McGhee v. North American Bancard, LLC

Filing 44

ORDER granting 36 Defendant's Motion to Stay. Case stayed while the parties appeal to the Ninth Circuit is appropriate. The parties are ordered to file a short status report every 90 days on the status of the case and the appeal. Signed by Judge Anthony J. Battaglia on 2/6/2018. (acc)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

Gerald McGhee,

Case No.: 17-cv-0586-AJB-KSC

12

ORDER GRANTING DEFENDANT’S
MOTION TO STAY (Doc. No. 36)

Plaintiff,

13

v.

14

North American Bancard, LLC,

15

Defendant.

16
17

After the Court denied defendant North American Bancard’s motion to compel

18

mandatory arbitration, NAB appealed. (Doc. Nos. 28, 36.) NAB then filed this motion to

19

stay proceedings pending the Ninth Circuit’s ruling on that order. Because NAB would

20

irreparably lose the benefit of arbitration if forced to proceed with the case during appeal,

21

the Court GRANTS NAB’s motion.

22

I.

LEGAL STANDARDS

23

Courts have discretion in deciding whether a stay pending appeal should be granted.

24

Britton v. Co-op Banking Grp., 916 F.2d 1405, 1412 (9th Cir. 1990). Under Rule 62(c), a

25

Court must consider whether (1) there is a likelihood of success on the merits, (2)

26

irreparable injury to the moving party, (3) substantial injury to the non-moving party, and

27

(4) public interest. Golden Gate Rest. Ass’n v. City & Cnty. of S.F., 512 F.3d 1112, 1115

28

(9th Cir. 2008). The first two factors are the most critical. Nken v. Holder, 556 U.S. 418,
1
17-cv-0586-AJB-KSC

1

434 (2009). “In light of Nken, the Ninth Circuit clarified its treatment of the first two

2

factors, holding that the movant’s ‘burden with regard to irreparable harm is higher than it

3

is on the likelihood of success prong, as she must show that an irreparable injury is the

4

more probable or likely outcome.’” Cesca Therapeutics Inc. v. SynGen Inc., No. 2:14-cv-

5

2085-TLN-KJN, 2017 WL 1174062, at *2 (E.D. Cal. Mar. 30, 2017) (citing Leiva-Perez

6

v. Holder, 640 F.3d 962, 968 (9th Cir. 2011)). A party satisfying this lower threshold under

7

the first Nken factor “is not required to show that it is more likely than not to win on the

8

merits, but must then demonstrate that the balance of hardships under the second and third

9

factors tilts sharply in its favor.” Morse v Servicemaster Global Holdings, Inc., No. 10-

10

CV-0628-SI, 2013 WL 123610, at *2 (N.D. Cal. Jan. 8, 2013) (internal citations and

11

modifications omitted). A movant may show a substantial legal question exists instead of

12

arguing a possibility of success on the merits so long as “the final three factors strongly

13

weigh in favor of granting a stay.” Eberle v. Smith, No. 07-CV-0120 W(WMC), 2008 WL

14

238450, at * 2 (S.D. Cal. Jan. 29, 2008).

15

II.

DISCUSSION

16

NAB argues (1) its appeal presents serious legal questions, (2) it is likely to win on

17

the merits, (3) public interest favors staying proceedings, and (4) NAB will suffer

18

irreparable harm should the Court deny the stay.

19

A. Substantial Legal Question

20

NAB argues courts have held a party need now show probability of success on

21

appeal, but that a serious legal question exists. (Doc. No. 36-1 at 6.) To that point, NAB

22

states the Court’s July 21 2017 Order denying compelled arbitration deals with

23

“fundamental issues regarding the evolving law of the enforceability of electronic

24

agreements . . . .” (Doc. No. 36-1 at 6.) What is considered a serious legal question is

25

unclear. However, issues of first impression are considered serious legal questions within

26

the Ninth Circuit. Mohamed v. Uber Techs., et al, 115 F. Supp. 3d 1024, 1029 (N.D. Cal.

27

2015) (“[f]or a legal question to be ‘serious,’ it must be a ‘question going to the merits so

28

serious, substantial, difficult and doubtful, as to make the issues ripe for litigation and
2
17-cv-0586-AJB-KSC

1

deserving of more deliberate investigation.’” (quoting Walmer v. United States DOD, 52

2

F.3d 851, 854 (10th Cir. 1995))).

3

NAB argues the Ninth Circuit has not resolved the issue of whether users can be

4

compelled into arbitration agreements by clicking an “I accept” button on a website. NAB

5

cites to a Second Circuit opinion which recently held “such agreements are enforceable . .

6

. .” (Doc. No. 36-1 at 7.) NAB, therefore, asserts this is an important and novel area of law

7

and “that the Ninth Circuit be allowed to consider this critical issue before NAB is required

8

to litigate in this District Court.” (Id.)

9

In response, McGhee negates NAB’s characterization of the law and the facts.

10

McGhee points to the Court’s prior order stating Ninth Circuit authority acknowledges

11

NAB’s two-step process could fall within the parameters of a modified clickwrap

12

agreement. (Doc. Nos. 28 at 4; 39 at 5.) The Court’s prior order found there was no assent

13

to the terms containing the arbitration clause, finding “[i]t stretches credulity to assert that

14

the actual page that is linked to the application McGhee filled out does not govern that

15

application, but rather another page linked to the page that is linked to the application

16

does.” (Doc. No. 28 at 7.) But the Court’s holding turned on the fact that although the

17

service agreement McGhee agreed to was labeled “MERCHANT SERVICE

18

AGREEMENT,” and McGhee was not a potential merchant, he was still bound to those

19

terms and conditions—as opposed to the terms containing the arbitration agreement, which

20

was located on another hyperlinked page. (Id. 5–8.) Whether McGhee’s manifestation of

21

assent based on the conspicuousness of NAB’s distinction between the agreement intended

22

for McGhee over the agreement labeled for merchants is indeed an issue of first impression.

23

Accordingly, this factor weighs in favor of granting a stay. Because NAB argues that a

24

serious legal question exists, the next three factors must weigh sharply in NAB’s favor—

25

and the Court finds they do.

26

B. Defendant’s Harm

27

As to the balance of hardships, NAB argues the balance tips in their favor because

28

“permitting these proceedings to continue while NAB’s appeal is pending would deprive
3
17-cv-0586-AJB-KSC

1

NAB – perhaps permanently – of the efficient streamlined procedures the parties agreed to

2

when Plaintiff registered to use NAB’s PayAnywhere Service.” (Doc. No. 36-1 at 8.)

3

Additionally, NAB argues, McGhee will likely seek class certification, which the

4

arbitration provision waives, forcing more costly appeals. (Id.) McGhee criticizes NAB’s

5

use of financial hardships, yet there is ample case law supporting NAB’s position. Alascom,

6

Inc. v. ITT North Elec. Co., 727 F.2d 1419, 1422 (9th Cir. 1984) (“[W]here an order grants

7

a stay of arbitration, one party is deprived of the inexpensive and expeditious means by

8

which the parties had agreed to resolve their disputes. If that party must undergo the

9

expense and delay of a trial before being able to appeal, the advantages of arbitration—

10

speed and economy—are lost forever. We find this consequence serious, perhaps,

11

irreparable.”). Although NAB will have to incur some litigation costs eventually, NAB will

12

lose the benefit of its arbitration agreement. Thus, this factor weighs in favor of a stay.

13

C. Plaintiff’s Harm

14

NAB argues McGhee would not be harmed by a stay because his “right to litigate

15

the issues in his complaint will not disappear pending the stay.” (Doc. No. 36-1 at 27.)

16

McGhee counters that his age and the risk of losing evidence impose an undue hardship.

17

At “90 years old and in fragile health,” McGhee states a stay could permanently deprive

18

him of justice in this matter. NAB retorts that McGhee’s speculation that evidence may be

19

lost is vague and should be disregarded. The Court agrees. Without proof that there is some

20

evidence actually at risk of spoliation, the guess that some evidence may be lost at some

21

point down the line fails to tip the scale. Regarding McGhee’s age and health concerns,

22

McGhee did not cite any case law supporting his position that health and age are relevant

23

to the matter. A district court in Nevada found that plaintiff’s age (87) did not outweigh

24

prejudice to defendants of engaging in duplicative discovery. Shehan v. DePuy

25

Orthopaedics, Inc., No. 2:12-cv-01170-MMD-CWH, 2012 WL 3536690, at *3 (D. Nev.

26

Aug. 14, 2012). While the Court sympathizes with McGhee’s concerns about his age and

27

his health, it does not balance the hardship NAB would have if the stay were denied and

28

NAB would have to litigate a class action lawsuit to trial possibly before the Ninth Circuit
4
17-cv-0586-AJB-KSC

1

ruled arbitration was necessary. Such a decision would be extremely burdensome on NAB,

2

and could lead to inconsistent judgments, which would take more years and resources to

3

sort out. The Court finds this factor also weighs in favor of a stay.

4

D. Public Interest

5

NAB states that because the FAA requires courts to favor arbitration, the public’s interest

6

in judicial economy tips in favor of a stay. (Doc. No. 36-1 at 27.) McGhee replies that a

7

stay “‘will allow any harm to the putative class members to continue, and therefore may

8

materially affect the public interest in vindicating the rights of consumers.’” (Doc. No. 39

9

at 9, quoting Bradberry v. T-Mobile USA, Inc., No. C 06-6567 CW, 2007 WL 2221076, at

10

*5 (N.D. Cal. Aug. 2, 2007).) However, courts have rejected this very reasoning as being

11

circular in logic by presuming the rightfulness of its position. See Ward v. Estate of

12

Goossen, Case No. 14–cv–03510–THE, 2014 WL 7273911, at *5 (N.D. Cal. Dec. 22,

13

2014). Here, the public has a greater interest in the benefit of saving judicial resources

14

through arbitration than the possibility of future consumers being allegedly affected. Id.

15

(“the Court finds that ‘[t]he policy underlying the FAA is to promote judicial efficiency

16

and economy. Thus, contrary to public policy, judicial resources will be wasted if this case

17

proceeds all the way to trial, only for the Court to later discover that the case should have

18

proceeded through arbitration.’” (quoting Zaborowski v. MHN Gov. Services, Inc., No. C

19

12–05109 SI, 2013 WL 1832638, at *3 (N.D. Cal. May 1, 2013))). Thus, the Court finds

20

this factor also weighs in favor of a stay.

21

III.

22

CONCLUSION

The Court concludes that a stay of proceedings while the parties appeal to the

23

//

24

//

25

//

26

//

27

//

28

//
5
17-cv-0586-AJB-KSC

1

Ninth Circuit is appropriate. The parties are ordered to file a short status report every 90

2

days on the status of the case and the appeal.

3

IT IS SO ORDERED.

4

Dated: February 6, 2018

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
6
17-cv-0586-AJB-KSC