District Court (Cal.) Rejects Plaintiff’s Strategy of Litigating State Court Rosenthal Act Claim to Obtain Waiver of Right to Arbitrate Federal Claim under Clause Containing a Class Action Waiver

In Gillette v. First Premier Bank, 2013 WL 3205827 (S.D.Cal. 2013), Plaintiff’s counsel employed a strategy purportedly designed to secure a waiver of arbitration clause.  Plaintiff filed a small-value Rosenthal Act claim and settled it with the defendant.  However, Plaintiff also had filed a federal class action under Penal Code 632 — California’s call recording statute.  Defendant moved to compel arbitration of the federal class claim, that contained a class action waiver.  Plaintiff argued that the state court settlement novated the credit card agreement that contained the arbitration clause, and that defendant waived the right to arbitrate by litigating the state court case in state court.  The District Court disagreed.

Gillette wants to argue that the settlement agreement from his Superior Court action for violations of the Rosenthal Fair Debt Collection Practices Act novated the credit card contract and is now the only binding contract the parties have. The Court agrees with First Premier that this is a specious argument. Actually, that’s a generous description.  A novation “is the substitution of a new obligation for an existing one.” Cal. Civ.Code § 1530. The parties’ intent to make this substitution is paramount, and it must be clear. Fanucchi & Limi Farms v. United Agri Prods., 414 F.3d 1075, 1081–82 (9th Cir.2005). This is all the law the Court needs, really, to reject Gillette’s novation claim. By its own terms, as First Premier points out, the settlement agreement is limited to the actual dispute over Gillette’s credit card debt and First Premier’s allegedly harassing collection practices in the Superior Court case, which is obviously not the dispute in this case: “This Agreement is executed by the Settling Parties for the sole purpose of compromising and settling the claims in issue in the Dispute.” (Doc. No. 11–3 at ¶ 3.0.) Even those portions of the settlement agreement that Gillette relies on cut against its argument. For example, the settlement agreement also says, “This Agreement constitutes the full and entire Agreement between the Settling Parties hereto with regard to the settlement of the Dispute and such Settling Parties acknowledge that there is no other agreement, oral and/or written, between the Settling Parties hereto with regard to the settlement of the Dispute.” (Doc. No. 11–3 at ¶ 4.1.) There again, it’s plain that the settlement agreement concerns only the particular dispute being settled, and in no conceivable way can or should be read to replace the credit card contract as the operative contract between the parties.  Gillette also throws out the argument that because First Premier didn’t try to force arbitration of the Superior Court case, it has waived its right to invoke the arbitration provision of the credit card contract in this case. This is also a specious argument. Perhaps, to the extent First Premier intended to settle with Gillette at the outset of the Superior Court case, it simply made no economic sense to pursue arbitration. But regardless of First Premier’s reason for staying in court previously, it still retains the right to pursue arbitration now. See Bischoff v. DirecTV, Inc. ., 180 F.Supp.2d 1097, 1113 (C.D.Cal.2002) (“In addition, to hold that defendant can no longer assert its right to compel arbitration simply because it did not assert that right in another case is absurd.”).