Opinion
B307730
01-14-2022
FREDRISHA DIXON, Plaintiff and Respondent, v. FAST AUTO LOANS, INC., Defendant and Appellant.
Ballard Spahr, Susan N. Nikdel and Mark J. Levin, for Defendant and Appellant. Zimmerman Reed, Caleb Marker and Flinn T. Milligan, for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of the County of Los Angeles No. 20STCV04632, Elaine Lu, Judge.
Ballard Spahr, Susan N. Nikdel and Mark J. Levin, for Defendant and Appellant.
Zimmerman Reed, Caleb Marker and Flinn T. Milligan, for Plaintiff and Respondent.
KIM, J.
I. INTRODUCTION
Plaintiff Fredrisha Dixon sued defendant Fast Auto Loans, Inc. to enjoin, among other things, predatory lending practices under the Unfair Competition Law (UCL). Defendant moved to compel arbitration of plaintiff's individual claims only, but the trial court denied the motion under the McGill rule. On appeal, defendant contends that: the McGill rule does not apply because the complaint seeks primarily individual relief; there is no longer any factual basis for the requested public injunctive relief to restrain ongoing unlawful conduct; and the McGill rule is preempted by the Federal Arbitration Act (FAA). We affirm.
As detailed below, the McGill rule, as articulated in McGill v. Citibank, N.A. (2017) 2 Cal.5th 945 (McGill), prohibits the waiver of claims for public injunctive relief in arbitration agreements.
Title 9 United States Code section 1 et seq.
II. FACTUAL AND PROCEDURAL BACKGOUND
A. Loan Agreement and Arbitration Provision
On April 19, 2019, plaintiff entered into a loan agreement with defendant pursuant to which plaintiff borrowed a principal amount of $2,600 to be paid back monthly over a period of 18 months, beginning May 5, 2019, through October 5, 2020. The annual percentage rate for the loan was 160 percent and the total amount of "finance payments" to be made during the term of the loan was $4,227.24. "The purpose of the loan proceeds provided [p]laintiff was personal, family or household use."
The form agreement contained a clause that provided for arbitration of "any claim, dispute or controversy" between the parties "that in any way arises from or relates to this [a]greement . . . ." The provision also included the following: "Class Action Waiver: Notwithstanding any other provision of this [a]greement, if either you or we elect to arbitrate a [c]laim, neither you or we will have a right: (a) to participate in a class action, private attorney general action or other representative action in court or arbitration, either as a class representative or a class member; or (b) to join or consolidate [individual c]laims with claims of any other persons (thus, [c]laims brought by or against one [b]orrower (or [c]o-[b]orrower) may not be joined or consolidated in the arbitration with [c]laims brought by or against any other borrower who obtained a different agreement). No arbitrator shall have authority to conduct any arbitration in violation of this provision or to issue any relief that applies to any person or entity other than you and/or us individually. . . ."
In addition, the provision contained a severability clause that stated, in pertinent part: "Severability and Survival: If any part of this [a]rbitration [p]rovision is deemed or found to be unenforceable for any reason, the remainder shall be enforceable, except that: [¶] (A) The parties acknowledge that the [c]lass [a]ction [w]aiver is material and essential to the arbitration of any disputes between them and is non-severable from this [a]rbitration [p]rovision. If the [c]lass [a]ction [w]aiver is limited, voided or found unenforceable, then this [a]rbitration [p]rovision (except for this sentence) shall be deemed null and void with respect to such proceeding, subject to the right to appeal the limitation or invalidation of the [c]lass [a]ction [w]aiver. The parties acknowledge and agree that under no circumstances will a class action be arbitrated; and [¶] (B) [I]f a [c]laim is brought seeking public injunctive relief and a court determines that the restrictions in the [c]lass [a]ction [w]aiver or elsewhere in this [a]rbitration [p]rovision prohibiting the arbitrator from awarding relief on behalf of third parties are unenforceable with respect to such [c]laim (and that determination becomes final after all appeals have been exhausted), the [c]laim for public injunctive relief will be determined in court and any individual [c]laims seeking monetary relief will be arbitrated. In such a case the parties will request that the court stay the [c]laim for public injunctive relief until the arbitration award pertaining to individual relief has been entered in court. In no event will a [c]laim for public injunctive relief be arbitrated."
B. Complaint
On February 4, 2020, plaintiff filed a complaint against defendant asserting four causes of action for: (1) unlawful conduct in violation of section 17200; (2) unfair conduct in violation of section 17200; (3) fraudulent conduct in violation of section 17200; and (4) public injunction and declaratory relief.
In support of those claims, plaintiff alleged that "[d]efendant routinely charges . . . interest rates well above 36% (plus the Federal Fund Rate) on the [c]onsumer [l]oans it funds. [¶] Finance rates of 36% (plus the Federal Fund Rate) and above are usurious, unfair, unconscionable, and unlawful." According to plaintiff, defendant's interest rate practices violated, among other statutes, Financial Code sections 22302, 22304.5 (as amended effective January 1, 2020), and 22750, as well as Civil Code section 1670.5. Plaintiff alleged that "[m]embers of the general public, including plaintiff, were injured financially and suffered out-of-pocket loss of money, by [d]efendant's charging usurious, excessive, and unconscionable [interest rates], and will continue to be injured in the future unless [d]efendant's conduct is enjoined and the [high interest rate loans] declared unconscionable and void. Public injunctive and declaratory relief [are] necessary to stop ongoing, immediate, and future harm to the general public."
In addition, plaintiff alleged that defendant's advertising violated the False Advertising Law (Business and Professions Code section 17500 (section 17500)). According to plaintiff, defendant "made and disseminated advertising, including statements on its websites, with the intent directly or indirectly to . . . induce the public to enter into" consumer loans with defendant, "which [advertising was] materially misleading to [p]laintiff and the general public."
Plaintiff's prayer sought a variety of relief, including "public injunction[s]," a preliminary and permanent injunction, declarations of rights, a constructive trust, and attorney fees and costs. The prayer did not, however, seek restitution on behalf of plaintiff individually or on behalf of others similarly situated.
C. Motion to Compel Arbitration
Defendant responded to the complaint with a motion to compel arbitration, which included an employee declaration authenticating a copy of plaintiff's loan agreement and stating that defendant had no record of plaintiff exercising her right to opt out of the arbitration provision. In support of the motion, defendant argued that: the FAA applied to the arbitration provision; plaintiff's claims fell within the scope of that provision; the provision, which required arbitration of plaintiff's individual claims only, must be enforced according to its terms under the FAA; and the provision was otherwise valid and enforceable because it was neither procedurally nor substantively unconscionable.
Among other arguments, defendant maintained that-due to amendments to Financial Code section 22304.5 (effective January 1, 2020) that prohibited defendant from making consumer loans of $2,500 to $10,000 with interest rates in excess of 36%-the McGill rule did not apply because there was no risk of future harm to the general public from ongoing conduct. Instead, according to defendant, plaintiff was limited to seeking only retroactive relief on behalf of herself and others similarly situated.
In a footnote, defendant also asserted that the FAA preempted the McGill rule as a state procedural prohibition that "single[d] out arbitration for special treatment."
Plaintiff opposed the motion, agreeing that the FAA applied, but arguing that it did not preempt the McGill rule. Plaintiff also argued that because the McGill rule prohibits the enforcement of the class action waiver clause, the arbitration provision itself required the parties to litigate the claims for public injunctive relief in the trial court. And, plaintiff asserted that the complaint, when viewed under an objective standard, sought relief on behalf of the general public and not on behalf of plaintiff individually.
In reply, defendant submitted a declaration from an employee asserting that, "[a]s of January 1, 2020, [defendant] no longer offered title-secured or unsecured consumer loans under [defendant's] California Finance Lenders License for loans of $2,500 to $10,000 with an interest rate of 36 [percent] per annum plus the Federal Funds Rate to California consumers." Based on the declaration, defendant argued that plaintiff's complaint could no longer seek to remedy defendant's ongoing unlawful conduct because defendant had ceased the allegedly unlawful lending practice as of January 1, 2020. Defendant therefore maintained that plaintiff could only seek retroactive relief for herself and other consumers similarly situated. Because that relief would primarily benefit plaintiff and those consumers individually, defendant maintained that the McGill rule did not apply.
D. Trial Court's Ruling
Following a hearing on defendant's motion to compel arbitration, the trial court denied the motion. The court found that "an arbitration agreement between the parties exist[ed]" and concluded that FAA applied to that agreement. The court also reviewed plaintiff's complaint, and specifically the prayer for relief, and concluded that the McGill rule applied to the class action waiver provision because plaintiff sought primarily relief on behalf of the public.
The record on appeal does not include a reporter's transcript of the hearing on the motion.
Similarly, the trial court rejected defendant's contentions based on the amendments to Financial Code section 22304.5 and the employee declaration asserting that defendant no longer made allegedly unlawful loans. It stated: "Based on the California Fair Access to Credit Act's prohibition of the interest rates at issue here and [d]efendant's discontinuation of this type of loan, [d]efendant contends that [p]laintiff can only seek backwards-looking relief. [¶] However, McGill squarely rejected a nearly identical argument that the defendant raised. (McGill[, supra, ] 2 Cal.5th at [p.] 958 . . . .) It is improper for the court to determine the merits of [p]laintiff's allegations or viability of her claims on a motion to compel arbitration. Notably, the complaint alleges that the conduct is ongoing. (Complaint ¶ 12.) [']At this stage of the proceeding-a motion to compel arbitration-it is premature to consider whether she "has . . . established" these allegations with proof or how her failure to do so would ultimately affect her request for injunctive relief.['] (McGill[, supra, ] 2 Cal.5th at [p.] 958.)"
Finally, the trial court rejected defendant's argument that the FAA preempts the McGill rule.
III. DISCUSSION
A. Standard of Review
Neither party disputes the trial court's finding of the existence of an agreement to arbitrate or its conclusion that the substantive provisions of the FAA govern the issue of its enforceability. Thus, the only issues in dispute concerning the court's ruling are whether the McGill rule applies to prohibit the enforcement of the class action waiver and, if so, whether the FAA preempts that rule. Those issues are matters of law that we review de novo. (Maldonado v. Fast Auto Loans, Inc. (2021) 60 Cal.App.5th 710, 717 ["'Because all the issues raised in this appeal involve only questions of law, we review the trial court's order de novo'"] (Maldonado).)
B. Application of McGill
1. The Rule
In Mejia v. DACM, Inc. (2020) 54 Cal.App.5th 691, the court summarized the rationale underlying the rule laid down in McGill, supra, 2 Cal.5th 945. "[Our] Supreme Court identified the issue in McGill as 'whether the arbitration provision is valid and enforceable insofar as it purports to waive [the plaintiff's] right to seek public injunctive relief in any forum.' (McGill, supra, 2 Cal.5th at p. 956.) The high court concluded the arbitration clause had such a sweeping preclusive effect across all fora because the clause barred [the plaintiff] from pursuing '"Claims and remedies"' on a class or representative basis in both arbitration and '"in any litigation in any court."' (Id. at p. 952.) Having identified the issue, the court held that the arbitration provision was 'invalid and unenforceable under California law' precisely because 'it purports to waive [the plaintiff's] statutory right to seek [public injunctive] relief.' (Id. at p. 961.)
"In explaining that conclusion, the Supreme Court cited Civil Code section 3513, which provides, in pertinent part, that '"a law established for a public reason cannot be contravened by a private agreement."' (McGill, supra, 2 Cal.5th at p. 961.) In other words, a statutory right created to serve a public purpose is unwaivable. The court stated, 'By definition, the public injunctive relief available under the UCL . . . and the false advertising law . . . is primarily "for the benefit of the general public." [Citations.]' (Ibid.) Accordingly, the Supreme Court concluded, '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 [the plaintiff's] right to request in any forum such public injunctive relief, it is invalid and unenforceable under California law.' (Ibid.)" (Mejia v. DACM, Inc., supra, 54 Cal.App.5th at pp. 698-699.)
In McGill, supra, 2 Cal.5th 945, the court delineated the difference between true public injunctive relief and relief that primarily benefits the individual plaintiff or those she purports to represent, as follows: "[P]ublic injunctive relief under the UCL . . . and the false advertising law is relief that has 'the primary purpose and effect of' prohibiting unlawful acts that threaten future injury to the general public. [Citation.] Relief that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff-or to a group of individuals similarly situated to the plaintiff-does not constitute public injunctive relief." (Id. at p. 955.)
2. The Complaint
Defendant contends that, despite the allegations and prayer for relief in plaintiff's complaint that seek relief on behalf of the general public, "the allegations of the [c]omplaint make abundantly clear that the relief [plaintiff] seeks focuses on prior loans and is retrospective, not prospective, in nature." Citing Torrecillas v. Fitness Internat., LLC, (2020) 52 Cal.App.5th 485 (Torrecillas), Clifford v. Quest Software Inc. (2019) 38 Cal.App.5th 745 (Clifford), and recent federal district court cases, defendant maintains that plaintiff, like the employee plaintiffs in Torrecillas and Clifford, seeks primarily relief on behalf of herself and other borrowers who have been victims of the alleged predatory interest rate practice. We disagree.
As an initial matter, although the complaint contains allegations concerning loans made in the past to plaintiff and others similarly situated, it does not seek restitution for any economic loss they may have suffered as a result of defendant's alleged past practices. Instead, the primary relief sought is injunctive relief under sections 17200 and 17500 to prevent defendant from continuing to issue allegedly unlawful loans to the general public and to disseminate false advertising. This manner of pleading is consistent with the purpose of the UCL. "Injunctions are 'the primary form of relief available under the UCL to protect consumers from unfair business practices,' while restitution is a type of 'ancillary relief.' [Citation.]" (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 337.) Thus, defendant here, the same defendant as in Maldonado, supra, 60 Cal.App.5th 710, "ignores the operative allegations and specific requests for relief" (id. at p. 720) which demonstrate in this case that the primary purpose of the complaint is public injunctive relief.
Only injunctive relief and restitution may be sought in an action under the UCL. "The injunctive and restitutive remedies authorized under the [UCL] . . . are of very limited utility. They are designed to prevent unfair business practices and to require disgorgement of money or property obtained by means of such practices. Damages are not available under Business and Professions Code section 17203. [Citation.] That means that no claim for compensatory or punitive damages can be recovered in a [UCL] action.'" (Zhang v. Superior Court (2013) 57 Cal.4th 364, 376.)
In addition, the complaint here sought, not only injunctive relief to restrain alleged ongoing unlawful lending practices, but to enjoin false and misleading advertising under section 17500. As the court in McGill, supra, 2 Cal.5th 945 acknowledged, such claims seek relief designed to benefit the public at large, i.e., the prohibition of ongoing and misleading advertising that is harmful to consumers. (Id. at p. 957.)
3. The Declaration
Defendant also contends that, due to changes in Financial Code section 22304.5 and in defendant's current loan practices which conformed with those changes, there is, as a matter of fact, no ongoing unlawful conduct to enjoin. Citing to the statement in an employee declaration that defendant no longer offered "loans for $2,500 to $10,000 with an interest rate in excess of 36 [percent] per annum," defendant urges us to construe plaintiff's complaint as now limited to retroactive relief on behalf of plaintiff and other similarly situated borrowers because plaintiff's "requested relief would not prevent conduct that threatens future harm to the general public." (Fn. omitted.)
But, as the trial court noted, the court in McGill, supra, 2 Cal.5th 945 rejected a similar argument, explaining: "We also disagree with [the defendant] that, because '[the plaintiff] has not established that any of the alleged conduct she challenges is ongoing or likely to recur,' she 'has failed to establish that the relief she seeks is, in fact, public injunctive relief.' As detailed before, [the plaintiff] alleges in her complaint that the conduct is ongoing. At this stage of the proceeding-a motion to compel arbitration-it is premature to consider whether she 'has . . . established' these allegations with proof or how her failure to do so would ultimately affect her request for injunctive relief. (See Aguilar v. Avis Rent A Car System, Inc. (1999) 21 Cal.4th 121, 133 . . . (plur. opn. of George, C. J.) ['The mere fact that a defendant refrains from unlawful conduct during the pendency of a lawsuit does not necessarily preclude the trial court from issuing injunctive relief to prevent a posttrial continuation of the unlawful conduct[ ]']; Robinson v. U-Haul Co. of California (2016) 4 Cal.App.5th 304, 315 . . . ['[T]here is no hard-and-fast rule that a party's discontinuance of illegal behavior makes injunctive relief . . . unavailable. "While voluntary cessation of conduct may be a factor in a court's exercise of its equitable jurisdiction to issue an injunction, it is not determinative[ ]"'].)" (McGill, supra, 2 Cal.5th at p. 958.)
Contrary to defendant's assertion, at this stage of the proceedings, it is inappropriate to consider the merit of any defenses that defendant may have to plaintiff's claims for public injunctive relief. The issue before us is not whether plaintiff will be able to prove her "ongoing conduct" allegations; the issue is whether the class action waiver in this case-including the waiver of the right to pursue representative actions under the UCL-is enforceable in light of the McGill rule. The employee declaration, which raises factual issues beyond the allegations of the operative pleading, is therefore irrelevant to the issue we must decide.
C. FAA Preemption
Notwithstanding the conclusion in McGill, supra, 2 Cal.5th at page 952 that its rule was not preempted by the FAA, as well as subsequent state and federal authority to the same effect (see Maldonado, supra, 60 Cal.App.5th at pp. 724-725; Blair v. Rent-A-Center, Inc. (9th Cir. 2019) 928 F.3d 819, 828), defendant urges us to reconsider the issue in light of two recent United States Supreme Court decisions holding that the FAA protects "'absolutely'" the right to individualized dispute resolution (Epic Systems Corp. v. Lewis (2018) 138 S.Ct. 1612, 1619 (Epic Systems); Lamps Plus Inc. v. Varela (2019) 139 S.Ct. 1407, 1416).
We decline defendant's invitation to reconsider our Supreme Court's holding in McGill, supra, 2 Cal.5th 945 concerning FAA preemption. Neither of the two subsequent United States Supreme Court decisions upon which defendant relies expressly held that the McGill rule is preempted under the FAA. Under well-established rules of stare decisis, we must therefore follow our Supreme Court's holding in McGill, unless and until it is overruled by the federal high court. "On federal questions, intermediate appellate courts in California must follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455 . . .; see Tanguilig[ v. Bloomingdale's, Inc. (2016)] 5 Cal.App.5th [665, ] 673; Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 507 . . . .)" (Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 619.)
IV. DISPOSITION
The order denying the petition to compel arbitration is affirmed. Plaintiff is awarded costs incurred on appeal.
We concur: BAKER, Acting P. J., MOOR, J.