Opinion
Case No. 19-00788-CV-W-GAF
07-27-2020
Aaricka SWANSON, Plaintiff, v. H&R BLOCK, INC., et al., Defendants.
Andrew Obergfell, Pro Hac Vice, Bursor & Fisher, P.A., New York City, NY, Sarah S. Ruane, Eric D. Barton, Wagstaff & Cartmell, Kansas City, MO, for Plaintiff. Anthony J. Durone, Stacey R. Gilman, Berkowitz Oliver LLP, Kansas City, MO, Carol A. Hogan, Pro Hac Vice, Jones Day, Chicago, IL, Christopher R.J. Pace, Pro Hac Vice, Jones Day, Miami, FL, Darren K. Cottriel, Pro Hac Vice, Jones Day, Irvine, CA, for Defendants.
Andrew Obergfell, Pro Hac Vice, Bursor & Fisher, P.A., New York City, NY, Sarah S. Ruane, Eric D. Barton, Wagstaff & Cartmell, Kansas City, MO, for Plaintiff.
Anthony J. Durone, Stacey R. Gilman, Berkowitz Oliver LLP, Kansas City, MO, Carol A. Hogan, Pro Hac Vice, Jones Day, Chicago, IL, Christopher R.J. Pace, Pro Hac Vice, Jones Day, Miami, FL, Darren K. Cottriel, Pro Hac Vice, Jones Day, Irvine, CA, for Defendants.
ORDER
GARY A. FENNER, JUDGE
Now before the Court is Defendants H & R Block, Inc., H & R Block Tax Group, Inc., and HRB Digital, LLC's (collectively "H & R Block" or "Defendants") Motion to Compel Arbitration and to Stay Litigation. (Doc. # 17). Plaintiff Aaricka Swanson ("Plaintiff") opposes. (Docs. ## 31). For the following reasons Defendants’ Motion is GRANTED.
Defendant Free File Inc. ("Free File"), joined H & R Block's Motion to Compel Arbitration and Stay Litigation on December 2, 2019. (Doc. # 19). However, on June 19, 2020, the Court dismissed FFI as a party for lack of subject matter jurisdiction. (Doc. # 39). Accordingly, Free File's Motion to Compel Arbitration and Stay Litigation (Doc # 19) is DENIED as moot.
DISCUSSION
I. BACKGROUND
The present lawsuit arises from an alleged scheme perpetrated by H & R Block to deceive low-income tax-payers who are eligible to receive free tax preparation and filing services under the United States Internal Revenue Service's ("IRS") Free File Program by diverting those tax-payers to paid tax-filing products. (Doc. # 1 ("Complaint"), ¶ 1). Plaintiff asserts H & R Block carried out its scheme by creating two programs, the "Free File" program and "Free Online" program with "similar and misleading names" to guarantee payment. (Id. ¶ 39). According to Plaintiff, the "Free File" program is H & R Block's free product but is not conspicuously displayed or linked on H & R Block's main website and can only be accessed through a different web page. (Id. ¶¶ 40, 45). By contrast, Plaintiff claims the "Free Online" program is available on H & R Block's main website and advertises a $0 filing fee to entice users to create an account and input tax information. (Id. ¶¶ 45, 52, 53). Once the information is entered, Plaintiff alleges the user is frequently required to upgrade to a premium product before the tax return can be submitted without being informed that he or she may qualify for the "Free File" option. (Id. ¶¶ 51, 53). Plaintiff further alleges H & R Block hid the Free File option from consumers during the 2018 tax year by adding a line of code that prevented the option from populating in online search results. (Id. ¶ 46).
II. FACTS
On March 2, 2019, Plaintiff, a California resident, used H & R Block's online tax preparation and filing services to file her 2018 state and federal tax returns. (Id. ¶ 13; (Doc. # 18-1 (Declaration of Renee Gibson "Gibson Decl."), ¶¶ 3, 5) ). After navigating to H & R Block's website, Plaintiff was presented with an acknowledgment screen that stated, "We've updated our terms and policies." (Gibson Decl., ¶ 5; Doc. # 18-2). The acknowledgment screen contained a toggle button, a circle that moves between two positions from left to right, that Plaintiff had to click to agree to the terms of the H & R Block Online Services Agreement ("Online Services Agreement"). (Gibson Decl., ¶ 6; Doc. # 18-2). The toggle button was located immediately to the left of an acknowledgement that stated, "I agree to H & R Block's Online Services Agreement, which includes the requirement that any dispute be resolved through binding arbitration." (Id. ). The acknowledgment screen also contained a hyperlink to the Online Services Agreement's full text, including its arbitration agreement. (Gibson Decl., ¶¶ 6, 11; Doc. # 18-4). The Arbitration Agreement, which is governed by the Federal Arbitration Act ("FAA"), states in relevant part:
Plaintiff does not dispute any of the facts offered in the Gibson Declaration. (Doc. # 31). Accordingly, the Court accepts these facts as true.
11.1 Scope of Arbitration Agreement. All disputes and claims between you and any one or more of the H&R Block Parties ... will be resolved through binding individual arbitration unless you opt out of this Arbitration Agreement using the process explained below. However, either you or the H&R Block Parties may bring an individual claim in small claims court, as long as it is brought and maintained as an individual claim. All issues are for the arbitrator to decide, except that issues relating to the validity, enforceability, and scope of this Arbitration Agreement, including the interpretation of paragraph 11.3 below, must be determined by the court and not the arbitrator.
* * * *
11.3 Waiver of right to bring class action and representative claims . All arbitrations will proceed on an individual basis. The arbitrator is empowered to resolve the dispute with the same remedies available in court, including compensatory, statutory, and punitive damages; attorneys’ fees; and declaratory, injunctive, and equitable relief. However, any relief must be individualized to you and will not affect any other client. The arbitrator is also empowered to resolve the dispute with the same defenses available in court, including but not limited to statutes of limitation. You and the H&R Block Parties also agree
that each may bring claims against the other in arbitration only in your or their respective individual capacities and in so doing you and the H&R Block Parties hereby waive the right to a trial by jury, to assert or participate in a class action lawsuit or class action arbitration, to assert or participate in a private attorney general lawsuit or private attorney general arbitration, and to assert or participate in any joint or consolidated lawsuit or joint or consolidated arbitration of any kind. If a court decides that applicable law precludes enforcement of any of this paragraph's limitations as to a particular claim for relief, then that claim for relief (and only that claim for relief) must remain in court and be severed from any arbitration. The H&R Block Parties do not consent to and the arbitrator will not have authority to conduct, any class action arbitration, private attorney general arbitration, or arbitration involving joint or consolidated claims, under any circumstance.
* * * *
11.5 Other terms & information . This Arbitration Agreement will be governed by, and interpreted, construed, and enforced in accordance with, the Federal Arbitration Act and other applicable federal law. Except as set forth above, if any portion of this Arbitration Agreement is deemed invalid or unenforceable, it will not invalidate the remaining portions of the Arbitration Agreement. Notwithstanding any provision in this Agreement to the contrary, we will not make any material change to this Arbitration Agreement without providing you with an opportunity to reject that change by following the directions in the notice of changes. Rejection of any future change will not impact this or any prior Arbitration Agreement you have made.
(Doc. # 18-4) (emphasis in original).
In order to proceed past the acknowledgment screen, Plaintiff had to move the toggle button and click the "NEXT" button that appeared at the bottom of the screen. (Gibson Decl., ¶¶ 6-7). Failure to perform either action would result in an "error" message. (Id. ¶ 7). H & R Block's records indicate Plaintiff agreed to the terms of the Online Services Agreement on March 2, 2019 at 6:03:08 PM Central Standard Time. (Id. ¶ 10). Despite qualifying for the Free File option, Plaintiff alleges she was charged $64.94 to file her taxes after inputting information on H & R Block's website. (Complaint, ¶ 13).
On August 26, 2019, Plaintiff instituted the current lawsuit in this Court on behalf of herself, a proposed Nationwide Class, and a California Subclass. (Id. ). Plaintiff's Complaint alleges violations of the California Consumer Legal Remedies Act ("CLRA") (Count I), violations of the California Unfair Competition Law ("UCL") (Count II), violations of the California False Advertising Law ("FAL") (Count III), Breach of Contract (Count IV), and Fraud (Count V). (Id. ). Pursuant to her CLRA, UCL, and FAL claims, Plaintiff seeks public injunctive relief requiring H & R Block to prominently display differences between the Free File software and its competing "Free Online" service on its website, provide a link to the Free File software, and institute changes to correctly identify eligible Free File participants and direct them to the Free File option. (Complaint, ¶¶ 57-125). Defendants move to compel arbitration on an individual basis and stay litigation during the arbitration process. (Doc. # 18).
Defined as "All Free File Program-eligible persons in the United States who paid to use an H&R Block product to file an online tax return for the 2002 through 2018 tax filing years." (Complaint, ¶ 61).
Defined as "All Free File Program-eligible persons in the State of California who paid to use an H&R Block product to file an online tax return for the 2002 through 2018 tax filing years." (Complaint, ¶ 61).
III. LEGAL STANDARD
"The Federal Arbitration Act (FAA), 9 U.S.C. § 4, provides that a party aggrieved by the failure of another party to arbitrate under a written agreement may petition the district court for an order compelling arbitration." Koch v. Compucredit Corp. , 543 F.3d 460, 463 (8th Cir. 2008). "Under § 3 [of the FAA], a party may apply to a federal court for a stay of the trial of an action ‘upon any issue referable to arbitration under an agreement in writing for such arbitration.’ " Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 68, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (citation omitted). The goal of the FAA is " ‘to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.’ " Koch , 543 F.3d at 460 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ). To carry out this purpose, Congress limited the role of courts to " ‘issues relating to the making and performance of the agreement to arbitrate.’ " Id. (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co. , 388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ). A district court must compel arbitration "upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue." Rent-A-Ctr. , 561 U.S. at 68, 130 S.Ct. 2772 (citation omitted).
IV. ANALYSIS
A. Does the Court have Jurisdiction over Plaintiff's Fraudulent Inducement Claim?
Defendants argue the Arbitration Agreement is enforceable under the FAA and move to compel all claims to individual arbitration pursuant to a provision that states, "[a]ll disputes and claims between you and any one or more of the H & R Block parties ... will be resolved through binding individual arbitration." (Doc. # 18, p. 6-8; Doc. # 18-4, ¶ 11.1). Section 2 of the FAA provides an arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA thereby places arbitration agreements on equal footing with other contracts and requires courts to enforce arbitration agreements according to their terms. AT & T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (citations omitted). However, the final clause of section 2, frequently referred to as the "savings clause," allows arbitration agreements to be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract." Id. Thus, an arbitration agreement can be revoked based on "generally applicable contract defenses, such as fraud, duress or unconscionability." Id.
Plaintiff does not dispute acceptance of the Online Services Agreement. (Doc. # 31). Nor does she dispute the Arbitration Agreement is governed by the FAA. (Id. ). Rather, she argues the Arbitration Agreement is voidable under the savings clause because it was induced by fraud. (Doc. # 31 pp. 5-7). As a result, she asks the Court to decide her fraudulent inducement claim (Count V) at the outset. (Id. ). For reasons explained below, the Court lacks jurisdiction to grant Plaintiff's request.
The Supreme Court recognizes two challenges to validity under section 2 : "One type challenges specifically the validity of the agreement to arbitrate, and [t]he other challenges the contract as a whole." Rent-A-Ctr. , 561 U.S. at 70, 130 S.Ct. 2772 (quotation and citation omitted). The question of who has jurisdiction to consider gateway issues of validity—court or arbitrator—turns on what type of challenge is asserted. Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). Claims of fraudulent inducement involving commercial transactions that go to the making of the arbitration clause itself are reserved for adjudication by federal courts under sections 3 and 4 of the FAA. Prima Paint , 388 U.S. at 403-04, 87 S.Ct. 1801. By contrast, federal courts are prohibited from considering claims of fraudulent inducement of the contract generally and must compel those claims to arbitration. Id. at 404, 87 S.Ct. 1801 ; see also Creson v. Quickprint of Am., Inc. , 558 F. Supp. 984, 987 (W.D. Mo. 1983) ; Bush v. AT & T Corp. , No. 12-6106-CV-SJ-DGK, 2012 WL 6016719, at *2 (W.D. Mo. Dec. 3, 2012). Put another way, a federal court must enforce an arbitration clause even if the entire contract is invalid unless the challenge to validity is expressly directed at the formation of the arbitration agreement. Id. This doctrine, known as the Prima Paint severability rule, allows an arbitration agreement to be severed and enforced separately from an underlying contract. Buckeye , 546 U.S. at 445, 126 S.Ct. 1204.
Plaintiff argues her fraudulent inducement claim is not subject to arbitration because the Arbitration Agreement is not severable under Prima Paint. (Doc. # 31, p. 8). Specifically, she asserts her inducement into the commercial transaction presents a direct challenge not only to the Online Services Agreement, but to all terms arising thereunder, including the Arbitration Agreement. (Id. , pp. 8-9). The Court disagrees and finds the current facts are substantially on point with the Prima Paint.
In Prima Paint , two business entered into a non-compete agreement for consulting services in return for a percentage of receipts from listed customers. 388 U.S. at 397-98, 87 S.Ct. 1801. When the defendant company defaulted on the payment terms, Prima Paint, the plaintiff company, sued to rescind the agreement based on fraud. Id. at 398, 87 S.Ct. 1801. Prima Paint argued, absent the promise of solvency, it would have never entered into the consultation agreement. Id. As a result of the alleged fraudulent inducement, Prima Paint sought to enjoin enforcement of the agreement's arbitration clause. Id. at 399, 87 S.Ct. 1801. The Supreme Court found Prima Paint did not allege it was fraudulently induced to enter into the arbitration agreement. Id. at 406, 87 S.Ct. 1801. Rather, Prima Paint claimed "execution and acceleration" of the contract, not the arbitration agreement, "were produced by fraud." Id. Because Prima Paint's allegations did not pertain to the making of the arbitration agreement, the Supreme Court determined the district court could not adjudicate the question. Id. at 402, 406, 87 S.Ct. 1801 ; see also Buckeye , 546 U.S. at 444-45, 126 S.Ct. 1204
Similarly, Plaintiff's allegations are confined to inducement of the contract generally. (Complaint). She claims she was induced into purchasing the falsely marketed "Free Online" software as a result of H & R Block's deceptive advertising tactics. (Complaint, ¶¶ 126-131). Like Prima Paint, Plaintiff alleges, absent Defendants’ misrepresentations, she would not have purchased H & R Block's software in the first instance. (Id. ¶ 13). To the extent Plaintiff is arguing she is differently situated from Prima Paint because she is not a sophisticated party, the Supreme Court has applied the severability rule to enforce arbitration of individual consumer contracts. See Buckeye , 546 U.S. at 446, 126 S.Ct. 1204 (severing a fraudulent inducement claim where customers to a loan contract alleged they were fraudulently induced to pay usurious interest rates in violation of Florida law). See also Houlihan v. Offerman & Co. , 31 F.3d 692, 695 (8th Cir. 1994) (compelling a fraudulent inducement claim for investment losses to mandatory arbitration where a husband and wife's alleged misrepresentations related to the contract as a whole). Accordingly, Plaintiff's fraudulent inducement claim (Count V) is severable and must be compelled to arbitration.
The Eighth Circuit has declined to apply the severability rule where a plaintiff contested the existence of an arbitration agreement, but that is not the case here. See Express Scripts, Inc. v. Aegon Direct Mktg. Servs., Inc. , 516 F.3d 695, 701 (8th Cir. 2008) (holding Prima Paint inapplicable where it was unclear if an arbitration agreement from a previous contract applied to a subsequent oral agreement) (citing AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ).
Plaintiff argues even if the Online Services Agreement is enforceable, her fraudulent inducement claim is subject to judicial determination under the terms of the Arbitration Agreement. (Doc. # 31, pp. 7-8). She relies on a provision of the Arbitration Agreement that states, "All issues are for the arbitrator to decide, except that issues relating to the validity, enforceability, and scope of this Arbitration Agreement , including the interpretation of [the class action waiver] must be determined by the court and not the arbitrator." (Doc. # 31, p. 7; Doc. # 18-4, ¶ 11.1) (emphasis added). This language does not change the analysis regarding Plaintiff's fraudulent inducement claim. Rather, it affirms that all gateway issues regarding validity are for the arbitrator, save for those directed at the Arbitration Agreement itself. Because Plaintiff challenges the entirety of the Online Services Agreement, this language does not convey jurisdiction to the Court to determine the issue of fraudulent inducement.
Plaintiff further asserts, "if this court is persuaded that initial determination of fraudulent inducement must be made by an arbitrator, the arbitrator's jurisdiction should be limited to determining whether Plaintiff was fraudulently induced into entering into the Online Services Agreement." (Doc. # 31, p. 10). The Court is sympathetic to this position because the arbitrator could decide both the Online Services Agreement and Arbitration Agreement are voidable due to fraud. However, this result is not guaranteed under the severability rule. Prima Paint mandates the Court evaluate the enforceability of the Arbitration Agreement on its own terms. The Court will so proceed.
B. Is there a Valid Arbitration Agreement?
In deciding questions of arbitrability, a court's role is "limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute." Pro Tech Indus. v. URS Corp. , 377 F.3d 868, 871 (8th Cir. 2004) ; see also Int'l Bhd. of Elec. Workers v. Hope Elec. Corp. , 380 F.3d 1084, 1098-99 (8th Cir. 2004). This is because "[a]rbitration is strictly a matter of consent." Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) (quotation and citation omitted). Arbitration may be ordered "only where the court is satisfied that the parties agreed to arbitrate that dispute. " Id. at 297, 130 S.Ct. 2847 (emphasis in original) (citation omitted). "[A]ny 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 , 460 U.S. at 24-25, 103 S.Ct. 927. State law must be applied to determine if a binding agreement exists. Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 629-31, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). The parties agree California applies for purposes of contract construction. (Docs. ## 18, 31).
California law places the burden of proving a valid arbitration agreement exists on the party moving to compel arbitration. Hotels Nevada v. L.A. Pac. Ctr., Inc. , 144 Cal. App. 4th 754, 765, 50 Cal.Rptr.3d 700 (2006). Defendants presented evidence that Plaintiff electronically accepted the terms of the Online Services Agreement and attendant Arbitration Agreement by moving the toggle button from left to right and clicking "Next." (Gibson Decl., ¶¶ 6, 7, 10). Plaintiff does not dispute these facts. (Doc. # 31). California courts have determined the procedures employed by Defendants and utilized by Plaintiff constitute valid contract formation. See Lee v. Postmates, Inc. , No. 18-cv-3421-JCS, 2018 WL 4961802, at *4 (N.D. Cal. Oct. 15, 2018) (holding a "click through" process where food couriers had to click either "Agree" or "Dismiss" before proceeding to the next step was sufficient to assent to arbitration) (citing Levin v. Caviar, Inc. , 146 F. Supp. 3d 1146, 1157 (N.D. Cal. 2015) (collecting district court cases)). Therefore, Defendants have met their burden. The Court finds the Arbitration Agreement is valid.
The result is the same under Missouri Law. See Major v. McCallister , 302 S.W.3d 227, 229 (Mo. Ct. App. 2009) ("Assent is manifested on clickwrap sites, usually by clicking a box or a button (i.e., ‘I Agree’).") (citations omitted).
C. Is the McGill Rule Preempted by the FAA?
Turning to the question of scope, Plaintiff argues her CLRA, UCL, and California false advertising law ("FAL") claims (Counts I through III) must be excluded from arbitration under McGill v. Citibank, N.A. , 2 Cal. 5th 945, 216 Cal.Rptr.3d 627, 393 P.3d 85 (2017). Unlike Plaintiff's fraudulent inducement claim, the scope of arbitration and interpretation of the class action waiver is clearly delegated to the Court. (Doc. # 18-4, ¶ 11.1). In McGill , the California Supreme Court held an arbitration clause waiving a party's right to seek public injunctive relief in any forum is unenforceable under California law. 2 Cal. 5th at 961, 216 Cal.Rptr.3d 627, 393 P.3d 85. The Court explained, pursuant to California Civil Code § 3513, "a law established for a public reason cannot be contravened by a private agreement." Id. Because public injunctive relief under the CLRA, UCL, and FAL is primarily "for the benefit of ... the general public" the court reasoned pre-dispute waivers denying this relief violates § 3513 and runs afoul of public policy. Id. (quotation and citation omitted).
Though unclear, it appears Plaintiff argues the Arbitration Agreement waives her right to seek "public" injunctive relief because the terms specify "any relief must be individualized to you and will not affect any other client." (Doc. # 31, pp. 11-14; Doc. # 18-4, ¶ 11.3). Plaintiff maintains this prohibition renders the Arbitration Agreement unenforceable with respect to her CLRA, UCL, and FAL claims. (Doc. # 31, pp. 11-14). She further maintains these claims are severable, and subject to litigation, pursuant to a later provision that states if "applicable law precludes enforcement of any of this paragraph's limitations as to a particular claim for relief, then that claim for relief (and only that claim for relief) must remain in court and be severed from any arbitration" (Doc. # 31, p. 15; Doc. # 18-4, ¶ 11.3). Defendants argue McGill is preempted by the FAA and irreconcilable with Supreme Court precedent for three reasons: (1) arbitrating a public injunction request would transform the proceeding from an individualized determination of redressing injury to a single claimant into an expansive inquiry aimed at preventing future injury to the general public; (2) arbitrating a public injunction claim will be more procedurally complex than a one-on-one arbitration; and (3) the stakes of a public-injunction action are massive because Defendants could be forced to alter their practices on a nationwide scale with limited judicial review of arbitral awards. (Doc. # 18, p. 8-12). In making these arguments, Defendants rely on Supreme Court cases enforcing class action waivers. (Id. ). The Court adopts this approach and finds Defendants’ first point dispositive of the issue.
The Supreme Court has repeatedly rejected state contract defenses that interfere with the "traditionally individualized and informal nature of arbitration." Epic Sys. Corp. v. Lewis , ––– U.S. ––––, 138 S. Ct. 1612, 1623, 200 L.Ed.2d 889 (2018) (emphasis added) (citing Concepcion , 563 U.S. at 338, 131 S.Ct. 1740 ) (holding the FAA preempts arbitration of NLRA collective bargaining actions)); see also Lamps Plus, Inc. v. Varela , ––– U.S. ––––, 139 S. Ct. 1407, 1418, 203 L.Ed.2d 636 (2019) (holding California's contract contra proferentem doctrine does not overcome ambiguities in drafting where parties have not expressly agreed to arbitrate class claims). Notably, in Concepcion , the Supreme Court rejected a California rule, known as the Discover Bank rule, which "classif[ied] most collective-arbitration waivers in consumer contracts as unconscionable." 563 U.S. at 340, 131 S.Ct. 1740. The Supreme Court found the Discover Bank rule frustrated the FAA's objectives by failing to enforce individualized private arbitration agreements according to their terms and allowing "any party to a consumer contract to demand [classwide arbitration] ex-post. " Id. at 346, 131 S.Ct. 1740. The majority reasoned that, if allowed, the Discover Bank rule could be applied to any consumer contract because they are all contracts of adhesion and the remaining requirements for falling within the rule's ambit are overbroad and "malleable." Id. at 346-47, 131 S.Ct. 1740.
The Supreme Court concluded, "class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA." Id. at 348, 131 S.Ct. 1740. Thus, although the savings clause protects "generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." Id. at 343, 131 S.Ct. 1740 (citations omitted); see also Epic , 138 S. Ct. at 1622 (2018) (explaining a shift from individualized arbitration to class arbitration interferes with the fundamental attributes of "speed and simplicity and inexpensiveness" protected by the FAA).
More recently, the Supreme Court revisited the issue of classwide arbitration in Epic and emphasized the FAA's "liberal federal policy favoring arbitration agreements." 138 S. Ct. at 1621 (quotation and citation omitted). Epic calls upon lower courts to "rigorously" enforce terms of arbitration agreements specifying "with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted" consistent with sections three and four of the FAA. Id. (quotations omitted) (emphasis in original). Epic reinforces Concepcion ’s holding: "courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent ." Id. at 1623 (emphasis added). This directive is strictly construed, as evidenced by the Supreme Court declining to allow arbitration of class claims where the arbitration agreement is silent or ambiguous on the point. See Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. , 559 U.S. 662, 683-87, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) ; Lamps Plus , 139 S. Ct. at 1418. Epic further counsels the judiciary to be alert to new threats to individualized arbitration hiding behind the guise of public policy. 138 S. Ct. at 1623. Any "rule seeking to declare individualized proceedings off limits" constitutes such a threat. Id.
Defendants argue California's McGill rule runs afoul of the FAA for exactly this reason. (Doc. # 18, p. 9-10). Unlike a private injunction which has the " ‘primary effect of redressing or preventing an injury to an individual plaintiff,’ " Defendants assert a public injunction shifts the adjudicator's focus to crafting relief for the benefit of third parties, thereby rendering agreements for "individualized" arbitration irrelevant. (Doc. # 18, p. 10) (quoting McGill , 216 Cal.Rptr.3d 627, 393 P.3d at 90 ).
Plaintiff counters McGill is consistent with Supreme Court precedent, relying on Blair v. Rent-A-Center, Inc. , 928 F.3d 819 (9th Cir. 2019). (Doc. # 31, pp. 11-13). In Blair , the Ninth Circuit Court of Appeals held McGill is not preempted by the FAA. 928 F.3d at 829. The Ninth Circuit also distinguished McGill from Concepcion and Epic on the grounds that public injunctive relief does not require the same procedural formality as a class action because claims for public injunctive relief "need not comply with state-law class procedures." Id. Blair further held McGill does not impermissibly target bilateral arbitration. Id. ("The McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims. A plaintiff requesting a public injunction files the lawsuit on his or her own behalf and retains sole control over the suit.") (quotation and citation omitted).
Defendants argue Blair misses the point because the relevant inquiry is not whether the procedures at issue are exactly equivalent to class arbitration, but whether the contract defense in question interferes with the FAA's protection of individualized arbitration because the " ‘form of arbitration envisioned by the FAA" is "individual arbitration.’ " (Doc. # 18, p. 9) (quoting Lamps Plus , 139 S. Ct. at 1416 ). Despite Blair ’s insistence that the McGill rule does not unfairly target bilateral arbitration, Defendants argue the rule has the same practical effect as a Rule 23(b)(2) class action. (Doc. # 35, p. 7). The Court agrees.
Setting aside Plaintiff's claim of fraudulent inducement of the underlying contract, Plaintiff does not deny the Arbitration Agreement calls for bilateral arbitration. (Doc. # 31). The terms of the Arbitration Agreement specify, "[a]ll disputes and claims between you and any one or more of the H&R Block Parties ... will be resolved through binding individual arbitration . (Doc. # 18-4, ¶ 11.1). The terms also specify, "any relief must be individualized to you and will not affect any other client " (Id. , ¶ 11.2). Concepcion and Epic both reinforce the notion that arbitration is a matter of consent.
Defendants did not consent to the public injunctive relief requested by Plaintiff, and McGill does not "save" enforcement of a contract that clearly delineates Plaintiff as the only potential claimant. A state contract defense that mandates reclassification of available relief from one individual to multiple (or in this case, millions) of people impermissibly targets one-on-one arbitration by restructuring the entire inquiry. Plaintiff's individual retention of the suit does not vitiate McGill ’s interference with the FAA's protection of individualized arbitration just because other members of the putative class are not formally joined as parties.
Moreover, under McGill and Blair , a plaintiff could avoid individual arbitration by claiming violations of California's advertising statutes and subsequently requesting a public injunction when an arbitration agreement contains a "poison pill" provision that renders all or part of the contract void after a clause is invalidated. See, e.g., McArdle v. AT & T Mobility LLC , No. 09-CV-01117-CW, 2017 WL 4354998, at *5 (N.D. Cal. Oct. 2, 2017), aff'd , 772 F. App'x 575 (9th Cir. 2019). In fact, Plaintiff attempts to do exactly that in this matter. (Doc. # 31, p. 15). This is precisely the type of ex-post maneuvering Concepcion sought to avoid by overruling the Discover Bank rule.
Plaintiff correctly notes another district court considering "the same arguments, raised by the same Defendant, about the same arbitration clause, concluded that the arbitration agreement is unenforceable under McGill and Blair. " (Doc. # 11, p. 31) (emphasis deleted). Indeed, the United States District Court for the Northern District of California held McGill did not preempt the FAA under identical facts. See Olosoni v. HRB Tax Group., Inc. , 2019 WL 7576680 (N.D. Cal. Nov. 5, 2019). However, the Olosoni court noted it is "bound by the law of the circuit in which it sits," and therefore, could not entertain Defendant's argument that Blair was wrongly decided. 2019 WL 7576680, at *3.
This Court, however, is not bound by the Ninth Circuit. The Eighth Circuit routinely disagrees with Ninth Circuit precedent, and the Court finds divergence is merited in the current cause. Accordingly, the Court holds McGill is preempted by the FAA and Plaintiff's CLRA, UCL and FAL claims (Counts I through III) must be compelled to individual arbitration. A review of Eighth Circuit precedent further informs this conclusion. For example, in Owen v. Bristol Care, Inc. , 702 F.3d 1050, 1052-1055 (8th Cir. 2013), the Eighth Circuit held class action waivers are enforceable in Fair Labor Standard Act cases pursuant to Concepcion even though Concepcion related to consumer contracts rather than employment contracts and despite a National Labor Relationship Board decision to the contrary. See also Cellular Sales of Missouri LLC v. NLRB , 824 F.3d 772 (8th Cir. 2016) (upholding enforcement of class action waivers in employee contracts). This broad reading of Concepcion no doubt encompasses the procedural reach-around created by McGill in the consumer context.
See, e.g., United States v. Boleyn , 929 F.3d 932, 938 (8th Cir. 2019) ; Llapa-Sinchi v. Mukasey , 520 F.3d 897, 901 (8th Cir. 2008) ; Hanks v. Gen. Motors Corp. , 906 F.2d 341, 344 n.4 (8th Cir. 1990) ; Rushton v. Neb. Pub. Power Dist. , 844 F.2d 562, 567 (8th Cir. 1988).
CONCLUSION
The terms of the Arbitration Agreement unequivocally call for individualized arbitration. Individualized arbitration is the type of arbitration the FAA seeks to protect and the Supreme Court has called upon lower courts to be vigilant to new devices that seek to interfere with this goal. The McGill rule unfairly targets bilateral arbitration by restructuring the relief and proceedings from centering on one claimant to a putative class. Because the McGill rule is not generally applicable to all contracts, Plaintiff's claims arising under the CLRA, UCL, and FAL must be compelled to individual arbitration. Plaintiff does not raise any arguments contesting the arbitrability of her breach of contract claim (Count IV) (Doc. # 31), so that claim will likewise be compelled to arbitration. The Court lacks jurisdiction to hear Plaintiff's final claim because questions of fraudulent inducement of a contract generally are reserved for the arbitrator. For these reasons, and reasons explained above, Defendants’ Motion to Compel Arbitration and Stay Litigation is GRANTED.
Also pending is Defendants’ Motion to Stay Pursuant to the Primary Jurisdiction Doctrine. (Doc. # 23). The action is already stayed pursuant to this Order, so Defendants’ Motion to Stay is DENIED as moot.
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The Court compels the parties to arbitrate Plaintiff's claims in accordance with the terms of the Arbitration Agreement. This matter is stayed pending completion of arbitration. The parties shall file a notice with the Court within ten days of the completion of arbitration. If arbitration is not completed by January 25, 2020, the parties shall jointly file a status report on that date setting forth the status of the matter.