Perez v. Discover Bank ( 2021 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ILIANA PEREZ, et al., Case No. 20-cv-06896-SI 8 Plaintiffs, ORDER GRANTING DEFENDANT'S 9 v. MOTION TO COMPEL ARBITRATION 10 DISCOVER BANK, Re: Dkt. No. 28 11 Defendant. 12 13 Before the Court is defendant Discover Bank’s Motion to Compel Arbitration. Dkt. No. 14 28. On August 27, 2021, the Court heard oral argument on Discover Bank’s motion. Dkt. No. 49. 15 For the reasons stated below, the Court GRANTS defendant’s motion to compel arbitration. 16 17 BACKGROUND 18 Plaintiffs Perez and Guzman Magaña are participants of Deferred Action for Childhood 19 Arrivals (“DACA”). Dkt. No. 43 at ¶¶ 15, 24. The instant action arises from Discover Bank’s 20 denial of plaintiff Perez’s loan application and its requirement that plaintiff Guzman Magaña must 21 apply for his loan with a cosigner. 22 23 I. Factual Background 24 A. Plaintiff Perez’s Citibank Loan and Arbitration Agreement1 25 In December 2009, Plaintiff Perez applied for and received a private student loan with 26 Citibank through its subsidiary, The Student Loan Corporation. Id. ¶ 13. Above the signature line 27 1 on the Citibank Loan application, the application referenced a Promissory Note. Dkt. No. 24-1, 2 Decl. of Christiansen, Ex. A at 5. The Promissory Note accompanying the application included an 3 arbitration agreement (the “Citibank Arbitration Agreement”). Id. 4 The Citibank Arbitration Agreement states, in pertinent part: 5 ARBITRATION OF DISPUTES: PLEASE READ THIS ARBITRATION 6 PROVISION CAREFULLY. IT PROVIDES THAT EITHER YOU OR I CAN REQUIRE THAT ANY CONTROVERSY OR DISPUTE BE RESOLVED BY 7 BINDING ARBITRATION (EXCEPT FOR MATTERS THAT ARE EXCLUDED FROM ARBITRATION AS SPECIFIED BELOW). 8 . . . . 9 Definitions: As used in this arbitration provision, the following definitions will 10 apply: “Claim” means any case, controversy, dispute, tort, disagreement, lawsuit or claim 11 now or hereafter existing between you and me arising out of or in connection with my loan. 12 “Account” means my agreement with you as evidenced by the loan application and Note along with any and all records or transactions related thereto. 13 14 Agreement to arbitrate: You and I agree that either you or I may, without the other’s consent, require that any Claims between you and me be submitted to 15 mandatory, binding arbitration except for certain matters excluded below. 16 . . . . 17 Claims subject to Arbitration include, but are not limited to: 18 Claims relating to: 1) any and all aspects of my Account including without limitation the origination, establishment, terms, treatment, operation, handling, 19 billing, servicing, limitations on or termination or acceleration of my Account; 2) any disclosures or statements relating to my Account; 3) the application, 20 enforceability or interpretation of my Account, including this arbitration provision. . . . . 21 22 Id. (Ex. B) at 6-7. 23 In late 2010, Citibank sold The Student Loan Corporation to Discover Bank. Dkt. No. 43 24 at ¶ 14. Discover Bank is the current holder of plaintiff Perez’s Citibank Agreement. Id. 25 26 B. Plaintiff Perez’s Discover Consolidation Agreement 27 In July 2018, Perez accessed a Private Consolidation Loan application on Discover Bank’s 1 website, hoping to refinance her loan at a lower interest rate. Id. ¶ 18. On August 2, 2018, Perez 2 completed and electronically signed a Private Consolidation Loan Application and Promissory 3 Note (“Discover Consolidation Agreement”). Id. at ¶ 20; Dkt. No. 24-1, Ex. C at 10-13. The 4 Discover Consolidation Agreement stated that it “will be effective and enforceable when you affix 5 your signature . . . and deliver it to us.” Dkt. No. 24-1. Ex. C at 10. The Discover Consolidation 6 Agreement included an arbitration agreement ( “Discover Arbitration Agreement”). Id. Ex. C at 7 12-13. 8 The Discover Arbitration Agreement states, 9 V. ARBITRATION OF DISPUTES: Agreement to Arbitrate: If a controversy, dispute, disagreement, lawsuit or claim 10 now or hereafter existing arises between you and us (“Claim”), either party may 11 choose to resolve the Claim by binding arbitration, as described below, instead of in court. Any Claim (except for a Claim challenging the validity or enforceability 12 of this arbitration provision, including the Class Action Waiver) may be resolved by binding arbitration if either party requests it. This includes Claims relating to 13 any other loan or agreement you have or had with us. . . . 14 15 W. GOVERNING LAW This Note and any Claim or dispute arising out of this Note will be governed by 16 applicable United States federal law and, to the extent state law applies, Delaware law, without regard to its conflict of law rules . . . 17 AA. OTHER IMPORTANT TERMS 18 Signatures: This Note will be effective and enforceable when you affix your 19 signature to the Application and Promissory Note (or the Cosigner Addendum, as the case may be) and deliver it to us. . . 20 21 Id. Ex. C at 11-13 (bold in original). 22 On August 3, 2018, Perez received a letter from Discover Bank confirming receipt of the 23 online application. Dkt. No. 43 at ¶ 21. On October 9, 2018, Perez received another letter 24 requesting Perez call Discover Bank to provide information about eligibility and identity. Id. at 25 ¶ 22. Perez called Discover Bank and told a representative that she was a DACA participant. Id. 26 at ¶ 23. The representative told Perez that Discover Bank would not be able to refinance Perez’s 27 loan. Id. 1 C. Plaintiff Guzman Magaña’s Discover Private Loan 2 On August 16, 2016, plaintiff Guzman Magaña completed and electronically signed 3 Discover Bank’s Graduate Student Loan Application (“Graduate Loan Application”). Id. ¶ 25. 4 The Graduate Loan Application required Guzman Magaña to apply with a co-signer. Id. at ¶ 26. 5 Guzman Magaña received a loan and continues to make timely payments. Id. at ¶ 29. 6 The Graduate Loan Application included an arbitration agreement. Dkt. No. 24-, Ex. D, at 7 16-17. The arbitration agreement in Guzman Magaña’s application uses the same language as the 8 language in plaintiff Perez’s Discover Arbitration Agreement. See Dkt. Nos. 24-1 (Exs. C, D). 9 10 II. Procedural Background 11 On November 2, 2020, Discover Bank removed the instant action to federal court. Dkt. 12 No. 1. On January 4, 2021, Discover Bank filed a motion to compel arbitration of plaintiff Perez’s 13 and Guzman Magaña’s claims. Dkt. No. 24. On February 1, 2021, plaintiffs filed an opposition. 14 Dkt. No. 28. On February 16, 2020, Discover Bank filed a reply. Dkt. No. 28. 15 On February 26, 2021, the Court granted the parties’ stipulation to stay the action pending 16 mediation. Dkt. No. 31. On June 25, 2021, the Court granted the parties’ request to life the stay 17 after unsuccessful mediation. Dkt. No. 39. On July 23, 2021, plaintiffs filed a Second Amended 18 Complaint. Dkt. No. 43. On August 27, 2021, the Court heard oral argument on Discover Bank’s 19 motion to compel arbitration. 20 21 LEGAL STANDARD 22 Section 4 of the Federal Arbitration Act (“FAA”) permits “a party aggrieved by the alleged 23 failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] 24 petition any United States District Court . . . for an order directing that . . . arbitration proceed in 25 the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. When a motion to compel 26 arbitration is filed, the “court shall hear the parties, and upon being satisfied that the making of the 27 agreement for arbitration or the failure to comply therewith is not in issue . . . shall make an order 1 Generally, when deciding whether to compel arbitration, a court must determine two 2 “gateway” issues: (1) whether there is an agreement to arbitrate between the parties; and (2) 3 whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 4 2015). The Court considers state contract law to determine whether there is a valid agreement to 5 arbitrate. Revitch v. DirecTV, LLC, 977 F.3d 713, 716 (9th Cir. 2020). 6 However, “before referring a dispute to an arbitrator, the court determines whether a valid 7 arbitration exists . . . [and] if the agreement delegates the arbitrability issue to an arbitrator.” 8 Schein Inc. v. Archer and White Sales, Inc., 139 S.Ct. 524, 530 (2019). “Where a delegation 9 provision exists, courts first must focus on the enforceability of that specific provision, not the 10 enforceability of the arbitration agreement as a whole.” Brice v. Plain Green, LLC., No. 19- 11 15707, 2021 WL 4203337, at *4 (9th Cir. 2021). If a “contract delegates the arbitrability question 12 to an arbitrator, a court may not override the contract . . . [and] possesses no power to decide the 13 arbitrability issue . . . even if the court thinks that the argument that the arbitration agreement 14 applies to a particular dispute is wholly groundless.” Schein Inc, 139 S.Ct. at 529. 15 16 DISCUSSION 17 Discover Bank moves to compel arbitration of (I) plaintiff Perez’s and (II) plaintiff 18 Guzman Magaña claims. Dkt. No. 24 at 9. 19 20 I. Plaintiff Perez’s Claims 21 Discover Bank argues plaintiffs’ claims are subject to the Discover Arbitration Agreement. 22 Dkt. No. 24. Plaintiffs argue the Discover Arbitration Agreement is not valid. As an initial matter, 23 the parties dispute whether California or Delaware law governs interpretation of the Discover 24 Arbitration Agreement. Dkt. Nos. 24 at 13; 28 at 4-6. 25 26 A. Choice of Law 27 “In a federal question action where the federal court is exercising supplemental jurisdiction 1 Finance, Inc. v. General Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996). This case 2 involves plaintiffs’ federal claims under 42 U.S.C. § 1981 and supplemental state claims under 3 California’s Unruh Civil Rights Act. Therefore, the Court applies California’s choice of law rules. 4 “California has a strong public policy favoring enforcement of choice of law provisions.” 5 King v. Bumble Trading, Inc., 393 F.Supp.3d 856, 682 (N.D. Cal. 2019). California’s choice of 6 law rules “follow[] Section 187 of the Restatement (Second) of Conflict of Laws.”2 In re 7 Facebook Biometric Info. Privacy Litig., 185 F.Supp.3d 1155, 1168 (N.D. Cal. 2016) (internal 8 citations and quotations omitted). The “California Supreme Court has held that under California's 9 choice of law analysis, a court must determine as a threshold matter ‘whether the chosen state has 10 a substantial relationship to the parties or their transaction, or . . . whether there is any other 11 reasonable basis for the parties' choice of law.’” Hoffman v. Citibank (South Dakota), N.A., 546 12 F.3d 1078, 1082 (9th Cir. 2008). “If either of these tests is satisfied, the second inquiry is whether 13 the chosen state's law is contrary to a fundamental policy of California [and if] a conflict with 14 California law is found, the court must then determine whether California has a materially greater 15 interest than the chosen state in the determination of the particular issue.” Id. (internal citation and 16 quotations omitted). 17 18 19 20 2 Section 187 states, in relevant part, 21 (2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular 22 issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either 23 (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for 24 the parties' choice, or (b) application of the law of the chosen state would be 25 contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the 26 particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of 27 law by the parties. 1 1. Substantial Relationship 2 The Discover Consolidation Agreement contains a choice of law clause, which states “any 3 Claim or dispute . . . will be governed by applicable United States federal law and, to the extent 4 state law applies, Delaware law, without regard to its conflict of law rules.” Dkt. No. 24-1 (Exs. 5 C, D) at 13. 6 The first prong of California’s choice of law rules is met because Discover Bank is 7 incorporated in Delaware. Dkt. No. 24 at 1. See ABF Capital Corp., a Delaware Corp. v. Osley, 8 414 F.3d 1061, 1065 (9th Cir. 2005) (“A substantial relationship exists where one of the parties is 9 domiciled or incorporated in the chosen state.”) 10 11 2. Fundamental Policy 12 The Court now considers whether enforcing the choice of law clause would be contrary to 13 a fundamental policy of California. “To determine the public policy of a state, ‘the Constitution, 14 laws, and judicial decisions of that state, and as well the applicable principles of the common law, 15 are to be considered.’” First Intercontinental Bank v. Ahn, 798 F.3d 1149, 1156 (9th Cir. 2015). 16 (internal citation omitted). There are no “bright-line rules” to determine what is contrary to a 17 fundamental policy of California. See Discover Bank v. Super. Ct., 134 Cal.App.4th 886, 893 18 (2005). 19 Plaintiffs argue Delaware law is contrary to a fundamental policy of California because 20 plaintiffs rely on California’s McGill rule, prohibiting waivers of public injunctive relief, to 21 demonstrate that the Discover Consolidation Agreement is unconscionable. Dkt. No. 28 at 5-6. 22 Discover Bank argues the McGill rule does not apply because plaintiffs do not seek public 23 injunctive relief. Dkt. No. 29 at 12-13. 24 The Court must determine whether the McGill rule applies to plaintiffs’ claims. See 25 Hoffman, 546 F.3d at 1083 (“if [defendant’s] class arbitration waiver is unconscionable under 26 California law, enforcement of the waiver under [Delaware] law would be contrary to a 27 fundamental policy of California.”). 1 The Ninth Circuit has held the FAA does not preempt California’s McGill Rule. Blair v. Rent-A- 2 Center, 928 F.3d 819, 830-31 (9th Cir. 2019). In McGill, the California Supreme Court held 3 waiver of the “right to request in any forum such public injunctive relief . . . is invalid and 4 unenforceable under California law.” McGill v. Citibank, N.A., 393 P.3d 85, 94 (2017). The three 5 key features of public injunctive relief are (1) a “primary purpose and effect of prohibiting 6 unlawful acts that threaten future injury to the general public,” (2) lack of representative claims on 7 behalf of a class or the general public, and (3) “diffuse[ing] benefits to the ‘general public’ as a 8 whole, and the general public fails to meet the class-action requirement of ‘an ascertainable 9 class.’” Hodges v. Comcast Cable Communications, LLC, No. 19-16483, 2021 WL 4127711, at 10 *4-5 (9th Cir. 2021) (internal citation omitted). 11 The Court finds the Discover Consolidation Agreement and Discover Arbitration 12 Agreement are not unconscionable under California’s McGill rule because plaintiffs do not seek 13 public injunctive relief. Rather, plaintiffs have sued “on behalf of themselves and all others 14 similarly situated” and have defined plaintiffs’ class as “[a]ll persons who resided in the United 15 states . . . applied for or attempted to apply for a financial product from Discover Bank but were 16 denied . . . on the basis of alienage.” Dkt. No. 43 at ¶ 40-41. Therefore, plaintiffs’ requested 17 injunctive relief is private, based on either alienage or DACA status and does not apply to the 18 general public. See Hodges, 2021 WL 4127711 at *5 (explaining private injunctive relief provides 19 benefits “to an individual plaintiff—or to a group of individuals similarly situated to the 20 plaintiff”). Because the Discover Arbitration agreement is not unconscionable under the McGill 21 rule, enforcement of Delaware law would not be contrary to a fundamental policy of California. 22 The Court will evaluate the validity of the Discover Arbitration Agreement under Delaware law. 23 24 B. Validity 25 Plaintiffs argue the Discover Consolidation Agreement and Discover Arbitration 26 Agreement are not valid under Delaware law because the agreements (1) lack mutual assent and 27 (2) are unconscionable. Dkt. No. 28 at 10-11, 20-22. 1 1. Mutual Assent 2 Plaintiffs argue the terms of the Discover Consolidation Agreement lack mutual assent 3 because the terms are not reasonably certain and definite. Dkt. No. 28 at 10-11. Discover Bank 4 argues the plaintiff Perez assented to the terms of the Discover Consolidation Agreement when she 5 electronically signed and submitted the loan. Dkt. No. 24 at 14. 6 The Court finds the parties mutually assented to the Discover Consolidation Agreement 7 and Discover Arbitration Agreement. Under Delaware law, “a valid contract exists when (1) the 8 parties intended that the contract would bind them, (2) the terms of the contract are sufficiently 9 definite, and (3) the parties exchange legal consideration.” Eagle Force Holdings, LLC v. 10 Campbell, 187 A.3d 1209, 1212 (Del. 2018). Plaintiffs concede plaintiff Perez signed the 11 Discover Consolidation Agreement, which contains the Discover Arbitration Agreement. Dkt. 12 No. 28 at 11. See Chemours Co. v. DowDuPont Inc., No. 2019-351-SG, 2020 WL 1527783 at *10 13 (Del. Ch. 2020) (“a signature [is] ‘the most powerful and persuasive evidence’ of [plaintiff’s] 14 intent to be bound by the Separation Agreement, and, consequently, its consent to arbitration.”) 15 (internal citation omitted). The terms of the Discover Consolidation Agreement are sufficiently 16 definite because the Court can ascertain the parties agreed to consolidate plaintiffs’ loans in 17 consideration of plaintiff’s promise to pay the principal loan amount with interest. See Eagle 18 Force Holdings, 187 A.3d at 1233 (“A contract is sufficiently definite and certain to be 19 enforceable if the court can—based upon the agreement's terms and applying proper rules of 20 construction and principles of equity—ascertain what the parties have agreed to do”). Therefore, 21 the parties mutually assented to the Discover Consolidation Agreement and Discover Arbitration 22 Agreement. 23 24 2. Unconscionability 25 Plaintiffs argue the Discover Consolidation Agreement is unconscionable because 26 plaintiffs were not able to negotiate the terms of the agreement, plaintiffs did not have meaningful 27 alternatives for funds, and the agreement disproportionately favors Discover Bank. Dkt. No. 28 at 1 No. 29 at 13-14. 2 The Court finds the Discover Consolidation Agreement is not unconscionable. 3 Unconscionability requires “absence of meaningful choice and contract terms [that] unreasonably 4 favorable to one of the parties.” Tulowitzki v. Atlantic Richfield Co., 396 A.2d 956, 960 (Del. 5 1978). “[M]ere disparity between the bargaining power of parties to a contract will not support a 6 finding of unconscionability.” Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 912 7 (Del. 1989). Here, plaintiffs were free to walk away from the Discover Consolidation Agreement 8 and were able to reject the Discover Arbitration Agreement. Dkt. No. 24-1 (Exs. C, D) at 13. See 9 Ketler v. PFPA, LLC., 132 A.3d 746, 748 (Del. 2016) (“There is no deprivation of meaningful 10 choice if a party can walk away from the contract.”). Accordingly, the Discover Consolidation 11 Agreement and Discover Arbitration Agreement are not unconscionable. 12 13 C. Scope 14 The Court finds plaintiffs’ claims are within the scope of the Discover Arbitration 15 Agreement.3 The Discover Arbitration Agreement states, “[a]ny Claim . . . may be resolved by 16 binding arbitration. This includes Claims relating to any other loan or agreement you have had 17 with us.” Dkt. No. 24-1 (Exs. C, D) at 12. The Discover Consolidation Agreement defines 18 “claim” as “a controversy, dispute, disagreement . . . now or hereafter . . . aris[ing] between you 19 and me.” Id. According to the complaint, Discover Bank infringed on plaintiffs’ rights to contract 20 and enforce contracts with Discover Bank. Dkt. No. 43 at ¶ 58. See Parfi Holding AB v. Mirror 21 Image Internet, Inc, 817 A.2d 149, 156-58 (Del. 2002) (“[An] arbitration clause signals only an 22 intent to arbitrate matters that touch on the rights and performance related to the contract” and 23 courts evaluate rights pursued under contract when evaluating scope). Therefore, plaintiffs’ 24 claims are within the scope of the Discover Arbitration Agreement. See Gulf LNG Energy, LLC v. 25 Eni USA Gas Marketing LLC, 242 A.3d 575, 583 (Del. 2020) (“any doubts concerning the scope 26 of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the 27 1 construction of the contract language itself or an allegation of waiver, delay, or a like defense to 2 || arbitrability.”) (internal citation omitted). 3 4 Accordingly, the Court GRANTS Discover Bank’s motion to compel arbitration of 5 || plaintiff Perez’s claims.* 6 7 || ID. Plaintiff Guzman Magaiia’s Claims 8 Discover Bank argues the plaintiff Guzman Magafia’s claims are subject to the same 9 Discover Arbitration Agreement. Dkt. No. 24 at 15-16. The parties do not dispute that plaintiffs 10 signed the same Discover Arbitration Agreement. For the same reasons stated above, the Court 11 GRANTS Discover Bank’s motion to compel arbitration of plaintiff Guzman Magafia’s claims. a 12 See Leason v. Merrill Lynch, Pierce, Fenner & Smith, 9 Del. J. Corp. L. 776, 781-82 (Del. 1984) 13 (“if the agreement to arbitrate is valid, it is valid as to all members of the class and the 14 || responsibility to arbitrate cannot be evaded by asserting claims through a class.”) 15 16 CONCLUSION = 17 For the reasons stated below, the Court GRANTS Discover Bank’s motion to compel 18 || arbitration. The Court STAYS the action as to plaintiff Perez’s and Guzman Magafia’s claims, 19 || pending the outcome of arbitration. 20 21 IT IS SO ORDERED. Site WU tee 22 || Dated: September 23, 2021 SUSAN ILLSTON 23 United States District Judge 24 25 * Defendant also argues plaintiff Perez’s claims are subject to arbitration under the Citibank Arbitration Agreement. Dkt. No. 24. Whether the Citibank Arbitration Agreement, 26 || which contains a delegation provision, applies to the parties is a murky question. See Revitch v. DirecTV, LLC, 977 F.3d 713, 717-18 (9th Cir. 2020) (holding defendant may not rely on earlier 07 arbitration agreement between plaintiff and third party because agreement lacked forward-looking language). Because the Court finds the parties are subject to the Discover Arbitration Agreement, 2g || the Court need not decide whether the Citibank Arbitration Agreement also compels arbitration of plaintiff Perez’s claims.