Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-04732/USCOURTS-cand-3_07-cv-04732-2/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1332 Diversity-Injunctive &amp; Declaratory Relief

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United States District Court

For the Northern District of California

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 Good cause being shown, the Court also GRANTS Defendants’ Motion For Leave To File An Overlength Reply

Brief (Docket No. 17), GRANTS Plaintiffs’ Request For Judicial Notice (Docket No. 35), and GRANTS Defendants’

Motion For Leave To File Statement Of Recent Decision (Docket No. 47). 

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DAVID J. LEE,

 Plaintiff,

 v.

CHASE MANHATTAN BANK,

Defendant. /

No. C07-04732 MJJ

ORDER GRANTING DEFENDANTS’

MOTION TO DISMISS

INTRODUCTION

Before the Court is Defendants’ Motion to Dismiss. (Docket No. 9.)

For the following reasons, the Court GRANTS the Motion and DISMISSES this matter in

its entirety.1

FACTUAL BACKGROUND

Plaintiffs David J. Lee and Daniel R. Lloyd are Chase credit card holders. The Complaint, a

putative class action, alleges that the card-member agreements governing the Chase credit cards that

Plaintiffs obtained contain unconscionable provisions, including unconscionable arbitration

provisions, in violation of California’s unfair competition laws and Consumers Legal Remedies Act

(“CLRA”). Plaintiffs also allege that Defendants engaged in fraud by misrepresenting the nature of

the challenged provisions, and thereby fraudulently induced plaintiffs to enter into the card

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agreements. 

In their first through fourth, sixth, ninth and tenth causes of action, Plaintiffs contend that

Chase violates California’s unfair competition laws by including unconscionable and illegal terms in

the card agreement, including but not limited to the arbitration clause. (Complaint ¶¶ 55, 60, 63, 65,

73, 85 and 87.) In their fifth and eighth causes of action, Plaintiffs contend that Chase violates the

CLRA by including unconscionable and illegal terms in the card agreement, including but not

limited to the arbitration clause. (Complaint ¶¶ 71, 82.) In their seventh cause of action, Plaintiffs

contend that Chase engaged in fraud by misrepresenting to Plaintiffs that the terms contained in the

card member agreement (excluding its arbitration provision) and the card member agreement itself

were conscionable, legal, and enforceable. (Complaint ¶ 76.) In their eleventh cause of action,

Plaintiffs seek declaratory judgment that the arbitration provision, specified terms of the card

agreement and or the card agreement itself are unconscionable, illegal and unenforceable. 

(Complaint ¶ 91.) Plaintiffs seek injunctive relief, restitution, punitive damages, declaratory

judgment, and attorneys’ fees and costs.

LEGAL STANDARD

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal

sufficiency of a claim. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Because the focus of a

Rule 12(b)(6) motion is on the legal sufficiency, rather than the substantive merits of a claim, the

Court ordinarily limits its review to the face of the complaint. See Van Buskirk v. Cable News

Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). In considering a Rule 12(b)(6) motion, the Court

accepts the plaintiff’s material allegations in the complaint as true and construes them in the light

most favorable to the plaintiff. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). 

Generally, dismissal is proper only when the plaintiff has failed to assert a cognizable legal theory or

failed to allege sufficient facts under a cognizable legal theory. See SmileCare Dental Group v.

Delta Dental Plan of Cal., Inc., 88 F.3d 780, 782 (9th Cir. 1996); Balisteri v. Pacifica Police Dep’t,

901 F.2d 696, 699 (9th Cir. 1988); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th

Cir. 1984). In pleading sufficient facts, however, a plaintiff must suggest his or her right to relief is

more than merely conceivable, but plausible on its face. See Bell Atlantic Corp. v. Twombly, 127

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S.Ct. 1955, 1974 (2007).

ANALYSIS

Though Defendants raise several grounds for dismissal of Plaintiffs’ Complaint, their

threshold challenge that Plaintiffs lack Article III standing provides a sufficient basis to dismiss the

entire Complaint. The Court therefore does not reach the other grounds for dismissal asserted by

Defendants.

“Injury in fact” is part of the irreducible minimum of the “case and controversy requirement

of Article III.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). An “injury in fact” must

be “concrete and particularized” as well as “actual or imminent.” Id. A generalized, hypothetical or

conjectural injury is insufficient to establish Article III standing. See id. As the party invoking

federal jurisdiction, Plaintiffs bear the burden of demonstrating an injury in fact. See id. at 561.

Plaintiffs are unable to point to any injury that they have suffered, or will imminently suffer,

that constitutes an “injury in fact” for Article III standing purposes here. All of Plaintiffs’ claims

rely on the assertion that Chase inserted clauses into the card agreement – whether the mandatory

arbitration clause or other terms in the agreement – that are unconscionable, and therefore

unenforceable and illegal. But to establish injury in fact in this case, Plaintiffs must do more than

allege that the provisions are unconscionable – they must show that insertion of these provisions has

caused or will cause them concrete harm. Plaintiffs are unable to do so.

Plaintiffs’ primary argument in support of standing is their contention that Plaintiffs

allegedly “want” to enforce the arbitration provision against Chase to resolve a present dispute, but

supposedly cannot do so. (Opp. at 2-3.) In their original opposition, Plaintiffs identified this present

dispute as their fraud claim against Chase “arising from Defendants’ inclusion of unconscionable,

illegal, and unenforceable terms in the cardmember agreement (excluding the arbitration

provision).” (Opp. at 2:14-3:2.) In two supplemental (and unauthorized) briefs, Plaintiffs expanded

the universe of disputes they allegedly want to arbitrate to include “the fraud claim and claim that

certain non-arbitration provision terms of the customer agreement are unconscionable and violate the

UCL and CLRA.” (Docket No. 32 at 3:1-3; see also Docket No. 34 at 3:3-7.) At oral argument,

Plaintiffs shifted position yet again, contending that the dispute they want to arbitrate is instead a

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 This version of a fraud claim – one based on misrepresentations concerning the enforceability of the arbitration

agreement itself – is not pleaded in the sole fraud count in Plaintiffs’ Complaint. (Complaint ¶¶ 75-79.) However, Plaintiffs

would lack standing to assert such a fraud claim to the same degree as their other alleged disputes with Chase.

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fraud claim based on the allegation that “they misrepresented that they were providing the card

members such as Mr. Lee with a valid, viable arbitration agreement, that they could arbitrate their

claims.” (Docket No. 46 at 4:5-7; see also id. at 3:20-4:2.)2

 

None of these purported disputes suffice to demonstrate a real or imminent injury, because

Plaintiffs have taken no steps to actually attempt to arbitrate the disputes. Plaintiffs nowhere allege

that they have attempted to arbitrate a dispute with Chase and were thwarted. Instead, Plaintiffs’

alleged injury is a hypothetical injury based on conjecture about what might happen if, at some point

in the future, Plaintiffs attempted to arbitrate their disputes but were unable to do so. Since Plaintiffs

profess to want to arbitrate their disputes with Chase, their purported injury rests on the assumption

that, if Plaintiffs were to request arbitration, either defendants would insist on courtroom litigation or

the arbitrator would sua sponte refuse to arbitrate even if both sides agreed to arbitrate the dispute in

question. Plaintiffs theory of injury thus rests on a series of hypothetical assumptions about what

may or may not transpire. As two sister courts have already determined in dismissing nearly

identical lawsuits brought by the same Plaintiffs and counsel against different credit card companies,

such a conjectural theory of injury makes it “impossible to conclude that plaintiffs have described an

injury that is ‘imminent’ within the meaning of Lujan.” Lee v. American Express Travel Related

Services, 2007 WL 4287557 at *3 (N.D. Cal. Dec. 6, 2007) (“American Express”) (Breyer, J.); Lee

v. Capital One Bank, 2008 WL 648177 at *3 (N.D. Cal. March 5, 2008) (Patel, J.).

As support for their theory of injury, Plaintiffs cite Lozano v. AT&T Wireless Services, Inc.,

504 F.3d 718 (9th Cir. 2007). Lozano, however, does not support Plaintiffs. As Judge Breyer

cogently explained in his American Express order dismissing a nearly identical suit, the Lozano

decision in fact demonstrates that Plaintiffs lack standing because “a court may not presume

damages based on the mere insertion of an unconscionable clause in a contract.” Lee, 2007 WL

4287557 at *4 (quoting Lozano, 504 F.3d at 731.) This Court agrees with Judge Breyer’s analysis of

the Lozano decision, and finds that Lozano does nothing to aid Plaintiffs’ contention that they have

standing.

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 This assumption seems unwarranted. The reasons that Plaintiffs allege the arbitration clause is unenforceable –

for example, because it was contained in a contract of adhesion, and because it contains prohibitions upon class actions and

injunctive relief that are against public policy – would not necessarily render the basic agreement to arbitrate unenforceable

by Plaintiffs if they attempted to invoke it against Chase. Nonetheless, for purposes of this Motion, the Court need not

resolve whether Plaintiffs could enforce the arbitration clause against Chase if Chase resisted arbitration.

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Plaintiffs argue that they need not actually seek to arbitrate any of their purported disputes

with Chase to obtain standing because the allegedly unconscionable arbitration clause is illegal and

unenforceable under California law. Accordingly, Plaintiffs contend, even seeking to arbitrate their

disputes with Chase “would be against public policy and would otherwise be an illegal act”, and

furthermore would be “futile [and] a waste of time and money.” (Complaint ¶ 43.) The Court

disagrees. Plaintiffs’ argument conflates the act of requesting arbitration with the act seeking a

court’s assistance to compel arbitration should Defendants resist. Even assuming arguendo that

Plaintiffs are correct that a court would reject an effort by Plaintiffs to compel arbitration using the 

agreement’s arbitration clause,3

 nothing makes it illegal or against public policy for Plaintiffs to

make an initial request that Chase arbitrate the disputes that Plaintiffs have identified. Should Chase

agree to arbitrate, Plaintiffs would not have suffered any injury-in-fact within the meaning of Lujan

because they would be able to arbitrate the disputes. Plaintiffs hypothetically assume that Chase

would not agree to arbitrate the disputes, but this Court cannot embrace this assumption for standing

purposes. In short, the Court finds that it is inaccurate for Plaintiffs to contend, as they do, that they

“cannot request arbitration of those normally arbitrable claims” (Docket No. 32 at 7:6-7), and further

finds that it is conjectural for Plaintiffs to conclude that they are“unable to arbitrate what would

otherwise be arbitrable claims.” (Id. at 3:2-3.)

Plaintiffs also contend that they cannot be required to attempt arbitration before acquiring

standing because Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) and Nagrampa v.

Mailcoups, Inc., 469 F.3d 1257, 1263 (9th Cir. 2006) (en banc) have purportedly established that at

least of some of the disputes between Plaintiffs and Chase fall outside the scope of any arbitrator’s

jurisdiction, and must be resolved in federal court. (Docket No. 32 at 7; Docket No. 34 at 10-13.) In

particular, Plaintiffs contend that at least some of their disputes with Chase, including their first

through sixth causes of action contending that Chase’s inclusion of an unconscionable arbitration

provision constitutes a violation of the CLRA and UCL, cannot be adjudicated in an arbitration as a

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 See also Docket No. 34 at 5:10-11 (Plaintiffs’ supplemental brief contending that Buckeye and Nagrampa “mandate

that Plaintiffs’ claims be decided by a court rather than an arbitrator”); January 29, 2008 Hearing Transcript, Docket No. 46

at 7:3-7 (Plaintiffs’ counsel: “My understanding of Nagrampa says, if the fight’s over, the arbitration clause, whether or not

it’s conscionable or not conscionable, or enforceable or not enforceable, the District Court is the only - - only outlet for one

to litigate that. Not the Arbitrator.”).

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 The Supreme Court has explained that this gateway question – often referred to as the “question of arbitrability”

– is an issue of “limited scope” which a court will itself resolve in the “narrow circumstance where contracting parties would

likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had

agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk

of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.” Howsam v. Dean Witter Reynolds,

Inc., 537 U.S. 79, 83-84 (2002).

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 A party that voluntarily submits an issue, including the threshold question of arbitrability, to an arbitrator cannot

later challenge the authority of that arbitrator to decide the issue. See Poweragent Inc. v. Electronic Data Systems Corp.,

358 F.3d 1187, 1191-93 (9th Cir. 2004).

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matter of law under Buckeye and Nagrampa. Plaintiffs thus argue that they “filed in a judicial rather

than arbitral forum because they were required to do so.” (Docket No. 32 at 7:13-14.)4

 

Plaintiffs misread Buckeye and Nagrampa. Contrary to Plaintiffs’ characterization, neither

Buckeye nor Nagrampa considered the scope of an arbitrator’s jurisdiction to resolve a particular

issue if both parties submit that issue to the arbitrator. Instead, both decisions concerned which

neutral – judge or arbitrator – gets to decide the gateway question of whether a dispute will be

arbitrated, when parties bring that gateway dispute to a court under the provisions of the Federal

Arbitration Act, 9 U.S.C.. § 1 et seq.

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 Here, no such gateway dispute has arisen because Plaintiffs

have made no attempt to arbitrate, and thus there is as of yet no live controversy between the parties

as to whether their disputes should be arbitrated or resolved in court. The decisional rules

articulated in Buckeye and Nagrampa are simply not yet implicated by the current posture of

Plaintiffs’ alleged disputes with Chase. 

Were Plaintiffs to seek to arbitrate their alleged disputes with Chase, and were Chase to

agree to such arbitration, neither Buckeye nor Nagrampa would preclude the arbitrator from hearing

and resolving such claims, including any subsidiary issues regarding the enforceability of the

arbitration clause.6 Plaintiffs’ contention otherwise appears to be based on two statements in

Nagrampa that Plaintiffs have given too broad a reach by taking them out of context. In particular,

Plaintiffs point out (correctly) that some of their causes of action against Chase would depend on

proving that the arbitration clause is unenforceable. Accordingly, Plaintiffs argue that the “crux” of

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such causes of action is the invalidity of the arbitration provision itself. Plaintiffs then quote the

following two passages from Nagrampa:

When the crux of the complaint is not the invalidity of the contract as

a whole, but rather the arbitration provision itself, then the federal

courts must decide whether the arbitration provision is invalid and

unenforceable under 9 U.S.C. § 2 of the FAA.

469 F.3d at 1264. 

Nagrampa’s fifth and sixth causes of action are directed specifically to

the arbitration provision, placing these challenges squarely within the

category of claims that must be decided by a federal court.

Id. at 1277.

The Court disagrees that either statement, when read in context, bars an arbitrator from

adjudicating Plaintiffs’ causes of action merely because they depend, in part, on proving the

arbitration clause is unenforceable. Both statements were made in Nagrampa in the context of

defining when a federal court is obligated to itself resolve, under the Federal Arbitration Act, the

gateway question (where disputed) of whether an underlying dispute must be arbitrated. Neither

statement in Nagrampa stands for the far broader proposition that Plaintiffs ascribe to them, namely,

that an arbitrator would be without jurisdiction, even with the parties’ consent, to resolve a

substantive claim, merely because the “crux” of the claim concerns an injury allegedly caused by an

unenforceable arbitration provision.

In a final bid to rescue their lawsuit, Plaintiffs contend that the mere fact that they have

pleaded a violation of their rights under California Civil Code Sections 1670.5 and 1770a(19) to not

have unconscionable terms inserted in their credit card agreements confers Article III standing. The

Court disagrees. Plaintiffs’ allegations fail to allege any actual or imminent harm resulting from

such statutory violations. To be sure, “state law can create interests that support standing in federal

courts.” Cantrell v. City of Long Beach, 241 F.3d 674, 684 (9th Cir. 2001). However, the mere

allegation of a violation of a California statutory right, without more, does not confer Article III

standing. A plaintiff invoking federal jurisdiction must also allege some actual or imminent injury

resulting from the violation, which Plaintiffs here have failed to do. See Lujan, 504 U.S. at 560-61

(“the injury must affect the plaintiff in a personal and individual way”). Because Plaintiffs have not

alleged facts demonstrating that they were personally harmed by any of defendants’ alleged statutory

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violations, they have not pleaded any “injury in fact.” 

CONCLUSION

For the foregoing reasons, the Court GRANTS the Motion and DISMISSES this matter in

its entirety for lack of Article III standing. The Clerk is DIRECTED to close this matter.

IT IS SO ORDERED.

Dated: March 14, 2008 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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