60 Cal.App.5th 710
Cal. Ct. App.2021Background
- Five consumers sued Fast Auto Loans in a putative class action alleging usurious, unconscionable interest rates and seeking damages, disgorgement, and public injunctive relief under the UCL and CLRA.
- Plaintiffs’ complaint alleged systemic practices (high APRs often secured by borrowers’ cars, rollovers, late fees) and requested public injunctive relief to stop future unlawful lending and require corrective advertising.
- Each loan agreement contained a broad arbitration clause, a class-action/representative-action waiver, and a “poison pill” severability provision making the entire arbitration clause void if the class waiver were invalidated.
- Plaintiffs opposed arbitration, arguing the class-waiver unlawfully waived the statutory right to seek public injunctive relief under McGill v. Citibank.
- The trial court denied the lender’s motion to compel arbitration, finding the clause invalid under McGill; lender appealed.
- The Court of Appeal affirmed, rejecting lender’s arguments that McGill did not apply, that the class waiver was severable, or that the Federal Arbitration Act preempted McGill.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is unenforceable under McGill because it waives the right to seek public injunctive relief | Plaintiffs argued the complaint seeks public injunctive relief under the UCL and CLRA (to protect consumers generally), so a predispute waiver of that statutory right is invalid under McGill | Lender argued the requested injunction is effectively private (benefiting only class members who contracted with lender), so McGill does not apply | Court held McGill applies: the complaint seeks public injunctive relief and the waiver of that right is invalid under California law |
| Whether the class-action waiver is severable or whether its invalidation voids the entire arbitration provision (poison pill) | Plaintiffs argued the agreement’s poison-pill and severability clauses make the arbitration provision null if the class waiver is unenforceable | Lender argued the contract’s “subject to the right to appeal” language required an appellate decision before severability took effect and that ambiguities favour arbitration | Court held the contract unambiguously made the class waiver non-severable; once unenforceable, the whole arbitration provision is void (lender’s appeal argument is moot) |
| Whether the Federal Arbitration Act preempts McGill and requires enforcement of the waiver | Plaintiffs relied on McGill and California precedent that statutory public injunctive rights cannot be waived; FAA does not preempt that provincial rule | Lender urged FAA preemption and pointed to petitions asking the U.S. Supreme Court to revisit the issue | Court held McGill is binding California precedent and FAA does not preempt McGill; Ninth Circuit decisions are consistent with this view, so preemption argument fails |
| Whether the trial court should have compelled arbitration of damages claims while appeal on class waiver was pending | Plaintiffs argued requiring arbitration during appeal would produce absurd and prejudicial results (e.g., awards unconfirmable if arbitration later found invalid) | Lender argued the arbitration clause required arbitration except while appeal overturned a ruling | Court held trial court did not err; enforcing arbitration while appeal pending would be illogical/prejudicial and the arbitration clause was void once class waiver invalidated |
Key Cases Cited
- McGill v. Citibank, N.A., 2 Cal.5th 945 (Cal. 2017) (predispute arbitration clauses cannot waive statutory right to seek public injunctive relief under UCL/CLRA)
- Mejia v. DACM Inc., 54 Cal.App.5th 691 (Cal. Ct. App. 2020) (applies McGill; complaint seeking injunction to stop deceptive practices qualifies as public injunctive relief)
- Blair v. Rent-A-Center, Inc., 928 F.3d 819 (9th Cir. 2019) (Ninth Circuit holds FAA does not preempt McGill rule for California public-injunction claims)
- Clifford v. Quest Software, 38 Cal.App.5th 745 (Cal. Ct. App. 2019) (distinguishes cases where injunctive relief is purely private)
- Auto Equity Sales, Inc. v. Superior Court, 57 Cal.2d 450 (Cal. 1962) (state courts must follow controlling decisions of the state supreme court)