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Justin A. Kuehn, On Behalf of Himself and All Others Similarly Situated v. Citibank

December 6, 2012


The opinion of the court was delivered by: Denise Cote, District Judge


Defendants Citibank, N.A. ("Citibank"), The Student Loan Corporation ("SLC"), and Discover Bank ("Discover") move pursuant to the Federal Arbitration Act to compel plaintiff Justin A. Kuehn ("Kuehn") to arbitrate his claims for breach of contract, violation of N.Y. Gen. Bus. L. § 349, and N.Y. Gen. Bus. L. § 350 against the defendants. Kuehn argues that the arbitration agreement contained in his loan agreement is unconscionable and thus unenforceable. For the following reasons, the defendants' motion to compel arbitration is granted and this action is stayed pending resolution of the arbitration.


On November 13, 2007, Kuehn electronically submitted a Private Consolidation Loan Application with SLC. In this application, Kuehn sought to consolidate four private student loans. As part of the on-line application process, the plaintiff was required to view the application itself, a promissory note and a conditional approval letter. The application contained a section entitled "Signatures" directly above the signature box where the customer was permitted to electronically sign the application by clicking on a box. The "Signatures" section provided as follows:

I promise to pay Citibank, N.A. or any other holder of the accompanying promissory note (the "Note") all sums disbursed under the terms of this application (the "Loan") plus interest, fees and other charges which may become due as provided for by the Note. The terms and conditions of this application, the Note, any Conditional Approval Letter and any other disclosures collectively constitute the entire agreement between you and me.

The plaintiff submitted the loan application on November 13, 2007. In an approval letter dated December 7, 2007, Citibank approved the plaintiff's application. The approval letter stated that "[t]his approval letter, together with your Application/Promissory Note, constitutes the entire agreement between you and us with respect to your Private Consolidation Loan that you requested."

The parties do not dispute that the promissory note is part of the loan agreement between the parties. The parties also do not dispute that the promissory note contains an arbitration agreement. The arbitration agreement contains the following language:

Agreement to arbitrate:

You and I agree that either you or I may, without the other's consent, require that any Claims between you and me be submitted to mandatory, binding arbitration except for certain matters excluded below. This arbitration provision is made pursuant to a transaction involving interstate commerce, and shall be governed by, and enforceable under, the Federal Arbitration Act (the "FAA"), 9 U.S.C. §1 et seq., and (to the extent State law is applicable), the State law governing this transaction.

Claims subject to Arbitration include, but are not limited to: Claims relating to . . . the application, enforceability or interpretation of my Account, including this arbitration provision. (Emphasis supplied.) The arbitration agreement defines the word "claim" to mean "any case, controversy, dispute, tort, disagreement lawsuit or claim now or hereafter existing between you and me arising out of or in connection with my loan," and the word "account" to mean "my agreement with you as evidenced by the loan application and Note along with any and all records or transactions related thereto."

The original balance of the Consolidated Private Student Loan was $99,148.19 with an annual interest rate of 9.55%. The plaintiff enrolled in an auto-debit payment program offered by Citibank and SLC. Pursuant to this program, the plaintiff's monthly payments under the Consolidated Private Student Loan are automatically deducted from the plaintiff's checking account each month. The plaintiff began making monthly payments on the Consolidated Private Student Loan of $845.72 in either December 2007 or January 2008. In addition to his monthly payments, the plaintiff made three large payments by check to SLC towards the principal of the Consolidated Private Student Loan. These payments, which were made in April 2008, June 2008, and June 2009, totaled $25,000. Following June 2009, the plaintiff has not made a payment in excess of the auto-debited monthly minimum payment. In late 2011, the plaintiff received a notice from Citibank that his Consolidated Private Student Loan had been sold to Discover, but that Citibank would remain the loan's servicer.

In January of 2012, the defendants reduced the plaintiff's auto-debited monthly payment from $845.72 to $539.27. The plaintiff's January 2012 monthly statement from SLC provided the following notification: "The variable interest rate on your student loan has changed. Your monthly payment has been adjusted to reflect the new interest rate, as stated above." On at least two occasions, the plaintiff requested an explanation from SLC of why his auto-debit payments were reduced. Sometime in January 2012, the plaintiff received a letter from Citibank with the following explanation:

Prior to your loan payment amount being adjusted in December 2011, your payment schedule was last changed in January 2008. Between those two adjustments, we received three payments larger than your monthly minimum due totaling approximately $25,000.00. Your payment schedule was then systematically adjusted in December 2011 for the full remaining repayment term with a payment amount based on the reduced principal balance.

On April 25, 2012, the plaintiff filed a complaint in this court against the defendants. The complaint asserts claims for breach of contract, and violations of New York General Business Law ยงยง 349 and 350. The plaintiff alleges that the defendants are engaged in a scheme to collect additional interest at the expense of borrowers of student loans by deceiving borrowers into believing that their monthly payments have been reduced because of an interest rate reduction, when in fact, the majority of the payment reduction is due to a reduction in the amount of principal being repaid each month. On August 16, the defendants filed a motion to compel arbitration of the plaintiff's claims and to stay the action pending completion of the arbitration proceedings. In their motion, the ...

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