1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 Case No.: 23cv0086 DMS(KSC) ZACHARY POWELL, Individually and
11 On Behalf of All Others Similarly ORDER DENYING DEFENDANT’S Situated, 12 MOTION TO DISMISS AND Plaintiff, COMPEL ARBITRATION 13 v. 14 UHG I LLC, 15 Defendant. 16 17 This case comes before the Court on Defendant’s second motion to dismiss and 18 compel arbitration. Plaintiff filed an opposition to the motion, and Defendant filed a 19 reply. For the reasons set out below, the motion is denied. 20 I. 21 BACKGROUND 22 The factual background of the case was set out in the Court’s order denying 23 Defendant’s first motion, (ECF No. 46), and is repeated below with modifications based 24 on newly submitted evidence and additional facts relevant to the parties’ arguments. 25 On September 12, 2018, Plaintiff entered into a California Consumer Installment 26 Loan Agreement and Promissory Note with CNU of California, LLC d/b/a CashNetUSA 27 (“Loan Agreement”). (See Decl. of Kieran Long in Supp. of Mot. to Compel Arbitration 28 (“Long Decl.”), Ex. A, ECF No. 21-3.) That Agreement defines “you” and “your” to 1 mean the borrower, i.e., Plaintiff, and “we,” “us,” and “our” to mean CNU of California, 2 LLC d/b/a CashNetUSA. (Id.) The Loan Agreement states, “We may assign or transfer 3 this Loan Agreement or any of our rights hereunder.” (Id.) It also includes a lengthy 4 arbitration provision. (See id.) 5 Before the Loan Agreement was executed, CNU Online Holdings, LLC, which is 6 listed on the Loan Agreement as the “sole member of CNU of California, LLC (d/b/a 7 CashNetUSA),” entered into a Forward Flow Accounts Sale Agreement (“FFASA”) with 8 JTM Capital Management, LLC. (See Decl. of Jacob Adamo in Supp. of Mot. to Compel 9 Arbitration (“Adamo Decl.”), Ex. B, ECF No. 21-2.) The FFASA states CNU Online 10 Holdings is acting “on its own behalf and in its capacity as an authorized agent for each 11 of its wholly-owned domestic subsidiaries listed on Exhibit A to this Agreement[.]” (Id.) 12 CNU of California is listed on Exhibit A as one of those subsidiaries or affiliates. (Id.) 13 Pursuant to the FFASA, CNU Online Holdings agreed to sell certain of its accounts to 14 JTM. (Id.) 15 After the Loan Agreement and the FFASA were executed, JTM entered into an 16 Assignment of the FFASA with its wholly-owned subsidiary UHG, LLC, and CNU 17 Online Holdings. (Adamo Decl., Ex. C, ECF No. 21-2.) Pursuant to that Assignment, 18 JTM assigned its rights under the FFASA to UHG. (Id.) 19 Less than one month later on January 3, 2019, UHG, LLC, executed another 20 Assignment by which it assigned its rights under the FFASA to “its wholly-owned 21 subsidiary,” Defendant UHG I. (Decl. of Jacob Adamo in Supp. of Second Mot. (“Second 22 Adamo Decl.”), Ex. D, ECF No. 49-3.) 23 On October 30, 2019, CNU Online Holdings, on behalf of CNU of California, sold, 24 assigned, and transferred its “rights, title and interest” in Plaintiff’s loan to Defendant. 25 (Second Adamo Decl. ¶ 14, Ex. E, ECF No. 49-3.) 26 On May 19, 2021, Defendant filed a Complaint against Plaintiff for breach of 27 contract and open book account in San Diego Superior Court. (Decl. of Nicholas Barthel 28 in Supp. of Pl.’s Opp’n to Def.’s Second Mot., Ex. 2, ECF No. 50-1.) In that Complaint, 1 Defendant sought damages in the amount of $5,671.62, attorneys’ fees and costs as a 2 result of Plaintiff’s failure to repay his loan. (Id.) The current status of that case is 3 unclear, but it was pending when the present case was filed on January 17, 2023. 4 Defendant has filed an Answer in this case, and the parties have attended an Early Neutral 5 Evaluation Conference (“ENE”) with the Magistrate Judge, and engaged in motion 6 practice and fact discovery. 7 II. 8 DISCUSSION 9 As noted, this is Defendant’s second motion to compel arbitration. The Court denied 10 the first motion because Defendant failed to show it had standing to enforce the arbitration 11 provision in the Loan Agreement. In the present motion, Defendant reiterates that it has 12 standing, therefore the Court should order Plaintiff’s claims to arbitration. Plaintiff again 13 disputes that argument, and raises additional arguments as to why Defendant’s motion 14 should be denied. 15 A. Standing 16 The Court denied Defendant’s first motion to compel arbitration because Defendant 17 did not show it had standing to enforce the arbitration provision. Specifically, the evidence 18 on the first motion reflected a break in the chain of title to the FFASA between UHG, LLC 19 and Defendant UHG I. (ECF No. 46 at 4-5.) 20 In the present motion, Defendant explains the apparent “break” was actually a 21 “scrivener’s error” in the relevant Assignment. (Decl. of Darren Turco in Supp. of Second 22 Mot. ¶ 7, ECF No. 49-2.) Specifically, Defendant’s Chief Executive Officer Darren Turco 23 states the assignor of the FFASA should have read “UHG, LLC” rather than “JTM UHG, 24 LLC.” (Id. ¶ 6.) 25 Plaintiff argues this new evidence creates a factual dispute that can only be resolved 26 through an evidentiary hearing. However, the Court disagrees. Although the Assignment 27 in question lists JTM UHG, LLC as the Assignor, Defendant has presented evidence that 28 this was simply a “scrivener’s error,” and the actual Assignor was UHG, LLC. Plaintiff 1 has failed to present any evidence to dispute Defendant’s explanation of the Assignment, 2 and thus there is no genuine issue of material fact. In light of this new evidence, there was 3 no break in the chain of title to the FFASA, and Defendant does have standing to enforce 4 the arbitration provision. 5 Plaintiff raises an additional argument on standing, namely that Defendant lacks 6 standing because it has failed to provide evidence of privity between CNU of California 7 and CNU Online Holdings. Plaintiff argues the Loan Agreement granted the right of 8 assignment to CNU of California only, but CNU of California did not sign the FFASA. 9 Instead, the only signatory to the FFASA was CNU Online Holdings, and there is no 10 evidence CNU Online Holdings had the right to sign the FFASA on behalf of CNU of 11 California. 12 Contrary to Plaintiff’s argument, California law provides that CNU Online Holdings, 13 as a member of CNU of California, may execute instruments on behalf of CNU of 14 California, and thereby bind CNU of California to the terms of the instrument. California 15 Corporations Code § 177703.01(a).1 Indeed, that is what happened with the Loan 16 Agreement, (see Adamo Decl., Ex. A at 13) (signed by “David Fisher, President, CNU 17 Online Holdings, LLC, as sole member of CNU of California, LLC”) (emphasis added), 18 and the FFASA. (See Adamo Decl., Ex. B at 18) (signed by “David Fisher, Authorized 19 Representative, CNU Online Holdings, LLC, on its own behalf and its capacity as an 20 21 22 1 This statute provides: “Unless the articles of organization indicate the limited liability 23 company is a manager-managed limited liability company, every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any 24 member, including, but not limited to, the execution in the name of the limited liability 25 company of any instrument, for the apparent purpose of carrying on in the usual way the business or affairs of the limited liability company of which that person is a member, binds 26 the limited liability company in the particular matter, unless the member so acting has, in 27 fact, no authority to act for the limited liability company in the particular matter and the person with whom the member is dealing has actual knowledge of the fact that the member 28 1 authorized agent for each of the CNU Affiliates” ) (emphasis added). In light of this statute, 2 there is no need for Defendant to show privity between CNU of California and CNU Online 3 Holdings.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 Case No.: 23cv0086 DMS(KSC) ZACHARY POWELL, Individually and
11 On Behalf of All Others Similarly ORDER DENYING DEFENDANT’S Situated, 12 MOTION TO DISMISS AND Plaintiff, COMPEL ARBITRATION 13 v. 14 UHG I LLC, 15 Defendant. 16 17 This case comes before the Court on Defendant’s second motion to dismiss and 18 compel arbitration. Plaintiff filed an opposition to the motion, and Defendant filed a 19 reply. For the reasons set out below, the motion is denied. 20 I. 21 BACKGROUND 22 The factual background of the case was set out in the Court’s order denying 23 Defendant’s first motion, (ECF No. 46), and is repeated below with modifications based 24 on newly submitted evidence and additional facts relevant to the parties’ arguments. 25 On September 12, 2018, Plaintiff entered into a California Consumer Installment 26 Loan Agreement and Promissory Note with CNU of California, LLC d/b/a CashNetUSA 27 (“Loan Agreement”). (See Decl. of Kieran Long in Supp. of Mot. to Compel Arbitration 28 (“Long Decl.”), Ex. A, ECF No. 21-3.) That Agreement defines “you” and “your” to 1 mean the borrower, i.e., Plaintiff, and “we,” “us,” and “our” to mean CNU of California, 2 LLC d/b/a CashNetUSA. (Id.) The Loan Agreement states, “We may assign or transfer 3 this Loan Agreement or any of our rights hereunder.” (Id.) It also includes a lengthy 4 arbitration provision. (See id.) 5 Before the Loan Agreement was executed, CNU Online Holdings, LLC, which is 6 listed on the Loan Agreement as the “sole member of CNU of California, LLC (d/b/a 7 CashNetUSA),” entered into a Forward Flow Accounts Sale Agreement (“FFASA”) with 8 JTM Capital Management, LLC. (See Decl. of Jacob Adamo in Supp. of Mot. to Compel 9 Arbitration (“Adamo Decl.”), Ex. B, ECF No. 21-2.) The FFASA states CNU Online 10 Holdings is acting “on its own behalf and in its capacity as an authorized agent for each 11 of its wholly-owned domestic subsidiaries listed on Exhibit A to this Agreement[.]” (Id.) 12 CNU of California is listed on Exhibit A as one of those subsidiaries or affiliates. (Id.) 13 Pursuant to the FFASA, CNU Online Holdings agreed to sell certain of its accounts to 14 JTM. (Id.) 15 After the Loan Agreement and the FFASA were executed, JTM entered into an 16 Assignment of the FFASA with its wholly-owned subsidiary UHG, LLC, and CNU 17 Online Holdings. (Adamo Decl., Ex. C, ECF No. 21-2.) Pursuant to that Assignment, 18 JTM assigned its rights under the FFASA to UHG. (Id.) 19 Less than one month later on January 3, 2019, UHG, LLC, executed another 20 Assignment by which it assigned its rights under the FFASA to “its wholly-owned 21 subsidiary,” Defendant UHG I. (Decl. of Jacob Adamo in Supp. of Second Mot. (“Second 22 Adamo Decl.”), Ex. D, ECF No. 49-3.) 23 On October 30, 2019, CNU Online Holdings, on behalf of CNU of California, sold, 24 assigned, and transferred its “rights, title and interest” in Plaintiff’s loan to Defendant. 25 (Second Adamo Decl. ¶ 14, Ex. E, ECF No. 49-3.) 26 On May 19, 2021, Defendant filed a Complaint against Plaintiff for breach of 27 contract and open book account in San Diego Superior Court. (Decl. of Nicholas Barthel 28 in Supp. of Pl.’s Opp’n to Def.’s Second Mot., Ex. 2, ECF No. 50-1.) In that Complaint, 1 Defendant sought damages in the amount of $5,671.62, attorneys’ fees and costs as a 2 result of Plaintiff’s failure to repay his loan. (Id.) The current status of that case is 3 unclear, but it was pending when the present case was filed on January 17, 2023. 4 Defendant has filed an Answer in this case, and the parties have attended an Early Neutral 5 Evaluation Conference (“ENE”) with the Magistrate Judge, and engaged in motion 6 practice and fact discovery. 7 II. 8 DISCUSSION 9 As noted, this is Defendant’s second motion to compel arbitration. The Court denied 10 the first motion because Defendant failed to show it had standing to enforce the arbitration 11 provision in the Loan Agreement. In the present motion, Defendant reiterates that it has 12 standing, therefore the Court should order Plaintiff’s claims to arbitration. Plaintiff again 13 disputes that argument, and raises additional arguments as to why Defendant’s motion 14 should be denied. 15 A. Standing 16 The Court denied Defendant’s first motion to compel arbitration because Defendant 17 did not show it had standing to enforce the arbitration provision. Specifically, the evidence 18 on the first motion reflected a break in the chain of title to the FFASA between UHG, LLC 19 and Defendant UHG I. (ECF No. 46 at 4-5.) 20 In the present motion, Defendant explains the apparent “break” was actually a 21 “scrivener’s error” in the relevant Assignment. (Decl. of Darren Turco in Supp. of Second 22 Mot. ¶ 7, ECF No. 49-2.) Specifically, Defendant’s Chief Executive Officer Darren Turco 23 states the assignor of the FFASA should have read “UHG, LLC” rather than “JTM UHG, 24 LLC.” (Id. ¶ 6.) 25 Plaintiff argues this new evidence creates a factual dispute that can only be resolved 26 through an evidentiary hearing. However, the Court disagrees. Although the Assignment 27 in question lists JTM UHG, LLC as the Assignor, Defendant has presented evidence that 28 this was simply a “scrivener’s error,” and the actual Assignor was UHG, LLC. Plaintiff 1 has failed to present any evidence to dispute Defendant’s explanation of the Assignment, 2 and thus there is no genuine issue of material fact. In light of this new evidence, there was 3 no break in the chain of title to the FFASA, and Defendant does have standing to enforce 4 the arbitration provision. 5 Plaintiff raises an additional argument on standing, namely that Defendant lacks 6 standing because it has failed to provide evidence of privity between CNU of California 7 and CNU Online Holdings. Plaintiff argues the Loan Agreement granted the right of 8 assignment to CNU of California only, but CNU of California did not sign the FFASA. 9 Instead, the only signatory to the FFASA was CNU Online Holdings, and there is no 10 evidence CNU Online Holdings had the right to sign the FFASA on behalf of CNU of 11 California. 12 Contrary to Plaintiff’s argument, California law provides that CNU Online Holdings, 13 as a member of CNU of California, may execute instruments on behalf of CNU of 14 California, and thereby bind CNU of California to the terms of the instrument. California 15 Corporations Code § 177703.01(a).1 Indeed, that is what happened with the Loan 16 Agreement, (see Adamo Decl., Ex. A at 13) (signed by “David Fisher, President, CNU 17 Online Holdings, LLC, as sole member of CNU of California, LLC”) (emphasis added), 18 and the FFASA. (See Adamo Decl., Ex. B at 18) (signed by “David Fisher, Authorized 19 Representative, CNU Online Holdings, LLC, on its own behalf and its capacity as an 20 21 22 1 This statute provides: “Unless the articles of organization indicate the limited liability 23 company is a manager-managed limited liability company, every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any 24 member, including, but not limited to, the execution in the name of the limited liability 25 company of any instrument, for the apparent purpose of carrying on in the usual way the business or affairs of the limited liability company of which that person is a member, binds 26 the limited liability company in the particular matter, unless the member so acting has, in 27 fact, no authority to act for the limited liability company in the particular matter and the person with whom the member is dealing has actual knowledge of the fact that the member 28 1 authorized agent for each of the CNU Affiliates” ) (emphasis added). In light of this statute, 2 there is no need for Defendant to show privity between CNU of California and CNU Online 3 Holdings. Plaintiff’s argument that Defendant lacks standing on that basis is therefore 4 rejected. 5 B. Waiver 6 With standing resolved, the only other issue for the Court is whether Defendant 7 waived its right to arbitration.3 “The right to arbitration, like other contractual rights, can 8 be waived.” Martin v. Yasuda, 829 F.3d 1118, 1124 (9th Cir. 2016) (citing United States 9 v. Park Place Assocs., Ltd., 563 F.3d 907, 921 (9th Cir. 2009)). To show waiver, the party 10 asserting it must demonstrate: “(1) knowledge of an existing right to arbitration and (2) 11 intentional acts inconsistent with that existing right.” Armstrong v. Michaels Stores, Inc., 12 59 F.4th 1011, 1015 (9th Cir. 2023) (citing Hill v. Xerox Business Services, LLC, 59 F.4th 13 457, 460 (9th Cir. 2023)). 14 Here, Plaintiff asserts Defendant knew of its right to compel arbitration since at least 15 May 19, 2021, when it filed its complaint against Plaintiff in state court. Defendant does 16 not genuinely dispute this argument. Instead, it attempts to draw a distinction between 17 knowledge of its right to arbitrate and knowledge of an “existing” right to arbitrate, saying 18 it did not have the latter until Plaintiff filed his Complaint. However, knowledge of a right 19 to arbitrate is not dependent on the filing of a claim. The right to arbitrate exists by virtue 20 21 22 2 CNU of California, LLC is listed as a CNU Affiliate in Exhibit A to the FFASA. 23 3 Plaintiff also argues the Loan Agreement is void because CNU Online Holdings was not a licensed lender under California law. However, CNU Online Holdings was not a party 24 to the Loan Agreement, and thus whether it was licensed is irrelevant. The only parties to 25 the Loan Agreement were Plaintiff and CNU of California, and there is no dispute CNU of California was properly licensed. Even if there was a dispute, that dispute would not be 26 subject to resolution by this Court. Rather, the plain terms of the arbitration provision 27 delegate that issue to the arbitrator. (See Adamo Decl., Ex. A) (stating “any dispute or controversy that concerns the validity or enforceability of the Agreement as a whole is for 28 1 of the Loan Agreement, and there is no dispute Defendant was aware of that Agreement 2 before the present case was filed. Thus, the Court finds Defendant did have knowledge of 3 the right to arbitrate. 4 Turning to the second element, “’[t]here is no concrete test to determine whether a 5 party has engaged in acts inconsistent with its right to arbitrate; rather, [the courts] consider 6 the totality of the parties’ actions.’” Hill, 59 F.4th at 471 (quoting Newirth by & through 7 Newirth v. Aegis Senior Communities, LLC, 931 F.3d 935, 941 (9th Cir. 2019)). In so doing, 8 the relevant question is “whether those actions holistically ‘indicate a conscious decision 9 … to seek judicial judgment on the merits of the arbitrable claim, which would be 10 inconsistent with a right to arbitrate.’” Armstrong, 59 F.4th at 1015 (quoting Hill, 59 F.4th 11 at 473 n.19). 12 Here, there is evidence to support both parties’ arguments. On Plaintiff’s side, 13 Defendant did not file a motion to compel arbitration in response to Plaintiff’s Complaint, 14 but instead filed an Answer, which did not raise arbitration as an affirmative defense. 15 Defendant also participated in preparation of the parties’ Rule 26(f) Report, attended an 16 ENE conference with the Magistrate Judge, opposed Plaintiff’s motion for leave to file an 17 amended complaint, jointly requested an extension of time to complete discovery, in which 18 there was no mention of arbitration, and engaged in initial discovery, including sending 19 discovery to Plaintiff, responding to discovery from Plaintiff, taking Plaintiff’s deposition, 20 and defending its Person Most Knowledgeable (“PMK”) deposition. Defendant also 21 waited nearly seven months after the Complaint was filed before filing its first motion to 22 dismiss and compel arbitration. 23 For its part, Defendant states it requested a stay of discovery, which was filed after 24 it filed its motion to compel arbitration, and after that motion was denied, Defendant filed 25 an objection to that denial. Defendant also asserts it has only “minimally participated” in 26 this litigation, (Reply at 5), and has not attempted to litigate the merits of this case. (Id. at 27 6.) 28 / / / 1 Considering these actions as whole, they clearly weigh in favor of a finding that 2 Defendant has engaged in acts inconsistent with its right to arbitrate. As noted, although 3 Defendant knew of its right to compel arbitration, it did not assert that right until nearly 4 seven months after Plaintiff filed his Complaint. Rather than filing a motion to compel 5 arbitration in response to the Complaint, Defendant chose to file an Answer, which did not 6 assert arbitration as an affirmative defense. Defendant then entered into the discovery 7 process, attended an ENE, opposed Plaintiff’s motion for leave to file an amended 8 complaint, and engaged in discovery, including taking Plaintiff’s deposition and defending 9 the deposition of its PMK. Similar to Defendant’s decision to file a complaint against 10 Plaintiff in state court,4 Defendant’s conduct in this case has been inconsistent with its right 11 to arbitrate. Because Plaintiff has shown the two elements are met—knowledge of a right 12 to arbitrate and intentional acts inconsistent with that right—the Court finds Defendant has 13 waived its right to arbitrate this case. 14 / / / 15 / / / 16 / / / 17 / / / 18 19 20 4 The filing of the state court complaint is clearly an act inconsistent with Defendant’s right 21 to arbitrate. Leo Middle East FZE v. Zhang, No. 21-cv-03985-CRB, 2022 WL 207663, at *4 (N.D. Cal. Jan. 24, 2022) (finding plaintiffs’ decision to file a complaint with the court 22 indicates they did not wish to exercise their right to arbitrate); see also Haliburton Int’l 23 Foods, Inc. v. Marasco, No. EDCV 20-1069 JGB (SHKx), 2020 WL 7872126, at *2 (C.D. Cal. Dec. 3, 2020) (stating plaintiff’s decision to pursue arbitrable claims in federal court 24 was inconsistent with right to arbitrate); Steiner v. Horizon Moving Systems, Inc., No. 25 EDCV 08-682-VAP (CTx), 2008 WL 4822774, at *3 (C.D. Cal. Oct. 30, 2008) (same); Erdman Co. v. Phoenix Land & Acquisition, LLC, 650 F.3d 1115, 1118 (8th Cir. 2011) 26 (same); Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1090 (8th Cir. 2007) 27 (quoting Ritzel Communications v. Mid-Am. Cellular Tel. Co., 989 F.2d 966, 969 (8th Cir. 1993)) (“A party acts inconsistently with its right to arbitrate if the party ‘[s]ubstantially 28 1 II. 2 CONCLUSION AND ORDER 3 In light of the above, the Court finds Defendant has standing to enforce the 4 |\arbitration provision of the Loan Agreement, but that it waived its right to do so. 5 || Accordingly, Defendant’s second motion to compel arbitration is denied. 6 IT IS SO ORDERED. 7 Dated: May 21, 2024 em Dh 8 an Yn. Hon. Dana M. Sabraw, Chief Judge ? United States District Court 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28