Court Opinion

ID: 9410797
Source: CourtListenerOpinion
Date Created: 2023-07-24 17:01:08.275923+00
Date Added: 2024-06-11T17:21:00.402320
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

ILIANA PEREZ, an individual, on            No. 22-15322
behalf of themselves and all others
similarly situated,                           D.C. No.
            Plaintiff-Appellee,           3:20-cv-06896-SI

and
                                             OPINION
FLAVIO GUZMAN MAGANA, an
individual, on behalf of themselves
and all others similarly situated;
JOSUE JIMENEZ MAGANA,
            Plaintiffs,

 v.

DISCOVER BANK,
       Defendant-Appellant.

       Appeal from the United States District Court
         for the Northern District of California
         Susan Illston, District Judge, Presiding

           Argued and Submitted April 12, 2023
                San Francisco, California

                    Filed July 24, 2023
2                     PEREZ V. DISCOVER BANK

    Before: Sidney R. Thomas and Holly A. Thomas, Circuit
           Judges, and Jed S. Rakoff,* District Judge.

                Opinion by Judge S.R. Thomas

                          SUMMARY**

                           Arbitration

    The panel affirmed the district court’s order declining to
compel plaintiff Iliana Perez to arbitrate her claims that
Discover Bank unlawfully discriminated against her based
on her citizenship and immigration status when it denied her
application for a consolidation loan for her student loan.
    Discover Bank asserted that two arbitration
agreements—one Perez made in 2010 in connection with her
student loan from Citibank and one she made in 2018 in
connection with the application for the consolidation loan
with Discover Bank—required arbitration. Discover Bank
acquired ownership of the Citibank loan around October 1,
2011, and currently holds the note.
    Before the district court, Discover Bank initially argued
that its agreement with Perez was not unconscionable
because if Perez sent an opt out, she would not be bound by
the agreement’s arbitration provision. Shortly thereafter

*
 The Honorable Jed S. Rakoff, United States District Judge for the
Southern District of New York, sitting by designation.
**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                   PEREZ V. DISCOVER BANK                  3

Perez notified Discover Bank that she wished to reject the
arbitration agreement. The district court found that Perez’s
opt out of the Discover Bank agreement applied to her
discrimination claims and that the discrimination claims
were outside the scope of the Citibank agreement.
    The panel held that Discover Bank was judicially
estopped from arguing that Perez did not opt out of the
Discover Bank agreement. The panel determined that
Discover Bank’s past position clearly contradicted its
current position that the opt out would only apply to Perez’s
future discrimination claims, Discover Bank persuaded the
court to accept its previous position, and Discover Bank
would derive an unfair advantage absent estoppel.
    Citing Revitch v. DIRECTV, LLC, 977 F.3d 713 (9th Cir.
2020), the panel further held that Perez and Discover Bank
never formed an agreement to arbitrate her discrimination
claims involving her application for a consolidation loan via
the Citibank agreement.

                        COUNSEL

Julia B. Strickland (argued), Arjun P. Rao, David W. Moon,
and Ali Fesharaki, Stroock & Stroock & Lavan LLP, Los
Angeles, California, for Defendant-Appellant.

Thomas A. Saenz (argued) and Deylin O. Thrift-Viveros,
Mexican American Legal Defense and Educational Fund,
Los Angeles, California; Jahan C. Sagafi and Moira Heiges-
Goepfert, Outten & Golden LLP, San Francisco, California;
Ossai Miazad, Outten & Golden LLP, Washington, D.C.; for
Plaintiffs-Appellee.
4                  PEREZ V. DISCOVER BANK

                         OPINION

S.R. THOMAS, Circuit Judge:

    Discover Bank seeks to compel Iliana Perez to arbitrate
her claims that Discover Bank unlawfully discriminated
against her based on citizenship and immigration status
when it denied her application for a consolidation loan for
her student loan. Discover Bank argues that two arbitration
agreements—one Perez made in connection with the student
loan and one she made in connection with the application for
the consolidation loan—require arbitration here. The district
court declined to compel arbitration, finding that neither
agreement required arbitration. We affirm.
                               I
    Plaintiff Iliana Perez is a noncitizen and recipient of the
Deferred Action for Childhood Arrivals program. In 2010,
Perez applied for and received a student loan from Citibank,
N.A. (“Citibank”) to pay for graduate school. Perez’s loan
agreement with Citibank (the “Citibank agreement”)
included an arbitration agreement which provided that either
party, including Citibank’s successors or assigns, could elect
binding arbitration for any claims “arising out of or in
connection with [the] loan.” The agreement also included a
delegation clause delegating to arbitration questions of “the
application, enforceability or interpretation” of the
arbitration provision.          Defendant Discover Bank
(“Discover”) acquired ownership of the Citibank loan
around October 1, 2011 and currently holds the note.
    In the summer of 2018, Perez completed and
electronically signed a loan application for a Discover
consolidation loan (the “Discover agreement”).      (A
                    PEREZ V. DISCOVER BANK                   5

consolidation loan “is a new, distinct loan, the proceeds of
which are applied to extinguish the original student loan
debt.” In re McBurney, 357 B.R. 536, 538 (B.A.P. 9th Cir.
2006).) The application included an arbitration provision,
but it also included an opt-out provision that allowed the
applicant or borrower to reject the arbitration provision
“within 30 days after consummation of [the consolidation]
loan.” At the time, Perez did not opt out because her
consolidation loan application was rejected, so she thought
the consolidation loan therefore never “consummated.”
    Perez alleges that, at the time she signed the
consolidation loan application, she informed a Discover
representative that she was undocumented. However,
“[w]hen the representative returned to the call
with Plaintiff Perez, she told Plaintiff Perez that [Discover]
would be unable to refinance the loan” and that Perez
“should not have been granted the [original] loan in the first
place because she was not a U.S. citizen or [lawful
permanent resident].” Based on the foregoing, Perez filed
suit in the district court, arguing that Discover discriminated
against her in violation of 42 U.S.C. § 1981 and California’s
Unruh Civil Rights Act, Cal. Civ. Code §§ 51 et seq., when
Discover denied Perez’s consolidation loan application
based on her undocumented status. Perez purports to assert
her claims on her own behalf and on behalf of nationwide
and California classes of other Discover borrowers.
    Discover sought to compel arbitration in the district court
based on the arbitration provisions in both the Citibank
agreement and the Discover agreement.
    Perez responded that arbitration was not mandatory for
two reasons relevant here: First, Perez and Discover did not
agree via the Citibank agreement to arbitrate questions
6                   PEREZ V. DISCOVER BANK

arising out of the consolidation loan application. And
second, both the Citibank and Discover agreements were
unconscionable as contracts of adhesion requiring a party to
waive substantive rights, so the agreements could not require
arbitration of Perez’s claims.
    At an August 27, 2021 hearing on these issues, Discover
argued that the Discover agreement was not unconscionable
because if Perez sent an opt-out that day, she would not be
bound by the agreement’s arbitration provision. With this
information, the Court granted Discover’s motion to compel
arbitration via the Discover agreement on September 23,
2021.
    However, shortly after the hearing, Perez notified
Discover that she wished to reject the arbitration agreement
in her consolidation application. Therefore, she filed a
motion for leave to file a motion for partial reconsideration,
asking the court to reverse its decision compelling
arbitration. In opposition, Discover argued that Perez’s opt-
out could not apply to her discrimination claim because that
claim accrued prior to her opt out, and, in the alternative, the
Citibank agreement still required arbitration of Perez’s
claims. The court granted Perez’s motion and rescinded the
portion of its prior order compelling Perez to submit her
discrimination claims to arbitration. The court found that
Perez’s opt-out of the Discover agreement applied to her
discrimination claims and that the discrimination claims
were outside of the scope of the Citibank agreement.
Discover now appeals, arguing the district court erred
because both agreements require arbitration of Perez’s
discrimination claims.
                    PEREZ V. DISCOVER BANK                      7

                                II
    Under the Federal Arbitration Act (“FAA”), courts must
enforce a commercial agreement to “arbitrat[e] []
controvers[ies] thereafter arising out of such contract.” 9
U.S.C. § 2. Our role is to determine “whether a valid
agreement to arbitrate exists.” Revitch v. DIRECTV, LLC,
977 F.3d 713, 716 (9th Cir. 2020) (quoting Chiron Corp. v.
Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.
2000)). “[I]f the parties did form an agreement to arbitrate
containing an enforceable delegation clause, all arguments
going to the scope or enforceability of the arbitration
provision are for the arbitrator to decide in the first instance.”
See Caremark, LLC v. Chickasaw Nation, 43 F.4th 1021,
1030 (9th Cir. 2022). “We review de novo a district court’s
order denying a petition to compel arbitration, including its
interpretation of the validity and scope of the arbitration
clause.” Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d 931,
936 (9th Cir. 2001).
    Here, the parties do not dispute that if Perez did not opt
out of the Discover agreement, Perez and Discover formed
an agreement to arbitrate her discrimination claims via the
Discover agreement. They dispute whether Perez did opt out
of the Discover agreement to arbitrate her discrimination
claims and whether Perez and Discover formed an
agreement to arbitrate her discrimination claims via the
Citibank agreement. We conclude that Discover is judicially
estopped from arguing that Perez did not opt out of the
Discover agreement for her discrimination claims and that
Perez and Discover never formed an agreement to arbitrate
her discrimination claims via the Citibank agreement.
8                  PEREZ V. DISCOVER BANK

                              A
    Perez argues that Discover is estopped from arguing that
her opt out of the Discover agreement does not apply to her
discrimination claims. The district court did not decide this
issue, but “[t]he matter of what questions may be taken up
and resolved for the first time on appeal is one left primarily
to the discretion of the courts of appeals, to be exercised on
the facts of individual cases.” Singleton v. Wulff, 428 U.S.
106, 121 (1976). “In particular, we may address an issue
even though the district court refused to resolve it so long as
it was raised sufficiently for the trial court to rule on it.”
Munden v. Stewart Title Guar. Co., 8 F.4th 1040, 1049 (9th
Cir. 2021) (internal quotation marks omitted) (quoting
CFPB v. Gordon, 819 F.3d 1179, 1191 n.5 (9th Cir. 2016)).
    Judicial estoppel “protect[s] the integrity of the judicial
process by prohibiting parties from deliberately changing
positions according to the exigencies of the moment” and
prevents “the perception that either the first or the second
court was misled.” New Hampshire v. Maine, 532 U.S. 742,
749–51 (2001) (internal quotation marks and citation
omitted) (quoting Edwards v. Aetna Life Ins. Co., 690 F.2d
595, 598–99 (6th Cir. 1982) and United States v. McCaskey,
9 F.3d 368, 378 (5th Cir. 1993)). We find a party is estopped
from making an argument when 1) its current position is
“clearly inconsistent” with its previous position; 2) “the
party has succeeded in persuading a court to accept that
party’s earlier position”; and 3) the party, if not estopped,
“would derive an unfair advantage or impose an unfair
detriment on the opposing party.” New Hampshire, 532 U.S.
at 750–51 (quoting United States v. Hook, 195 F.3d 299, 306
(7th Cir. 1999)).
                    PEREZ V. DISCOVER BANK                   9

                              1
   A party’s current position is clearly inconsistent with its
previous position if the current position “contradict[s]” the
previous position. Baughman v. Walt Disney World Co., 685
F.3d 1131, 1133 (9th Cir. 2012).
    Discover argued in its opposition to the reconsideration
motion that Perez’s opt out of the Discover agreement could
not affect the current suit because her opt out only applied to
“future claims.” However, Discover made a contradictory
statement in a prior hearing on Discover’s motion to compel
arbitration when the court considered whether the Discover
agreement could be unconscionable. After Discover gave its
position on whether Perez could opt out of the Discover
arbitration provision, the following exchange occurred:

       [Perez’s Counsel:] My understanding of what
       defendant’s arguments is, is that [Perez] can
       write in written notice today, since 30 days
       after consummation of her loan hasn’t
       happened yet, and we can opt out of the
       arbitration provision. And that is something
       I’ll consider, if that’s the argument that
       defendants want to go with; that way we
       would be able to opt out of the arbitration
       provision . . . .

       [The Court:] Let’s say Ms. Perez wrote to you
       today, would that be effective opt out?

       [Discover’s Counsel:] Under our position,
       yes, because the deadline hasn’t passed yet.
       That wouldn’t resolve the issue because we
10                  PEREZ V. DISCOVER BANK

       still have the Citibank loan, which our
       position is is enforceable.

    Here, Discover portrayed in the hearing that the Citibank
agreement alone would determine the motion to compel
arbitration if Perez opted out of the Discover arbitration
clause on the day of the hearing. In other words, Discover
represented that if Perez opted out on the day of the hearing,
the motion to compel arbitration could only succeed based
on the Citibank agreement’s arbitration clause. This could
only be so if her opt out applied to her discrimination claims;
the Citibank agreement would be unnecessary if the opt out
did not apply to the discrimination claims. Therefore,
Discover’s statement at the hearing directly contradicts its
later statement that the opt out on the day of the hearing
would only apply to Perez’s “future claims,” so the two
positions are clearly inconsistent.
                              2
    A party successfully persuades a court to accept the
party’s earlier position when the court “accept[s] and relie[s]
upon” the position “when making its ruling.” United Nat.
Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772, 779 (9th
Cir. 2009).
    Here, Discover made its statement that Perez could opt
out of the Discover agreement for her discrimination claims,
see supra, while the parties were arguing about whether the
Discover agreement was unconscionable.                Discover
ultimately won on unconscionability in part because the
court found that Perez was “able to reject the Discover
Arbitration Agreement” based on Discover’s representation.
And the court’s later order granting Perez’s motion for
reconsideration did not disturb this result; the court made no
                    PEREZ V. DISCOVER BANK                  11

new finding on unconscionability. Accordingly, Discover
persuaded the court to accept its earlier position.
                              3
    A party derives an unfair advantage from taking two
contradictory positions if invoking the new position creates
the “possibility of [the party] prevailing on the very position
it successfully discredited.” Spectrum Worldwide, 55 F.3d
at 779–80.
    Here, Discover maintained the validity of the Discover
agreement and “successfully discredited” Perez’s theory that
the agreement was unconscionable by arguing that Perez
could opt out as to her discrimination claims. If Discover
could now argue that Perez could not opt out as to her
discrimination claims, Discover would more likely force
Perez to arbitrate her claims under the Discover agreement,
“prevailing on the very position [Discover] successfully
discredited.” See id. at 779. Thus, absent estoppel, Discover
would derive an unfair advantage.
    Because Discover’s past position clearly contradicts its
current position on whether Perez could opt out of the
Discover agreement for her discrimination claims; Discover
persuaded the court to accept its previous position; and
absent estoppel, Discover would derive an unfair advantage,
Discover is estopped from arguing that Perez’s opt out does
not apply to her discrimination claims.
                              B
    We now turn to whether Perez and Discover formed an
agreement to arbitrate her discrimination claims via the
Citibank agreement. “[A]rbitration is strictly ‘a matter of
consent.’” Revitch, 977 F.3d at 719 (quoting Granite Rock
Co v. Int’l Bhd. of Teamsters, 561 U.S. 287, 299 (2010)). To
12                   PEREZ V. DISCOVER BANK

answer whether Perez and Discover formed a valid
agreement to arbitrate her discrimination claims via the
Citibank agreement, “we look to state contract law.”
Revitch, 977 F.3d at 716.

        In California, a contract must be so
        interpreted as to give effect to the mutual
        intention of the parties as it existed at the time
        of contracting.1 We normally determine the
        mutual intention of the parties from the
        written terms of the contract alone, so long as
        the contract language is clear and explicit and
        does not lead to absurd results.

Id. at 717 (internal quotation marks omitted) (quoting Cal.
Civ. Code § 1636 and Kashmiri v. Regents of Univ. of Cal.,
156 Cal. App. 4th 809, 831 (2007)). “We look to the
reasonable expectation[s] of the parties at the time of
contract.” Revitch, 977 F.3d at 717 (quoting Kashmiri, 156
Cal. App. 4th. at 832).
    In Revitch, AT&T argued that a plaintiff who agreed in
a phone contract to arbitrate claims with AT&T and its
“affiliates” therefore agreed to arbitrate claims which
accrued seven years later against DIRECTV, a company
which AT&T bought in the interim. Revitch, 977 F.3d at
714–17. We held that this interpretation was “absurd.” Id.
at 717. We reasoned that when the plaintiff “signed his
wireless services agreement with AT&T . . . he could not
reasonably have expected that he would be forced to
arbitrate an unrelated dispute with DIRECTV, a satellite

1
 Discover concedes that “the Court may apply California law on issues
not controlled by the FAA or other federal law” here.
                   PEREZ V. DISCOVER BANK                  13

television provider that would not become affiliated with
AT&T until years later.” Id. at 718. Therefore, to avoid this
“absurd” result, we held that in agreeing to the contract with
AT&T, the plaintiff did not agree to arbitrate claims which
accrued years later against the later-acquired DIRECTV. Id.
    As in Revitch, it would be absurd to find that Perez and
Discover formed an agreement to arbitrate her
discrimination claims via the Citibank agreement. In early
2010, Perez and Citibank agreed under the Citibank
agreement that either party could submit to arbitration any
case, controversy, etc. “arising out of or in connection with
[Perez’s Citibank] loan.” More than eight years later, in July
of 2018, Perez applied for the Discover consolidation loan—
a “new, distinct loan, the proceeds of which [would be]
applied to extinguish the original student loan”—and
Discover allegedly denied that application because Perez
was undocumented. See In re McBurney, 357 B.R. at 538.
Accordingly, just as the Revitch plaintiff could not have
anticipated that his cell phone agreement would bind him to
arbitration for claims accruing seven years later in an
unrelated dispute, Perez “could not reasonably have
expected that [s]he would be forced to arbitrate [the]
unrelated” claims that Discover discriminated against her
eight years later when it denied her application for a “new,
distinct loan.” Revitch, 977 F.3d at 718; In re McBurney,
357 B.R. at 538. It would be absurd to find that Perez and
Discover formed an agreement to arbitrate her
discrimination claims via the Citibank agreement. See
Revitch, 977 F.3d at 718.
                              C
   Because Perez and Discover never formed an agreement
to arbitrate her discrimination claims via the Citibank
14                    PEREZ V. DISCOVER BANK

agreement, see id., that agreement does not require Perez to
arbitrate her discrimination claims.2 Henry Schein, Inc. v.
Archer & White Sales, Inc., 139 S. Ct. 524 (2019) is not to
the contrary. There, the Supreme Court held that Circuit
Courts cannot decide arbitrability when a valid contract’s
arbitration clause delegates that decision to the arbitrator
“[even] if, under the contract, the argument for arbitration is
wholly groundless.” Id. at 529. But here, Perez argues that
Discover unlawfully discriminated against her in denying
her consolidation loan application, and Perez and Discover
did not form an agreement to arbitrate her discrimination
claims via the Citibank agreement. Put another way, this
case lacks what “Schein presupposes”—“a controversy
thereafter arising out of [a] contract [to arbitrate].” See
Moritz v. Universal City Studios LLC, 54 Cal. App. 5th 238,
245, 248 (2020) (quoting 9 U.S.C. § 2) (internal quotation
marks omitted); see also Smorowski v. Domino’s Pizza LLC,
CV 20-10739-MWF, 2021 WL 4440167, at *4 (C.D. Cal.
July 23, 2021) (“Schein did not address [whether . . .] the
contract in which the arbitration provision appeared . . . was
‘the relevant contract between the parties’ and generally
governed the subject matter of the parties’ dispute.”)
(quoting Schein, 139 S. Ct. at 528). Schein therefore has
nothing to say about this case.
     AFFIRMED.

2
  Because the parties here did not form an agreement to arbitrate, we
resolve this appeal without determining whether the Citibank
agreement’s delegation clause would otherwise require an arbitrator to
determine the scope or enforceability of the arbitration provision. See
Caremark, 43 F.4th at 1030 (“First, a court must resolve any challenge
that an agreement to arbitrate was never formed, even in the presence of
a delegation clause.”).