California Mediation and Arbitration

Public Injunctive Relief Means Case Is Not Arbitrable Under McGill Rule

McGill Lives On When California Law Applies.

        In Kramer v. Coinbase, Inc., A167779 (1/3  pub. 10/4/24) (Petrou, Tucher, Fujisaki), plaintiffs filed a lawsuit against Coinbase, Inc. for public injunctive relief under California's Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law. Plaintiffs alleged Coinbase misrepresented the security of its platform, misleading the public and leading it to believe it was highly secure. This lawsuit seeks to stop Coinbase's alleged deceptive security claims directed at the public. Coinbase moved to compel arbitration based on the user agreement’s arbitration clause, arguing plaintiffs' relief was private and thus arbitrable. The trial court denied Coinbase’s motion, interpreting plaintiffs' request as public injunctive relief, which is non-arbitrable under California’s McGill rule, allowing claims for public injunctive relief to remain in court rather than arbitration. Coinbase appealed, contending the claims were private.

        Affirmed.The appellate court upheld the trial court's decision, agreeing that the complaint seeks public injunctive relief as it aims to prevent future public deception about Coinbase's security measures rather than solely benefiting existing users.

        Comment: Coinbase continues to generate published opinions. See our Sept. 27, 2024 post.

Arbitration, Public Injunctive Relief: Predispute Arbitration Provision Cannot Make Claimant Waive Right To Public Injunctive Relief

McGill Lives. 

        California's McGill case, about which we have posted before¹, holds a predispute arbitration provision waiving a plaintiff’s right to seek public injunctive relief is “contrary to California public policy and is thus unenforceable under California law.” The McGill holding is enforced again in Ramsey v. Comcast Cable Communications, LLC, H049949 (6th Dist.  pub.  1/29/24) (Greenwood, Grover, Lie).

        Charles Ramsey sued Comcast Cable Communications alleging various violations of consumer protections. He alleged that Comcast misleads the public with information about its promotional prices. Apparently Ramsey was able to contact Comcast yearly when his service contract was about to expire, and renegotiate the contract, getting pretty much the same promotional deal. The art of the deal!

        Anyway, Comcast petitioned unsuccessfully to compel arbitration. Ramsey argued that he sought public injunctive relief, and could not be bound to a predispute arbitration agreement requiring a waiver of such relief. Comcast argued that the injunctive relief Ramsey requested would only benefit a discrete group of existing subscribers rather than the public. The trial court disagreed with Comcast and so did the Court of Appeal.

        The opinion explains that the relief requested by Ramsey could benefit potential subscribers to the service if it meant that they would receive more accurate information. And: "An injunction that benefits both subscribers and potential subscribers is a public injunction."

¹ We have a sidebar category for Arbitration: Public Injunctive Relief. You can click on the link to find other cases mentioning McGill.

Public Injunctive Relief: First District Div. 1 Holds McGill Rule Remains The Law In California

McGill v. CitiBank Held An Arbitration Agreement Is Invalid And Unenforceable If It Waives A Party's Statutory Right To Seek Public Injunctive Relief.

        Ring sells home security and smart home devices. Brandon Jack and others sued Ring, requesting injunctive relief to require Ring to prominently disclose certain things to consumers. Ring moved to compel arbitration, lost its motion, and appealed. Affirmed. Jack v. Ring LLC, A165103, A165386 (1/2  5/25/23) (Miller, Richman, Markman). McGill v. CitiBank, 2 Cal. 5th 945 (2017), is still good California law.

        COMMENT: See our sidebar category Arbitration: Public Injunctive Relief, for other posts on the case.

Scope Of Arbitration Agreement Did Not Encompass Pre-Employment Disputes

Court of Appeal Also Held That Trial Court Properly Declined To Require Arbitration Of  FEHA Claim For "Public Injunction."

        Defendant and Appellant Tesla, Inc. -- you've probably heard of the company -- appealed from denial of Tesla's motion to compel arbitration as to employees Chatman and Hall, plaintiffs. Marcus Vaughn et al v. Tesla, Inc., A164053 (1/5   1/4/23) (Simons, Burns, Wiseman). Plaintiffs alleged that they and other Black employees had been discriminated and harassed while working at Tesla.

        The wrinkle to this case is that, while an arbitration agreement provided all "disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration . . . ", the agreement did not cover pre-employment claims. And Chatman and Hall claimed some claims arose pre-employment, at a time when a hiring agency had provided them as workers to Tesla. So the trial court concluded that Chatman and Hall were required to arbitrate claims after they became employees, but not before. 

        The Court of Appeal affirmed the order denying arbitration in part and allowing arbitration in part. The Court also agreed that the trial court properly declined to mandate arbitration of plaintiffs' claim for a public injunction for two reasons: "First, we hold that injunctions sought under the Fair Employment  Housing Act (FEHA) (Gov. Code, §§ 12900 et seq.) may be considered 'public injunctions.' Second, we rule the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.), as interpreted in Viking River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct. 1906, 213 L.Ed.2d 179] (Viking River), does not preempt the California rule prohibiting waiver of the right to seek such injunctions."

Arbitration, Internet Commerce: Fourth District, Div. 1 Enforces Arbitration Provision In Sign-In Wrap Contract

Sign-In Wrap Contracts Are Hybrids Of Browserwrap (Hard To Enforce) And Clickwrap (Easier To Enforce) Contracts.

        B.D., a minor, and his father sued the videogame company Blizzard, contending that the game Overwatch encouraged gambling. Specifically, they alleged Overwatch used “real money” to make in-game purchases of “Loot Boxes”—items that offer “randomized chances . . . to obtain desirable or helpful ‘loot’ in the game.” The trial court denied Blizzard's motion to compel arbitration. The Court of Appeal reversed, applying the test  in Sellers that the existence of a contract turns “on whether a reasonably prudent offeree would be on inquiry notice of the terms at issue.”  The Court of Appeal also held that whether the contract made public injunctive relief unavailable, such that  the arbitration provision could not be enforced under the McGill rule, was a gateway issue that had been clearly and unmistakably delegated to the arbitrator to decide. B.D. v. Blizzard Entertainment, Inc., D078506 (4/1  3/29/22) (Haller, Huffman, Irion).

        The decision is very fact specific. It seems to this reader that a little confusion was introduced by a screenshot of a pop-up that required clicking on a "CONTINUE" button to proceed. The visible part of the screenshot refers to a Dispute Resolution provision "below". However, because the screenshot in the opinion is static, one does not see the Dispute Resolution provision "below". And presumably B.D. and his father, looking at the pop-up, would not have seen the entire license agreement unless they scrolled through the pop-up. But the pop-up allows scrolling to the end, in which case one can read the entire Blizzard license, which contains a blue hyperlink to the terms of  the dispute resolution provision. The Court of Appeal believed there was a clear and unmistakable incorporation by reference of  the dispute resolution provisions. The Court also observed that Sellers and other decisions take context into account, and are more likely to enforce a sign-in wrap agreement when the commercial transaction involves a "continuing, forward-looking relationship," as was the case here with a minor who continued to play the game during several updates of  the agreement with Blizzard.

        COMMENTS: The plaintiff was a minor, and it is hard to believe that he was capable of giving consent. However, B.D. acknowledged that a parent or guardian had reviewed and agreed to the license agreement. Of course, it is a central principle that arbitration is  contractual, voluntary, and requires agreement. And that principle requires assuming responsibility for  reading a contract, understanding it, following an incorporation by reference, and reading and understanding the terms of the dispute resolution provision. Like the law of contract in general, the law governing enforceability of arbitration provisions relies on legal fictions. Justices of the Court of Appeal, after proper briefing, read the contract, understand it, follow the incorporation by reference, and read and understand the terms of the dispute resolution provision. Are you a gamer and do you do that? Are you a lawyer and a gamer, and do you do that? Are you a judge and a gamer, and do you do that at home, outside the courtroom?

        On April 5, 2022, we posted about the 9th Circuit decision holding a sign-in wrap agreement did not result in binding arbitration, Berman v. Freedom Financial Network. Because these cases concerning wrap contracts are fact-specific, we can expect to see more of them unless and until commerce uses standardized clauses that pass muster with the courts.

Arbitration, Public Injunctive Relief: Ninth Circuit Holds Non-Waivable Public Injunctive Relief Must Be Forward Looking And Benefit The General Public

Judge Berzon Dissents.

        Plaintiff Brandon Hodges brought a putative class action against Comcast, challenging its privacy and data-collection practices and seeking injunctive relief. The trial court denied Comcast's motion to compel arbitration, on the ground that Hodges sought public injunctive relief that could not be waived with an agreement to arbitrate. The Ninth Circuit panel remanded with instructions to  grant the motion. Judge Berzon dissented. Hodges v. Comcast, No. 19-16483 (9th Cir.  9/10/21) (Collins, VanDyke; Berzon, dsst.).

        The majority and dissenting opinions rely on whether Hodges was seeking "public injunctive relief," because California's "McGill rule" is that a party seeking public injunctive relief cannot waive the right to go to court. California Civil Code §3513 provides: "Any one may waive the advantage of a law intended solely for  his benefit. But a law established for a public reason cannot be contravened by a  private agreement."

        "[P]ublic injunctive relief within the meaning of McGill," writes Judge Collins, "is limited to forward-looking injunctions that  seek to prevent future violations of law for the benefit of the general public as a whole, as opposed to a particular class of persons, and that do so without the need to consider the individual claims of any non-party." The majority's view is  that Hodges' requested relief was for past wrongs, and would have benefited a limited private class; thus, public injunctive relief is not  at issue. And if the injunctive relief requested by Hodges requires an individualized look at claims, then the speed, efficiency, and economy of arbitration would be undermined, and the Federal Arbitration Act would preempt an expansive interpretation of the McGill rule that would undermine the purpose of arbitration.

        Judge Berzon dissents, pointing out that the injunctive relief requested by Hodges includes rewriting Comcast contracts, that such relief is forward looking, and that such relief would benefit a large swath of the  public, given that "Comcast reportedly had 2.2 million subscribers in the state, or 40% of the state cable market."  "At a minimum, in keeping with the liberal construction given to California's consumer protection statutes," writes Judge Berzon, "public injunctive relief must also include injunctions affecting the contract terms a business may offer to potential customers."

        COMMENT: It is sometimes said that  liberal judges want to keep the door to the federal  courthouse wide open (for every wrong there is a remedy), whereas conservative judges want to shut the door to prevent a flood of cases. So is it noteworthy in Hodges v. Comcast that Collins and VanDyke are  Trump appointments, and Berzon is a Clinton appointment?

 

Arbitration, Public Injunctive Relief: 9th Circuit Holds Arbitration Provision Allowing For Public Injunctive Relief, While Prohibiting Private Attorneys General, Is Enforceable

Arbitration Provision Allowing For Public Injunctive Relief Does Not Violate McGill Rule.

        The so-called McGill rule states California’s legal requirement that contracts allow public injunctive relief. So what happens if a contract requires arbitration of disputes, provides for all remedies in arbitration, and further provides that the claimant cannot act as a private attorney general? Put another way, can a claimant request public injunctive relief in California, without acting as a private attorney general? If the answer is yes, the arbitration clause is enforceable. If the answer is no, the arbitration clause is not enforceable. Yes, says the Ninth Circuit in DiCarlo v. MoneyLion, Inc., et al., No. 20-55058 (9th Cir.  2/19/21) (Thapar, Bea, Collins).

        Plaintiff DiCarlo brought claims under unfair competition law, false advertising law, and the Consumers Legal Remedies Act law against a lender being accused of predatory practices. The lender MoneyLion successfully moved to compel arbitration, and the Ninth Circuit affirmed. The key to enforcing the arbitration provision is that it provided for all remedies, including public injunctive relief: "In California, litigants proceeding in individual lawsuits may request public injunctive relief without becoming private attorneys general. That means that public injunctive relief is available to DiCarlo in arbitration with MoneyLion. Since the arbitration provision does not violate the McGill rule, it is valid."

        COMMENT: What  happens to attorneys fees if the claimant, who is prohibited by the contract from suing as a private attorney general, is entitled to obtain relief under the UCL, FAL, or CLRA? Technically, this case may not answer the question, because Judge Thapar points out that the plaintiff did not ask for attorneys fees. Thus, any comments about attorneys fees would be dictum. "In any case, we have no reason to think that the availability of public injunctive relief could hinge on whether those fees are up for grabs," writes Judge Thapar, adding, "Nor do we read the Agreement to bar any claims that could support fee shifting in court."  And so?