The opinion of the court was delivered by: Judge Joan H. Lefkow
On October 29, 2010, plaintiff Chase Bank USA ("Chase") filed a complaint for a declaratory judgment holding that Chase has no obligation to arbitrate claims defendant Carl Swanson has pending before the American Arbitration Association ("AAA"). Less than three weeks later, on November 16, Chase filed a motion for a preliminary injunction to enjoin Swanson from pursuing the arbitration pending a final judgment in this case [#9]. On November 24, Swanson filed a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction on the ground that no actual or existing controversy exists between the parties as required by the Declaratory Judgment Act, 28 U.S.C. § 2201(a). For the following reasons, Swanson's motion to dismiss will be denied and Chase's motion for a preliminary injunction will be denied.
The material facts necessary to resolve Chase's preliminary injunction
motion are not in dispute. In February 2007, Swanson filed a demand
for arbitration with the National Arbitration Forum ("NAF") for claims
arising from the purported unauthorized use of his credit card by an
individual he employed. At the time the dispute arose, the cardmember
issued by Chase in 2005 governed the relationship. This CMA contained
a mandatory arbitration clause identifying the NAF and the AAA as the
only two permissible arbitration boards. The NAF arbitration
progressed slowly for several years, with both parties expressing
dissatisfaction. Swanson became frustrated that he could not schedule
a two-day hearing to resolve the dispute, while Chase apparently was
upset that the NAF lost or mishandled its exhibits.*fn1
On June 9, 2010, Swanson filed a request for voluntary
dismissal without prejudice of the NAF proceeding. Although Chase did
not object, it notified the NAF that "the parties are in a good faith
discussion regarding . . . the precise parameters and terms and
conditions of such a dismissal and the refiling of [Swanson's] claim
in a court or in an alternate arbitration forum." Pl.'s Ex. C.
Ultimately, Chase and Swanson could not agree on a forum for refiling Swanson's claims. Chase asserted that any new claim would have to proceed in federal court. Swanson, however, wanted to refile his claims before the AAA, the other arbitration board named in the mandatory arbitration clause of the 2005 CMA. The NAF granted Swanson's motion and dismissed the case without prejudice on August 18, 2010. On October 1, 2010, over Chase's objections, Swanson initiated proceedings with the AAA by filing the same Statement of Claim that he had originally filed with the NAF.
After Swanson filed with the AAA, Chase repeatedly argued to the AAA that the arbitration should not proceed because Chase had removed the arbitration clause from its CMA with its customers effective February 22, 2010. See Pl.'s Exs. I, K, L & M. Pursuant to a class action settlement, Chase had agreed to remove the arbitration clause from all CMAs and also to extinguish any obligation or right to arbitrate that previously existed between the parties. See Ross v. Bank of America, N.A., No. 05 CV 7116 (S.D.N.Y. July 22, 2010) (Pl.'s Ex. G). The published settlement notice informed holders of Chase consumer credit cards that the settlement "requires that the settling defendants cease enforcing arbitration clauses" and that they remove arbitration clauses from their CMAs. Id. at 8.
On October 15, 2010, the AAA declined to dismiss the arbitration and determined that the arbitration would proceed "in the absence of an agreement by the parties or a court order staying this matter."*fn2 Pl.'s Ex. O. The AAA also stated that the parties' contentions would be "forwarded to the arbitrator upon appointment, at which time the parties may subject their jurisdiction or arbitrability arguments to the arbitrator for determination." Id. The AAA required Chase to file an answer by October 29, 2010. On that date, Chase filed its complaint for a declaratory judgment in this court and submitted the required answer in the arbitration under protest. Chase notified the AAA of the action filed in this court, and the AAA subsequently appointed an arbitrator. According to the pleadings, a telephone conference had been scheduled for December 8, 2010, during which a two-day arbitration hearing date was to be scheduled.
Chase objects to the pending arbitration proceedings before the AAA on the basis that it cannot be compelled to participate in an arbitration to which it has not consented. Given the absence of an arbitration clause in Swanson's cardmember agreement at the time he filed his demand with the AAA, Chase argues, there is no arbitration agreement between the two parties; thus, Chase is under no obligation to arbitrate. In response, Swanson argues that Chase waived its non-arbitrability arguments by participating in the NAF action for more than three years. Further, Swanson argues that the arbitration has merely "switched" from the NAF to the AAA due to the parties' mutual unhappiness with the NAF. Considering the pending hearing date before the AAA, Swanson believes that switching to federal court at this time would be an unnecessary waste of time.
I. Swanson's Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction
As a threshold matter, the court must first respond to Swanson's Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. Swanson argues that because Chase is participating in the AAA arbitration, no justiciable case or controversy exists. The Declaratory Judgment Act ("DJA") limits issuance of a declaratory judgment to cases of "actual controversy." 28 U.S.C. § 2201(a). If no controversy exists between the parties regarding the subject on which declaratory judgment is sought, the court lacks subject matter jurisdiction. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239--40, 57 S. Ct. 461, 81 L. Ed. 617 (1937); Spectronics Corp. v. H.B. Fuller Co., 940 F.2d 631, 634 (Fed. Cir. 1991). A declaratory judgment "may not be a medium for securing an advisory opinion in a controversy which has not arisen." Coffman v. Breeze Corps., 323 U.S. 316, 324, 65 S. Ct. 298, 89 L. Ed. 264 (1940).
An actual controversy exists between Chase and Swanson. The AAA is proceeding with the arbitration "in the absence of an agreement by the parties or a court order staying this matter." Pl.'s Ex. O.*fn3 At all times since termination of the NAF proceedings Chase has objected to arbitration of Swanson's claim before the AAA, and has been participating under protest while it pursues alternative avenues for relief in district court Chase represents that it is participating in the arbitration only because refusal could place its interests at risk should a judicial forum later determine that it had been required to participate. Moreover, several courts have found an actual controversy under the DJA under similar circumstances where one party contends that it is not subject to arbitration proceedings. See, e.g., Eagle Nationwide Mort., Co. v. Plaza Home Mort., Inc., No. 07-3868, 2008 WL 555338, at *3 (E.D. Pa. Feb. 28, 2008); Leevers v. Bilberry, No. 4:04-CV-34 (CDL), 2007 WL 315344, at *3 (M.D. Ga. Jan. 31, 2007); Lehman Bros. v. Adkins, No. 94 CIV. 6827 (DC), 1994 WL 637794, at *2 (S.D.N.Y. Nov. 14, 1994). Therefore, an actual controversy exists between Chase and Swanson so as to place this case properly within the court's jurisdiction under the DJA.
II. Chase's Motion for Preliminary ...