Perez v. Discover Bank

— 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 MOTION TO 9 v. STAY ACTION PENDING APPEAL 10 DISCOVER BANK, Re: Dkt. No. 87 11 Defendant. — 12 — 13 On March 3, 2022, Discover Bank appealed this Court’s February 4, 2022 decision on 14 plaintiffs’ Motion for Partial Reconsideration. Dkt. No. 83. Before the Court is Discover Bank’s 15 motion to stay this action pending resolution of the appeal. Dkt. No. 87. For the reasons set forth 16 below, this court GRANTS the motion. 17 BACKGROUND 18 I. Underlying Loans1 19 Plaintiffs Iliana Perez, Flavio Guzman Magaña, and Josue Jimenez Magaña allege 20 Discover Bank unlawfully discriminated by denying them loans based on their DACA status. Dkt. 21 No. 43. Plaintiffs seek to represent a class. Id. ⁋⁋ 39-53. 22 In late 2009, Perez sought a student loan from The Student Loan Corporation, a subsidiary 23 of Citibank and a nonparty to this action. Id. ⁋ 13. Perez received the student loan in early 2010 24 (Citibank loan), after which Citibank sold The Student Loan Corporation to Discover Bank. 25 Id. ⁋ 14. Discover currently holds the Citibank loan. 26 In 2019 Perez applied for a Private Loan Consolidation through Discover (consolidation — 27 — 1 loan). Id. ⁋ 18. The consolidation loan would have refinanced Perez’s student loan at a lower 2 interest rate. Id. Discover’s website explains that to be eligible for a consolidation loan, an 3 applicant must “[b]e a US citizen or permanent resident with a US-based address.” Id. ⁋ 19. 4 Perez disclosed her DACA status in the application. Id. ¶ 20. Via phone, a Discover 5 representative denied Perez the reconsolidation loan due and informed Perez that due to her 6 immigration status, she should not have received the student loan in the first place. Id. ⁋ 23. 7 Plaintiff Guzman Magaña applied for a Graduate Student Loan from Discover in August 8 2016. Id. ⁋ 25. The online application required Guzman Magaña to submit immigration 9 documents and apply with a co-signor who was either a U.S. citizen or a legal permanent resident. 10 Id. ⁋ 26. Guzman Magaña applied with a co-signor and was granted a loan. 11 Plaintiff Jimenez Magaña called Discover seeking a home equity line of credit (HELOC) 12 from Discover in March 2021. Id. ⁋ 31. Jimenez Magaña was told Discover does not issue loans 13 to non-lawful permanent residents. Id. ⁋ 36. 14 Discover alleges it has been provided a draft Third Amended Complaint that would add an 15 additional plaintiff who sought a Discover personal loan; that complaint has not yet been filed. 16 Dkt. No. 92. — 17 — 18 II. Procedural History 19 a. Lawsuit and Motion to Compel Arbitration 20 Perez and Guzman Magaña sued Discover in state court in 2020, alleging that Discover’s 21 practice of denying loans and credit based on citizenship and immigration status discriminated 22 against them in violation of California’s Unruh Civil Rights Act. Dkt. No. 1, Ex. A. Upon 23 Discover’s removal to federal court in October 2020, plaintiffs amended the complaint to add a 24 claim under 42 U.S.C § 1981. Dkt. No. 18. On July 23, 2021, plaintiffs filed a Second Amended 25 Complaint, adding a Jimenez Magaña to the action. Dkt. No. 43. 26 In January 2021, Discover moved to compel Perez and Guzman Magaña to arbitration 27 pursuant to arbitration agreements in Perez’s and Guzman Magaña’s respective loan applications. 1 No. 24-2, Ex. D (graduate student loan application terms). The arbitration agreements included 2 nearly identical provisions permitting applicants to opt out of the arbitration agreements “only if 3 we receive from you a written notice of rejection within 30 days after consummation of your 4 loan.” Id. Discover also argued that Perez’s claims were subject to an arbitration agreement in the 5 Citibank loan. Dkt. No. 24; Dkt. No. 24-2, Ex. B (Citibank loan application terms). 6 The Court held a hearing on the motion to compel on August 27, 2021. Dkt. No. 49. One 7 issue at the hearing was whether the consolidation loan’s arbitration clause had a viable opt out 8 provision. Dkt. No. 53. Perez argued that the agreement lacked an opt out provision in her case 9 because she could never consummate the loan she was denied; thus, she could not opt out within 10 30 days after consummation. Id. at 16. Discover responded that the 30 day “deadline” had not 11 passed and Perez could opt out of the arbitration agreement at any time. Id. 12 On September 23, 2021, the Court granted the motion to compel arbitration and stayed the 13 action pending the outcome of arbitration. Dkt. No. 51. The Court found that the arbitration 14 provision was not unconscionable, noting “plaintiffs were free to walk away from the Discover 15 Consolidation Agreement and were able to reject the Discover Arbitration Agreement.” Id. at 10. — 16 — 17 b. Perez Opts Out and Requests Leave to File Reconsideration Motion 18 On September 16, after the hearing but before the Court’s order, Perez sent Discover a 19 written request to opt out of arbitration. Dkt. No. 55-3, Ex. C. The opt-out letter cited Discover’s 20 contention at the August 27 hearing that Perez was still able to opt out of arbitration. Id. 21 According to plaintiffs’ counsel, Perez intended to inform the Court of the written opt-out upon 22 hearing back from Discover; however, by the time the Court issued its order compelling 23 arbitration, Perez had not heard back. Dkt. No. 55-4, Ex. D (Thrift-Viveros Decl.). The day after 24 the Court issued its order compelling arbitration, Perez’s counsel followed up with Discover 25 concerning the opt-out request. Id. ¶ 9; Dkt. No. 55-5 Ex. E (Follow-up Letter). Discover 26 responded on October 13, 2021, stating: 27 Discover does not have a record of receiving the opt-out at the required address. Putting aside any delay there may be in delivery or processing, based on your Discover does not agree that any such opt-out would permit Ms. Perez to litigate 1 these already-pending claims against Discover in court as opposed to an individual arbitration as ordered by Judge Illston. — 2 — Dkt. No. 55-6, Ex. F (Response Letter). The record indicates Perez sent her letter to the correct — 3 — address. See Dkt. No. 55-3, Ex. C (Letter) and Dkt. No. 24-2, Ex. C (arbitration opt-out — 4 — instructions). — 5 — On October 14, Perez filed a Motion for Leave to File Motion for Partial Reconsideration — 6 — of the Court’s Order to Compel. Dkt. No. 55. The Court granted leave, and Perez filed a Motion — 7 — for Partial Reconsideration on December 17, 2021. Dkt. No. 72. Discover opposed the motion, — 8 — arguing that the motion was procedurally deficient, Perez’s opt out was untimely as to pending — 9 — claims, and the Citibank loan arbitration agreement controlled. Dkt. No. 75. — 10 — The Court granted Perez’s motion for partial reconsideration on February 2, 2022. Dkt. — 11 — No. 78. Discover appealed the Court’s decision to the Ninth Circuit. Dkt. No. 83. On appeal, — 12 — Discover argues that (1) Perez’s request to opt out does not apply to claims already asserted, and — 13 — (2) arbitrability under the Citibank loan arbitration agreement should have been delegated to an — 14 — arbitrator, or if not, the Citibank loan arbitration agreement applies to the claims in this case. Dkt. — 15 — No. 87 at 10. — 16 — Currently Guzman Magaña’s claims are stayed pending arbitration. Dkt. No. 51. The — 17 — parties agree that Jimenez Magaña’s claims are not subject to arbitration. Dkt. No. 87 at 7; Dkt. — 18 — No. 92 at 6. Perez is the only plaintiff whose claims are at issue in the appeal. See Dkt. No. 83. — 19 — Discover seeks a stay of all claims pending its appeal of the Court’s decision that Perez’s — 20 — claims are not subject to arbitration; alternatively, Discover seeks a stay as to all claims asserted — 21 — by Perez and Felix, the potential fourth plaintiff. Dkt. No. 87 at 8. — 22 — — 23 — LEGAL STANDARD — 24 — A stay is an exercise of discretion rather than a matter of right. Al Otro Lado v. Wolf, 952 25 F.3d 999, 1006 (9th Cir. 2020). “The party requesting a stay bears the burden of showing that the — 26 — circumstances justify an exercise of that discretion.” Id. — 27 — 1 made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be 2 irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other 3 parties interested in the proceeding; and (4) where the public interest lies.” Id. at 1006–07 4 (quoting Nken v. Holder, 556 U.S. 418 , 434–35 (2009)). “The first two factors . . . are the most 5 critical.” Nken, 556 U.S. at 434 . However, the Court uses a “sliding scale” approach in which “a 6 stronger showing of one element may offset a weaker showing of another.” Id. (quoting Alliance 7 for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011)). Thus, a movant may 8 obtain a stay if it shows “either a probability of success on the merits and the possibility of 9 irreparable injury, or that serious legal questions are raised and the balance of hardships tips 10 sharply in [the movant’s] favor.” Leiva-Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011) 11 (quoting Abbassi v. INS, 143 F.3d 513, 514 (9th Cir. 1998)). 12 Discover points out that courts within the Ninth Circuit have frequently granted stays 13 pending appeal of orders denying motions to compel arbitration. Dkt. No. 87 at 5; see Cherny v. 14 AT&T, Inc., 2010 WL 2572929 at *1 (listing cases). However, “a court may not devise novel 15 rules to favor arbitration over litigation.” Morgan v. Sundance, Inc., 142 S.Ct. 1708, 1709 (2022). — 16 — 17 DISCUSSION 18 I. Likelihood of Success 19 A strong showing that a movant is likely to succeed on the merits requires “more than a 20 mere ‘possibility’ of relief.” Id. at 435. However, a movant “need not demonstrate” that success 21 is “more likely than not.” Leiva-Perez v. Holder, 640 F.3d 962, 966 (9th Cir. 2011). A movant 22 who raises “serious legal questions” can succeed if “the balance of hardships tips sharply in [its] 23 favor.” Id. at 964 . A “reasonable probability” of success is sufficient. Id. at 968 . 24 Discover makes three arguments: that Perez failed to opt out of the Discover arbitration 25 agreement in time, that the threshold question of whether Discover could apply the Citibank 26 arbitration agreement should be delegated to an arbitrator, and that the Citibank arbitration 27 agreement applies to the consolidation loan because the consolidation loan relates to the Citibank 1 No. 78. But Discover need show only a “fair prospect” of success on the merits. Leiva-Perez v. 2 Holder, 640 F.3d at 968 . There is a fair prospect that the Ninth Circuit will agree with Discover’s 3 contention that Perez could not opt out of claims that had already accrued before she opted out. 4 Indeed, until the August 27 hearing, Perez believed that to be true. See Dkt. No. 49 at 16. 5 Discover also has a fair prospect of prevailing on its argument that the provision of the 6 Citibank arbitration agreement delegating the arbitrability question to an arbitrator applies. Courts 7 have been loath to override delegation provisions even when arbitrability claims appear “wholly 8 groundless.” Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S.C.t 524, 526 (2019) 9 (“[W]hen the parties’ contract delegates the arbitrability question to an arbitrator, a court may not 10 override the contract, even if the court thinks that the arbitrability claim is wholly groundless.”). 11 This Court maintains that the delegation provision cannot apply in this case because it concerns an 12 entirely different product than the consolidation loan. See Dkt. No. 72. But Discover’s arguments 13 meet the “minimum quantum of likely success necessary to justify a stay,” provided the other 14 factors are met. Leiva-Perez v. Holder, 640 F.3d at 968 . — 15 — 16 II. Irreparable Injury 17 Discover argues that it will be irreparably harmed absent a stay because it will lose the 18 advantages of arbitrating if forced to litigate in the meantime. Arbitration is intended to provide 19 “an inexpensive and expeditious means of resolving” disputes. Int’l Ass’n of Machinists & 20 Aerospace Workers, AFL-CIO v. Aloha Airlines, Inc., 776 F.2d 812, 815 (9th Cir. 1985). The 21 “speed and economy” of arbitration are lost if a litigant “must undergo the expense and delay of a 22 trial before being able to appeal.” Id. Numerous courts in the Ninth Circuit have granted stays in 23 similar circumstances because “the advantages gained by agreeing to arbitration ‘are lost forever’ 24 if the litigation proceeds pending appeal.” Karla Maree v. Deutsche Lufthansa AG Anthony 25 Castanares et al., 2021 WL 4352912 , at *3 (C.D. Cal. June 21, 2021); see also Cherny v. AT&T, 26 Inc., 2010 WL 2572929 at *1 (collecting cases). While expenses incurred by litigation are 27 generally “not considered irreparable harm,” “arbitration is unique in this aspect.” Zaborowski v. 1 undergo the expense of trial before being able to appeal denial of a motion to compel arbitration, 2 || the anticipated advantages of arbitration—speed and economy—are lost.” Jd. (citing Alascom, Inc. 3 || v. ITT North Elec. Co., 727 F.2d 1419 , 1422 (9th Cir.1984)). — 4 — 5 II. Balance of Interests 6 Plaintiffs argue that they will be harmed by a stay because discovery will be delayed. Dkt. 7 No. 92 at 17-18. But plaintiffs do not identify any loss other than the delay itself. 7d. Although 8 || relief may be delayed, this case is still in early stages; in any event, the hardship of delaying this 9 case is no greater than the hardship of any case. Plaintiffs have not identified any substantial harm 10 || to their interests if a stay is granted. 11 The public interest favors a stay. There is a strong public policy favoring arbitration. See 12 || Moses H. Cone Mem’! Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Judicial resources 5 13 will be wasted if this case proceeds to trial only to be sent to arbitration later. See Zaborowski v. 14 MHN Gov’t Servs., Inc., 2013 WL 1832638 , at *3 (N.D. Cal. May 1, 2013). Because plaintiffs 3 15 || have identified no harm beyond the delay itself and the defendants’ interest and the public interest a 16 || militate in favor of a stay, the balancing of factors tips sharply in defendants’ favor. CONCLUSION 19 For the foregoing reasons, the Court GRANTS defendants’ motion to stay the case pending 20 || appeal of the order granting plaintiffs’ motion for partial reconsideration. 21 IT IS SO ORDERED. 22 || Dated: February 7, 2023 23 Ap | Li faa SUSAN ILLSTON United States District Judge — 25 — — 26 — — 27 — — 28 —