Perez v. Discover Bank
| Decision Date | 23 September 2021 |
| Docket Number | 20-cv-06896-SI |
| Court | U.S. District Court — Northern District of California |
| Parties | ILIANA PEREZ, et al., Plaintiffs, v. DISCOVER BANK, Defendant. |
ORDER GRANTING DEFENDANT'S MOTION TO COMPEL ARBITRATION Re: Dkt. No. 28
Before the Court is defendant Discover Bank's Motion to Compel Arbitration. Dkt. No. 28. On August 27, 2021, the Court heard oral argument on Discover Bank's motion. Dkt. No. 49. For the reasons stated below, the Court GRANTS defendant's motion to compel arbitration.
Plaintiffs Perez and Guzman Magana are participants of Deferred Action for Childhood Arrivals (“DACA”). Dkt. No. 43 at ¶¶ 15, 24. The instant action arises from Discover Bank's denial of plaintiff Perez's loan application and its requirement that plaintiff Guzman Magana must apply for his loan with a cosigner.
In December 2009, Plaintiff Perez applied for and received a private student loan with Citibank through its subsidiary, The Student Loan Corporation. Id. ¶ 13. Above the signature line on the Citibank Loan application, the application referenced a Promissory Note. Dkt. No. 24-1, Decl. of Christiansen, Ex. A at 5. The Promissory Note accompanying the application included an arbitration agreement (the “Citibank Arbitration Agreement”). Id.
The Citibank Arbitration Agreement states, in pertinent part:
ARBITRATION OF DISPUTES: PLEASE READ THIS ARBITRATION PROVISION CAREFULLY. IT PROVIDES THAT EITHER YOU OR I CAN REQUIRE THAT ANY CONTROVERSY OR DISPUTE BE RESOLVED BY BINDING ARBITRATION (EXCEPT FOR MATTERS THAT ARE EXCLUDED FROM ARBITRATION AS SPECIFIED BELOW). ....
Definitions: As used in this arbitration provision, the following definitions will apply:
“Claim” means any case, controversy, dispute, tort, disagreement, lawsuit or claim now or hereafter existing between you and me arising out of or in connection with my loan.
“Account” means my agreement with you as evidenced by the loan application and Note along with any and all records or transactions related thereto.
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 mandatory, binding arbitration except for certain matters excluded below. ....
Claims subject to Arbitration include, but are not limited to:
Claims relating to: 1) any and all aspects of my Account including without limitation the origination, establishment, terms, treatment, operation, handling, billing, servicing, limitations on or termination or acceleration of my Account; 2) any disclosures or statements relating to my Account; 3) the application, enforceability or interpretation of my Account, including this arbitration provision.
In late 2010, Citibank sold The Student Loan Corporation to Discover Bank. Dkt. No. 43 at ¶ 14. Discover Bank is the current holder of plaintiff Perez's Citibank Agreement. Id.
In July 2018, Perez accessed a Private Consolidation Loan application on Discover Bank's website, hoping to refinance her loan at a lower interest rate. Id. ¶ 18. On August 2, 2018, Perez completed and electronically signed a Private Consolidation Loan Application and Promissory Note (“Discover Consolidation Agreement”). Id. at ¶ 20; Dkt. No. 24-1, Ex. C at 10-13. The Discover Consolidation Agreement stated that it “will be effective and enforceable when you affix your signature . . . and deliver it to us.” Dkt. No. 24-1. Ex. C at 10. The Discover Consolidation Agreement included an arbitration agreement (“Discover Arbitration Agreement”). Id. Ex. C at 12-13.
The Discover Arbitration Agreement states, V. ARBITRATION OF DISPUTES:
Agreement to Arbitrate: If a controversy, dispute, disagreement, lawsuit or claim now or hereafter existing arises between you and us (“Claim”), either party may 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 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 any other loan or agreement you have or had with us.
W. GOVERNING LAW
This Note and any Claim or dispute arising out of this Note will be governed by applicable United States federal law and, to the extent state law applies, Delaware law, without regard to its conflict of law rules
Signatures: This Note will be effective and enforceable when you affix your signature to the Application and Promissory Note (or the Cosigner Addendum, as the case may be) and deliver it to us.
Id. Ex. C at 11-13 (bold in original).
On August 3, 2018, Perez received a letter from Discover Bank confirming receipt of the online application. Dkt. No. 43 at ¶ 21. On October 9, 2018, Perez received another letter requesting Perez call Discover Bank to provide information about eligibility and identity. Id. at ¶ 22. Perez called Discover Bank and told a representative that she was a DACA participant. Id. at ¶ 23. The representative told Perez that Discover Bank would not be able to refinance Perez's loan. Id.
On August 16, 2016, plaintiff Guzman Magana completed and electronically signed Discover Bank's Graduate Student Loan Application (“Graduate Loan Application”). Id. ¶ 25. The Graduate Loan Application required Guzman Magana to apply with a co-signer. Id. at ¶ 26. Guzman Magana received a loan and continues to make timely payments. Id. at ¶ 29.
The Graduate Loan Application included an arbitration agreement. Dkt. No. 24-, Ex. D, at 16-17. The arbitration agreement in Guzman Magana's application uses the same language as the language in plaintiff Perez's Discover Arbitration Agreement. See Dkt. Nos. 24-1 (Exs. C, D).
On November 2, 2020, Discover Bank removed the instant action to federal court. Dkt. No. 1. On January 4, 2021, Discover Bank filed a motion to compel arbitration of plaintiff Perez's and Guzman Magana's claims. Dkt. No. 24. On February 1, 2021, plaintiffs filed an opposition. Dkt. No. 28. On February 16, 2020, Discover Bank filed a reply. Dkt. No. 28.
On February 26, 2021, the Court granted the parties' stipulation to stay the action pending mediation. Dkt. No. 31. On June 25, 2021, the Court granted the parties' request to life the stay after unsuccessful mediation. Dkt. No. 39. On July 23, 2021, plaintiffs filed a Second Amended Complaint. Dkt. No. 43. On August 27, 2021, the Court heard oral argument on Discover Bank's motion to compel arbitration.
Section 4 of the Federal Arbitration Act (“FAA”) permits “a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States District Court . . . for an order directing that . . . arbitration proceed in the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. When a motion to compel arbitration is filed, the “court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue . . . shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” Id.
Generally, when deciding whether to compel arbitration, a court must determine two “gateway” issues: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). The Court considers state contract law to determine whether there is a valid agreement to arbitrate. Revitch v. DirecTV, LLC, 977 F.3d 713, 716 (9th Cir. 2020).
However, “before referring a dispute to an arbitrator, the court determines whether a valid arbitration exists . . . [and] if the agreement delegates the arbitrability issue to an arbitrator.” Schein Inc. v. Archer and White Sales, Inc., 139 S.Ct. 524, 530 (2019). “Where a delegation provision exists, courts first must focus on the enforceability of that specific provision, not the enforceability of the arbitration agreement as a whole.” Brice v. Plain Green, LLC., No. 1915707, 2021 WL 4203337, at *4 (9th Cir. 2021). If a “contract delegates the arbitrability question to an arbitrator, a court may not override the contract . . . [and] possesses no power to decide the arbitrability issue . . . even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” Schein Inc, 139 S.Ct. at 529.
Discover Bank moves to compel arbitration of (I) plaintiff Perez's and (II) plaintiff Guzman Magana claims. Dkt. No. 24 at 9.
Discover Bank argues plaintiffs' claims are subject to the Discover Arbitration Agreement. Dkt. No. 24. Plaintiffs argue the Discover Arbitration Agreement is not valid. As an initial matter, the parties dispute whether California or Delaware law governs interpretation of the Discover Arbitration Agreement. Dkt. Nos. 24 at 13; 28 at 4-6.
“In a federal question action where the federal court is exercising supplemental jurisdiction over state claims, the federal court applies the choice-of-law rules of the forum state.” Paracor 5 Finance, Inc. v. General Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996). This case involves plaintiffs' federal claims under 42 U.S.C. § 1981 and supplemental state claims under California's Unruh Civil Rights...
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