Court of Appeal (Cal.) Holds McGill Rule Bars Enforcement of Arbitration Clause for Automobile Title Loans

In Maldonado v. Fast Auto Loans, No. G058645, 2021 Cal. App. Unpub. LEXIS 138 (Jan. 11, 2021), the Court of Appeal in an unpublished decision found that an automobile title loan lender could not enforce its arbitration clause.  The trial court proceedings were as follows:

Relevant to this appeal, paragraph 14(d) stated the parties must arbitrate any claim (with a few exceptions) “that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement.” Paragraph 14(h), titled “Class Action Waiver” provided the consumer had no right to participate in or join “a class action, private attorney general action, or other representative action[.]” (Bold omitted.) Paragraph 14(n), titled “Severability and Survival” provided: “If any part of this Arbitration Provision, [*9]  other than the Class Action Waiver, is deemed or found to be unenforceable for any reason, the remainder shall be enforceable.” (Italics added.) In short, the agreement required consumers to agree to individual, non-class arbitration. Lender asserted the arbitration provision was broadly written to cover all of the Customers’ claims. In addition, Lender urged the court to enforce the agreement’s Class Action Waiver (Class Waiver), which required arbitration take place on an individual basis and the arbitrator may only award relief on behalf of the named parties. It argued the Customers’ claim for public injunctive relief under the UCL and CLRA was “nothing more than a transparent attempt to rely upon the ‘McGill Rule’ to avoid their contractual obligation to arbitrate what is actually an individual dispute relating to their Agreements.” The Customers opposed the motion, arguing the McGill Rule applied, and in addition, the agreement was procedurally and substantively unconscionable. The trial court denied the motion. In its minute order, the court explained the McGill Rule applied and the offending provision could not be severed under the terms of the arbitration agreement’s paragraph stating severability did not apply to the Class Waiver provision. It rejected Lender’s attempts to factually distinguish the McGill case.

The Court of Appeal found that the McGill rule prohibited enforcement of the arbitration clause.

The Customers clarified the injunctive relief should require Lender to stop charging unlawful interest rates and adopt “corrective advertising.” In short, the Customers’ complaint and prayer does not limit the requested remedies for only some class members, but rather encompasses all consumers and members of the public. Moreover, an injunction under the CLRA against Lender’s unlawful practices will not directly benefit the Customers because they have already been harmed and are already aware of the misconduct. As stated in McGill, any benefit to the Customers is incidental to the “general public benefit of enjoining such a practice.’ [Citation.]” (McGill, supra, 2 Cal.5th at p. 955.) Lender attempts to limit the reach of the McGill Rule by suggesting it only applies to plaintiffs seeking to enjoin false or misleading advertising on behalf of the 12 general public. We are not persuaded. California’s consumer protection laws must be liberally, not narrowly, applied. “The Legislature enacted the CLRA ‘to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.’ [Citation.] ‘[T]o promote’ these purposes, the Legislature [*21]  directed that the CLRA ‘be liberally construed and applied.’ [Citation.]” (McGill, supra, 2 Cal.5th at p. 954.) The “CLRA authorizes any consumer who has been damaged by an unlawful method, act, or practice to bring an action for various forms of relief, including ‘[a]n order enjoining the methods, acts, or practices’ [citation].” (Ibid.) Similarly, the purpose of the UCL “‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ [Citation.] . . . ‘[T]he primary form of relief available under the UCL to protect consumers from unfair business practices is an injunction.’ [Citation.]” (Ibid.) We found no case, and Lender cites to none, holding the remedy of public injunctions under CLRA and UCL should be limited to false advertising claims. We are also unpersuaded by Lender’s argument this lawsuit challenges only the interest rates charged in the putative class members’ loans, and therefore, they primarily seek private relief with the injunction. To accept this argument, we would have to ignore the complaint’s unequivocal request to enjoin Lender from harming other consumers in future contracts from outrageous interest rates. As stated above, the consumers  have nothing to personally gain from an injunction stopping Lender from imposing high interest rates in future contracts with members of the public. We agree with the Customers’ assertion that although “not all members of the public will become customers of [Lender]” this “does not negate the fact that public injunctive relief will nevertheless offer benefits to the general public.” The requested injunction cannot be deemed private simply because Lender could not possibly advertise to, or enter into agreements with, every person in California. Such a holding would allow Lender to continue violating the UCL and CLRA because consumers harmed by the unlawful 13 practices would be unable to act as a private attorney general and seek redress on behalf of the public. It is enough that the requested relief has the purpose and effect of protecting the public from Lender’s ongoing harm. Moreover, the Ninth Circuit in Blair v. Rent-A-Center, Inc. (9th Cir. 2019) 928 F.3d 819, 831, footnote 3 (Blair), summarily rejected an argument similar to Lender’s contention. It held the McGill Rule applied where the plaintiff “s[ought] to enjoin future violations of California’s consumer protection statutes, relief oriented to and for the benefit of the general public.” (Ibid., italics added.) Additionally, we must follow the McGill case, where our Supreme Court held a complaint sought public injunctive relief where it “request[ed], among other things, an injunction prohibiting Citibank from continuing to engage in its allegedly illegal and deceptive practices.” (McGill, supra, 2 Cal.5th at p. 953)

The Court of Appeal said that it was bound by McGill, and found Blair’s analysis that McGill was not pre-empted by the FAA to be properly reasoned.

Lender’s final argument is the FAA preempts McGill. It recognizes our California Supreme Court in McGill held there is no preemption. (McGill, supra, 2 Cal.5th at p. 953.) In its briefing, Lender notes two telecommunication companies, AT&T Mobility LLC and Comcast Corporation, have asked the United States Supreme Court overturn the Ninth Circuit in two companion cases ruling the FAA does not preempt the McGill Rule. It asserts we should stay this appeal until the high court renders a decision. Encouraged by these pending petitions, Lender presents a lengthy argument about why our Supreme Court incorrectly decided the McGill case. As noted by the Customers in their briefing, on June 1, 2020, the Supreme Court denied review of the Ninth Circuit rulings. (AT&T Mobility LLC v. McArdle (2020 ___U.S.___) 140 S.Ct. 2827, 207 L. Ed. 2d 159; Comcast Corp. v. Tillage (2020 ___U.S.___) 140 S.Ct. 2827, 207 L. Ed. 2d 158.) Insofar as Lender thinks McGill was wrongly decided, the argument fails, as we are bound to follow the precedent of the California Supreme Court. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) Moreover, we find its analysis to be legally sounds and persuasive, as does the Ninth Circuit. (Blair, supra, 928 F.3d at p. 822 [FAA does not preempt the McGill Rule]; Tillage v. Comcast Corp. (9th Cir., June 28, 2019) 772 Fed.Appx. 569; McArdle v. AT&T Mobility LLC (9th Cir., 2019 June 28, 2019) 772 Fed.Appx. 575.) We conclude Lender’s arguments the FAA preempts the McGill Rule lack merit, and there is no basis to stay this appeal.