Keeping Tabs on the Ninth Circuit
July 28, 2023 - This Week at the Ninth

This Week at the Ninth: Arbitration Estoppel and ADA Fees

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This week, the Court addresses a plaintiff’s ability to opt out of an arbitration provision after the district court has compelled arbitration and considers a court’s power to award fees under the Americans with Disabilities Act (ADA) after the plaintiff’s suit has been dismissed for lack of Article III standing.

The panel: Judges S.R. Thomas, H. Thomas, and Rakoff (S.D.N.Y), with Judge S.R. Thomas writing the opinion.

Key highlight: “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. Thus, absent estoppel, Discover would derive an unfair advantage.” (Quotation marks and alteration omitted).

Background: Plaintiff Iliana Perez applied for and received a student loan from Citibank in 2010, signing an agreement that contained an arbitration provision. Discover Bank subsequently acquired ownership of that loan. Perez applied to refinance her loan with Discover in 2018. Her application contained another arbitration provision. It also included a provision allowing her to opt out of that arbitration provision “within 30 days after consummation of the loan.” Discover denied her application to refinance the loan, allegedly on the ground that Perez is an undocumented immigrant.

Perez, on behalf of a putative nationwide class, brought suit against Discover for discriminating against her on the basis of her immigration status. Discover moved to compel arbitration, and the district court initially granted the motion based on the arbitration provision in Perez’s 2018 application to refinance her loan.  Perez then notified Discover that she was exercising her right to opt out of that arbitration agreement, and she sought reconsideration of the district court’s order. The court granted reconsideration and denied Discover’s motion to compel arbitration. 

Result: The Ninth Circuit affirmed. First, the Court rejected Discover’s argument that Perez’s ability to opt out of the arbitration requirement in the 2018 application could not apply to her already-filed discrimination claims, holding that Discover was judicially estopped from making this argument. As the Court explained, in the initial hearing on Discover’s motion to compel arbitration, Discover’s counsel had represented that the deadline for Perez to opt out had not yet passed even with respect to her discrimination claim. The district court had relied on that representation in concluding that the 2018 arbitration agreement was not unconscionable. Because Discover would “derive[] an unfair advantage from taking two contradictory positions,” the Ninth Circuit held it could not compel arbitration based on the 2018 agreement.

Second, the Court also rejected Discover’s argument that it could enforce the arbitration provision contained in the original 2010 agreement with Citibank. In that contract, Perez had agreed only that “either party could submit to arbitration any case, controversy, etc. ‘arising out of or in connection with [Perez’s Citibank] loan.’” The Ninth Circuit held it would be “absurd” to conclude that this provision encompassed Perez’s claim again Discover, as Perez “could not reasonably have expected that she 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.” (Alterations and quotation marks omitted). And, the Court continued, because that 2010 agreement was not the contract relevant to Perez’s claims, there was likewise no reason to enforce its provision delegating questions of arbitrability to the arbitrator. 

The Court holds that courts cannot award attorneys’ fees under the ADA after a jurisdictional dismissal.

The panel: Judges Smith, Desai, and Amon (E.D.N.Y), with Judge Desai writing the opinion.

Key highlight: “Today we make explicit what we have implicitly recognized in our prior decisions to provide litigants and courts with clarity regarding the ADA’s fee provision. A court that dismisses an ADA claim for lack of standing also lacks jurisdiction to award attorneys’ fees under the ADA’s fee provision, 42 U.S.C. § 12205.”

Background: Plaintiff Antonio Fernandez brought a claim under the ADA against Malibu Road, a lighting and design store, alleging that the store aisles were too narrow for wheelchair users like himself. At summary judgment, Malibu produced unrebutted evidence that Fernandez had never visited the store. The district court dismissed his claim for lack of standing. The district court subsequently granted Malibu Road’s request for attorneys’ fees under the ADA’s fee provision, finding that Fernandez’s action was frivolous. Fernandez appealed the fee award.

Result: The Ninth Circuit reversed. The Court held that the district court lacked jurisdiction to award attorneys’ fees once it determined Fernandez lacked Article III standing. As the Court explained, the Ninth Circuit has “implicitly recognized that fees cannot be awarded under the ADA when the underlying case was dismissed for lack of standing.” The Court distinguished the ADA’s fee provision from certain other wholly procedural statutes that expressly authorized courts to award costs and fees when an action is dismissed for lack of jurisdiction, which had therefore been held “to provide an independent basis for awarding costs or fees even if the court lacks jurisdiction over the merits of the underlying action.” While the ADA did not allow for fees in these circumstances, the Court observed that Rule 11 still “provides an avenue for defendants to seek fees against plaintiffs who bring frivolous lawsuits.”