Aliff v. Vervent, Inc.
| Decision Date | 24 September 2020 |
| Docket Number | Case No.: 20-cv-00697-DMS-AHG |
| Parties | JODY ALIFF, MARIE SMITH, HEATHER TURREY, individually and on behalf of all others similarly situated, Plaintiffs, v. VERVENT, INC. fka FIRST ASSOCIATES LOAN SERVICING, LLC; ACTIVATE FINANCIAL, LLC; DAVID JOHNSON; CHRISTOPHER SHULER; LAWRENCE CHIAVARO; DEUTSCHE BANK TRUST COMPANY AMERICAS, Defendants. |
| Court | U.S. District Court — Southern District of California |
Pending before the Court are two separate motions to compel arbitration: one filed by Defendant Deutsche Bank Trust Company Americas ("DBTCA"), and one filed by Defendants Vervent, Inc., Activate Financial, LLC, David Johnson, Christopher Shuler, and Lawrence Chiavaro (the "Vervent Defendants"). Plaintiffs filed an opposition, and DBTCA and the Vervent Defendants each filed a reply. For the following reasons, the Court grants DBTCA's motion and denies the Vervent Defendants' motion.
Plaintiffs are former students who attended for-profit schools run by ITT Education Services, Inc. ("ITT"). (Compl. ¶ 1). Plaintiffs' disputes arise out of the "PEAKS" student loan program, which they allege left them "heavily indebted" for a "largely worthless" education from ITT. (Id.).
Plaintiffs allege DBTCA designed the PEAKS loan program for ITT. (Id. ¶ 42). Liberty Bank, N.A., issued PEAKS loans to ITT students and subsequently sold the loans to a trust ("the PEAKS Trust") established by DBTCA. (Id. ¶¶ 2, 3, 26). Vervent, Inc., formerly known as First Associates, Inc., is the loan servicer for the PEAKS loan program. (Id. ¶¶ 5, 16). Activate Financial, LLC is an "in-house" collection agency owned and controlled by Vervent and individuals who are executives of Vervent: David Johnson, Christopher Shuler and Lawrence Chiavaro. . Plaintiffs allege that Defendants continue to operate the PEAKS loan program and unlawfully collect on PEAKS loan debt. (Compl. ¶¶ 1-9).
Plaintiff Jody Aliff attended ITT schools in California during the period 2008 to 2013. (Id. ¶ 82). While attending ITT, Aliff obtained two PEAKS loans and subsequently made several payments on those loans, with the last payments made in approximately April 2015. (Id. ¶¶ 84-85).
Plaintiff Marie Smith attended an ITT school in Missouri during the period 2008 to 2012. (Id. ¶ 90). She has "no recollection of ever applying for or obtaining a PEAKS loan," but believes her purported liability arose when she signed papers agreeing to pay for her cap and gown. (Id. ¶ 92). She alleges that if she executed a PEAKS loan agreement, her signature was procured by fraud. (Id.). Following her graduation, Smith began receiving calls about a PEAKS loan, and in early 2019, she received a notice from Activate Financial requesting payment on a PEAKS student loan obligation. (Id. ¶ 93-95). After receiving a second notice in April 2019, Smith called Activate Financial, spoke with arepresentative about her account, and subsequently mailed a payment to Activate Financial. (Id. ¶¶ 96-97).
Plaintiff Heather Turrey attended an ITT school in California during the period 2008 to 2011. (Id. ¶ 99). Turrey alleges she has no recollection of ever applying for or agreeing to a PEAKS loan, and that if a PEAKS loan was obtained on her behalf, it was procured by fraud. (Id. ¶ 101). After leaving ITT, Turrey began receiving payment demands on a PEAKS loan. (Id. ¶ 102). In response to these demands, Turrey made payments on the PEAKS loan from approximately 2012 to April 2017. (Id. ¶ 103). Turrey continued to receive calls and notices regarding her alleged PEAKS loan, including notices from Activate Financial in 2019 and 2020. (Id. ¶¶ 104-08).
On April 10, 2020, Plaintiffs filed this putative class action, alleging five claims: (1) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); (2) violation of the Fair Debt Collection Practices Act ("FDCPA"); (3) violation of California's Rosenthal Fair Debt Collection Practice Act (the "Rosenthal Act"); (4) violation of California's Unfair Competition Law ("UCL"); and (5) negligent misrepresentation. Plaintiffs seek damages, attorneys' fees and costs, injunctive relief, and a public injunction under McGill v. Citibank, N.A., 393 P.3d 85 (Cal. 2017). Plaintiffs' proposed class is defined as all individuals who attended an ITT school and "have a balance owed on a PEAKS loan, or made any payment on a PEAKS loan." (Compl. ¶ 111).
Defendants move to enforce the arbitration agreement included in Plaintiffs' PEAKS loan agreements (the "Loan Agreements"). The Loan Agreements provide, in pertinent part:
(Exs. A-D to Declaration of Stephanie Rodriguez ("Rodriguez Decl."), ¶ N) (emphasis added).
Defendants argue that Plaintiffs' claims are subject to the above mandatory arbitration agreement. Plaintiffs oppose the motion, arguing there is insufficient evidence to prove the existence of an enforceable arbitration agreement, and even if an agreement does exist, that the Vervent Defendants lack the right to enforce it.
The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., governs the enforcement of arbitration agreements involving interstate commerce. Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 232-33 (2013). "The overarching purpose of the FAA ... is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011). "The FAA 'leaves no place for the exercise of discretion by the district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration has been signed.' " Kilgore v. KeyBank, Nat. Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)) (emphasis in original). Accordingly, the Court's role under the FAA is to determine "(1) whether a valid agreement to arbitrate exists, and if it does, (2) whether theagreement encompasses the dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If both factors are met, the Court must enforce the arbitration agreement according to its terms.
Arbitration is a matter of contract, and a party "cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir. 1994) (citation omitted). A court must therefore determine whether there is an agreement to arbitrate before ordering arbitration. Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1048 (9th Cir. 1996). State law applies in determining which contracts are binding and enforceable under the FAA, if that law governs the validity, revocability, and enforceability of contracts generally. Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 630-31 (2009).
Defendants argue Plaintiffs' claims must be arbitrated subject to the arbitration provisions in the Loan Agreements and the FAA, the arbitrator must determine issues of arbitrability, and Plaintiffs' claims must proceed on an individual basis rather than on behalf of a class. In response, Plaintiffs contend no arbitration agreement exists, and even assuming it does, the Vervent Defendants cannot enforce the arbitration provisions.
In response to Defendants' motion to compel arbitration, Plaintiffs argue that no arbitration agreement exists because there is no evidence they agreed to enter into the Loan Agreements containing the arbitration provisions, they were never shown the arbitration provisions, and they never received copies of the Loan Agreements. DBTCA argues that Plaintiffs entered into the Loan Agreements and are thus bound by the arbitration provisions as signatories.
"Although challenges to the validity of a contract with an arbitration clause are to be decided by the arbitrator, challenges to the very existence of the contract are, in general,properly directed to the court." Kum Tat Ltd. v. Linden Ox Pasture, LLC, 845 F.3d 979, 983 (9th Cir. 2017) (internal citations omitted). A party seeking to compel arbitration must "prov[e] the existence of an agreement to arbitrate by a preponderance of the evidence." Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). State contract law controls the issue of whether the parties have agreed to arbitrate. Id.
DBTCA asserts that Ohio law governs,...
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