Garcia v. Kakish et al

Filing 34

ORDER ADOPTING in FULL the 27 FINDINGS AND RECOMMENDATIONS; Granting in Part Defendant's 19 Motion to Compel Arbitration signed by Chief Judge Lawrence J. O'Neill on 09/28/2017. Case Management Deadline: 01/29/2018.(Flores, E)

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Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 1 of 8 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 JUSTIN GARCIA and ANDREW GARCIA, Plaintiffs, 12 v. 13 14 MUSHEER A. KAKISH, et al., Defendants. 15 16 ) ) ) ) ) ) ) ) ) ) ) Case No.: 1:17-cv-00374-JLT ORDER ADOPTING IN FULL THE FINDINGS AND RECOMMENDATIONS GRANTING IN PART DEFENDANT’S MOTION TO COMPEL ARBITRATION 17 Plaintiffs Justin Garcia and Andrew Garcia assert the defendants are liable for violations of the 18 Fair Debt Collection Practices Act for actions taken during the course of a repossession of his vehicle. 19 (Doc. 9) Defendant Santander Consumer USA Inc. asserts that Justin Garcia signed a binding 20 arbitration agreement, and seeks to compel arbitration. (Doc. 19) 21 The Magistrate Judge found Justin Garcia agreed to arbitration. (Doc. 27 at 1; 14-15) The 22 Magistrate Judge also determined the claims of Andrew Garcia “are factually and legally intertwined 23 with the contract setting forth the arbitration provision.” (Id. at 1) Therefore, the Magistrate Judge 24 recommended Defendant’s motion to compel arbitration be granted and the matter be stayed to allow 25 for the completion of the arbitration. (Id. at 18) Plaintiffs filed objections to these recommendations 26 on July 11, 2017 (Doc. 29), to which Defendant filed a reply on July 18, 2017 (Doc. 31) 27 /// 28 /// 1 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 2 of 8 1 I. FINDINGS OF THE MAGISTRATE JUDGE As the Magistrate Judge observed, the Federal Arbitration Act (“FAA”) applies to arbitration 2 3 agreements in any contract affecting interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 4 U.S. 105, 119 (2001); 9 U.S.C. § 2. Because it was undisputed that Defendant has nationwide 5 operations and its shipping business affects interstate commerce, the Magistrate Judge found the FAA 6 governs the arbitration agreement in issue. Here, the Magistrate Judge rejected Plaintiffs’ assertion that the arbitration provision was 7 8 unenforceable because it was contrary to public policy, finding there was “not an explicit provision 9 waiving a buyer’s right to seek public injunctive relief, and no agreement between the parties regarding 10 whether the effect of the provision constitutes such a waiver.” (Doc. 27 at 10-11) Further, the 11 Magistrate Judge found the arbitration provision was not rendered unenforceable due to 12 unconscionability, because of the arbitrator selection provision could be severed from the agreement. 13 (Id. at 12-13) Next, the Magistrate Judge found the agreement encompasses the disputed issues, because the 14 15 provision “confers power upon the arbitrator to determine ‘the arbitrability of the claim or dispute.’” 16 (Doc. 27 at 14, quoting Doc. 19-1 at 8) The Magistrate Judge also determined the claims of Justin 17 Garcia were encompassed within the provision, because the provision related to “[a]ny claim or 18 dispute… which arises out of or relates to [the buyer’s] credit application, purchase or condition of 19 th[e] vehicle, contract or any resulting transaction or relationship.” (Id. at 15, quoting Doc. 19-1 at 8) 20 Likewise, the Magistrate Judge found the claims of Andrew Garcia were subject to arbitration as they 21 were intimately found in and intertwined” with the claims of Justin Garcia. (Id. at 16-17) 22 II. OBJECTIONS 23 Plaintiffs object to the findings that the arbitration clause encompasses the claims of Andrew 24 Garcia, asserting it does not apply to a non- signatory and he should not be compelled to arbitration. 25 (Doc. 29 at 3, citing Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013)) Plaintiffs contend 26 the Magistrate Judge “erred in applying the doctrine of equitable estoppel in favor of a signatory, 27 against a non-signatory.” (Id. at 3, emphasis omitted) According to Plaintiffs, the doctrine is 28 inapplicable “when the claims of a non-signatory are attempted to be compelled to arbitration.” (Id.) 2 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 3 of 8 1 Further, Plaintiffs contend “an element of the doctrine of equitable estoppel is not satisfied, because 2 Andrew Garcia’s claims are not intimately founded on the contract.” (Id. at 6, emphasis omitted) 3 Finally, Plaintiffs contend the Magistrate Judge erred in finding the arbitrator should decide whether 4 the contract’s ban on public injunctive relief is enforceable. (Id. at 11-12) 5 III. DISCUSSION AND ANALYSIS 6 A district judge may “accept, reject or modify, in whole or in part, the findings and 7 recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). If objections to the 8 findings and recommendations are filed, “the court shall make a de novo determination of those 9 portions of the report or specified proposed findings or recommendations to which objection is made.” 10 Id. A de novo review requires the court to “consider[] the matter anew, as if no decision had been 11 rendered.” Dawson v. Marshall, 561 F.3d 930, 932 (9th Cir. 2009). 12 A. The FAA Legal Standards 13 Under the FAA, written arbitration agreements “shall be valid, irrevocable, and enforceable, 14 save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 15 “The standard for demonstrating arbitrability is not a high one; in fact, a district court has little 16 discretion to deny an arbitration motion, since the [FAA] is phrased in mandatory terms.” Republic of 17 Nicaragua v. Standard Fruit Co., 937 F.2d 469, 475 (9th Cir. 1991). “[W]here a contract contains an 18 arbitration clause, there is a presumption of arbitrability.” AT&T Technologies, Inc. v. Commc’ns. 19 Workers of America, 475 U.S. 643, 650 (1986). 20 The role of the Court in applying the FAA is “limited to determining (1) whether a valid 21 agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 22 issue.” Chiron Corp. v. Ortho Diagnostic Systems, 207 F.3d 1126, 1130 (9th Cir. 2000), citing 9. 23 U.S.C. § 4. Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved 24 in favor of arbitration.” Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1139 25 (9th Cir. 1991). 26 B. 27 To determine whether an arbitration agreement is valid and enforceable, the Court must apply 28 Validity of the Agreement “ordinary state-law principles that govern the formation of contracts to decide whether the parties 3 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 4 of 8 1 agreed to arbitrate a certain matter.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 2 (1995); Circuit City Stores v. Adams, 279 F.3d 889, 892 (2002). Thus, the FAA “does not apply until 3 the existence of an enforceable arbitration agreement is established under state law principles involving 4 formation, revocation, and enforcement of contracts generally.” Cione v. Foresters Equity Servs., 58 5 Cal. App. 4th 625, 634 (1997). 6 As the Magistrate Judge observed, “Plaintiffs do not argue that the parties were not capable of 7 consent, did not consent, or that there was not a lawful object to the contract. Further, Plaintiffs do not 8 argue there was insufficient cause or consideration for the contract entered into by Justin Garcia for the 9 purchase of the vehicle.” (Doc. 27 at 10) Plaintiffs object to the validity of the provision on the 10 grounds that it is not enforceable because it bans public injunctive relief and is unconscionable. (Doc. 11 22 at 7-8, 12; Doc. 29 at 11-12) 12 1. 13 Public injunctive relief The arbitration provision stated in part, “Any claim or dispute is to be arbitrated by a single 14 arbitrator on an individual basis and not as a class action.” (Doc. 22 at 7) Plaintiffs contend this 15 provision “is contrary to California public policy and is thus unenforceable under California law” 16 because it “directly bans arbitration of any private attorney general action for public injunctive relief, 17 since such a claim is never brought ‘on an individual basis,’ but always on behalf of the general 18 public.” (Id. at 7-8, citing McGill v. Citibank, 2 Cal.5th 945, 952 (2017)) According to Plaintiffs, 19 “since the alleged arbitration clause does not otherwise permit a court action for such private attorney 20 general claims, it completely waives the consumer’s statutory right to seek public injunctive relief as a 21 private attorney general.” (Id. at 7) 22 As the Magistrate Judge observed, “In McGill, the California Supreme Court was not 23 considering the validity of an entire arbitration agreement but only the validity of a provision in the 24 agreement that waived the ‘right to seek public injunctive relief in any forum.’” (Doc. 27 at 11, quoting 25 McGill, 2 Cal. 5th at 956 (emphasis in original)). In McGill, the court determined “a provision in any 26 contract—even a contract that has no arbitration provision—that purports to waive, in all fora, the 27 statutory right to seek public injunctive relief under the UCL, the CLRA, or the false advertising law is 28 invalid and unenforceable under California law.” Id., 2 Cal. 5th at 962 (emphasis in original) 4 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 5 of 8 1 Here, there was no provision waiving the right to seek public injunctive relief, and the parties 2 have not stipulated that the scope and effect of the arbitration provision includes such a waiver. To the 3 contrary, the arbitration provision indicates “the interpretation and scope” is a matter for the arbitrator 4 to decide. Thus, the provision now pending before the Court must be distinguished from the facts 5 presented to the California court in McGill. As the Northern District recently determined, a provision 6 indicating that an arbitrator is to decide the “scope and enforceability” also indicates the arbitrator 7 should determine whether the “agreement purports to waive [the] right to seek public injunctive relief 8 in all fora, and, if so, what impact this has on the enforceability of the arbitration agreement as a 9 whole.” DeVries v. Experian Info. Solutions, Inc., 2017 WL 2377777, at *3 (N.D. Cal. June 1, 2017). 10 Accordingly, the Court finds the Magistrate Judge did not err in concluding that McGill does not 11 mandate a finding that the arbitration provision is unenforceable. 12 13 2. Unconscionability Under California law, an arbitration agreement may only be invalidated for the same reasons as 14 other contracts. Cal. Code Civ. Proc. § 1281. For example, a contract “is unenforceable if it is both 15 procedurally and substantively unconscionable.” Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 16 (9th Cir. 2007). Procedural unconscionability focuses on “oppression and surprise,” while substantive 17 unconscionability focuses upon “overly harsh or one-sided results.” Stirlen v. Supercuts, Inc., 51 18 Cal.App.4th 1519, 1532 (1997) (citations omitted). Both forms of unconscionability must be present in 19 order for a court to find a contract unenforceable, but it is not necessary that they be present in the same 20 degree. Davis, 485 F.3d at 1072; Stirlen, 51 Cal. App. 4th at 1532. Consequently, “[c]ourts apply a 21 sliding scale: ‘the more substantively oppressive the contract term, the less evidence of procedural 22 unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’” 23 Id., quoting Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 99 (2000). 24 Here, Plaintiffs challenged only the arbitration selection clause in the agreement as “unconscionable 25 and unenforceable.” (Doc. 22 at 11) 26 The arbitration agreement included a selection provision that stated: “You may choose the 27 American Arbitration Association, 1633 Broadway, 10th Floor, New York, New York 10019 28 (www.adr.org), or any other organization to conduct the arbitration subject to our approval.” (Doc. 195 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 6 of 8 1 1 at 8) Plaintiffs argued the phrase “subject to our approval” rendered the cause unconscionable as it 2 “grant[ed] Santander exclusive control over who the arbitrator will be.” (Id.) The Magistrate Judge 3 agreed, finding the provision was “procedurally unconscionable because it was offered as part of ‘a 4 standardized contract, which, imposed and drafted by the party of superior bargaining strength, 5 relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’” (Doc. 27 6 at 12, quoting Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 817 (1981)) In addition, the Magistrate 7 Judge found the provision was “substantively unconscionable also because it gives Defendant the 8 ultimate authority over who would arbitrate the claims.” (Doc. 27 at 12, quoting Stirlen, 51 Cal. App. 9 4th at 1532) 10 As the Magistrate Judge determined, however, the unconscionability of the selection provision 11 “does not permeate the entire arbitration agreement.” (Doc. 27 at 13) Rather, the specific provision 12 could be severed, and the arbitration agreement would remain enforceable. See Grabowski v. C.H. 13 Robinson Co., 817 F. Supp. 2d 1159 (S.D. Cal. 2011) (finding substantively unconscionable provisions 14 could be severed from an agreement that was not “permeated by unconscionability,” thus rendering the 15 arbitration agreement enforceable); Stacy v. Brinker Rest. Corp., 2012 WL 5186975 at *11-12 (E.D. 16 Cal. Oct. 18. 2012) (explaining a substantively unconscionable provision could be severed because it 17 was “collateral to the Agreement and does not permeate the Agreement with unconscionability”). 18 Thus, the Court adopts the recommendation that the arbitrator selection provision be severed for 19 purposes of enforcing the agreement under the FAA. 20 C. The Disputes at Issue 21 The Court looks to the plain language of an agreement to determine whether it encompasses the 22 disputes in issue, and “[i]n the absence of any express provision excluding a particular grievance from 23 arbitration . . . only the most forceful evidence of a purpose to exclude the claim from arbitration can 24 prevail.” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 584-86 (1960). 25 As the Magistrate Judge observed, the Supreme Court determined, “Parties can agree to 26 arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or 27 whether their agreement covers a particular controversy. Rent-A-Center, W., Inc. v. Jackson, 130 S. 28 Ct. 2772, 2779-80 (2010). Significantly, here, the arbitration agreement provides the arbitrator has the 6 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 7 of 8 1 authority to determine “the arbitrability of the claim or dispute.” (Doc. 19-1 at 8) Consequently, the 2 arbitration agreement encompasses even the “gateway” issue regarding whether the claims presented by 3 Justin and Andrew Garcia are subject to arbitration. For this reason, the Magistrate Judge did not err in 4 finding the issues in dispute are subject to the arbitration agreement. Moreover, as the Magistrate Judge determined, the claims of Andrew Garcia and Justin Garcia 5 6 were “intimately founded in and intertwined.” (Doc. 27 at 16-17) In the First Amended Complaint, 7 Plaintiffs did not “distinguish the claims of Justin Garcia from those of Andrew Garcia for violations of 8 the Fair Debt Collection Practices Act, Rosenthal Fair Debt Collection Practices Act, or the Collateral 9 Recovery Act.” (Id. at 16) Instead, Plaintiffs chose “to base the claims for both plaintiffs on the same 10 factual allegations” and argued “their matters should be decided together.” (Id.) Thus, contrary to 11 Plaintiffs argument, this Court agrees Andrew Garcia’s claims are rooted in the contract, with the 12 claims of Justin Garcia. As result, the claims of Andrew Garcia should be arbitrated with the claims of 13 Justin Garcia. See Goldman v. KPMG, LLP, 173 Cal. App 4th 209, 221 (2009) (claims of a non- 14 signatory to an arbitration clause may be compelled to arbitration where the causes of action are 15 “intimately founded in and intertwined” with the claims of the signatory; Sam Reisfeld & Son Imp. Co. 16 v. S. A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976) (noting the “federal policy in favor of arbitration”). 17 IV. 18 CONCLUSION AND ORDER In accordance with the provisions of 28 U.S.C. § 636 (b)(1)(C) and Britt v. Simi Valley United 19 School Dist., 708 F.2d 452, 454 (9th Cir. 1983), this Court conducted a de novo review of the case. 20 Having carefully reviewed the file, the Court finds the Findings and Recommendations are supported 21 by the record and proper analysis. 22 Accordingly, IT IS HEREBY ORDERED: 23 1. The Findings and Recommendations dated June 27, 2017 (Doc. 27) are ADOPTED IN FULL; 24 25 2. Defendant’s motion to compel arbitration is GRANTED; 26 3. The clause concerning the selection of the arbitrator be severed from the arbitration 27 provision; 28 a. the Court propose JAMS, AAA and ADR Services, Inc. as potential arbitration 7 Case 1:17-cv-00374-LJO-JLT Document 34 Filed 09/29/17 Page 8 of 8 1 agencies; and 2 b. 3 remaining will act as the arbitration agency in the action; 4 4. each side is permitted to exercise one “strike” such that the one agency The parties SHALL meet and confer regarding the selection of an arbitrator, and file a 5 joint status report within thirty days of the date of service of this order, identifying the 6 arbitrator selected; 7 5. The matter is STAYED to allow the completion of the arbitration; 8 6. Counsel SHALL file a joint status report within 120 days, and every 120 days thereafter, regarding the status of the arbitration; 9 10 7. arbitrator; and 11 12 Counsel SHALL file a joint status report within 10 days of the determination by the 8. The Court hereby retains jurisdiction to confirm the arbitration award and enter judgment for the purpose of enforcement. 13 14 15 16 IT IS SO ORDERED. Dated: /s/ Lawrence J. O’Neill _____ September 28, 2017 UNITED STATES CHIEF DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 8

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