Haidee Estrella v. Freedom Financial Network LLC et al

Filing 226

ORDER GRANTING PLAINTIFFS LEAVE TO AMEND (SI, COURT STAFF) (Filed on 10/3/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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HAIDEE ESTRELLA, an individual, and
ANGELICA ARITA, an individual, on behalf of
themselves and others similarly situated

United States District Court
For the Northern District of California

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No. CV 09-03156 SI
ORDER GRANTING PLAINTIFFS
LEAVE TO AMEND

Plaintiffs,
v.
FREEDOM FINANCIAL NETWORK, LLC;
FREEDOM DEBT RELIEF, INC.; FREEDOM
DEBT RELIEF, LLC; GLOBAL CLIENT
SOLUTIONS, LLC; ROCKY MOUNTAIN
BANK AND TRUST; ANDREW HOUSSER;
and BRADFORD STROH
Defendants.

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On September 30, 2011, the Court held a hearing on plaintiffs’ motion to lift the stay and obtain
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leave to amend their complaint. Having considered the arguments of the parties and the papers
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submitted, and for good cause shown, the Court hereby GRANTS plaintiffs leave to amend.
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BACKGROUND
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The subject of the lawsuit is the debt reduction program offered by defendant Freedom Debt
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Relief, Inc. (“FDR”), Freedom Financial Network, LLC, Freedom Debt Relief, LLC, Global Client
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Solutions, LLC (“GCS”), Rocky Mountain Bank & Trust (“RMBT”) and FDR’s Chief Executive
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Officers Andrew Housser and Bradford Stroh. The operative version of plaintiffs’ complaint is the
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Second Amended Complaint (“SAC”), filed on January 6, 2010 by named plaintiffs Haidee Estrella
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(“Estrella”) and Angelica Arita (“Arita”) on behalf of themselves and “all consumers nationwide who

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paid defendants for debt reduction services during the four years preceding the filing of the complaint.”

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SAC ¶ 13. The complaint alleges four causes of action: (1) unfair competition in violation of

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California's Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200; (2) violation of the

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federal Credit Repair Organization Act (CROA), 15 U.S.C. § 1679b; (3) violation of California's

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Consumers Legal Remedies Act (CLRA), Cal. Civ. Code §§ 1750 et seq.; and (4) negligence in

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violating California's "prorater" statute, Cal. Fin. Code § 12315.1. SAC ¶¶ 55-75.
Estrella and Arita’s contracts, signed with FDR in 2008, included an arbitration clause with a

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class action waiver. Order Granting Defs.’ Mot. to Compel Arbitration at 3. On July 5, 2011, the Court

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United States District Court
For the Northern District of California

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granted the defendants' motion to compel arbitration of the plaintiffs' UCL, CLRA, and negligence

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claims and stayed the action on the plaintiffs' CROA claim pending the outcome in CompuCredit Corp.

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v. Greenwood, - S. Ct. -, 2011 WL 220683.1

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Following the Court’s July 5th order compelling arbitration, plaintiffs discovered that contracts

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signed by class members who enrolled with FDR between 2004 and 2007 did not include a class action

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waiver in the arbitration clause. Pls.’ Mot. to Amend at 2. Two such plaintiffs are Dale Mays (“Mays”)

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and Beverly Hall (“Hall”). Id. Plaintiffs seek leave to amend their complaint in order to add Mays and

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Hall as class representatives. Id.

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LEGAL STANDARD

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Federal Rule of Civil Procedure 15 governs amendment of the pleadings. It states that if a

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responsive pleading has already been filed, the party seeking amendment "may amend its pleading only

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with the opposing party's written consent or the court's leave. The court should freely give leave when

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justice so requires." Fed. R. Civ. P. 15(a). The burden of persuading the Court that leave should not

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be granted rests with the non-moving party. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186-87

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(9th Cir. 1987). Leave to amend should be freely given unless the opposing party makes a showing of

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On May 2, 2011, the Supreme Court granted certiorari in the matter of CompuCredit Corp. v.
Greenwood, - S. Ct. -, 2011 WL 220683, to decide whether CROA claims are arbitrable and to resolve
a split in the Circuits on this issue. Order Granting Mot. to Compel Arbitration at 8.
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undue delay, bad faith or dilatory motive, futility of amendment, or prejudice. Foman v. Davis, 371 U.S.

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178, 182 (1962); see also Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989);

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McGlinchy v. Shell Chem. Co., 845 F.2d 802, 809 (9th Cir. 1988).

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DISCUSSION
Plaintiffs argue that amendment is appropriate because Estrella and Arita no longer adequately

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represent class members whose contracts do not include class action waivers. Pls.’ Mot. to Amend at

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5-7. Defendants contend that the Federal Arbitration Act (“FAA”) imposes a mandatory stay of

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proceedings pending arbitration. Defs.’ Opp’n to Pls.’ Motion to Amend at 5. In addition, defendants

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United States District Court
For the Northern District of California

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argue that plaintiffs’ motion should be dismissed as futile and prejudicial because Mays and Hall’s

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claims are subject to arbitration. Id. at 7.

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The Court finds that defendants have not met their burden of establishing futility or prejudice.

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Regardless of whether the contracts signed by Mays and Hall require arbitration, plaintiffs have an

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interest in amending their complaint so that the representatives accurately reflect the class bringing suit.

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The terms of the arbitration agreements signed by Mays and Hall differ from those signed by Estrella

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and Arita, and the plaintiffs should be allowed to amend their complaint to ensure complete class

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representation. With respect to defendants’ argument regarding the mandatory stay imposed by the

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FAA, it is within the Court’s discretion to allow plaintiffs to submit an amended complaint since the

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submission of this amended complaint will not affect the pending arbitration of Estrella and Arita’s

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claims.

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CONCLUSION

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For the foregoing reasons and for good cause shown, the Court hereby GRANTS plaintiffs leave

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to amend. This order is without prejudice to the defendants’ right to move to compel the claims of Mays

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and Hall to arbitration. This order does not affect the Court’s prior order of July 5th granting

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defendants’ motion to compel the claims of Estrella and Arita to arbitration. Plaintiffs are ordered to

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file an amended complaint on or before October 7, 2011. Docket No. 209.

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IT IS SO ORDERED.

United States District Court
For the Northern District of California

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Dated: October 3 , 2011
SUSAN ILLSTON
United States District Judge

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