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Baugh-Scott v. Sallie Mae, Inc.

United States District Court, S.D. New York

October 30, 2014

SALLIE MAE, INC., Respondent. Petitioners,


JESSE M. FURMAN, District Judge.

Rhona Baugh-Scott and Nitor V. Egbarin (together, "Petitioners") petition to vacate an arbitration award (the "Award") rendered by Arbitrator Michael Einbinder (the "Arbitrator") on February 4, 2014, in favor of Navient Solutions, Inc., formerly known as Sallie Mae, Inc. (and referred to herein, to avoid confusion, as "Sallie Mae"). (Docket Nos. 2, 24). The arbitration concerned Petitioners' request to defer payments on two private student loans they obtained to finance their son's undergraduate education, which were serviced by Sallie Mae. They contend, among other things, that the Arbitrator committed misconduct in various ways and acted in manifest disregard of the law. For the reasons explained below, the petition is DENIED.


The relevant background is undisputed and can be explained briefly. As noted, Petitioners obtained private student loans from Sallie Mae to finance Egbarin's son's undergraduate education. When Petitioners' son was admitted to law school in 2013, they requested to defer payments on the loans. Sallie Mae ultimately granted the request, but only as of the date when Petitioners' son actually began attending classes. ( See generally Additional Decl. Counsel Supp. Pet. To Vacate Arbitration Award & To Void Arbitration Clause ("Egbarin Additional Decl.") (Docket No. 9), Ex. 2; Opp'n Pet. To Vacate Arbitration Award (Docket No. 23) 1-2).

In August 2013, Petitioners filed a complaint with the American Arbitration Association ("AAA"), which they amended once (the "Amended Complaint"). They argued that Sallie Mae was obligated to grant them a deferral upon their son's admission to law school. (Decl. Counsel Supp. Pet. To Vacate Arbitration Award & To Void Arbitration Clause ("Egbarin Decl.") (Docket No. 3) Ex. 4). Petitioners took the position that their Amended Complaint should be administered according to the AAA's rules for "Large, Complex Commercial Disputes" ("Commercial Arbitration Rules") (Egbarin Additional Decl., Ex. 5 at 1). Sallie Mae, however, contended that the dispute was governed by the AAA Supplementary Procedures for Consumer Related Disputes ("Supplementary Procedures"). ( Id., Ex. 6 at 1-2). Ultimately, the AAA agreed with Sallie Mae, and the case proceeded under the Supplementary Procedures. ( Id., Ex. 8 at 19; id., Ex. 9).

The case was assigned to the Arbitrator in November 2013. (Egbarin Decl., Ex. 11 at 1). After a one-day hearing in January 2014, the Arbitrator ruled in Sallie Mae's favor. ( Id., Ex. 14). To the extent relevant here, the Arbitrator rejected Petitioners' breach-of-contract claims because (1) the promissory notes gave Sallie Mae discretion with regard to whether to grant a deferral at all, (2) Petitioners were not entitled to a deferral until their son started classes, and (3) Petitioners had not submitted the necessary paperwork to obtain a deferral. ( Id., Ex. 14 at 1). The Arbitrator rejected Petitioners' other claims - including claims under the Connecticut Unfair Trade Practices Act ("CUTPA"), the Fair Credit Reporting Act ("FCRA"), and the Telephone Consumer Protection Act ("TCPA") - on the ground that they were "all premised on the allegation that [Sallie Mae] was required [by contract] to provide deferral, which is not the case." ( Id. ). Petitioners filed this action on May 1, 2014, asking the Court to vacate the Award and void the arbitration clause in its contract with Sallie Mae. (Docket No. 2).


Under Section 9 of the Federal Arbitration Act ("FAA"), Title 9, United States Code, Sections 1-16, a reviewing court must confirm an arbitration unless one of the statutory grounds for vacatur or modification is satisfied. See 9 U.S.C. § 9; see also STMicroelectronics, N.V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68, 74 (2d Cir. 2011). Section 10 of the FAA, in turn, establishes four instances in which a court may vacate an arbitral award

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a). In addition, the Second Circuit has held that a court may vacate an award "if [it] find[s] a panel has acted in manifest disregard of the law." Porzig v. Dresdner, Kleinwort, Benson, N.A. LLC, 497 F.3d 133, 139 (2d Cir. 2007). A court may vacate an award on that basis, however, only in "those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent." T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d Cir. 2010) (internal quotation marks omitted).[1]

Significantly, "[a]rbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Rich v. Spartis, 516 F.3d 75, 81 (2d Cir. 2008) (quoting Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997)). Among other things, the "party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation is very high." STMicroelectronics, 648 F.3d at 74 (quoting D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006)). Moreover, "[t]he arbitrator's rationale for an award need not be explained, and the award should be confirmed if a ground for the arbitrator's decision can be inferred from the facts of the case." D.H. Blair & Co., 462 F.3d at 110 (internal quotation marks and citations omitted). Deference to the arbitrators' interpretation of contracts is especially strong. Indeed, "as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his ...

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