitled to a de novo review by the district court of the findings and conclusions contained in this report only if specific objections are made. Id. § 636(b)(1). Failure to timely file written objections to any proposed findings, conclusions, and recommendations contained in this report will bar an aggrieved party from appellate review of those factual findings and legal conclusions accepted by the district court, except on grounds of plain error, provided that the party has been served with notice that such consequences will result from a failure to object. Id.; Thomas v. Arn, 474 U.S. 140, 155 (1985); Douglass v. United Servs. Auto Ass'n, 79 F.3d 1415, 1417 (5th Cir. 1996.) (en banc), superseded by statute on other grounds; 28 U.S.C. § 636(b)(1) (extending the time to file objections from 10 to 14 days).

So ORDERED and SIGNED this 27th day of February, 2025.

Bill Davis United States Magistrate Judge