Today’s “Highlights” is shorter than usual, as things have been quiet over the last couple of days.
Herrera v. Wells Fargo Bank, N.A., 2020 U.S. Dist. LEXIS 186448 (C.D. Cal.) (Sept. 8, 2020), an earlier decision that was just posted to LEXIS, compels arbitration of claims in a class action seeking the refund of certain auto finance fees. The holding hinges on the distinction between a “public injunction” and a private recovery. When the six plaintiffs financed motor vehicles from various dealerships, they purchased GAP coverage, which would pay the difference between the remaining balance on their loan and the motor vehicle’s value, if the car was declared a total loss in an accident. Those retail installment contracts were sold to Wells. Plaintiffs alleged that, when they prepaid their loans, Wells failed to credit them with unearned premiums on the GAP insurance; they sought refunds of those allegedly unearned amounts. The GAP agreement provided for arbitration and waived any class proceedings.
California law, which applies to the proceedings, holds that an arbitration agreement is void if it purports to waive a plaintiff’s right to seek an injunction against “conduct that is injurious to the general public,” McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017). The Ninth Circuit has applied this voiding principle to arbitration agreements which would have the effect of waiving the right to obtain a public injunction under California’s Unfair Competition Law and Consumer Legal Remedies Act, the statutes upon which the Herrera plaintiffs relied, Blair v. Rent-A-Center, Inc., 928 F.3d 819 (9th Cir. 2019). Plaintiffs here argued that their claims fell within that exception to mandatory arbitration. Judge Selna rejects that argument, holding that, although there may be a general public interest in the result of the case, any benefit inures only to the plaintiffs and their purported class of consumers, not to the public-at-large.
Kohn Law Group, Inc. v. Jacobs, 2020 U.S. App. LEXIS 31948 (9th Cir.) (Oct. 8, 2020) reminds of us the high bar for vacating an award based upon a claim that the arbitrator disregarded the law. The Court, in a non-precedential affirming of the District Court, opines that, in order to demonstrate manifest disregard, the challenging party must show that the arbitrator both understood and correctly stated the law, but, then, despite that knowledge of the law, proceeded to disregard it.
Enforcement of arbitration by an assignee
In Beavers v. Uhg, LLC, 2020 U.S. Dist. LEXIS 186894 (N.D. Ohio) (Oct. 8, 2020), Judge Gwin holds that an arbitration clause contained in a “Credit Service Agreement” does not require that the Plaintiff arbitrate with the assignee of the original creditor. The loan agreement mandated arbitration of legal claims “you and we have against each other. . . “ It defined those terms as follows: “the words ‘you’ and ‘your’ mean the borrower who has signed it. The words ‘we’ and “our’ mean NCP Finance Ohio, LLC the Lender. . . “ Relying on this language, the Court holds that the Plaintiff need not arbitrate claims against an assignee of NCP or against various collection agencies, as they are not NCP Finance Ohio, LLC itself. Judge Gwin holds that this definition trumps a provision elsewhere in the contract providing that “This Arbitration Provision is binding upon and benefits us, our successors and assigns, and related third parties.” (Emphasis added) The court reasons that “this [latter] language does not change the definitions referenced above.” While it seems clear that there is no contractual obligation to arbitrate claims against the collection agencies, does the holding not to require arbitration against a direct assignee of the original creditor give adequate weight to the proposition that a contract should be interpreted so as to give effect to all its provisions?
The importance of determining applicable state law
Dellarocca v. Atlantic Credit & Finance, Inc., 2020 U.S. Dist. LEXIS 185472 (E.D.N.Y.) (Sept. 28, 2020) reiterates the importance of the choice of law, here in the context of determining whether a third-party may enforce an arbitration provision. In arguing against arbitration, the Plaintiff relied upon other Eastern District authority, Wojcik v. Midland Credit Management, Inc., 2019 U.S. Dist. LEXIS 126769 (E.D.N.Y.) (July 30, 2019). Chief Judge Mauskopf distinguishes that precedent on the basis that Wojcik was governed by Utah law, while the case before her falls under Nevada and federal substantive law, mandating a different result.
FINRA has announced that it is administratively continuing all in-person hearings scheduled before January 1, 2021. Parties can agree to have the hearing virtually until then.
Federal Courts are off on Monday – so, I am, too. See you Wednesday.