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StubHub refund ruling highlights Calif. precedent companies despise

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REUTERS/Dado Ruvic

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(Reuters) - The McGill rule has struck again.

U.S. District Judge Haywood Gilliam of Oakland on Monday refused to compel arbitration of California state-law claims by a class of consumers who allege that StubHub Inc wrongfully changed its cash refund policies when COVID-19 forced widespread event cancellations. StubHub’s terms of service include a provision requiring individual arbitration of consumer claims, but Gilliam ruled that the company cannot enforce the provision for claims under California law because of state supreme court precedent from 2017’s McGill v. Citibank NA.

The California justices held in McGill that the Federal Arbitration Act does not pre-empt state laws that allow plaintiffs to seek a public injunction to “prohibit unlawful acts that threaten future injury to the general public.” The 9th U.S Circuit Court of Appeals subsequently endorsed the so-called McGill rule in 2019’s Blair v. Rent-A-Center Inc. In combination, the two rulings mean that if corporations try to impose arbitration provisions that effectively bar public injunctive relief, courts will find them invalid.

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The StubHub case is a good example of how McGill has empowered plaintiffs to push for class litigation. It also shows why the California precedent is so bitterly despised by corporate defendants that are now hoping for help from the U.S. Supreme Court.

Class counsel in the StubHub litigation, Ahdoot & Wolfson and Wittels McInturff Palikovic, alleged, among other things, that StubHub continued to tout its FanProtect guarantee of full cash refunds for cancelled events even after it stopped paying cash refunds to all customers. The class complaint sought a public injunction to require StubHub to honor the full cash refund policy or to conduct an advertising campaign to notify consumers that it is not actually promising full refunds to all customers.

StubHub’s lawyers at McDermott Will & Emery said the supposed injunction claim was not at all what it seemed. Plaintiffs weren’t really after an injunction to protect the general public from future injury, the company argued in its motion to compel arbitration. Class counsel merely threw those words into their complaint, in “a thinly veiled maneuver to try to avoid arbitration.”

The company contended that this case is, in fact, a series of private contract disputes between StubHub and dissatisfied customers. Those disputes, the motion said, are governed by the arbitration provision in StubHub’s user agreements – and the judge should not allow class counsel to get away with artfully drafting their complaint to invoke the McGill rule as a tactic to evade individual arbitration. StubHub cited a 2020 ruling by U.S. District Judge Dale Fischer of Los Angeles, who granted the company’s motion to compel arbitration in a refund class action by people who bought tickets to cancelled Major League Baseball games because plaintiffs’ public injunction claim actually would have conferred no public benefit.

“McGill does not apply where individuals seek monetary relief disguised as a public injunction,” StubHub said.

StubHub’s arguments to Gilliam echoed assertions from lots of other corporate defendants over the last few years. In 2020, I told you about U.S. Supreme Court petitions from Comcast Corp and AT&T Mobility LLC that characterized the McGill rule as a mistake that had enabled consumers to weasel out of arbitration. The U.S. Chamber of Commerce called the rule “a road map marked with an easy-to-follow path” in amicus briefs urging the Supreme Court to come to defendants’ rescue.

The Supreme Court denied the two petitions last year, but the issue is once again before the justices, this time in a petition by Fast Auto Loans Inc. (Another petition challenging the McGill rule was filed by HRB Tax Group Inc, but the company since asked the Supreme Court to delay action pending developments in the underlying California litigation.) Fast Auto told the justices that in the wake of McGill, California courts have adopted such a loose definition for a “public injunction” that hundreds of companies are now facing non-arbitrable claims, subverting the whole point of their mandatory arbitration agreements with consumers.

The corporate pushback has not escaped the attention of the 9th Circuit. Broadly speaking, the court has stuck by its Rent-A-Center holding that the Federal Arbitration Act does not pre-empt the McGill rule, as consumer advocates from Gupta Wessler told the Supreme Court in a brief opposing review in the Fast Auto case. But the circuit court has tightened the definition of a public injunction. Most recently, a divided panel in Hodges v. Comcast Cable Communications LLC ruled that the McGill rule applies only “to forward-looking injunctions that seek to prevent future violations of law for the benefit of the general public as a whole.”

Class counsel in the StubHub MDL said in their brief opposing arbitration that their injunction claim is exactly that: a necessary means to block StubHub from continuing to deceive the public about its refund policy.

Gilliam agreed in Monday’s ruling. The California Supreme Court’s McGill decision, he said, addressed a public injunction claim quite similar to the claim against StubHub, calling for a prohibition on allegedly deceptive advertising. Precluding StubHub from allegedly “misrepresenting to the general public the protections afforded by its FanProtect Guarantee,” Gilliam said, is “a paradigmatic example of public injunctive relief.”

Even if StubHub is right and plaintiffs asserted the injunction claim specifically to evade arbitration through the McGill rule, the judge said, “their motivation for doing so is simply irrelevant to the inquiry.”

StubHub counsel William Donovan and Daniel Campbell of McDermott did not respond to my query on Gilliam’s ruling. Nor did class counsel Tina Wolfson of Ahdoot Wolfson and Tiasha Palikovic of Wittels.

The U.S. Supreme Court hasn’t set a conference date on the Fast Auto petition for certiorari, even though briefing in the case is complete. I told you last week that the court is also delaying without explanation a conference on a petition to review California precedent allowing plaintiffs to evade arbitration of claims under the state’s Private Attorney General Act.

California seems, at the moment, to be confounding the high court.

Read more:

U.S. Supreme Court allows Calif. consumers to evade arbitration due to injunctive claims

SCOTUS suddenly very interested in California's Private Attorney General Act

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

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