Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_18-cv-05401/USCOURTS-cand-3_18-cv-05401-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 15:1692 Fair Debt Collection Act

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DARRIN NGO,

Plaintiff,

v.

PMGI FINANCIAL, LLC, et al.,

Defendants.

Case No. 18-cv-05401-JCS 

ORDER REGARDING MOTION TO 

COMPEL ARBITRATION

Re: Dkt. No. 10

I. INTRODUCTION

Defendants PMGI Financial, LLC (“PMGI”) and Law Offices of Kenosian & Miele, LLP 

(“Kenosian”) move to compel arbitration of Plaintiff Darrin Ngo’s claims under the Fair Debt 

Collection Practices Act and similar laws, and to dismiss this action or stay it pending arbitration. 

The Court held a hearing on November 16, 2018 and requested supplemental evidence and 

briefing, which the parties have since filed. For the reasons discussed below, the motion is

GRANTED and the case is STAYED.

1

II. BACKGROUND

A. Factual Record and Claims Asserted

Ngo states in his declaration that he took out a loan from LoanMe, Inc. in 2015, a time 

when he was “in dire straits” and knew he “had no way of negotiating any of the terms associated 

with the loan and would have to agree to whatever LoanMe demanded.” Ngo Decl. (dkt. 19-1) 

¶ 4. Ngo does “not remember signing, electronically or otherwise, any agreement to arbitrate,” 

and states that he would not have done so. Id. ¶ 5

Defendants contend that Ngo electronically signed a loan agreement containing an 

 

1 The parties have consented to the jurisdiction of the undersigned magistrate judge for all 

purposes pursuant to 28 U.S.C. § 636(c).

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arbitration provision, which appears in the record as Exhibit A to the first declaration of Cesar 

Guzman (dkt. 20-1), a vice president and custodian of records of LoanMe, and is also attached to 

other witnesses’ declarations. See Eliason Decl. (dkt. 10-1) Ex. 1; Ross Decl. (dkt. 10-2) Ex. 1. 

The agreement, which is six pages long, purports to require the parties to arbitrate all disputes 

directly or indirectly related to it. Guzman Decl. Ex. A at 3. Checkmarks purport to indicate 

Ngo’s assent to the agreement and its arbitration provision. Id. at 5, 6. Guzman states in his 

declaration that the agreement “is executed by a Borrower pursuant to and in conformity with the 

Electronic Signatures in Global and National Commerce Act,” and that Ngo “entered into a 

written loan agreement with LoanMe pursuant to the [sic] Ngo’s execution of” the loan agreement. 

Guzman Decl. ¶¶ 2–3 (capitalization altered).

In a supplemental declaration filed after the hearing, Guzman states that “prior to

[LoanMe] lending any money, all LoanMe borrowers or potential borrowers are provided with a 

unique user identification and temporary password to access LoanMe’s secure web portal,” and 

must use “a secure web browser, an accurate email address and . . . their banking routing number 

and account number,” as well as login information for their banking institution, to obtain a loan. 

Guzman Supp’l Decl. (dkt. 37) ¶ 2 (capitalization altered). LoanMe also records telephone calls 

with applicants and borrowers. Id. According to Guzman, Ngo provided his personal information 

to LoanMe via telephone on February 23, 2015, and received a username and password to access 

his application page on LoanMe’s internet portal. Id. ¶ 4. Ngo provided his banking information 

through the portal, and LoanMe’s systems verified that information. Id. A few days later, Ngo 

spoke to a LoanMe representative by telephone who told him that LoanMe had conditionally 

approved his application, pending his acceptance of the terms of the loan agreement. Id. ¶ 5. 

“Thereafter on February 26, 2015, Ngo accessed the LoanMe web portal (with his unique 

username and password) and accessed the Note in its entirety (as one long document).” Id. ¶ 6. 

Guzman states that Ngo “entered into a written loan agreement” by “manually check[ing] each of 

the four boxes within the electronic version of the” agreement, including a box indicating that Ngo 

had read and understood the arbitration provision. Id. ¶¶ 6–7.

According to Guzman, Ngo failed to make payments on the loan, and LoanMe sold Ngo’s 

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debt to Sunlan Corporation. Guzman Decl. ¶ 4; see also Ross Decl. ¶ 3 & Ex. 2. Sunlan later sold 

the debt to Defendant PMGI. Ross Decl. ¶ 5; Eliason Decl. ¶¶ 3–5 & Ex. 2.

PMGI, through its counsel Defendant Kenosian, brought a limited civil action against Ngo 

for breach of contract in the California Superior Court for the County of San Francisco in August 

of 2016, and attempted service on Ngo at the headquarters of Ngo’s employer in Cupertino, 

California. See Defs.’ Req. for Judicial Notice (“RJN,” dkt. 11) Ex. 2 (complaint); id. Ex. 3 (proof 

of service). When Ngo did not appear in that action, Defendants sought and obtained default 

judgment against him. Id. Exs. 4–7. Ngo first learned of the action and judgment against him 

when Defendants garnished his wages in 2017. Ngo Decl. ¶ 8. Ngo successfully vacated the 

default judgment against him for lack of actual notice and the state action remains pending. Id.

¶ 10; RJN Exs. 7, 9.

Ngo brought this action alleging that Defendants violated the federal Fair Debt Collection 

Practices Act, California’s Rosenthal Fair Debt Collection Practices Act, and California’s Fair 

Debt Buying Practices Act by, among other alleged wrongs, obtaining default judgment against 

him, garnishing his wages, delaying returning the garnished wages (including by backdating 

documents) after the judgment was vacated, failing to return the full amount garnished, and 

wrongfully accusing Ngo of identity theft. See generally Compl. (dkt. 1).

B. The Parties’ Arguments

Defendants argue in their motion that Ngo is required to arbitrate his claims because he 

validly agreed to the arbitration provision of the loan agreement through an electronic signature. 

Mot. (dkt. 10) at 7. Defendants contend—and Ngo does not dispute—that Defendant PMGI can 

assert LoanMe’s rights under the agreement as an assignee, that Defendant Kenosian can also 

assert those rights as an agent of PMGI, and that the claims at issue fall within the scope of the 

arbitration provision. Id. at 7–9; see generally Opp’n (dkt. 19) (raising no dispute as to these 

issues). Defendants also argue that they did not waive their right to demand arbitration of these 

claims by filing a civil action to collect the purportedly unpaid debt, because the arbitration 

agreement allows the parties to pursue claims before small claims tribunals, and because the 

elements of the test for waiver are not satisfied. Id. at 9. Finally, Defendants request in the 

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alternative, without significant analysis, that the Court dismiss Ngo’s claims under the abstention 

doctrines of Younger v. Harris, 401 U.S. 37 (1971) and Colorado River Water Conservation 

District v. United States, 424 U.S. 800 (1976). Mot. at 10.2

Ngo argues in his opposition brief that Defendants waived their right to compel arbitration 

by filing a civil action for breach of contract. Opp’n (dkt. 19) at 5–7. He contends that the small 

claims exception in the agreement does not apply because Defendant brought a limited civil 

action, not a small claims action. Id. at 5. Ngo also argues that the applicable test for waiver is 

satisfied because Defendants had knowledge of the arbitration provision and acted inconsistently 

with their right to arbitrate by instead filing (and still continuing to prosecute) a judicial action, 

and that Ngo would be prejudiced if Defendants are allowed to their own claims in court while 

compelling Ngo to arbitrate his claims against them. Id. at 6–7. Ngo further contends that 

Defendants have not met their burden to show that he in fact signed the agreement—contrary to 

Ngo’s own declaration that he does not remember signing an arbitration agreement—because 

Defendants have not presented evidence addressing how they purportedly obtained or verified 

Ngo’s signature. Id. at 7–10. Finally, Ngo argues that the agreement is unconscionable, both 

procedurally because the arbitration agreement was contained within a six-page contract of 

adhesion offered when Ngo was desperate for a loan, and substantively because, according to Ngo, 

it is not clear that arbitration provision requires the lender to waive the same rights as the 

borrower. Id. at 11–15.

In their reply, Defendants contend that the loan agreement was a valid contract and that an 

electronic signature is valid under California and federal law. Reply (dkt. 20) at 4–5. Defendants 

argue that Ngo admits he applied for a loan, and cannot escape his obligations on the basis that he 

failed to read the contract. Id. at 5–6. Defendants’ reply does not meaningfully address the 

question of what if any evidence in the record shows that, in obtaining the loan, Ngo was 

presented with and indicated his assent to the terms of the loan agreement and in its arbitration

provision. See id. Defendants argue that the agreement is not unconscionable and that the terms 

 

2 Neither Ngo’s opposition nor Defendants’ reply addresses the issue of abstention.

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of the arbitration provision are reciprocal. Id. at 6–9. With respect to waiver, Defendants contend 

that their limited civil action is “consistent with the letter and spirit of the Arbitration Provision,” 

and further argue that there has been no waiver because “the arbitrable claims have not been 

litigated”3and Ngo has not shown prejudice. Id. at 9–10.

The Court invited Ngo to file a supplemental brief in response to Guzman’s supplemental 

declaration. Ngo argues that, under California contract law, Defendants have not established that 

Ngo checked the boxes indicating his consent to the terms of the loan agreement because the 

supplemental declaration does not address what security measures LoanMe took to ensure that no 

one other than Ngo could have used LoanMe’s online portal to check the boxes. Supp’l Br. (dkt. 

39) at 2–4. Defendants also argue that section 1281.2 of the California Code of Civil Procedure

requires the Court, rather than an arbitrator, to determine whether a party has waived its right to 

compel arbitration. Id. at 1–2.

III. ANALYSIS

A. Legal Standards

Under the Federal Arbitration Act (“FAA”), “[a] written provision in . . . a contract 

evidencing a transaction involving commerce to settle by arbitration a controversy thereafter 

arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save 

upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 

Because arbitration is a matter of contract, the question of arbitrability is, in principle, an issue for 

judicial determination. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002). The 

court’s role in addressing a question of arbitrability is “limited to determining (1) whether a valid 

agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at 

issue.” Chiron Corp. v. Ortho Diagnostic Sys. Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If the 

court finds that both of these requirements are met, the FAA requires it to enforce the provision in 

accordance with its terms. Id.

 

3

In making this assertion with little explanation, it is not clear whether Defendants believe that the 

claims at issue in the state court action are not arbitrable, that they have not actually been litigated, 

that they are not the same claims at issue here, or some combination of those possibilities.

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The FAA “was created to counter prevalent judicial refusal to enforce arbitration 

agreements . . . and has been interpreted to embody ‘a liberal federal policy favoring arbitration.’”

Mortenson v. Bresnan Commc’ns, LLC, 722 F.3d 1151, 1157 (9th Cir. 2013) (quoting Moses H. 

Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), and citing AT&T Mobility 

LLC v. Concepcion, 563 U.S. 333, 339 (2011)). Thus, the Supreme Court has held that “any 

doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether 

the problem at hand is the construction of the contract language itself or an allegation of waiver, 

delay, or a like defense to arbitrability.” Moses H. Cone, 460 U.S. at 24–25. Nonetheless, 

“[a]rbitration is strictly a matter of consent and thus is a way to resolve those disputes—but only 

those disputes—that the parties have agreed to submit to arbitration.” Granite Rock Co. v. Int’l 

Bhd. of Teamsters, 561 U.S. 287, 299 (2010) (internal quotation marks omitted). Consequently, 

courts may apply the “presumption favoring arbitration . . . only where it reflects, and derives its 

legitimacy from, a judicial conclusion that arbitration of a particular dispute is what the parties 

intended because their express agreement to arbitrate was validly formed and . . . is legally 

enforceable and best construed to encompass the dispute.” Id. at 303. Even where such a 

presumption arises, arbitration should be ordered only if the presumption is not rebutted. Id. at 

301. Where the presumption applies, courts “compel arbitration ‘unless it may be said with 

positive assurance that the arbitration clause is not susceptible of an interpretation that covers the 

asserted dispute.’” Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 746 (9th Cir. 2014)

(quoting AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986) (internal 

quotation marks and citation omitted)). 

The Supreme Court in Granite Rock explained that the presumption in favor of arbitration 

“is merely an acknowledgment of the FAA’s commitment to ‘overrule the judiciary’s 

longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the 

same footing as other contracts.’” 561 U.S. at 299 (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of 

Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989)). The Supreme Court acknowledged that 

it has “never held that this policy overrides the principle that a court may submit to arbitration 

‘only those disputes . . . that the parties have agreed to submit.’ . . . Nor [has the Court] held that 

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courts may use policy considerations as a substitute for party agreement.” Id. (quoting First 

Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995)). 

Where the parties “clearly and unmistakably” indicate their intent to do so, an agreement 

may delegate “threshold issues” of arbitrability, including the “enforceability, revocability or 

validity” of an arbitration clause, to the arbitrator rather than to a court. See Mohamed v. Uber 

Techs., Inc., 848 F.3d 1201, 1208–09 (9th Cir. 2016) (citations omitted).

As a general rule, courts apply state contract law in determining the validity and scope of 

an arbitration agreement. Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998). 

Thus, in determining whether there is a valid agreement to arbitrate, “courts must ‘apply ordinary 

state-law principles that govern the formation of contracts.’” Id. (quoting First Options, 514 U.S. 

at 944). The parties do not dispute that California law governs the loan agreement at issue. See

Guzman Decl. Ex. A at 3; Opp’n at 4; Reply at 3. The Court therefore looks to California law in 

addressing whether a valid agreement to arbitrate exists between Ngo and Defendants and 

(assuming it does) whether Ngo’s claims fall within the scope of that agreement.

B. Defendants Have Shown That Ngo Agreed to the Terms of the Loan Agreement

The party seeking to compel arbitration must prove the existence of an agreement to 

arbitrate by the preponderance of the evidence. Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 

394, 413 (1996). A contract is not rendered invalid by the contract itself or any party’s signature 

to it taking electronic form. 15 U.S.C. § 7001(a). A “symbol”—such as, here, a checkmark—may 

constitute an electronic signature. See id. § 7006(5) (defining the term “electronic signature” to 

include “an electronic sound, symbol, or process, attached to or logically associated with a 

contract or other record and executed or adopted by a person with the intent to sign the record”). 

Under California law, an “electronic signature is attributable to a person if it was the act of the 

person. The act of the person may be shown in any manner, including a showing of the efficacy of 

any security procedure applied to determine the person to which the electronic record or electronic 

signature was attributable.” Cal. Civ. Code § 1633.9(a); see Opp’n at 7 (invoking this standard); 

Reply at 4 (same). Ngo argues that Defendants have not met their burden to show that any mark 

on the loan agreement is attributable to Ngo as an “act of” Ngo.

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In Ruiz v. Moss Bros. Auto Group, a California appellate court affirmed a trial court’s 

implicit conclusion that the defendant Moss Bros. “did not present sufficient evidence to support a 

finding that [the plaintiff, Ernesto] Ruiz electronically signed” the purported arbitration agreement 

at issue, referenced in that decision as the “2011 agreement.” Ruiz v. Moss Bros. Auto Grp., 232 

Cal. App. 4th 836, 838 (2014). The 2011 agreement consisted of just over two pages, “and the 

phrases ‘Ernesto Zamora Ruiz (Electronic Signature)’ and ‘9/21/2011 11:47:27 AM’ appear in 

print on the third page, under the signature and date lines.” Id. at 840. Moss Bros.’ business 

manager “summarily asserted that Ruiz ‘electronically signed’ the 2011 agreement ‘on or about 

September 21, 2011,’ and that the same agreement was presented to ‘all persons who seek or seek 

to maintain employment’ with Moss Bros.,” but did not explain how such signatures were verified. 

Id. at 839. Ruiz stated in a declaration that “he did not recall signing any arbitration agreement on 

September 21, 2011, or at any other time, and if he had been presented with an agreement that 

limited his ability to sue Moss Bros. he would not have signed it,” although he left open the 

possibility that he might have signed a different arbitration agreement among stacks of paperwork 

and electronic forms that he signed when he was hired about a year and a half earlier. Id. at 840. 

In response, Moss Bros. submitted a second declaration of its business manager stating that, as 

part of an update to Moss Bros.’ employee handbook, all employees were required to log into an 

electronic human resources system and agree to the 2011 agreement. Id. at 840–41. The court 

held that testimony to be insufficient because it did not explain “how she ascertained that the 

electronic signature on the 2011 agreement was ‘the act of’ Ruiz,” and failed to address such 

questions as whether some other employee could have written Ruiz’s name, and whether the date 

and time next to the purported electronic signature automatically recorded the actual date and time 

of signing. Id. at 843–44 (quoting Cal. Civ. Code § 1633.9(a)).

Unlike in Ruiz, where the plaintiff might well have taken no action whatsoever at the time 

the arbitration agreement was purportedly signed in his name, there is no question here that Ngo 

reached some sort of agreement with LoanMe at the time that he purportedly signed the loan 

agreement, because Ngo himself states that he “took out a loan from a company called LoanMe in 

2015.” Ngo Decl. ¶ 4. Ngo also concedes that the loan was governed by terms, stating that 

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because he “was in dire straits at the time,” he believed that he “had no way of negotiating any of 

the terms associated with the loan and would have to agree to whatever LoanMe demanded.” Id. 

Nevertheless, Ngo states that he “do[es] not remember signing, electronically or otherwise, any 

agreement to arbitrate,” and would not have done so. Id. ¶¶ 5–6.

The loan agreement identifies “DARRIN NGO” as the borrower and includes four 

checkboxes, all four of which contain checkmarks, and two of which accompany statements 

potentially relevant to consent to the arbitration provision. See Guzman Decl. Ex. A. First, 

immediately following the provisions of the agreement addressing arbitration, there is a checkbox 

next to the statement: “YOU CERTIFY THAT YOU HAVE READ AND UNDERSTAND THIS 

ARBITRATION PROVISION AND AGREE TO BE BOUND BY ITS TERMS.” Id. at 5. 

Second, one of the three checkboxes at the end of the loan agreement accompanies the following 

statement:

You have read all of the terms and conditions of this promissory note 

and disclosure statement and agree to be bound by its terms. You 

understand and agree that your execution of this note shall have the 

same legal force and effect as a paper contract.

Id. at 6 (fully capitalized in original; capitalization altered for ease of reading).

Although the record initially before the Court did not establish that Ngo had checked the 

boxes of the loan agreement, Guzman’s supplemental declaration cures that defect. See Guzman 

Supp’l Decl. ¶ 6 (“Ngo manually checked each of the four boxes within the electronic version of 

the [loan agreement]. If Ngo had left any box unchecked, the [loan agreement] would have 

remained incomplete for a period of 30 days, at which time it would lapse . . . .” (capitalization 

altered)). Guzman also states that Ngo was required to use a ‘unique” username and password 

provided by LoanMe to access and execute the agreement. Id. ¶¶ 4–6 (“This username and 

temporary password allowed only Ngo to access his application page on LoanMe’s web portal.” 

(emphasis added; capitalization altered)). Ngo’s supplemental brief does not contest that 

Guzman’s declaration serves to show that someone checked the boxes of the contract, but argues 

that because Guzman does not describe security measures taken in providing the username and 

password to ensure that no one else could intercept them, it is possible that someone other than 

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Ngo checked the boxes to execute the agreement. Supp’l Br. at 2–4.

Defendants’ burden of proof to show an agreement to arbitrate is merely the preponderance 

of the evidence. Rosenthal, 14 Cal. 4th at 413. “A party required to prove something by a

preponderance of the evidence need prove only that it is more likely to be true than not true.” 

People ex rel. Brown v. Tri-Union Seafoods, LLC, 171 Cal. App. 4th 1549, 1567 (2009) (citation 

and internal quotation marks omitted). Based on the facts that Ngo sought to and did obtain a loan 

from LoanMe, Ngo Decl. ¶ 4, that Ngo’s unique username and password were necessary to access 

the application page with the agreement, Guzman Supp’l Decl. ¶ 4, and that someone using Ngo’s 

credentials checked the boxes to execute the agreement soon after a LoanMe representative 

informed Ngo that he needed to execute the agreement, id. ¶¶ 5–6, the Court has little difficulty 

concluding that it is more likely than not that Ngo executed the agreement. Ngo’s statement that 

he does “not remember signing, electronically or otherwise, any agreement to arbitrate,” see Ngo 

Decl. ¶ 5, is not inconsistent with that conclusion, and would encompass Ngo merely not recalling

now whether he reviewed the agreement and recognized it as an agreement to arbitrate before 

checking the boxes. Ngo does not state that he did not check boxes to electronically sign a loan 

agreement, or, having reviewed the purported agreement offered by Defendants, that he does not 

recognize or did not sign this agreement. See id. 

While this case has some similarities to Ruiz, it differs in at least three ways. First, 

whereas the record in Ruiz lacked evidence “that all Moss Bros. employees were required to use 

their unique login ID and password when they logged into the HR system and signed electronic 

forms and agreements,” 232 Cal. App. 4th at 844, Guzman states here that the credentials provided 

to Ngo were necessary to access his application page, and that Ngo used those credentials to 

complete the loan agreement. Guzman Supp’l Decl. ¶¶ 4, 6. Second, as noted above, there is no 

real question that Ngo entered into some sort of agreement to obtain his loan, while in Ruiz the 

document at issue was presented to employees during the course of their employment, and it is not 

clear whether any demonstrable consequences, comparable to the loan that Ngo in fact received,

would have resulted from employees signing or not signing the agreements. Third, nothing in the 

Ruiz opinion indicates a timeline comparable to this case, where Ngo’s loan agreement was 

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executed soon after a LoanMe representative told Ngo that he needed to complete the agreement. 

Guzman Decl. ¶¶ 5–6.

Defendants have met their burden to show that Ngo electronically signed the loan 

agreement, including the arbitration provision included therein.

C. The Arbitration Provision Is Not Unconscionable

Under California law, “[i]n order to render a contract unenforceable under the doctrine of 

unconscionability, there must be both a procedural and substantive element of 

unconscionability.” Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 783 (9th Cir. 

2002) (citing Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 99 (2000)). The 

Court need not address the question of procedural unconscionability because Ngo has not shown 

that the loan agreement’s arbitration provision is substantively unconscionable.

Ngo’s only argument as to substantive unconscionability is that the arbitration provision 

could be read as imposing greater restrictions on the borrower than on the lender, focusing on 

warnings in the contract regarding “your right[s]” to a jury trial, to a trial before a court of general 

jurisdiction, and to serve as a representative or participate in a representative action. See Opp’n at 

13–14. The language at issue reads as follows:

1. You acknowledge and agree that by entering into this Arbitration 

Provision:

(a) You are giving up your right to have a trial by jury to resolve any

disputed alleged against us or related third parties;

(b) You are giving up your right to have a court, other than a small 

claims tribunal, resolve any dispute alleged against us or related third 

parties; and

(c) You are giving up your right to serve as a representative, as a 

private attorney general, or in any other representative capacity, 

and/or to participate as a member of a class of claimants, in any 

lawsuit filed against us and/or related third parties.

Guzman Decl. Ex. A at 4 (parts (a) through (c) fully capitalized and bold in original; capitalization 

altered and emphasis omitted here for ease of reading). Ngo takes issue with the fact that 

“nowhere in these boldfaced proclamations (or anywhere else in the arbitration agreement) is any 

indication that those rights are also given up by ‘us and/or related third parties’—i.e., the holder of 

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the note,” although he acknowledges some language indicating that the arbitration provision is 

binding on both parties. Opp’n at 13.

Reading the arbitration provision as a whole, there is no question that it applies equally to 

disputes brought by either party. The agreement provides in relevant part that, unless pursued in a 

small claims court, “all disputes . . . shall be resolved by binding arbitration only on an individual 

basis.” Guzman Decl. Ex. A at 4, ¶ 2; see also id. at 5, ¶ 5. “Disputes” subject to the provision 

are defined broadly as “all federal or state law claims, disputes or controversies, arising form or 

relating directly or indirectly to the Loan Agreement” as well as “all claims based upon a violation 

of any state or federal constitution, statute or regulation,” and includes among other specific 

examples “all claims asserted by us against you, including claims for money damages to collect 

any sum we claim you owe us.” Id at 3. The note holder thus is bound to arbitrate (on an 

individual basis) any claims it may have against Ngo, and therefore gives up the same rights that 

Ngo identifies above. 

While the agreement could perhaps be clearer that the obligations and waivers of rights are 

reciprocal, there is some sense in spelling out more clearly the effect of agreeing to arbitration on 

borrowers—some of whom may be unsophisticated and unrepresented when they take out a loan 

and agree to the arbitration provision—than the effect on the lender, who presumably drafted this 

agreement with the assistance of counsel and understands the nature of arbitration. Regardless, 

because the effects are in fact reciprocal, there is no merit to Ngo’s argument that the arbitration is 

substantively unconscionable for requiring greater waivers of rights by him than by Defendants. 

Ngo has not shown that the agreement is unconscionable under California law, and cannot avoid 

arbitration on that basis.4

D. Waiver by Filing Civil Action

Ngo contends that Defendants waived their right to demand arbitration by filing a civil 

action against in him in the California Superior Court for the County of San Francisco, rather than 

pursuing arbitration of Defendants’ claim for Ngo’s purported failure to repay his loan. 

 

4 At the hearing, Ngo’s counsel stated that “the unconscionability argument was made in an 

abundance of caution,” and that Ngo did not contest the Court’s conclusion as to that issue. 

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Defendants argue that the civil action was consistent with the provision of the arbitration 

agreement allowing any party to pursue relief in a “small claims tribunal,” which reads in full as 

follows:

All parties, including related third parties, shall retain the right to seek 

adjudication in a small claims tribunal in the county of your residence 

for disputes within the scope of such tribunal’s jurisdiction. Any 

dispute, which cannot be adjudicated within the jurisdiction of a small 

claims tribunal, shall be resolved by binding arbitration. Any appeal 

of a judgment from a small claims tribunal shall be resolved by 

binding arbitration.

Guzman Decl. Ex. A at 5, ¶ 5.

In California, small claims courts are established by statute. See Cal. Civ. Proc. Code 

§ 116.210 (“In each superior court there shall be a small claims division. The small claims 

division may be known as the small claims court.”). Jurisdiction is generally limited to claims not 

exceeding $5,000, id. § 116.220(a)(1), although a natural person may generally bring a claim for 

up to $10,000, id. § 116.221. Small claims actions are therefore distinct from “limited civil 

cases,” which may include claims up to $25,000. See Cal. Civ. Proc. Code § 86(a)(1).

Defendant PMRI, through its agent Defendant Kenosian, filed the state court action against 

Ngo as a limited civil action, checking a box indicating that the amount demanded was “$25,000 

or less.” RJN Ex. 2 at 9 of 138. The complaint sought damages totaling $5,398.14, plus 

unspecified attorneys’ fees and costs. Id. at 17 of 138. Given the clear distinction between small 

claims actions and limited civil actions under California law, and the fact that the demand of the 

state court complaint exceeded the jurisdiction of a California small claims court for a claim by a 

corporate entity, Defendants’ argument that their civil action falls within the arbitration 

agreement’s exception for “small claims tribunals” is frivolous. 

The question, then, is whether Defendants’ filing of a civil action in state court rather than 

a claim for arbitration waives their right to demand arbitration of Ngo’s claims here. The parties 

agree that the test described by a California appellate court in Aviation Data, Inc. v. American 

Express Travel Related Services Co., 152 Cal. App. 4th 1522 (2007), applies to this case:

“To prove that a waiver of arbitration exists, a party must demonstrate 

‘(1) knowledge of an existing right to compel arbitration; (2) acts 

inconsistent with that existing right; and (3) prejudice to the party 

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opposing arbitration resulting from such inconsistent acts.’ [Letizia v. 

Prudential Bache Sec., 802 F.2d 1185, 1187 (9th Cir. 1986).] The 

party arguing waiver ‘bears a heavy burden of proof.’ [Fisher v. A.G. 

Becker Paribas, Inc., 791 F.2d 691, 694 (9th Cir. 1986).] Any doubts 

as to waiver are resolved in favor of arbitration. [See Moses H. Cone, 

460 U.S. 1, 24–25 (1983).]”

Aviation Data, 152 Cal. App. 4th at 1537 (quoting Creative Telecomms., Inc. v. Breeden, 120 F. 

Supp. 2d 1225, 1232 (D. Haw. 1999) (internal citations in brackets appear in Creative 

Telecommunications but were omitted in Aviation Data); see also Mot. at 9 (quoting this 

standard); Opp’n at 6 (same). The Aviation Data court described this as “the federal rule,” but 

held that the “California rule on such a litigation waiver is in accord.” Aviation Data, 152 Cal. 

App. 4th at 1537 (citing St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1195 (2003)). 

In St. Agnes, the California Supreme Court cited with approval an additional set of factors relevant 

to this question:

“In determining waiver, a court can consider ‘(1) whether the party’s 

actions are inconsistent with the right to arbitrate; (2) whether the 

litigation machinery has been substantially invoked and the parties 

were well into preparation of a lawsuit before the party notified the 

opposing party of an intent to arbitrate; (3) whether a party either 

requested arbitration enforcement close to the trial date or delayed for 

a long period before seeking a stay; (4) whether a defendant seeking 

arbitration filed a counterclaim without asking for a stay of the 

proceedings; (5) whether important intervening steps [e.g., taking 

advantage of judicial discovery procedures not available in 

arbitration] had taken place; and (6) whether the delay affected, 

misled, or prejudiced the opposing party.’”

St. Agnes, 31 Cal. 4th at 1196 (quoting Sobremonte v. Superior Court, 61 Cal. App. 4th 980, 992 

(1998) (quoting Peterson v. Shearson/Am. Express, Inc., 849 F.2d 464, 467–68 (10th Cir. 1988))) 

(alteration in original).

It is worth noting that Defendants’ decision to file the state court action rather than pursue 

arbitration did not merely fail to utilize a right granted by the loan agreement, but in fact appears 

to have violated the loan agreement’s arbitration provision. The agreement provides in relevant 

part that, unless pursued in a small claims court, “all disputes . . . shall be resolved by binding 

arbitration.” Guzman Decl. Ex. A at 4, ¶ 2; see also id. at 5, ¶ 5. The term “disputes” is defined to 

“all claims asserted by us [i.e., LoanMe and its successors or agents] against you [i.e., Ngo], 

including claims for money damages to collect any sum we claim you owe us.” Id. at 3. This 

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might be a relevant consideration in determining whether Defendants waived the right to arbitrate 

claims arising out of their own litigation activities taken in apparent violation of the agreement to 

arbitrate, as Ngo’s claims do here.

The parties’ initial briefs failed to address, however, the question of whether waiver is 

itself an issue for this Court to decide, or for an arbitrator. The Supreme Court has held that 

waiver is not a “question of arbitrability” presumptively for a court to decide, but instead falls 

among a class of “‘procedural’ questions which grow out of the dispute and bear on its final 

disposition [that] are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. 

Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (citation and internal quotation marks 

omitted). Thus, “the presumption is that the arbitrator should decide ‘allegation[s] of waiver, 

delay, or a like defense to arbitrability.’” Id. (quoting Moses H. Cone, 460 U.S. at 24–25)

(emphasis added). That presumption holds particularly true here, where the arbitration agreement 

at issue explicitly delegates to the arbitrator “disputes . . . arising from or relating directly or 

indirectly to the signing of this Arbitration Provision, the validity and scope of this Arbitration 

Provision and any claim or attempt to set aside this Arbitration Provision.” Guzman Decl. Ex. A 

at 3; see also Mohamed, 848 F.3d at 1208–09 (holding that even certain threshold issues not

presumptively allocated to an arbitrator may be delegated to an arbitrator if such intent is clearly 

stated in an arbitration agreement) (citing, e.g., Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 

67 (2010)).

In his supplemental brief, Ngo cites section 1281.2 of the California Code of Civil 

Procedure, which states that a court shall compel arbitration “unless it determines that . . . [t]he 

right to compel arbitration has been waived by the petitioner.” Cal. Civ. Proc. Code § 1281.2; 

Supp’l Br. at 1–2. The Court explicitly and unequivocally denied Ngo’s request at the hearing to 

address this issue in his supplemental brief, instead limiting the scope of that brief to the 

supplemental evidence submitted by Defendants. Regardless, as noted above, the Ninth Circuit 

and Supreme Court have construed the FAA as requiring courts to enforce parties’ explicit 

agreements to arbitrate threshold issues of arbitrability. Rent-A-Ctr., 561 U.S. at 70 (“An 

agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party 

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seeking arbitration asks the federal court to enforce, and the FAA operates on this additional 

arbitration agreement just as it does on any other.”); Mohamed, 848 F.3d at 1208–09. The 

Supreme Court has also held that “[w]hen state law prohibits outright the arbitration of a particular 

type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” 

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011). Reading Rent-A-Center and 

Concepcion together, state law cannot prohibit arbitration of threshold issues of arbitrability if the 

parties have expressly agreed to arbitrate them in a contract governed by the FAA.

The broad scope of the delegation clause here encompasses a claim of waiver, as falling 

within “disputes [regarding] the validity and scope of this Arbitration Provision and any claim or 

attempt to set aside this Arbitration Provision.” See Guzman Decl. Ex. A at 3. To the extent that 

section 1281.2 could be construed as requiring judicial determination rather than arbitration of 

waiver under these circumstances, it is preempted by the FAA. The Court need not decide

whether, in the absence of an express delegation clause, section 1281.2 controls over “the 

presumption . . . that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense 

to arbitrability.’” See Howsam, 537 U.S. at 84 (quoting Moses H. Cone, 460 U.S. at 24–25).

Accordingly, the Court holds that although the motion to compel arbitration cannot be 

denied on the basis of waiver, Ngo remains free to assert this argument to an arbitrator. 

IV. CONCLUSION

Defendants’ motion is GRANTED, and this action is STAYED pending arbitration of all 

claims determined by an arbitrator to be subject to the parties’ arbitration agreement. If, however, 

the arbitrator determines that Defendants have waived their contractual right to compel Ngo to 

arbitrate his claims despite his preference for a judicial forum, Ngo may at that time pursue his 

claims in this Court.

/ / /

/ / /

/ / /

/ / /

/ / /

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The Court does not reach at this time Defendants’ alternative argument for abstention 

under Younger or Colorado River, which the parties did not address in sufficient detail to reach a 

reasoned conclusion.

IT IS SO ORDERED.

Dated: December 18, 2018

______________________________________

JOSEPH C. SPERO

Chief Magistrate Judge

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