Perez v. Discover Bank

Background

Three plaintiffs sued Discover Bank, alleging discriminatory loan practices under California’s Unruh Civil Rights Act and 42 U.S.C. § 1981. The order addressed only Iliana Perez. In 2009, Perez obtained a $15,000 student loan from The Student Loan Corporation, a Citibank subsidiary that was not a party to the case. Discover later acquired that company and became the current holder of the student loan.

In 2019, Perez applied to Discover for a private loan consolidation that would have refinanced the student loan at a lower interest rate. Discover’s application stated that applicants had to be U.S. citizens or permanent residents with a U.S.-based address. Perez was neither, but she had obtained Deferred Action for Childhood Arrivals status in 2012 and disclosed that status. A Discover representative told her that Discover could not issue the consolidation loan and suggested that, because of her immigration status, she should not have received the earlier student loan.

Prior Arbitration Order and Reconsideration Request

Discover moved to compel Perez to arbitrate under an arbitration agreement in the consolidation-loan application. That agreement allowed rejection of arbitration only if Discover received written notice within 30 days after the loan was completed. At the hearing on Discover’s motion, Perez’s counsel said Perez believed she could not reject arbitration because her loan had never been completed. Discover’s counsel stated that, under Discover’s position, Perez could still reject arbitration because the deadline had not passed.

The court nevertheless ordered Perez and the other plaintiffs to arbitrate. It found the arbitration provision not unconscionable and stated that the plaintiffs could reject the agreement, but they had not done so. Perez sent Discover a written rejection on September 16, 2021, before the court issued its arbitration order. After Discover did not respond, Perez’s counsel followed up. Discover later stated that it did not agree that the rejection would allow Perez to litigate the already-pending claims in court rather than in individual arbitration.

The court granted Perez leave to seek reconsideration. Under the applicable local rule, a party seeking reconsideration of an interlocutory order had to show reasonable diligence and a material difference in fact or law, newly emerging material facts or a change in law, or that the court had failed to consider material facts or dispositive legal arguments.

Discussion

The court identified two issues: whether Perez’s rejection of arbitration was newly discovered evidence obtained with reasonable diligence, and whether the arbitration provision in the earlier Citibank student-loan agreement required arbitration despite Perez’s rejection of the consolidation-loan arbitration agreement.

The court found that Perez’s rejection qualified as newly discovered evidence because Discover’s position at the hearing clarified, for the first time, that Perez could reject arbitration even though the loan had not been completed. The court concluded that Perez acted diligently by sending the rejection on September 16, following up on September 24, and seeking reconsideration on October 14 after Discover declined to honor the rejection. The court also stated that Perez’s rejection applied to the claims that had already accrued in the case.

The court separately considered Discover’s argument that the earlier student-loan agreement required arbitration. That agreement covered claims relating to the student-loan account, including its origination, terms, servicing, billing, and interpretation. The court held that the consolidation loan was a separate and distinct financial product and did not relate to the student-loan account within the meaning of that arbitration provision. The Citibank arbitration provision therefore did not apply to Perez’s claim arising from Discover’s denial of the consolidation loan.

Disposition

The court GRANTED Perez’s motion for partial reconsideration of the order compelling arbitration and rescinded that prior order as it pertained to Perez. The order did not decide the underlying discrimination claims.