Brice v. Plain Green, LLC

13 F.4th 823

Kimetra BRICE; Earl Browne; Jill Novorot, Plaintiffs-Appellees,

v. Plain Green, LLC, Defendant,andHAYNES INVESTMENTS, LLC; L. Stephen Haynes, Defendants-Appellants.

No. 19-15707

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 16, 2020 San Francisco, California

Filed September 16, 2021

Richard L. Scheff (argued) and David F. Herman, Armstrong Teasdale LLP, Philadelphia, Pennsylvania; Anna S. McLean and Jacqueline Simonovich, Sheppard Mullin Richter & Hampton LLP, San Francisco, California; for Defedants-Appellants.

Matthew W.H. Wessler (argued), Gupta Wessler PLLC, Washington, D.C.; Kristi C. Kelly and Andrew J. Guzzo, Kelly Guzzo PLC, Fairfax, Virginia; Leonard A. Bennett, Craig C. Marchiando, and Elizabeth W. Hanes, Consumer Litigation Associates P.C., Newport News, Virginia; Anna C. Haac, Tycko & Zavareei LLP, Washington, D.C.; for Plaintiffs-Appellees.

Patrick O. Daughtery, Van Ness Feldman LLP, Washington, D.C., for Amicus Curiae Native American Financial Services Association.

Before: William A. Fletcher, Danielle J. Forrest^* , and Lawrence VanDyke, Circuit Judges.

Dissent by Judge W. Fletcher

FORREST, Circuit Judge:

We must decide whether a provision allowing an arbitrator, instead of a court, to decide whether an arbitration agreement that is governed by something other than federal law is unenforceable because it requires the parties to prospectively waive their federal rights. Already confused? You're not alone. Grappling with the Supreme Court's decision in Rent-A-Center, West, Inc. v. Jackson , 561 U.S. 63, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010), we work our way through this brain twister and conclude that an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable. Because we conclude that the delegation provision in the contract at issue is not itself an invalid prospective waiver (while not resolving whether the arbitration agreement as a whole is a prospective waiver), we reverse the district court and remand with instructions to compel the parties to proceed with arbitration. In reaching our decision, we diverge from the decisions reached by several of our sister circuits.

I. BACKGROUND

Plaintiffs-appellees Kimetra Brice, Earl Browne, and Jill Novorot (Borrowers) obtained short-term, high-interest loans from either Plain Green, LLC (Plain Green) or Great Plains Lending, LLC (Great Plains Lending). The Chippewa Cree Tribe of the Rocky Boy's Indian Reservation in Montana owns Plain Green; the Otoe-Missouria Tribe of Indians owns Great Plains Lending. Both lenders represented themselves as "tribal lending entities," and we refer to them collectively herein as "Tribal Lenders."

The Tribal Lenders’ standard loan contracts contain an agreement to arbitrate any dispute arising under the contract.¹ And each arbitration agreement includes a delegation provision requiring an arbitrator—not a court—to decide "any issue concerning the validity, enforceability, or scope of [the loan] agreement or [arbitration agreement]." The loan contracts also make several references to "Tribal Law." For example, they state that the contracts "shall be governed by the laws of the tribe," or "Tribal Law," and that an arbitrator must "apply Tribal Law and the terms of this Agreement."

Borrowers took out payday loans from the Tribal Lenders that they now contend were illegal, and they filed class-action complaints against numerous entities, including the Tribal Lenders and Haynes Investments, LLC; Sequoia Capital Operations, LLC; and 7HBF No. 2, LTD (collectively, Investors).² Borrowers assert claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(a) – (d), and California law. They allege that Investors are the owners and investors of Think Finance, LLC, which operated a payday loan enterprise via the Tribal Lenders that was "designed to evade state usury laws and make illegal high interest loans." According to Borrowers, Investors financed and actively participated in the enterprise, rendering them liable for any underlying illegal conduct.

Investors moved to compel arbitration, citing the arbitration agreements and delegation provisions in Borrowers’ various loan contracts.³ The district court denied the motions, concluding the arbitration agreement as a whole in each contract is unenforceable because it prospectively waives Borrowers’ right to pursue federal statutory claims by requiring arbitrators to apply tribal law. The district court held that each delegation provision was unenforceable for the same reason. That is, the district court concluded that because tribal law governs the loan contracts and Borrowers cannot present in arbitration merits claims based on federal law, both the arbitration agreements as a whole and the "accompanying delegation clauses" are unenforceable prospective waivers. The district court did not analyze enforceability of the delegation provisions separate from the larger agreements to arbitrate. Several Investors appealed.

II. DISCUSSION

We review de novo the denial of a motion to compel arbitration and the validity of an arbitration clause. O'Connor v. Uber Techs., Inc. , 904 F.3d 1087, 1093 (9th Cir. 2018) ; Cape Flattery Ltd. v. Titan Mar., LLC , 647 F.3d 914, 917 (9th Cir. 2011).

A. Order of Analysis

1. The Parties’ Arguments⁴

The parties disagree on the proper order of analysis. Investors argue the court first must decide delegation—whether there is a clear and enforceable delegation provision that requires an arbitrator to decide whether the parties’ arbitration agreement is enforceable. If the delegation provision is enforceable, Investors argue the court must stop there and not proceed to consider whether the arbitration agreement is also enforceable. That task, Investors assert, is for the arbitrator. Alternatively, Investors argue that the district court erroneously held the arbitration agreements were unenforceable by misapplying the prospective-waiver doctrine.

Borrowers disagree. Like the district court, Borrowers believe the first question is enforceability of the arbitration agreement as a whole . If the entire arbitration agreement—delegation provision included—is unenforceable, Borrowers argue that the court need not apply the delegation provision. Accordingly, Borrowers assert that the district court properly considered and held that the parties’ arbitration agreement is unenforceable because it required them to prospectively waive their statutory rights.

We agree with Investors that our focus first must be on the enforceability of the delegation provision specifically. And we conclude that, under recent decisions both from the Supreme Court and our court, the parties’ antecedent delegation provision is enforceable because it does not preclude Borrowers from arguing to an arbitrator that the arbitration agreement is unenforceable under the prospective-waiver doctrine and, therefore, this general enforceability issue must be decided by an arbitrator.

2. Governing Law

Under the Federal Arbitration Act (FAA), arbitration agreements are "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. The FAA "establishes an equal-treatment principle." Kindred Nursing Ctrs. Ltd. P'ship v. Clark , ––– U.S. ––––, 137 S. Ct. 1421, 1426, 197 L.Ed.2d 806 (2017). "A court may invalidate an arbitration agreement based on generally applicable contract defenses like fraud or unconscionability, but not on legal rules that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Id. (internal quotations and citation omitted).

In considering a motion to compel arbitration, we generally decide two gateway issues: (1) whether the parties agreed to arbitrate and (2) "whether the agreement covers the dispute" at issue. Brennan v. Opus Bank , 796 F.3d 1125, 1130 (9th Cir. 2015). But the Supreme Court's decision in Rent-A-Center established that parties can agree to arbitrate even these preliminary gateway questions—provided any such agreement is "clear and unmistakable." 561 U.S. at 69 n.1, 130 S.Ct. 2772. This is known as a delegation provision, which "is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 529, 202 L.Ed.2d 480 (2019) (quoting Rent-A-Center , 561 U.S. at 70, 130 S.Ct. 2772 ) (abrogating a judge-made exception to enforcing delegation clauses under the FAA).

Where a delegation provision exists, courts first must focus on the enforceability of that specific provision, not the enforceability of the arbitration agreement as a whole. Rent-A-Center , 561 U.S. at 71, 130 S.Ct. 2772 ; Brennan , 796 F.3d at 1132. To do otherwise would render the delegation provision a nullity. Consider our decision in Brennan . There, as here, "three agreements—each nested inside the other—[wer]e relevant to our analysis": (1) the Loan Agreement, (2) the Arbitration Agreement, and (3) the Delegation Provision. Brennan , 796 F.3d at 1133. Thus, there were "multiple severable arbitration agreements." Id. ; Rent-A-Center , 561 U.S. at 71–72, 130 S.Ct. 2772 (noting "[a]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract" (internal quotations and citation omitted)). And one of those severable agreements delegated deciding "gateway" issues—like enforceability—to an arbitrator. Thus, in Brennan , "[t]he arbitration clause at issue, as in Rent-A-Center , [wa]s the Delegation Provision because that [wa]s the arbitration agreement [Defendants] s[ought] to enforce." 796 F.3d at...