Blair v. Rent-A-Center, Inc.

• Decision Date: 28 June 2019
• Docket Number: No. 17-17221,17-17221
• Citation: 928 F.3d 819
• Parties: Paula L. BLAIR; Andrea Robinson; Harris A. Falechia, Plaintiffs-Appellees, v. RENT-A-CENTER, INC., a Delaware corporation; Rent-A-Center West, Inc., a Delaware corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

928 F.3d 819

Paula L. BLAIR; Andrea Robinson; Harris A. Falechia, Plaintiffs-Appellees,

v.RENT-A-CENTER, INC., a Delaware corporation; Rent-A-Center West, Inc., a Delaware corporation, Defendants-Appellants.

No. 17-17221

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 12, 2019 San Francisco, California

Filed June 28, 2019

Robert F. Friedman (argued) and Vicki L. Gillete, Littler Mendelson P.C., Dallas, Texas; Gregory G. Iskander, Littler Mendelson P.C., Walnut Creek, California; Kaitlyn M. Burke, Littler Mendelson P.C., Las Vegas, Nevada; Kirsten F. Gallacher and Vickie Turner, Wilson Turner Kosmo LLP, San Diego, California; Lily A. North and Henry J. Escher III, Dechert LLP, San Francisco, California; Christina Sarchio, Dechert LLP, Washington, D.C.; for Defendants-Appellants.

Michael Rubin (argued) and Eric P. Brown, Altshuler Berzon LLP, San Francisco, California; Zach P. Dostart and James T. Hannink, Dostart Hannink & Coveneny LLP, La Jolla, California; for Plaintiffs-Appellees.

Before: M. Margaret McKeown, William A. Fletcher, and Mary H. Murguia, Circuit Judges.

W. FLETCHER, Circuit Judge:

In McGill v. Citibank, N.A. , 2 Cal.5th 945, 216 Cal.Rptr.3d 627, 393 P.3d 85 (2017), the California Supreme Court decided that a contractual agreement purporting to waive a party's right to seek public injunctive relief in any forum is unenforceable under California law. We are asked to decide in this case whether the Federal Arbitration Act ("FAA") preempts California's McGill rule.¹ We hold it does not.

Plaintiffs brought a putative class action alleging that defendants Rent-A-Center, Inc. and Rent-A-Center West, Inc. (collectively, "Rent-A-Center") charged excessive prices for its rent-to-own plans for household items. We affirm the district court's partial denial of Rent-A-Center's motion to compel arbitration. We also affirm the district court's denial of Rent-A-Center's motion for a mandatory stay of plaintiffs' non-arbitrable claims. Finally, we dismiss for lack of jurisdiction Rent-A-Center's appeal of the district court's denial of a discretionary stay and its decision to defer ruling on a motion to strike class action claims.

I. Factual and Procedural Background

Rent-A-Center operates stores that rent household items to consumers for set installment payments. If all payments are made on time, the consumer takes ownership of the item. Rent-A-Center also sets a cash price at which the consumer can purchase the item before the rent-to-own period has ended.

Paula Blair entered into rent-to-own agreements with Rent-A-Center for an air conditioner in 2015 and for a used Xbox in 2016. Blair, together with two other named plaintiffs, filed a class action complaint on March 13, 2017, on behalf of all individuals who, on or after March 13, 2013, entered into rent-to-own transactions with Rent-A-Center in California. The complaint alleged that Rent-A-Center structured its rent-to-own pricing in violation of state law.

In 1994, the California Legislature enacted the Karnette Rental-Purchase Act, Cal. Civ. Code §§ 1812.620 et seq. ("Karnette Act"), to "prohibit unfair or unconscionable conduct toward consumers" who enter into rent-to-own agreements. Id. § 1812.621. The Karnette Act sets statutory maximums for both the "total of payments" amount for installment payments and the "cash price" for rent-to-own items. Id. § 1812.644. These maximums are set in proportion to the "documented actual cost" of the items to the lessor/seller. Id. § 1812.622(k).

The operative complaint includes claims under the Karnette Act, as well as the Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. ("UCL"), the Consumers Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq. ("CLRA"), and California's anti-usury law, Cal. Const. art. XV, § 1 (1). Plaintiffs seek a "public injunction" on behalf of the people of California to enjoin future violations of these laws, and to require that Rent-A-Center provide an accounting of monies obtained from California consumers and individualized notice to those consumers of their statutory rights. Plaintiffs also seek declaratory relief, compensatory damages and restitution, and attorneys' fees and costs.

Of the named plaintiffs, Rent-A-Center has a valid arbitration agreement only with Blair, and only with respect to her 2015 air conditioner agreement. Blair opted out of arbitration in her 2016 Xbox agreement, and Rent-A-Center has been unable to locate signed arbitration agreements for either of the other two named plaintiffs. In June 2017, Rent-A-Center filed a motion to compel arbitration of all claims arising out of Blair's 2015 agreement, which reads in relevant part:

(B) What Claims Are Covered: You and RAC [Rent-A-Center] agree that, in the event of any dispute or claim between us, either you or RAC may elect to have that dispute or claim resolved by binding arbitration. This agreement to arbitrate is intended to be interpreted as broadly as the FAA allows. Claims subject to arbitration include ... claims that are based on any legal theory whatsoever, including ... any statute, regulation or ordinance.

...

(D) Requirement of Individual Arbitration : You and RAC agree that arbitration shall be conducted on an individual basis, and that neither you nor RAC may seek, nor may the Arbitrator award, relief that would affect RAC account holders other than you. There will be no right or authority for any dispute to be brought, heard, or arbitrated as a class, collective, mass, private attorney general, or representative action. ... If there is a final judicial determination that applicable law precludes enforcement of this Paragraph's limitations as to a particular claim for relief, then that claim (and only that claim) must be severed from the arbitration and may be brought in court.

The district court concluded that the agreement violates California's McGill rule because it constitutes a waiver of Blair's right to seek public injunctive relief in any forum. The court also held the McGill rule was not preempted by the FAA. Relying on the severance clause at the end of Paragraph (D), the court held that Blair's Karnette Act, UCL, and CLRA claims "must be severed from the arbitration." The district court granted Rent-A-Center's motion to compel arbitration of Blair's usury claim because California's usury law "is not amenable to public injunctive relief."

The district court denied Rent-A-Center's motion to stay proceedings on claims not sent to arbitration—including those of the other two named plaintiffs—pending the outcome of arbitration. It also delayed ruling on Rent-A-Center's motion to strike class action claims.

Rent-A-Center appealed the district court's denial of its motion to compel arbitration of Blair's Karnette Act, UCL, and CLRA claims. Rent-A-Center also appealed the court's denial of the motion to stay proceedings and its delay in ruling on the motion to strike.

II. The McGill Rule

Several California consumer protection statutes make available the remedy of a public injunction, which is defined as "injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public." McGill , 216 Cal.Rptr.3d 627, 393 P.3d at 87. One key difference between a private and public injunction is the primary beneficiary of the relief. Private injunctions "resolve a private dispute" between the parties and "rectify individual wrongs," though they may benefit the general public incidentally. Id. 216 Cal.Rptr.3d 627, 393 P.3d at 89 (internal alterations and citation omitted). By contrast, public injunctions benefit "the public directly by the elimination of deceptive practices," but do not otherwise benefit the plaintiff, who "has already been injured, allegedly, by such practices and [is] aware of them." Id. 216 Cal.Rptr.3d 627, 393 P.3d at 90 (internal citation and quotations omitted).

The California Supreme Court held in McGill that an agreement to waive the right to seek public injunctive relief violates California Civil Code § 3513, which provides that "a law established for a public reason cannot be contravened by a private agreement." Id. 216 Cal.Rptr.3d 627, 393 P.3d at 93. Under § 3513, a party to a private contract may waive a statutory right only if the "statute does not prohibit doing so, the statute's public benefit is merely incidental to its primary purpose, and waiver does not seriously compromise any public purpose that the statute was intended to serve." Id. 216 Cal.Rptr.3d 627, 393 P.3d at 94 (internal alterations and citations omitted).

The California Supreme Court found that public injunctive relief available under the UCL and CLRA, among other statutes, is "[b]y definition ... primarily ‘for the benefit of the general public.’ " Id. (citing Broughton v. Cigna Healthplans of Cal. , 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67 (1999) ; Cruz v. PacifiCare Health Sys., Inc. , 30 Cal.4th 303, 133 Cal.Rptr.2d 58, 66 P.3d 1157 (2003) ). Waiver "of the right to seek public injunctive relief under these statutes would seriously compromise the public purposes the statutes were intended to serve." Id. Therefore, such waivers are "invalid and unenforceable under California law." Id.

The contract at issue in McGill was an arbitration agreement waiving the plaintiff's right to seek public injunctive relief in arbitration and requiring arbitration of all claims, thereby waiving the plaintiff's right to seek a public injunction through litigation. Id. 216 Cal.Rptr.3d 627, 393 P.3d at 87–88. Because this waiver prevented the plaintiff from seeking a public injunction in any forum, it was unenforceable under California Civil Code § 3513. Id. 216 Cal.Rptr.3d 627, 393 P.3d at 94.

III. FAA Preemption

Rent-A-Center argues the district court erred in denying its motion to compel arbitration of Blair's Karnette Act, UCL, and CLRA claims, contending that the McGill rule is preempted by the FAA. We have appellate jurisdiction...