Second Circuit Remands Fensterstock v. Education Finance Partners

On June 30, 2011, the U.S. Court of Appeals for the Second Circuit remanded Fensterstock v. Education Finance Partners for initial consideration of the arbitration issues. Fensterstock involves a class-action and class-arbitration waiver provision in a promissory note of a law student loan. Read more here.

Following is the summary order:

In Fensterstock v. Education Finance Partners, 611 F.3d 124 (2d Cir. 2010) (“Fensterstock II“), vacated and remanded, 131 S. Ct. —. (2011), No. 10-987, 2011 WL 338870 (U.S. June 13, 2011), this Court affirmed the judgment of the United States District Court for the Southern District of New York, see 618 F.Supp. 2d 276 (2009) (“Fensterstock I“), denying defendants’ motion to compel arbitration, holding that the arbitration clause of the promissory note at issue was, because of its class-action and class-arbitration waiver provision, unconscionable under Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P.3d 1100 (2005)(“Discover Bank“), and its progeny. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court of the United States ruled that “California’s Discover Bank rule is preempted by the [Federal Arbitration Act, 9 U.S.C. § 1 et seq.].” 131 S. Ct. at 1753. Accordingly, the Supreme Court has vacated this Court’s decision in Fensterstock II and remanded for further consideration in light of AT&T Mobility LLC v. Concepcion. See Affiliated Computer Services. Inc. v. Fensterstock, 131 S. Ct. — (2011 ), No. 10-987, 2011 WL 338870 (U.S. June 13, 2011) (“Fensterstock III“).

In Fensterstock II this Court, having ruled that the arbitration clause was unenforceable under Discover Bank, declined to reach either (a) plaintiffs contention that defendant-appellant Affiliated Computer Services, Inc. (“ACS“), as a nonparty to the agreement containing the arbitration clause, lacks standing to compel plaintiff to submit his claims to arbitration, or (b) ACS’s contention that plaintiff, who asserts claims against ACS under that agreement, is estopped from raising that standing issue. See Fensterstock II, 611 F.3d at 130-32. Because the Discover Bank rationale is no longer viable, and because the district court in Fensterstock I likewise had not reached the merits of plaintiffs standing contention or ACS’s defense to that contention, see 618 F.Supp.2d at 280, we hereby REMAND this matter to the district court for initial consideration of those arbitrability issues, as well as any other issues that are not foreclosed by Fensterstock III. Any new appeal in this matter from the district court’s decision on the remanded issues as to arbitrability shall be referred to this panel.

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