Ruling: Agreements can’t bar access to public injunctive relief

In McGill v. Citibank N.A., 393 P.3d 85 (2017), the California Supreme Court held that an arbitration agreement is invalid under California law if it would bar the plaintiff's access to public injunctive relief in any forum (both in court and in arbitration). In its analysis, the McGill court described public injunctive relief as a remedy "that by and large benefits the general public and that benefits the plaintiff, if at all, only incidentally and/or as a member of the general public." Importantly, the McGill court also held that a plaintiff need not represent a putative class to seek such broad "public" injunctive relief, but may do so in an individual lawsuit.

The apparent tension between McGill's definition of public injunctive relief -- a remedy that inures primarily to the benefit of the general public -- and the McGill court's statement that a plaintiff seeks such relief on his or her "own behalf" lay at the heart of the recent decision by the 9th U.S. Circuit Court of Appeals in DiCarlo v. MoneyLion, Inc., 2021 DJDAR 1620 (9th Cir. Feb. 19, 2021). In DiCarlo, the 9th Circuit confronted the following issue: whether an arbitration agreement that prohibits the plaintiff from acting as a private attorney general either "in court or in arbitration" precludes the award of public injunctive relief, thereby running afoul of McGill.

The plaintiff in DiCarlo had taken out a small "credit builder loan" from defendant MoneyLion to improve her credit rating so she could open a hair salon. The loan program had various monthly obligations, including fees, "investment deposits," and loan payments. After the plaintiff fell behind in meeting these loan obligations, she tried to cancel her account to stop the fees from continuing to accrue. Indeed, despite paying $300 toward her $500 loan, she soon owed over $1,000. However, MoneyLion refused to allow her to quit the program prior to repaying the full loan amount. The plaintiff then sued MoneyLion as part of a putative class action, challenging the loan program as a "high-tech debt trap" employing a "deceptive and illegal fee-based revenue model" that violated California's consumer protection statutes. The plaintiff specifically sought public injunctive relief, to prevent MoneyLion from "[f]alsely advertising to the general public within the State of California that the [credit-builder] Loan contains 'no hidden fees.'"

MoneyLion moved to compel arbitration of all the plaintiff's claims, including those seeking public injunctive relief. The plaintiff argued that the arbitration agreement's prohibition on serving as a private attorney general was equivalent to a bar on awarding public injunctive relief. The district court rejected the plaintiff's argument and compelled arbitration. On appeal, a 9th Circuit panel including two President Donald Trump appointees (6th Circuit Judge Amul Thapar, sitting by designation, and Judge Daniel Collins) affirmed.

Writing for the court, Judge Thapar focused on the dispositive issue -- whether the at-issue arbitration agreement barred the provision of public injunctive relief, violating the McGill rule. If it did, then a poison pill provision in the agreement would be activated and arbitration would be off the table. Defining "public injunctive relief," however, is not always straightforward. In McGill, the California Supreme Court sought to define "public injunctive relief" as: "relief that by and large benefits the general public ... and that benefits the plaintiff, if at all, only incidentally and/or as a member of the general public." In McGill there was no dispute that the at-issue arbitration agreement required arbitration of all claims, and barred the arbitrator from awarding "public injunctive relief," that is, injunctive relief that would inure primarily to the benefit of individuals aside from the plaintiff. In DiCarlo, however, whether the at-issue arbitration agreement prohibited public injunctive relief was the core dispute on appeal.

Citing the arbitration agreement's language that the arbitrator is "authorized" to "award all remedies available in an individual lawsuit under applicable substantive law," MoneyLion argued on appeal that "all remedies" included public injunctive relief under California law, which is available even in an individual lawsuit. The court agreed that broad relief -- including broad injunctive relief -- can be obtained even in individual suits, so nothing about public injunctive relief was incompatible with the arbitration agreement's class action and private attorney general waiver.

The court then sought to define what acting as a "private attorney general" necessarily entails. The court identified two aspects of being a private attorney general: (1) having standing to sue without having suffered any individual injury; and (2) being entitled to fee-shifting for successful prosecution of claims. The court explained that neither of these essential features of private attorney general litigation was a necessary concomitant to seeking public injunctive relief. The DiCarlo court observed that in McGill, the court held that, even after Proposition 64 eliminated the pure no-injury private attorney general role, a plaintiff can still pursue public injunctive relief on his "own behalf." The court further explained that the at-issue arbitration agreement did not prohibit fee-shifting for successful prosecution of certain claims. Thus, the court concluded that an individual litigant as the plaintiff in DiCarlo can seek "public injunctive relief," and the agreement does not violate the McGill rule.

The steady persuasive flow of the decision was interrupted, however, by the court's attempt to dispatch the plaintiff's contrary arguments. If public injunctive relief is a remedy that "by and large benefits the general public and that benefits the plaintiff, if at all, only incidentally and/or as a member of the general public," the plaintiff argued, a plaintiff who obtains it is obviously acting as a private attorney general under the court's own definition. Moreover, the plaintiff quoted the California Supreme Court's earlier decisions in Broughton and Cruz, in which the court described a plaintiff "in a public injunction action" as "act[ing] in the purest sense as a private attorney general." See Broughton v. Cigna Healthplans of Cal., 988 P.2d 67, 74 (1999); Cruz v. PacifiCare Health Sys., Inc., 66 P.3d 1157, 1162 (2003). The court attempted to bat these arguments away, strictly limiting Broughton and Cruz to their holdings (which dealt with a different issue -- whether claims for public injunctive relief are arbitrable), and falling back on the parties' intent as divined from the contract terms (specifically the all-remedies clause, which authorizes the arbitrator to award injunctive relief). Somewhat exasperatingly, the court acknowledged that McGill's reasoning -- that "an individual requesting relief for the entire public is suing only on her own behalf"--is "peculiar ... to say the least." But the court also acknowledged that it is bound to follow McGill on issues of state law.

Parts of the DiCarlo decision are not persuasive. For instance, the court's assumption that an essential feature of a private attorney general is the total absence of injury to the individual, does not seem to be correct. Other statutes, such as California's Private Attorneys General Act, require the plaintiff to have suffered at least one Labor Code violation personally to have standing to seek to recover civil penalties on behalf of other aggrieved employees. See Cal. Lab. Code Section 2699(c). But a PAGA plaintiff is clearly a "private attorney general" notwithstanding his or her need to demonstrate personally having suffered a violation. In any event, DiCarlo is now the law in the federal courts within the 9th Circuit, and how it will impact drafting of arbitration agreements or future litigation should soon become apparent. 