Trey Neal v. Navient Solutions ( 2020 )

United States Court of Appeals
For the Eighth Circuit
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No. 19-2775
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Trey Neal, individually and on behalf of all others similarly situated
Plaintiff - Appellee
v.
Navient Solutions, LLC; Navient Corporation; Navient Credit Finance
Corporation; Navient Private Loan Trust
Defendants - Appellants
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Appeal from United States District Court
for the Western District of Missouri - Jefferson City
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Submitted: September 23, 2020
Filed: October 19, 2020
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Before SMITH, Chief Judge, BENTON, and KOBES, Circuit Judges.
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KOBES, Circuit Judge.
Navient Solutions, LLC (NSL), Navient Corporation, Navient Credit Finance
Corporation, and Navient Private Loan Trust (collectively, Navient) appeal from the
district court’s denial of their motion to compel arbitration against Trey Neal. The
district court found that the relevant arbitration clause does not include Navient as a
party and so Navient cannot compel arbitration. We respectfully disagree. Ohio law
allows nonsignatory agents to compel arbitration under general principles of contract
and agency law. Additionally, Ohio’s rule of alternate estoppel prevents Neal from
disavowing the arbitration clause because his claim arises out of the same contract.
We reverse the district court’s denial of Navient’s motion and remand for further
proceedings.
I.
Trey Neal received a private student loan from JP Morgan Chase Bank in
2008. Both parties signed a Promissory Note and Credit Agreement governed by
Ohio law that caps the interest rate on the loan at the maximum rate allowed in Ohio.
The Credit Agreement also includes an agreement to arbitrate:
A. IF EITHER YOU OR US CHOOSES, ANY CLAIM OR DISPUTE
(AS DEFINED BELOW) BETWEEN YOU AND US WILL BE
DECIDED BY ARBITRATION AND NOT IN COURT AND
NOT BY A JURY TRIAL . . . .
Any claim or dispute, whether in contract, tort, statute or
otherwise (including the interpretation and scope of this Arbitration
Agreement and the arbitrability of any claim or dispute), between you
and us or our employees, agents, successors or assigns, which arise out
of or relate to this Agreement, your loan application, or any resulting or
related transaction or relationship (including any such relationship with
third parties who do not sign this Agreement) shall, at your or our
election, be resolved by neutral, binding arbitration and not by a court
action. Any claim or dispute is to be arbitrated by a single arbitrator on
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an individual basis and not as a class or any other representative type
of action.
D. Ct. Dkt. 59-6 at 8. The Credit Agreement defines the terms “we” and “us” as “JP
Morgan Chase Bank, N.A., and its successors and assigns, and any other holder of
this Agreement.” Id. at 6.
Chase sold Neal’s loan to Jamestown Funding Trust in 2017. Jamestown is
related to Navient Credit Finance, an affiliate of NSL. NSL then became the servicer
of the loan. Neal sued Chase and NSL in 2018 for breaching the Credit Agreement
by imposing an interest rate exceeding the maximum permitted under Ohio law.
Neal based his complaint on the belief that NSL purchased his student loan from
Chase. After learning that Jamestown was the actual owner of the loan, Neal
dismissed Chase as a defendant, but did not add Jamestown. Instead, Neal added
the other Navient defendants to his suit.
Navient moved to compel arbitration and stay proceedings pursuant to the
Credit Agreement’s arbitration clause. Neal opposed the motion, asserting that
Navient could not compel arbitration because it is not a party who may compel
arbitration under the definition of “us” in the Credit Agreement.
The district court agreed with Neal and denied Navient’s motion to compel
arbitration. The court determined that while the scope of the arbitration clause
includes disputes between Neal and nonsignatories, the contractual language does
not allow nonsignatory agents to compel arbitration. The district court found that
the definition of “us”—Chase “and its successors and assigns, and any other holder
of this Agreement”—does not include Navient because it is an agent to Chase’s
successor and not a successor, assign, or holder of the Credit Agreement itself. The
district court also concluded that Ohio’s alternate estoppel doctrine does not prevent
Neal from disavowing the arbitration agreement because Navient cannot compel
arbitration under the clear language of the agreement. Navient timely appealed.
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II.
We review a district court’s denial of a motion to compel arbitration de novo.
Plummer v. McSweeney, 941 F.3d 341, 344 (8th Cir. 2019). The parties agree that
Ohio law applies.
A.
Navient seeks to enforce the arbitration clause against Neal as a nonsignatory
agent of Jamestown. Neal contends that Navient may not enforce the arbitration
clause because it is not a party to the Credit Agreement, nor is it a successor or assign
of Chase, nor a holder of the agreement. To decide whether Navient may compel
arbitration, we look to Ohio law governing arbitration agreements and principles of
agency.
Ohio applies a presumption in favor of arbitration when the claim falls within
the scope of an arbitration provision. Williams v. Aetna Fin. Co., 700 N.E.2d 859,
865 (Ohio 1998). “In light of this strong presumption favoring arbitration, all doubts
should be resolved in its favor.” Rivera v. Rent A Center, Inc., No. 101959, 2015
WL 5455882, at *2 (Ohio Ct. App. Sept. 17, 2015).1
Navient is a nonsignatory party to the original agreement between Neal and
Chase. In Ohio, “[a]rbitration agreements apply to nonsignatories only in rare
circumstances.” Miller v. Cardinal Care Mgmt., Inc., No. 107730, 2019 WL
3046127, at *4 (Ohio Ct. App. July 11, 2019) (quotation omitted). One such
1
The parties dispute what presumption applies here. Neal contends that when
there is a question as to whether a party entered into an agreement to arbitrate, there
is a presumption against arbitration. Although Ohio law imposes a presumption
against arbitration “when a party seeks to invoke arbitration against a nonsignatory,”
that is the precisely the opposite of the procedural posture here. Taylor v. Ernst &
Young, L.L.P., 958 N.E.2d 1203, 1210 (Ohio 2011) (emphasis added).
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circumstance is when a “nonsignatory agent [enforces] an arbitration agreement
between a plaintiff and the agent’s principal when ordinary principles of contract
and agency law require.” Rivera, 2015 WL 5455882, at *4. “[U]nder agency
principles, [] a nonsignatory agent may enforce an arbitration agreement between a
plaintiff and the agent’s principal when . . . the alleged misconduct arose out of the
agency relationship.” Genaw v. Lieb, No. Civ.A.20593, 2005 WL 435211, at *4
(Ohio Ct. App. Feb. 25, 2005). “[Plaintiffs] will not be allowed to circumvent their
promise to arbitrate . . . by simply suing [nonsignatory parties] separately . . . .”
Manos v. Vizar, No. 96 CA 2581-M, 1997 WL 416402, at *1 (Ohio Ct. App. July 9,
1997).
The Sixth Circuit addressed this issue in Arnold v. Arnold Corp.-Printed
Communications For Business, 920 F.2d 1269 (6th Cir. 1990). There, the plaintiff
filed suit against a corporation and the individual members of its board of directors
after the plaintiff sold back his preferred and common stock, alleging fraud and
violations of the Securities Exchange Act and Ohio Securities Act. Id. at 1271–72.
The defendants moved to compel arbitration pursuant to the stock purchase
agreement, which contained an arbitration provision. Id. at 1272. The plaintiff
argued that he could not be compelled to arbitrate his claims against the individual
defendants because they were not parties to the stock purchase agreement. Id. at
1281. Applying Ohio law, the court disagreed and determined “the language of the
arbitration agreement indicates that the parties’ basic intent was to provide a single
arbitral forum to resolve all disputes arising under the stock purchase agreement.”
Id. at 1282. The court explained that if a plaintiff “can avoid the practical
consequences of an agreement to arbitrate by naming nonsignatory parties as
defendants in his complaint . . . the effect of the rule requiring arbitration would, in
effect, be nullified.” Id. at 1281.
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Arnold and general Ohio agency law instruct us that Navient may compel
arbitration here. As a nonsignatory agent, 2 Navient is bound by the terms of the
original Credit Agreement. The basis for its potential liability—imposing an interest
rate higher than that permitted under Ohio law—is in the Credit Agreement. That
agreement includes an arbitration clause. Neal attempts to both hold Navient liable
under the Credit Agreement and also “circumvent [his] promise to arbitrate” by
suing Navient separately from Jamestown. Ohio law does not allow plaintiffs to
exploit this situation. Manos, 1997 WL 416402, at *1.
Neal responds that allowing Navient to compel arbitration would rewrite the
contract between Neal and Chase, and ultimately Jamestown, because he and
Navient never agreed to arbitrate and the Credit Agreement clearly excludes Navient
as a party who may compel arbitration. Neal relies on Spalsbury, where the Ohio
Court of Appeals prevented a nonsignatory from compelling arbitration. Spalsbury
v. Hunter Realty, Inc., No. 76874, 2000 WL 1753436, at *3 (Ohio Ct. App. Nov. 30,
2000). There, a shareholder sued a corporation seeking relief under the terms of her
shareholder agreement, which contained an arbitration clause. Id. at *1. In response,
the corporation moved to compel arbitration and argued that while it was not a
signatory to the shareholder agreement, it was a constructive party to the agreement
because the plaintiff’s claims concerned rights granted to her by the corporation
itself. Id. The court disagreed and held that the shareholder agreement governed
disputes between the shareholders, not those between a shareholder and the
corporation itself. Because the corporation never entered into an arbitration
agreement with the shareholders, it could not compel arbitration under the
agreement. Id. at *2–3.
2
As the servicer of the loan, Navient is an agent of Jamestown, Chase’s
successor. See Illinois Controls, Inc. v. Langham, 639 N.E.2d 771, 780 (Ohio 1994)
(applying principles of the Restatement (Second) of Agency); Soberay Mach. &
Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 767 (6th Cir. 1999) (noting that Ohio
has adopted the Restatement (Second) of Agency).
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Unlike the corporation in Spalsbury, Navient is a nonsignatory agent of a party
bound by the Credit Agreement. The shareholder agreement in Spalsbury governed
disputes between the shareholders, not the shareholders and the corporation. While
that agreement encompassed rights granted to the shareholders by the corporation, it
did not address how disputes between the corporation and shareholders concerning
those rights would be handled. By contrast, the arbitration clause here is part of the
Credit Agreement created by Chase and signed by Neal, and it governs a wide array
of disputes arising out of the Credit Agreement. That Credit Agreement is the basis
of Navient’s alleged liability. Neal’s reliance on Spalsbury is misplaced because the
Credit Agreement here speaks to how disputes arising under that contract should be
handled.
We reject Neal’s argument that interpreting the Credit Agreement this way
defies its clear language. 3 Neal does not dispute that Jamestown could compel
arbitration. And, as we have explained, Ohio law allows a nonsignatory agent to
compel arbitration against a signatory plaintiff when the alleged liability is based on
the contractual obligations owed to the plaintiff by the principal. Manos, 1997 WL
416402, at *2.
B.
Navient further urges that Ohio’s doctrine of alternate estoppel precludes Neal
from refusing to arbitrate. The district court disagreed, concluding that alternate
3
The district court applied the canon of interpretation expressio unius est
exclusion alterius to find a contrast between the power to arbitrate provision of the
arbitration clause and the scope of the arbitrable disputes provision. It determined
that because agents and third parties are listed within the scope of arbitrable disputes
but not within the provision detailing who may compel arbitration, Chase meant to
exclude nonsignatories as parties that may compel arbitration. Both Neal and
Navient agree that application of that canon was unnecessary because the language
of the Credit Agreement is unambiguous. Because we believe the express language
of the Credit Agreement allows Navient to compel arbitration, we do not invoke the
expressio unius canon.
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estoppel cannot be used to override clear contractual language. The district court
also determined that alternate estoppel would not further Navient’s interest because
it merely prevents Neal from disavowing the arbitration clause, and, in its view,
Navient could not compel arbitration under the Credit Agreement anyway.
Ohio courts recognize alternate estoppel where nonsignatories may compel
arbitration against signatory parties due to “the close relationship between the
entities involved, as well as the relationship of the alleged wrongs to the
nonsignatory’s obligations and duties in the contract . . . .” I Sports v. IMG
Worldwide, Inc., 813 N.E.2d 4, 8 (Ohio Ct. App. 2004) (noting that other federal and
state courts have adopted the theory) (quotation omitted). Alternate estoppel applies
when “the claims [are] intimately founded in and intertwined with the underlying
contractual obligations.” Short v. Res. Title Agency Inc., No. 95839, 2011 WL
1203906, at *3 (Ohio Ct. App. Mar. 31, 2011) (quotations omitted). Claims are
intertwined when “a signatory must rely on the terms of the written agreement in
asserting claims against a nonsignatory.” I Sports, 813 N.E.2d at 8. Alternate
estoppel has limited application to scenarios where a nonsignatory tries to bind a
signatory to arbitration. Id. at 7. “The signatory will be estopped from attempting
to avoid arbitration because their claims against the nonsignatory are integrally
related to the contract containing the arbitration clause.” U.S. Bank N.A. v. Wilkens,
No. 96617, 2012 WL 892898, at *10 (Ohio Ct. App. Mar. 15, 2012) (quotation
omitted).
The district court relied on Ohio Department of Administrative Services v.
Design Group, Inc., No. 07AP-215, 2007 WL 4171131, at *4–5 (Ohio Ct. App. Nov.
27, 2007), to conclude that alternate estoppel does not apply when express
contractual language precludes a nonsignatory from compelling arbitration. In that
case, nonsignatory third parties who benefited from a contract containing an
arbitration agreement sought to compel arbitration against a signatory. Id. at *1.
The arbitration agreement there said: “No arbitration arising out of or relating to
this Agreement shall include . . . an additional person or entity not a party to this
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Agreement except by written consent . . . .” Id. at *2. The court held that because
the arbitration provision expressly excluded nonparties, the nonsignatories could not
enforce the agreement. Id. at *4. In addition, the nonsignatory third parties sought
to compel arbitration for claims that were independent of the contract containing the
arbitration agreement, so their claims were not sufficiently intertwined. Id.
Here, there is no express language excluding nonparties. In fact, the
arbitration clause at issue clearly encompasses disputes between Neal and
nonsignatory third parties. Although Neal contends that the language detailing who
may compel arbitration excludes Navient by omission, the contract contains no
express exclusion. Neal seeks to hold Navient liable for breaching the very same
agreement that contains the arbitration clause. His claims against Navient are not
just “integrally related to the contract containing the arbitration clause,” they are the
same. Wilkens, 2012 WL 892898, at *10. Because Neal “rel[ies] on the terms of
the written agreement in asserting [his] claims against a nonsignatory,” he is
estopped from disavowing the arbitration clause. I Sports, 813 N.E.2d at 8.
III.
Ohio agency law permits Navient to compel arbitration against Neal as a
nonsignatory agent of the holder of the loan. Furthermore, Neal is estopped from
avoiding the arbitration clause because his claims are integrally intertwined with the
contract containing the agreement to arbitrate. We reverse the district court’s denial
of Navient’s motion to compel arbitration and remand for further proceedings
consistent with this opinion.
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