This matter is before the Court on a motion to compel arbitration filed by Defendant
I. Background
Plaintiff Reyna McGovern initiated this putative class action lawsuit on August 2, 2018, with a complaint asserting claims for breach of contract and violation of California's unfair competition law, California Business and Professions Code § 17200 et seq. ("UCL"), arising out of USB's practices concerning the assessment of two types of fees. The complaint refers to these fees as "OON Fees" and "OD Fees." The OON Fee claims arise out of USB's alleged practice of charging two fees for use of out-of-network ("OON") automated teller machines ("ATMs") when an accountholder checks her account balance and then withdraws funds. The OD Fee claims arise out of USB's alleged practice of charging an overdraft fee for transactions made with a debit card at a time when sufficient funds were available because in the time between when the debit card transaction is made and when it settles, an intervening transaction on the checking account reduces the amount of funds in the account to less than the amount of the prior debit card transaction. The complaint calls these transactions "Authorize Positive, Purportedly Settle Negative Transactions" or "APPSN Transactions."
McGovern alleges that these duplicate OON Fees and OD Fees are not permitted by the account agreements governing her and other account-holders' relationships with USB. The complaint defined two classes, one for California account-holders who were assessed duplicate OON fees when checking their balances before making an OON ATM withdrawal, and one for California account-holders who were charged an OD Fee on a debit card transaction that was authorized at a time when the account balance exceeded the amount of the transaction. The complaint asserted separate breach of contract and UCL claims on behalf of each class, and sought a declaration that USB's OON Fee and OD Fee policies were unfair and a breach of contract, restitution of the improperly assessed fees, disgorgement, actual, statutory and punitive damages, and "an order on behalf of the general public enjoining [USB] from continuing to employ unfair methods of competition and commit unfair and deceptive acts and practices alleged in [the] complaint...." [Doc. No. 1 at 26-27.]
USB responded to the original complaint with a motion to compel arbitration based on Plaintiff's agreement to arbitrate in her deposit account agreement. [Doc. No. 12.] Plaintiff, in turn, filed a first amended complaint ("FAC") [Doc. No. 14] instead of opposing the motion to compel. The FAC added an "Injunctive Relief Class" consisting of all persons in California eligible to open a consumer checking account. The FAC asserted the same four claims as the original complaint (two breach of contract claims and two UCL claims) but added the Injunctive Relief Class as a party to the UCL claims. The FAC also removed the prayer for an "order on behalf of the public" from the original complaint and added a prayer for a "public injunction that enjoins [USB] from continuing to misrepresent its OD Fee policy governing APPSN transactions and OON Fee policies in its publicly available account documents and marketing materials such as its 'Account Agreement,' 'Fee Schedule,' and the 'Simple Snapshot.' " [Doc. No. 14 at 34.]
USB once again moves to compel arbitration of this lawsuit pursuant to the arbitration provision in the Deposit Account Agreement between Plaintiff and USB. That arbitration provision states:
ARBITRATION
This section does not apply to any dispute in which the amount in controversy is within the jurisdictional limits of, and is filed in, a small claims court.... These arbitration provisions shall survive closure of your account or termination of all business with us. If any provision of this section is ruled invalid or unenforceable, this section shall be rendered null and void in its entirety.
Arbitration Rules: In the event of a dispute relating to or arising out of your account or this Agreement, you or we may elect to arbitrate the dispute.... Without regard to which arbitration body is selected to resolve the dispute, any disputes between you and us as to whether your claim falls within the scope of this arbitration clause shall be determined solely by the arbitrator, and not by any court.
Arbitration can only decide our or your dispute and cannot consolidate or join claims of other persons who may have similar claims. There will be no authority or right for any disputes to be arbitrated on a class action basis.
Effects of Arbitration: If either of us chooses arbitration, neither of us will have the right to litigate the dispute in court or have a jury trial. In addition, you will not have the right to participate as a representative or member of any class of claimants, or in any other form of representative capacity that seeks monetary or other relief beyond your individual circumstances, pertaining to any dispute subject to arbitration. There shall be no authority for any claims to be arbitrated on a class action or any other form of representative basis. Arbitration can only decide your or our claim, and you may not consolidate or join the claims of other persons who may have similar claims, including without limitation claims for public injunctive or other equitable relief as to our other customers or members of the general public. Any such monetary, injunctive, or other equitable relief shall be limited solely to your accounts, agreements, and transaction with us. Notwithstanding the foregoing, any question as to the validity and effect of this class action waiver shall be decided solely by a court of competent jurisdiction, and not by the arbitrator.
[FAC Ex. A at 18-19.]
II. Legal Standard
The Federal Arbitration Act,
The FAA "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd ,
Because of the strong policy favoring arbitration, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp. ,
III. Discussion
There is no disagreement here that the terms of the arbitration agreement encompass this dispute and that it requires bilateral arbitration of McGovern's individual claims, while precluding her from representing a class or seeking public injunctive relief. The only dispute is whether the California Supreme Court's holding in McGill v. Citibank, N.A. ,
USB makes two arguments in its motion: (1) that McGill does not apply because the FAC does not actually seek public injunctive relief, as that term is defined in McGill ; and (2) that McGill is preempted by the FAA. McGovern opposes, arguing that McGill applies and is not preempted, and that pursuant to the "poison pill" language at the end of the first paragraph of the arbitration provision, the arbitration provision is null and void in its entirety.
A. California's McGill Rule
In McGill , the California Supreme Court held that under the UCL, a private plaintiff who has suffered injury in fact and has lost money or property as a result of a violation of the UCL can file a lawsuit on her own behalf that "seeks, as one of the requested remedies, injunctive relief 'the primary purpose and effect of' which is 'to prohibit and enjoin conduct that is injurious to the general public.' " McGill ,
The court then concluded that an arbitration provision that purported to waive McGill's statutory right to seek public injunctive relief under the UCL was invalid and unenforceable. Relying on California Civil Code section 3513, a "Maxim of Jurisprudence" stating that "[a]ny one may waive the advantage of law intended solely for his benefit[, b]ut a law established for a public reason cannot be contravened by a private agreement," the court held that because "the waiver in a predispute arbitration agreement of the right to seek public injunctive relief under [the UCL] would seriously compromise the public purposes [the UCL was] intended to serve," a waiver of the right to request public injunctive relief in any forum is invalid and unenforceable under California law.
B. Does the McGill Rule Apply Here?
USB argues that Plaintiff cannot rely on McGill to avoid the consequences of the arbitration agreement because Plaintiff does not actually seek public injunctive relief in this case. Several courts have recently held that McGill did not apply to invalidate an arbitration provision that included a public injunction waiver when the plaintiff did not actually seek public injunctive relief. See, e.g., Johnson v. J.P. Morgan Chase Bank, N.A. , Case No. EDCV 17-2477 JGB (SPx),
"Public injunctive relief 'is for the benefit of the general public rather than the party bringing the action.' " Kilgore ,
Here, any public injunctive relief sought by McGovern is merely incidental to her primary aim of gaining compensation for injury. Cf. Croucier v. Credit One Bank, N.A. , Case No. 18cv20-MMA(JMA),
McGovern's argument that the FAC seeks public injunctive relief also does not help her because she lacks Article III standing to seek such relief. "A plaintiff must demonstrate constitutional standing separately for each form of relief requested." Davidson v. Kimberly-Clark Corp. ,
Based on the definition provided by the California Supreme Court, a claim for "public injunctive relief" cannot satisfy the three elements of Article III standing: "[t]he plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."
To be clear, this is not to say that McGovern, if she proves her case, would not be entitled to injunctive relief. Rather, because
To summarize, McGovern does not actually seek public injunctive relief in the FAC, and because a plaintiff cannot have constitutional standing to seek public injunctive relief under the UCL, any injunctive relief to which McGovern is entitled in this lawsuit can only be private injunctive relief. Yet this result is not necessarily fatal to McGovern's argument that the arbitration agreement is null and void. Although this conclusion (that McGovern does not seek public injunctive relief) is consistent with Johnson and Wright , the Court is less persuaded by those opinions' ultimate holdings, rendered without any analysis, that a plaintiff's failure to seek public injunctive relief necessarily renders McGill inapplicable. There does not appear to be any dispute here that the public injunction waiver language in the arbitration provision is encompassed by McGill or that a finding that McGill applies to such language would render the entire arbitration agreement null and void if McGill is not preempted by the FAA. Further, neither the courts in Johnson or Wright explain why the question of whether an arbitration agreement is null and void based on McGill depends on the form of relief sought by a plaintiff.
C. The McGill Rule Is Preempted By the FAA
The FAA "permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Concepcion ,
1. The McGill Rule Is Not a Ground for Invalidating Any Contract
In McGill , the California Supreme Court characterized the contract defense in question as "a law established for a public reason cannot be contravened by a private agreement." McGill ,
First, section 3513 falls under a part of the California Civil Code titled "Maxims of Jurisprudence."
Finally, the McGill court's actual intent is better reflected in the rule it pronounced as the actual holding in the case, which explicitly references arbitration clauses:
the waiver in a predispute arbitration agreement of the right to seek public injunctive relief under these statutes would seriously compromise the public purposes the statutes were intended to serve. Thus, insofar as the arbitration provision here purports to waive McGill's right to request in any forum such public injunctive relief, it is invalid and unenforceable under California law.
McGill ,
Even accepting the McGill court's characterization of section 3513 as a contract defense, the McGill court's finding that the defense is not preempted relies on an incorrect interpretation of the FAA's saving clause, which appears at the end of section 2 of the FAA. Section 2 of the FAA states, in its entirety:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Thus, an arbitration provision is "valid, irrevocable, and enforceable," unless "such grounds as exist at law or in equity for the revocation of any contract."
McGill transforms this last clause to mean that an arbitration provision may be invalidated on a ground that could also be used to revoke a contract that does not have an arbitration provision. McGill ,
suggest that [her] arbitration agreements were extracted, say, by an act of fraud or duress or in some other unconscionable way that would render any contract unenforceable. Instead, [she] object[s] to [her] agreements precisely because they require individualized arbitration proceedings.... And by attacking (only) the individualized nature of the arbitration proceedings, [McGovern's] argument seeks to interfere with one of arbitration's fundamental attributes.
Epic ,
2. The McGill Rule Obstructs the FAA's Objectives
Even if the McGill rule is considered applicable to any contract, it does not survive preemption because it is an obstacle to the FAA's objectives. The Supreme Court has consistently held that the FAA preempts states' attempts to limit the scope of arbitration agreements or rules that preclude parties from agreeing to an individualized bilateral arbitration. In Concepcion , the Court held that a bar on most class action waivers in arbitration agreements was preempted by the FAA.
The McGill rule is merely the latest "device or formula" intended to achieve the result of rendering an arbitration agreement against public policy. See Epic ,
Justice Kagan's dissent in Italian Colors highlights why, based on Concepcion , California's creation of a public interest in injunctive relief sought by an individual cannot serve to prevent parties from agreeing to private bilateral individualized arbitration. In Concepcion , the Supreme Court reversed the Ninth Circuit's holding that an arbitration provision that disallowed class action procedures was unconscionable under California law announced in Discover Bank v. Superior Court ,
the state law in question made class-action waivers unenforceable even when a party could feasibly vindicate her claim in an individual arbitration. The state rule was designed to preserve the broad-scale "deterrent effects of class actions," not merely to protect a particular plaintiff's right to assert her own claim., 563 U.S. at 338. Indeed, the Court emphasized that the complaint in that case was "most unlikely to go unresolved" because AT & T's agreement contained a host of features ensuring that "aggrieved customers who filed claims would be essentially guaranteed to be made whole." 131 S.Ct. at 1745Id. , at 352,(internal quotation marks and brackets omitted). 131 S.Ct. at 1753
American Exp. Co. v. Italian Colors ,
In sum, the effect of the McGill rule is to prohibit a streamlined bilateral arbitration of McGovern's claims related to her individual injuries. This effect runs counter to the overarching purpose of the FAA, pursuant to which the "liberal federal policy favoring arbitration" outweighs "any state substantive or procedural policies to the contrary." Concepcion ,
D. Stay of Proceedings During Arbitration
USB asks the Court to stay this case pending completion of the arbitration. McGovern argues that if the Court intends to grant the motion to compel, it should dismiss this case to allow for an immediate appeal. Section 3 of the FAA, however, "requires courts to stay litigation of arbitral claims pending arbitration of those claims 'in accordance with the terms of the agreement.' " Concepcion ,
IV. Disposition
For the foregoing reasons, it is hereby ORDERED the motion to compel arbitration is GRANTED . It is further ORDERED that this case is STAYED pending completion of the arbitration. The parties shall file a notice with the Court within 5 business days of a final ruling in the arbitration.
It is SO ORDERED .
Notes
At the hearing McGovern argued she has Article III standing because she will benefit from the requested relief that also benefits the "general public" class she alleges to represent. This admission demonstrates that the injunctive relief McGovern seeks does not fit McGill 's definition of "public injunctive relief," and is instead "private injunctive relief-i.e., relief that primarily resolves a private dispute between the parties and rectifies individual wrongs, and that benefits the public, if at all, only incidentally." McGill ,
At the hearing, USB argued that pursuant to the doctrine of constitutional avoidance, upon finding that the plaintiff is not asserting a claim for public injunctive relief, the court should not reach the question of the enforceability of a contract provision not at issue, and therefore avoid addressing the preemption issue. Although the courts in Johnson and Wright presumably followed this path, this court is not convinced this doctrine applies here and will therefore address preemption.
Other maxims of jurisprudence include trite platitudes such as "[t]he law respects form less than substance," "[i]nterpretation must be reasonable," "[t]hat is certain which can be made certain," "[t]hings happen according to the ordinary course of nature and the ordinary habits of life," and "[t]he law has been obeyed." See
Indeed, other "maxims of jurisprudence" arguably would require enforcement of the arbitration clause, including: (1) "[h]e who consents to an act is not wronged by it," § 3515; (2) "[a]cquiescence in error takes away the right of objecting to it," § 3516; and (3) "[p]rivate transactions are fair and regular" § 3545. Why section 3513 is trumps these maxims is unexplained in McGill .
It is difficult to reconcile Epic with Sakkab v. Luxottica Retail North America, Inc. ,
The Court also noted that "California's courts have been more likely to hold contracts to arbitrate unconscionable than other contracts." Concepcion ,