Gadomski v. Wells Fargo Bank N.A.

281 F.Supp.3d 1015

Kellie GADOMSKI, individually and on behalf of all other similarly situated, Plaintiff,

v.WELLS FARGO BANK N.A., Defendant.

No. 17–cv–00691–TLN–AC

United States District Court, E.D. California.

Signed December 31, 2017

Filed January 2, 2018

Seyed Abbas Kazerounian, Matthew M. Loker, Kazerouni Law Group, APC, Costa Mesa, CA, Clark Ovruchesky, Law Office of Clark Ovruchesky, San Diego, CA, for Plaintiff.

Alisa A. Givental, Rebecca Snavely Saelao, Severson & Werson, San Francisco, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO COMPEL ARBITRATION

Troy L. Nunley, United States District Judge

This matter is before the Court pursuant to Defendant Wells Fargo Bank N.A.'s ("Defendant") Motion to Compel Arbitration. (ECF No. 11.) Plaintiff Kellie Gadomski ("Plaintiff") opposes the motion. (ECF No. 15.) Defendant filed a reply. (ECF No. 16.) After carefully considering both parties' briefing, the Court hereby GRANTS Defendant's Motion to Compel Arbitration. (ECF No. 11.)

I. FACTUAL AND PROCEDURAL BACKGROUND

The claims at issue arise out of the parties' dealings regarding a consumer credit account ("the Account") Defendant provided to Plaintiff. (ECF No. 1 at ¶ 158; ECF No. 12 at 5.) On September 5, 2009, Plaintiff signed a Preferred Customer Credit Card Application ("the Application"). (Ex. A, ECF No. 12–1 at 7; ECF No. 12 at 5; ECF No. 1 at ¶ 158.) The Application specifically states, "You acknowledge receipt of a copy of the credit card account agreement. You acknowledge the existence of the arbitration agreement contained in the credit card account agreement and you specifically agree to be bound by its terms." (Ex. A, ECF No. 12–1 at 7.) Further, the Arbitration Agreement ("the Agreement") states, "if any party covered by this agreement elects arbitration, that election is binding on all parties to this Agreement." (Ex. B, ECF No. 12–1 at 18.)

Sometime in 2012, Plaintiff fell behind on her credit card payments, prompting Defendant to "charge off" the Account. (ECF No. 1 at ¶ 159.) Then on or about April 23, 2013, Plaintiff filed for Chapter 7 Bankruptcy ("the Bankruptcy Action"). (ECF No. 1 at ¶ 114.) Plaintiff's debts owed to Defendant were scheduled and included in the Bankruptcy filing. (ECF No. 1 at ¶ 115.) Defendant was informed of the Bankruptcy Action filing. (ECF No. 1 at ¶ 116.)

On or about August 12, 2013, Plaintiff's debts were successfully discharged in the Bankruptcy Action. (ECF No. 1 at ¶¶ 117, 121.) On the same day, Defendant received notice of Plaintiff's discharged debt. (ECF No. 1 at ¶ 118.) Plaintiff did not reaffirm the debt obligation to Defendant. (ECF No. 1 ¶¶ 136, 142, 171.)

Plaintiff alleges that on November 13, 2016, Defendant reported, or caused to be reported, inaccurate information on an Equifax credit report. (ECF No. 1 at ¶ 160.) Additionally, Plaintiff alleges the same inaccurate information was reported in a TransUnion credit report on the same day. (ECF No. 1 at ¶ 161.) Plaintiff alleges this information is inaccurate because Defendant classified the debt as "charged off," rather than "discharged in Bankruptcy," which represented to potential creditors that Plaintiff was actively delinquent with respect to the debts owed to Defendant, when in actuality, the debts were no longer owed to Defendant. (ECF No. 1 at ¶¶ 124, 125, 134.)

Once aware of these inaccuracies, Plaintiff disputed the report in writing with Equifax and TransUnion. (ECF No. 1 at ¶ 177.) On or about December 2016, Plaintiff received notification from Equifax and TransUnion stating Defendant had been notified of the dispute. (ECF No. 1 at ¶ 180.) Plaintiff alleges that, rather than fix the inaccuracies, Defendant failed to correct the problem and continued to report inaccurate information. (ECF No. 1 at ¶ 182.)

Further, Plaintiff alleges that, because of Defendant's inaccurate reporting, her credit worthiness was damaged. (ECF No. 1 at ¶¶ 164, 194.) As a result of the alleged reporting inaccuracies, Plaintiff alleges Defendant has violated section 1681 of the Fair Credit Reporting Act ("FCRA") and section 1785.1 of the California Consumer Credit Reporting Agencies Act ("CCCRAA"). (ECF No. 1 at ¶¶ 208, 212.)

Moreover, Plaintiff seeks to bring this claim on behalf of all those similarly situated. (ECF No. at ¶ 196.) Specifically, Plaintiff alleges this class is made up of potentially hundreds of thousands of individuals who had a consumer credit report prepared on or after February 2012, inaccurately depicting debts owed to Defendant as "charged off," rather than "discharged in bankruptcy." (ECF No. at 1 ¶ 197.) Consequently, Plaintiff asserts the class is entitled to recover economic damages for the inaccurate reporting. (ECF No. 1 at ¶ 198.)

Defendant brings this Motion to Compel Arbitration of Plaintiff's claims. (ECF No. 12 at 5.)

II. STANDARD OF LAW

The Federal Arbitration Act ("FAA") governs the motion to compel arbitration. 9 U.S.C. §§ 1 et seq. Under the FAA, a district court determines (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. Lifescan, Inc. v. Premier Diabetic Servs., Inc. , 363 F.3d 1010, 1012 (9th Cir. 2004). "To evaluate the validity of an arbitration agreement, federal courts should apply ordinary state-law principles that govern the formation of contracts." Ingle v. Circuit City Stores, Inc. , 328 F.3d 1165, 1170 (9th Cir. 2003) (internal quotation marks and citation omitted). Arbitration agreements are "a matter of contract" and "may be invalidated by ‘generally applicable contract defenses, such as fraud, duress, and unconscionability.’ " Rent–A–Ctr. West, Inc. v. Jackson , 561 U.S. 63, 67–68, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010).

If the court is "satisfied that the making of the arbitration agreement or the failure to comply with the agreement is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4. "[A]ny doubts concerning the scope of arbitral issues should be resolved in favor of arbitration[.]" Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (U.S. 1983). If a court "...determines that an arbitration clause is enforceable, it has the discretion to either stay the case pending arbitration, or to dismiss the case if all of the alleged claims are subject to arbitration. Hoekman v. Tamko Bldg. Prod., Inc. , No. 2-14-CV-01581-TLN-KJN, 2015 WL 9591471, at *2 (E.D. Cal. Aug. 26, 2015).

III. ANALYSIS

Defendant contends Plaintiff's claims arise from the parties' dealings regarding the Account and are thus subject to arbitration. (ECF No. 12 at 10.) Plaintiff responds with three arguments: (1) the Agreement is unenforceable; (2) the issues presented are outside the scope of the Agreement; and (3) even if the Agreement is enforceable, Plaintiff's claims are subject to the "small claims exception"¹ in the Agreement. (ECF No. 15 at 3–8.) The Court will analyze these arguments in order.

A. Enforceability

Plaintiff first argues the Agreement was rendered unenforceable because of the Bankruptcy Action. (ECF No. 15 at 5–6.) However, Plaintiff offers no cases from the Ninth Circuit that stands for the proposition that a bankruptcy discharge renders a valid arbitration agreement unenforceable. Defendant responds to this argument contending Plaintiff's bankruptcy did not invalidate the Agreement. (ECF No. 16 at 5.)

The Ninth Circuit has stated that a bankruptcy discharge does not mean the whole contract has been merged into the judgment. Siegel v. Fed. Home Loan Mortg. Corp. , 143 F.3d 525, 531 (9th Cir. 1998). A bankruptcy discharge "extinguishes only the personal liability of the debtor." Johnson v. Home State Bank , 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (citation omitted). Further, post-bankruptcy discharge arbitration is appropriate where there would be no adverse effect on the underlying purposes of the bankruptcy code. See e.g. Bigelow v. Green Tree Fin. Servicing Corp. , No. CV-99-6644, 2000 WL 33596476, at *6 (E.D. Cal. Nov. 30, 2000).

Moreover, another district court has applied this reasoning to a post-bankruptcy claim brought under FCRA and found arbitration appropriate. See e.g. Mann v. Equifax Info. Servs., LLC , No. 12-CV-14097, 2013 WL 3814257, at *3 (E.D. Mich. July 22, 2013). The facts of Mann are strikingly similar to this case. In Mann , the plaintiff brought claims under FCRA and state law after obtaining a bankruptcy discharge, alleging the defendants listed debts on his credit report that were discharged. Id. at *5. In its analysis, the court distinguished Jernstad v. Green Tree Servicing, LLC , No. 11 C 7974, 2012 WL 8169889, at *1 (N.D. Ill. Aug. 2, 2012), which is relied on by Plaintiff. Id. at *8–9. The court explained the plaintiff's claims in Jernstad all arose from the bank's attempt to collect on a discharged debt,² unlike the claims brought under the FCRA and state law. Id. at *8. The court then analyzed, In re Eber , 687 F.3d 1123, 1125 (9th Cir. 2012), and concluded that the proper inquiry was whether compelling arbitration conflicts with the underlying purpose of the bankruptcy code. Id. In rejecting the plaintiff's argument that arbitration would prevent him from obtaining the "fresh start" granted by the bankruptcy code, the court explained "the mere fact that Mann was granted a discharge of debt owed to [the creditor] does not mean that the Arbitration Agreement ... cannot be enforced with respect to their future disputes." Id. (emphasis retained).

The Court finds this reasoning persuasive. Here, Plaintiff's claims relate solely to Defendant's alleged inaccurate reporting of debts as "charged off," rather than "discharged in bankruptcy," and not Defendant's attempts to collect a discharged debt. (ECF No. 1.) Plaintiff's only argument that compelling arbitration conflicts with the bankruptcy code is that doing so...