The UCL Practitioner

Class certification not required for broad-ranging "public" injunctive relief under the UCL: McGill v. Citibank, N.A.

This morning, the California Supreme Court handed down its long-awaited opinion, McGill v. Citibank, N.A., ___ Cal.5th ___ (Apr. 6, 2017). 

In McGill, the Court was expected to address whether the Federal Arbitration Act, as construed in Concepcion, preempts the Broughton-Cruz rule (see this blog post for more on that rule).  However:

[I]t is now clear that the Broughton-Cruz rule is not at issue in this case.  As detailed above, late in the Court of Appeal proceedings, McGill asserted that the arbitration provision purports to preclude her from seeking public injunctive relief in any forum.  She repeats that assertion in this court ....   At oral argument before us, Citibank agreed with McGill’s reading of the arbitration provision.

Slip op. at 7 (emphasis in original).

Accordingly, the opinion addressed whether such a contractual provision—one purporting to completely eliminate the right to seek public injunctive relief under the UCL, FAL, and CLRA—was void, under ordinary contract-law principles, as contrary to public policy.  The Court held that it was.  Id. at 14. 

The opinion then addressed whether the FAA, construed in Concepcion, preempted this principle of California contract law.  It held that Concepcion did not.  Slip op. at 14-22. 

Here's the part that's really interesting.   The opinion addresses, at length, whether Prop. 64 eliminated the ability of private plaintiffs to seek broad-ranging public injunctive relief.  Not only did the Court say "no" to that (id. at 10-14), it also held that class certification is not required of a UCL or FAL claim seeking such relief!  Id. at 13-14. 

This has been an open question for the past twelve years, since Prop. 64 passed in November 2004.  (For example, see this 2005 blog post, this one from 2006, and this one from 2007.) 

Truthfully, I did not expect the Court to reach or decide it in McGill, but I think the Court's conclusion is absolutely the correct one.  Attempting to apply class certification principles to forward-reaching injunctive relief claims just doesn't make any sense, procedurally:  

[W]e have held that the phrase “compl[y] with Section 382 of the Code of Civil Procedure” (Bus. & Prof. Code, §§ 17203, 17535) “imposes a requirement that the action be brought as a class action.”  (Arias v. Superior Court (2009) 46 Cal.4th 969, 978.)  This requirement has never been imposed with regard to requests to enjoin future wrongful business practices that will injure the public, and we find nothing in the ballot materials for Proposition 64 suggesting an intent to link or restrict such relief to the class action context.  Indeed, imposing this requirement would largely eliminate the ability of a private plaintiff to pursue such relief, because class certification requires “the existence of both an ascertainable class and a well-defined community of interest among the class members” (Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 913), and “ ‘the general public’ . . . fails to meet” this requirement (Czap v. Credit Bureau of Santa Clara Valley (1970) 7 Cal.App.3d 1, 6). 

Slip op. at 13 (emphasis added).  The opinion holds that the class certification requisite added by Prop. 64 applies only to claims by private plaintiffs "seek[ing] disgorgement and/or restitution on behalf of persons other than or in addition to the plaintiff.'"  Id. at 13-14 (quoting Kraus v. Trinity Management Services, Inc., 23 Cal.4th 116, 126 n.10 (2000))(emphasis in original). 

The opinion also strongly suggests that a defendant's "voluntary cessation of wrongful conduct" does not automatically preclude forward-reaching injunctive relief.  Id. at 10.  Notably, the opinion favorably cites Robinson v. U-Haul of California, 4 Cal.App.4th 304 (2016) (discussed in this blog post), in which the Court of Appeal rejected an argument that no injunction may issue under the UCL if the defendant voluntarily stops engaging in wrongful acts. 

For those interested in a general overview of the McGill opinion, this is the Court's introductory paragraph:

In previous decisions, this court has said that the statutory remedies available for a violation of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.), the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.), and the false advertising law (id., § 17500 et seq.) include public injunctive relief, i.e., injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.  (Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316 (Cruz); Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1077 (Broughton).)  The question we address in this case is the validity of a provision in a predispute arbitration agreement that waives the right to seek this statutory remedy in any forum.  We hold that such a provision is contrary to California public policy and is thus unenforceable under California law.  We further hold that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not preempt this rule of California law or require enforcement of the waiver provision.  We therefore reverse the judgment of the Court of Appeal.

Slip op. at 1.

Oral argument set in UCL/CLRA arbitration case: McGill v. Citibank

On October 6, 2016 at 9:00 a.m. in San Francisco, the Supreme Court will hear oral argument in McGill v. Citibank, No. S224086.  This case presents the question of whether the Federal Arbitration Act, as construed in Concepcion, preempts the Broughton-Cruz rule. 

The Court of Appeal (Fourth Appellate District, Division Three) said that it does.  See McGill v. Citibank, N.A., 232 Cal.App.4th 753 (2014), review granted.  

The Broughton-Cruz rule basically holds that claims for public injunctive relief, such as that available under the UCL and CLRA, are inarbitrable. For more on the rule, see this blog post.  For more on the Court of Appeal's opinion, see this blog post.

On Monday, the defendant filed a request that the argument be moved to the December calendar, but the docket indicates no ruling on that request as of Tuesday afternoon.  UPDATE:  The argument will be moved to the December calendar, exact date and time to be announced. 

Supreme Court takes up UCL/CLRA arbitration issue: McGill v. Citibank

Last week, on April 1, 2015, the Supreme Court granted review in McGill v. Citibank, No. S224086. 

In McGill, the Court of Appeal (Fourth Appellate District, Division Three) held that the Federal Arbitration Act, as construed in Concepcion, preempted the Broughton-Cruz rule.  See McGill v. Citibank, N.A., 232 Cal.App.4th 753 (2014), review granted.  

The California Supreme Court established this rule in a pair of cases: Broughton v. Cigna Healthplans of California, 21 Cal.4th 1066 (1999), which held that "the injunctive relief portion of a CLRA claim is inarbitrable," and Cruz v. PacifiCare Health Systems, Inc., 30 Cal.4th 303 (2003), which extended this holding to the UCL and FAL. 

My post on the Court of Appeal's original opinion in McGill is here.  If and when I obtain copies of the petition for review and other briefs, I will post them here.

New UCL/CLRA/class action arbitration decision: Klussman v. Cross Country Bank

In Klussman v. Cross Country Bank, ___ Cal.App.4th ___ (Dec. 15, 2005), the Court of Appeal (First Appellate District, Division One) joined several other recent decisions by refusing to enforce a no-class-action arbitration clause under Discover Bank.

New UCL arbitration/unconscionability decision: Aral v. EarthLink, Inc.

Yesterday, the Court of Appeal (Second Appellate District, Division Four) affirmed a trial court order denying a motion to compel arbitration of a UCL class action. Aral v. EarthLink, Inc., ___ Cal.App.4th ___ (Nov. 29, 2005). First, the Court determined that the plaintiff's UCL claim for monetary restitution, as opposed to injunctive relief, would have been arbitrable:

Under the holding in Cruz [v. PacifiCare Health Systems, Inc., 30 Cal.4th 303 (2003)], when a party brings a claim under the UCL seeking both injunctive and restitutionary relief and the dispute is subject to arbitration, the proper procedure is to sever the claim for injunctive relief and compel arbitration of the claim for restitutionary relief only. Aral is seeking both injunctive relief and restitution of funds which were allegedly acquired by means of unfair business practices. Thus, the trial court erred in ruling that the entire claim should go forward in court.

(Slip op. at 9.) Nonetheless, the Court of Appeal affirmed the trial court's order because the arbitration clause was invalid in its entirety under Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). Its provisions prohibiting class actions and requiring California consumers to arbitrate in Georgia were both procedurally and substantively unconscionable:

The arbitration provision in the DSL service agreement put forth as the parties’ final agreement by EarthLink requires California consumers with minor monetary claims to arbitrate in Georgia and forbids class actions. Under recent Supreme Court authority, provisions in adhesion contacts that preclude class actions are unconscionable where the case involves allegations that a large number of consumers have been cheated out of a small sum of money. Moreover, EarthLink sought an order specifying that arbitration of a minor monetary claim by a California resident take place in Georgia. A forum selection clause that discourages legitimate claims by imposing unreasonable geographical barriers is unenforceable under well-settled California law.

(Slip op. at 2, 10-21.) The Court also rejected the defendant's argument that Georgia law, rather than California law, should govern the question of whether the arbitration clause was unconscionable:

[The plaintiff] resides in California, seeks to represent only California consumers, and relies solely on California’s UCL to support his claim. The fundamental policy at issue is not simply the right to pursue a class action remedy, but the right of California to ensure that its citizens have a viable forum in which to recover minor amounts of money allegedly obtained in violation of the UCL. Forcing consumers to travel to a far location and depriving them of any hope of class litigation would pose an insurmountable barrier to recovery of small sums unjustly obtained, and undermine the protections of the UCL.

(Slip op. at 25.)

New classwide and UCL arbitration decision: Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court

Last Thursday, October 13, 2005, the Court of Appeal (Fourth Appellate District, Division One) ordered publication of International Association of Mailbox Center Owners, Inc. v. Superior Court (Mail Boxes Etc. USA, Inc.), ___ Cal.App.4th ___ (Sept. 16, 2005). The Court applied Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) in a non-consumer context. Its holding invalidates a no-class-action arbitration clause in certain franchise agreements, permitting group arbitration of the franchisees' claims against the franchisor. Significantly, one of those claims is for UCL violations.

First of all, the Court explained why it granted writ review of the trial court's order denying consolidation of the arbitrations (under Code of Civil Procedure section 1281.3), rather than awaiting an ordinary appeal:

One important public policy reason for allowing class actions is to promote judicial economy and streamline the litigation process in appropriate cases, involving common issues of law and fact, and this policy is also evidently promoted through an arbitration forum. To allow appropriate consideration to these policies, we have issued an order to show cause (OSC), obtained further briefing on the Discover Bank authority, and heard oral argument. Under these unusual circumstances, writ relief is proper.

Slip op. at 10-11 (citations omitted) (emphasis added).

Next, the Court determined that "franchise agreements, in some cases, have the same qualities of adhesion contracts as do certain consumer contracts ... with regard to the availability of group arbitration." Id. at 18. Accordingly, the Court applied Discover Bank:

For the reasons outlined in Discover Bank, supra, 36 Cal.4th 148 and [Green Tree Financial Corp. v.] Bazzle [2003] 539 U.S. 444, group arbitration can be a valid means of dispute resolution where the statutory and case law criteria for consolidation are satisfied. Here, the franchisees made an adequate showing under section 1281.3 that there were common issues of law and fact and that group arbitration would be a preferred means of dispute resolution. The trial court should have accepted that showing, ... and it was error not to strike the ban on group arbitration from the JAMS agreement on this record.

Id. at 19-20.

The Court did not address the arbitrability of the injunctive relief component of the UCL claim, presumably leaving that to the trial court to decide in the first instance. See Cruz v. Pacificare Health Systems, Inc., 30 Cal.4th 303 (2003). It did hold, however, that because the franchisees sought arbitration of unwaivable statutory claims, including their UCL claims, the arbitration agreement's fee-shifting clause was unenforceable, and that a pre-arbitration fee award might even be appropriate:

[A]t this point in the proceedings, franchisees have made a prima facie showing that some of their statutory claims are the type which should be entitled to an advance fee allocation ruling, before the arbitration proceedings take place, to the extent that fee allocation is necessary to enable those statutory rights to be vindicated. We believe that the franchise factual context is sufficiently similar to mandatory employee/employer arbitration, or consumer arbitration, to allow these principles to be applied in this case. .... The trial court must accordingly conduct further appropriate proceedings regarding the requests for fee shifting with respect to determining what appropriate fee allocation orders must be made, if any, to enable the franchisees to go forward in arbitration to vindicate any unwaivable statutory claims that affect the public interest and therefore are not personal to the franchisees.

Slip op. at 29-30.

In sum, this case has implications both for classwide arbitration and arbitration of UCL claims. Interestingly, the Court did not mention Proposition 64, or the amended UCL's so-called "class action" requirement. It also appears that Discover Bank is becoming a very powerful precedent. [Hat tip: May it Please the Court]