July 1, 2019 / 7:26 PM / 14 days ago

The 9th Circuit just blew up mandatory arbitration in consumer cases

In a trio of rulings on Friday, the 9th U.S. Circuit Court of Appeals blessed a tactic that will allow plaintiffs lawyers litigating California consumer class actions to defeat defense motions to compel arbitration. If appellate rulings in the three cases – Blair v. Rent-A-Center, Tillage v. Comcast and McArdle v. AT&T Mobility – hold up, they represent a dramatic twist in corporations’ long-running, and mostly successful, campaign to force employees and consumers to arbitrate their claims individually instead of banding together in class actions.

If you don’t believe me, just ask the U.S. Chamber of Commerce and the National Association. In an amicus in one of the cases, the pro-business groups warned that under the theory the 9th Circuit just adopted, plaintiffs lawyers will be able to evade arbitration in “virtually every case” invoking California consumer protection statutes.

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“It’s a very big deal,” said Michael Rubin of Altshuler Berzon, who represents consumers in the 9th Circuit’s Rent-A-Center case. And not just in California, according to Rubin. The three 9th Circuit decisions, as I’ll explain, involved consumers’ rights under several California statutes to seek injunctions forcing corporations to change their conduct. But Rubin told me the 9th Circuit’s analysis may just as well apply to other states’ consumer and employment statutes that include injunctive rights.

AT&T Mobility, which is represented at the 9th Circuit by Andrew Pincus of Mayer Brown, said in a statement that it is considering its options: “We respectfully disagree with the court’s decision, which we believe is inconsistent with the arbitration provision agreed upon by the parties, the Federal Arbitration Act and United States Supreme Court precedent.” Comcast counsel Mark Perry of Gibson, Dunn & Crutcher declined to provide a statement. Rent-A-Center’s lawyer, Robert Friedman of Littler Mendelson, did not respond to my email requesting comment.

The three appeals called upon the 9th Circuit to review the California Supreme Court’s 2017 ruling in McGill v. Citibank. In McGill, the state justices held that as a matter of California public policy, corporations cannot require consumers to waive their right to seek a public injunction. The California Supreme Court also held, without engaging in deep analysis, that California's policy is not pre-empted by the Federal Arbitration Act.

After the McGill decision, Rent-A-Center, Comcast and AT&T Mobility all ended up losing motions to compel arbitration in California consumer class actions. Federal district judges in the three cases held that under the California Supreme Court’s McGill rule, the companies’ arbitration agreements were not enforceable, despite arguments by the corporations that the Federal Arbitration Act pre-empts California from asserting its public policy in favor of public injunctions.

For guidance on how FAA pre-emption applies to the McGill rule, federal trial courts have looked to the 9th Circuit’s 2015 decision in Sakkab v. Luxotica, which features a more searching pre-emption analysis than the California Supreme Court’s McGill opinion. In Sakkab, the 9th Circuit barred the enforcement of contracts requiring employees to waive the right to bring a claim under California’s Private Attorney General Act. The appeals court said in Sakkab that FAA pre-emption does not apply to California state precedent precluding the waiver of PAGA claims because the state’s policy addresses all purported PAGA waivers, not just those in arbitration contracts.

Trial judges in the Rent-A-Center, Comcast and AT&T consumer cases held that public injunction claims are akin to PAGA claims, so, under Sakkab precedent, the FAA does not pre-empt the state supreme court’s McGill rule.

Defense lawyers from Littler Mendelson, Gibson Dunn and Mayer Brown told the 9th Circuit that the trial courts muffed their analysis. California’s rule is pre-empted by the FAA, they argued, because it obstructs Congress’ goal of favoring arbitration. I’m distilling briefs by some of the best class action defense lawyers in the country, but essentially, their argument is that the Supreme Court has held arbitration to be an efficient and informal way for two parties to resolve a dispute – but public injunction claims aren’t bilateral so they can’t be fairly arbitrated. Therefore, according to the defendants, California can’t prohibit corporations from requiring consumers to waive their public injunction claims because the policy would improperly impede arbitration.

The 9th Circuit concluded in Friday's trio of decisions – Blair v. Rent-A-Center  and follow-on orders in Tillage v. Comcast and McArdle v. AT&T Mobility – that injunction claims can be arbitrated – so California’s policy barring their waiver is not pre-empted by the FAA. Judges Margaret McKeown, William Fletcher and Mary Murguia concluded that arbitration of an injunctive claim is entirely consistent with the Supreme Court’s depiction of arbitration in 2018’s Epic Systems v. Lewis and 2019’s Lamps Plus v. Varela.

“Crucially, arbitration of a public injunction does not interfere with the bilateral nature of a typical consumer arbitration,” the 9th Circuit wrote. “The McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” The appeals court said that going forward, corporations can set the terms of injunctive arbitration in consumer contracts. They can even limit discovery and otherwise restrict how claims can be presented, the 9th Circuit said. But the appeals court held corporations can’t require consumers to waive injunctive claims, just as employers could not, under the 9th Circuit’s precedent in Sakkab, force employees to give up that right.

So now what happens? Plaintiffs lawyer Rubin said that if the rulings hold up, corporations will be faced with the interesting choice of whether to attempt to set the terms of injunctive arbitration in order to avoid litigating class actions in court. As he pointed out, Rent-A-Center, Comcast and AT&T Mobility told the 9th Circuit that corporations are not eager to arbitrate classwide injunctions. Classwide arbitration, they contend, favors consumers. It’s expensive and unwieldy and yields binding decisions entitled only to deferential review by the courts. Classwide arbitration, the corporations said, gives undue leverage to consumers.

It seems inevitable that at least one of the companies will ask for en banc or Supreme Court review of the rulings. Of course, there’s no guarantee the justices will take the case, especially if it’s limited to an interpretation of California policy. The Supreme Court has passed up several opportunities, after all, to grant review of the 9th Circuit’s parallel 2015 Sakkab ruling on employees’ injunctive rights. It may be that defendants will have to wait until another circuit takes a look at the intersection of the FAA and injunction rights in state consumer and employment laws.

If that’s the case, we’re going to see a lot of consumer class actions filed in California in the meantime.

The views expressed in this article are not those of Reuters News.

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