Court Opinion

ID: 9950712
Source: CourtListenerOpinion
Date Created: 2024-03-14 17:00:59.963463+00
Date Added: 2024-06-11T14:36:14.673905
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SHANNON MCBURNIE; APRIL                  No. 22-16868
SPRUELL,
                                            D.C. No.
             Plaintiffs-Appellees,      3:21-cv-01429-JD

 v.
                                            OPINION
RAC ACCEPTANCE EAST, LLC,

             Defendant-Appellant.

      Appeal from the United States District Court
         for the Northern District of California
        James Donato, District Judge, Presiding

        Argued and Submitted October 4, 2023
              San Francisco, California

                 Filed March 14, 2024

 Before: William A. Fletcher, Richard C. Tallman, and
          Kenneth K. Lee, Circuit Judges.

             Opinion by Judge W. Fletcher
2           MCBURNIE V. RAC ACCEPTANCE EAST, LLC

                          SUMMARY *

                   Public Injunctive Relief

   The panel affirmed the district court’s denial of RAC
Acceptance East, LLC’s motion to compel arbitration, and
remanded for the district court to address named plaintiff
April Spruell’s standing to challenge a $1.99 expedited
payment fee.
    The appeal arises from a putative class action alleging
that two fees imposed by RAC, the owner and operator of
retail stores that lease household and electronic items
through rent-to-own contracts, violated California consumer
protection laws. California’s McGill rule invalidates
contractual agreements that waive the right to seek
injunctive relief on behalf of the general public. See McGill
v. Citibank, N.A., 2 Cal. 5th 945, 961-62 (2017). This court
held in Blair v. Rent-A-Center, Inc., 928 F.3d 819 (9th Cir.
2019), that RAC’s arbitration agreement was unenforceable
under California’s McGill rule, that the invalid provision
was not severable from the rest of the arbitration provision,
and that California law was not preempted by the Federal
Arbitration Act.
   The panel held that Blair was not abrogated by the
Supreme Court’s subsequent decision in Viking River
Cruises, Inc. v. Moriana, 596 U.S. 639 (2022). Viking River
dealt with California Private Attorneys General Act claims,
which are different from public injunction claims brought
under the consumer protection statutes at issue in Blair and

*
 This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
           MCBURNIE V. RAC ACCEPTANCE EAST, LLC               3

in this case. The panel therefore affirmed the district court’s
denial of RAC’s motion to compel arbitration.
    RAC argued that plaintiffs’ claim for public injunctive
relief was mooted by a Consent Decree that RAC entered
into with the California Attorney General. The Consent
Decree prohibited RAC from charging or listing a fee that it
could not establish as a reasonable actual cost incurred by
RAC. RAC argued that plaintiffs’ requested injunction
against the $45 processing fee that RAC assessed as part of
every new rent-to-own agreement would merely duplicate
this relief. The panel held that the public injunction that
plaintiffs sought would provide relief that was not addressed
by the Consent Decree, and therefore affirmed the district
court’s finding that the challenge to the $45 fee was not
moot.
    RAC further argued that plaintiffs lacked standing to
challenge the $1.99 expedited payment fee for every
payment made via telephone because plaintiff Spruell
conceded that she did not actually pay the $1.99
fee. Because the district court did not address the issue in its
order denying RAC’s motion to compel arbitration, the panel
remanded for the district court to do so.

                         COUNSEL

Robert F. Friedman, I (argued), Littler Mendelson PC,
Dallas, Texas; Julie M. McGoldrick and Shannon R. Boyce,
Littler Mendelson PC, Los Angeles, California; Kaitlyn M.
Burke, Upbound Group Inc., Plano, Texas; Kevin Ranlett,
Mayer Brown LLP, Washington, D.C.; Matthew G. Ball,
K&L Gates LLP, San Francisco, California; Wai H. Wong
4          MCBURNIE V. RAC ACCEPTANCE EAST, LLC

and Caitlin C. Blanche, K&L Gates LLP, Irvine, California;
for Defendant-Appellant.
Michael Rubin (argued), Connie K. Chan, and Christine M.
Salazar, Altshuler Berzon LLP, San Francisco, California;
James T. Hannink and Zachariah P. Dostart, Dostart Hannink
LLP, La Jolla, California; for Plaintiffs-Appellees.
Peter B. Rutledge, University of Georgia School of Law,
Athens, Georgia; Jennifer B. Dickey and Jordan L. Von
Borken, United States Chamber Litigation Center,
Washington, D.C.; Deborah R. White, Retail Litigation
Center Inc., Washington, D.C.; Stephanie A. Martz, National
Retail Federation, Washington, D.C.; for Amici Curiae
Chamber of Commerce of the United States of America,
Retail Litigation Center Inc., and National Retail Federation.

                         OPINION

W. FLETCHER, Circuit Judge:

    Plaintiffs brought a putative class action alleging that
defendant RAC Acceptance East, LLC (“RAC”) charged
two fees that violated California consumer protection laws.
After more than a year of discovery and multiple rounds of
settlement negotiations, RAC moved to compel arbitration
of the named plaintiffs’ claims.
    We held in Blair v. Rent-A-Center, Inc., 928 F.3d 819
(9th Cir. 2019), that RAC’s arbitration agreement is
unenforceable under California law, and that California law
is not preempted by the Federal Arbitration Act (“FAA”).
RAC argues that Blair was abrogated by the Supreme
Court’s subsequent decision in Viking River Cruises, Inc. v.
           MCBURNIE V. RAC ACCEPTANCE EAST, LLC            5

Moriana, 596 U.S. 639 (2022). We disagree. We affirm the
district court’s denial of RAC’s motion to compel
arbitration.
           I. Factual and Procedural Background
     RAC owns and operates retail stores that lease household
and electronic items through rent-to-own contracts, under
which the consumer rents an item, agrees to pay a set number
of installments, and then takes ownership of the item once
all payments are made.
    In 2017 and 2020, respectively, April Spruell and
Shannon McBurnie each entered into rent-to-own
agreements with RAC for furniture. They each paid a $45
processing fee that RAC assessed as part of every new rent-
to-own agreement. Further, they each agreed to pay an
additional $1.99 as an expedited payment fee for every
payment made via telephone.
    Spruell and McBurnie each signed RAC’s arbitration
agreement, which provided 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.” In
relevant part, the arbitration agreement also provided:

       [N]either 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.

   California’s McGill rule invalidates contractual
provisions that waive the right to seek injunctive relief on
6          MCBURNIE V. RAC ACCEPTANCE EAST, LLC

behalf of the general public. See McGill v. Citibank, N.A., 2
Cal. 5th 945, 961–62 (2017). In Blair, we considered the
same RAC arbitration agreement as the agreement at issue
here. We held that the agreement contained a provision that
is unenforceable under McGill, and that the invalid provision
is not severable from the rest of the arbitration agreement.
Blair, 928 F.3d at 822. We also held that California’s McGill
rule is not preempted by the FAA. Id.
    Spruell and McBurnie filed a class action complaint on
December 11, 2020, alleging that the $45 processing fee and
$1.99 expedited payment fee are unlawful under several
California consumer protection statutes—the Karnette
Rental-Purchase Act, Cal. Civ. Code § 1812.620 et seq.
(“Karnette Act”), the Consumers Legal Remedies Act, Cal.
Civ. Code § 1750 et seq., and the Unfair Competition Law,
Cal. Bus. & Prof. Code § 17200 et seq. They sought
restitution and damages, statutory fines, attorneys’ fees and
costs, and public injunctions prohibiting RAC from
continuing to charge the contested fees.
    From August 2021 to August 2022, the parties conducted
discovery proceedings and participated in multiple
settlement negotiations. In August 2022, RAC moved for
the first time to compel arbitration of plaintiffs’ claims.
RAC acknowledged in its motion that Blair prevented
enforcement of the arbitration agreement. However, RAC
argued that the Supreme Court’s June 2022 decision in
Viking River implicitly abrogated Blair, allowing
enforcement of RAC’s arbitration agreement. RAC also
argued that the plaintiffs’ challenge to the $45 processing fee
is moot because the California Attorney General had
recently obtained an injunction that banned RAC from
“[c]harging or listing a processing fee or any other fee that
[RAC] cannot establish as reasonable and an actual cost
           MCBURNIE V. RAC ACCEPTANCE EAST, LLC              7

incurred by [RAC]” under the Karnette Act, thereby curing
any injury arising out of the $45 processing fee. RAC further
argued that plaintiff Spruell, the only plaintiff who claimed
to have paid the $1.99 expedited payment fee, could not
challenge the fee because she could not show that she in fact
paid it.
    The district court denied RAC’s motion. The court
found that RAC waived its right to demand arbitration by
actively litigating the case for over a year and a half before
moving to compel. The court further held that even if RAC
had preserved its right to arbitration, Viking River did not
abrogate Blair, and that the injunction obtained by the
California Attorney General did not moot plaintiffs’ request
for public injunctive relief. The court did not address
whether plaintiff Spruell had standing to challenge the $1.99
fee charged for expedited telephone payments. We review
these issues in turn.
       II. Enforcement of the Arbitration Agreement
    RAC argues the district court erred in denying its motion
to compel arbitration of plaintiffs’ claims, renewing its
argument that the Supreme Court’s decision in Viking River
implicitly abrogated our holding in Blair. We have
jurisdiction under 9 U.S.C. § 16(a)(1)(C). We review de
novo. Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1057
(9th Cir. 2013) (en banc).
                          A. Blair
    Several California statutes, including those upon which
plaintiffs rely, authorize public injunctions. A public
injunction is a form of “injunctive relief that has the primary
purpose and effect of prohibiting unlawful acts that threaten
future injury to the general public.” McGill, 2 Cal. 5th at
8           MCBURNIE V. RAC ACCEPTANCE EAST, LLC

951. The California Supreme Court held in McGill that state
law prohibits contractual waivers of a party’s right to seek
public injunctive relief. Id. at 952.
    The FAA provides that arbitration agreements are “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. To determine whether the FAA preempts a
state-law rule that would otherwise invalidate an arbitration
agreement, we first ask whether the state-law rule is a
“generally applicable contract defense[].” AT&T Mobility
LLC v. Concepcion, 563 U.S. 333, 339 (2011). The FAA
“permits agreements to arbitrate to be invalidated by
‘generally applicable contract defenses, such as fraud,
duress, or unconscionability,’ but not by defenses that apply
only to arbitration or that derive their meaning from the fact
that an agreement to arbitrate is at issue.” Id. (citation
omitted).
     If the relevant state-law rule is not a generally applicable
contract defense, the FAA preempts the state-law rule and
the arbitration agreement may be enforced. If, however, the
state-law rule is a generally applicable contract defense, we
ask whether the state-law rule nevertheless “stand[s] as an
obstacle to the accomplishment of the FAA’s objectives.”
Id. at 343. At this step, we consider the “fundamental
attributes of arbitration” and ask whether the state-law rule
“creates a scheme inconsistent” with those attributes. Id. at
344.
    In Blair, we applied Concepcion’s preemption analysis
to California’s McGill rule and held that the rule was not
preempted by the FAA. We first determined that the McGill
rule was a generally applicable contract defense, noting the
rule “expresses no preference as to whether public injunction
           MCBURNIE V. RAC ACCEPTANCE EAST, LLC              9

claims are litigated or arbitrated,” but instead “merely
prohibits the waiver of the right to pursue those claims in any
forum.” Blair, 928 F.3d at 827. We noted that the McGill
rule “derives from a general and long-standing prohibition
on the private contractual waiver of public rights.” Id.
    We then asked whether the McGill rule impedes the
FAA’s goal of enforcing arbitration agreements “according
to their terms ‘so as to facilitate streamlined proceedings.’”
Id. at 828 (citation omitted). We observed that claims for
public injunctive relief require no special procedures and are
brought by an individual plaintiff who “retains sole control
over the suit.” Id. at 829. The McGill rule invalidates
contractual provisions that completely waive the right to
bring public injunctive claims, but it “leaves undisturbed an
agreement that both requires bilateral arbitration and permits
public injunctive claims.” Id. After deciding that the FAA
does not preempt the McGill rule, we held in Blair that
RAC’s arbitration agreement was unenforceable because it
violated the McGill rule by including a provision that
completely waived the right to seek public injunctive relief
and that provision was not severable from the rest of the
arbitration agreement. Id. at 831–32.
    In deciding that the FAA did not preempt the McGill
rule, we relied on our prior decision in Sakkab v. Luxottica
Retail N. Am., Inc., 803 F.3d 425, 432 (9th Cir. 2015),
writing that “our decision in Sakkab all but decides this
case.” Blair, 928 F.3d at 825. Sakkab involved an
arbitration agreement that waived the right to bring
representative claims on behalf of other employees under
California’s Private Attorneys General Act (“PAGA”), Cal.
Lab. Code §§ 2698 et seq. Sakkab, 803 F.3d at 427-28.
PAGA “authorizes an employee to bring an action for civil
penalties on behalf of the state against his or her employer
10         MCBURNIE V. RAC ACCEPTANCE EAST, LLC

for Labor Code violations committed against the employee
and fellow employees, with most of the proceeds of that
litigation going to the state.” Iskanian v. CLS Transp. L.A.,
LLC, 59 Cal. 4th 348, 360 (2014). In Iskanian, the California
Supreme Court held unenforceable contracts that
categorically waived the right to bring PAGA claims. Id.
    The issue in Sakkab was whether the FAA preempted the
Iskanian rule. We first determined that the Iskanian rule was
a generally applicable contract defense because the rule
“bars any waiver of PAGA claims, regardless of whether the
waiver appears in an arbitration agreement or a non-
arbitration agreement.” Sakkab, 803 F.3d at 432. We then
determined that the Iskanian rule left “parties free to adopt
the kinds of informal procedures normally available in
arbitration.” Id. at 439. We therefore held in Sakkab that the
FAA did not preempt the Iskanian rule. Id.
                      B. Viking River
    The Supreme Court’s decision in Viking River partially
overruled Iskanian. There were two Iskanian-based state-
law rules before the Court in Viking River. The first was a
rule prohibiting contractual waiver of the right to bring a
“representative” PAGA claim in any forum. Viking River,
596 U.S. at 662. The Court upheld that rule, writing, “[T]hat
aspect of Iskanian is not preempted by the FAA.” Id.
    The second Iskanian rule was a mandatory joinder rule
that forbade dividing PAGA claims into individual and
representative claims. Under PAGA, an employee with a
single alleged Labor Code violation may “seek any civil
penalties the state can, including penalties for violations
involving employees other than the PAGA litigant herself.”
Id. at 646–47 (quoting ZB, N.A. v. Superior Ct., 8 Cal. 5th
175, 185 (2019)). Thus, “[t]he only way for parties to agree
           MCBURNIE V. RAC ACCEPTANCE EAST, LLC             11

to arbitrate one of an employee’s PAGA claims is to also
‘agree’ to arbitrate all other PAGA claims in the same
arbitral proceeding. The effect of Iskanian’s rule mandating
this mechanism is to coerce parties into withholding PAGA
claims from arbitration.” Id. at 661. Because individual and
representative claims could not be divided, Iskanian
effectively forbade waiver of the right to bring either such
claim in court. The Court struck down Iskanian’s second
rule, holding that the FAA prevented PAGA from insulating
individual claims from arbitration in this manner. Id. at 662.
                        C. Discussion
    RAC argues that Viking River implicitly overrules not
only Iskanian’s second rule, but also its first, and that, as a
consequence, Blair no longer binds us. In general, “a panel
opinion is binding on subsequent panels unless and until
overruled by an en banc decision of this circuit” or “where
‘intervening Supreme Court authority is clearly
irreconcilable with our prior circuit authority.’” United
States v. Easterday, 564 F.3d 1004, 1010–11 (9th Cir. 2009)
(quoting Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.
2003)). The “clearly irreconcilable” requirement “is a high
standard.” Rodriguez v. AT&T Mobility Servs. LLC, 728
F.3d 975, 979 (9th Cir. 2013) (quoting Lair v. Bullock, 697
F.3d 1200, 1207 (9th Cir. 2012)). “[I]f we can apply our
precedent consistently with that of the higher authority, we
must do so.” FTC v. Consumer Def., LLC, 926 F.3d 1208,
1213 (9th Cir. 2019).
   RAC argues that Viking River is clearly irreconcilable
with Blair. We disagree. Viking River is entirely consistent
with Blair.
    Viking River dealt with PAGA claims, which are
different from public injunction claims brought under the
12         MCBURNIE V. RAC ACCEPTANCE EAST, LLC

consumer protection statutes at issue in Blair and this case.
In Viking River, the Supreme Court was concerned that
PAGA’s mandatory joinder rule forced parties to resolve
their individual PAGA disputes in court, thereby violating
“the fundamental principle that ‘arbitration is a matter of
consent.’” 596 U.S. at 659 (quoting Stolt-Neilsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010)). But the
mandatory joinder rule is specific to California’s PAGA
statute. It does not exist under the consumer statutes at issue
in Blair and in the case before us.
    To state it another way, the only rule at issue in the case
before us is the McGill rule. The McGill rule forbids a party
to waive the right to seek a public injunction. The McGill
rule is essentially the first Iskanian rule, which the Supreme
Court explicitly upheld in Viking River. That rule forbids a
party to waive the right to bring a representative claim in any
forum. We held in Blair that the McGill rule is not
preempted by the FAA. Far from overruling our holding in
Blair, Viking River reaffirms it.
   We therefore affirm the district court’s denial of RAC’s
motion to compel arbitration. We need not reach the other
grounds urged by plaintiffs for affirming the district court’s
decision.
                III. Mootness and Standing
    RAC argues that plaintiffs’ claim for public injunctive
relief is mooted by the Consent Decree that RAC entered
into with the California Attorney General. The Consent
Decree prohibits RAC from “[c]harging or listing a
processing fee or any other fee that [RAC] cannot establish
as reasonable and an actual cost incurred by [RAC], as
described [under the Karnette Act] in Civil Code section
1812.624, subdivision (a)(7).” RAC argues that plaintiffs’
            MCBURNIE V. RAC ACCEPTANCE EAST, LLC              13

requested injunction against the $45 processing fee would
“merely duplicate[]” this relief.
    The district court rejected this argument, finding that
“the $45 processing fee at issue here was not the focus of the
California Attorney General’s investigation” and that
plaintiffs are entitled to “seek public injunctive relief that is
more concrete than merely reaffirming that RAC is required
to abide by California law on rental-purchase agreements.”
We agree. The Consent Decree did not determine whether
the $45 processing fee in this case violates the Karnette Act’s
requirement that fees be “reasonable” and that the fees
represent an “actual cost” incurred by RAC. Thus, the public
injunction that plaintiffs seek would provide relief that is not
addressed by the Consent Decree. We affirm the district
court’s finding that plaintiffs’ challenge to the $45
processing fee is not moot.
    RAC further argues plaintiffs lack standing to challenge
the $1.99 expedited payment fee because, according to RAC,
plaintiff Spruell has conceded that she did not actually pay
the $1.99 fee. Plaintiffs may only invoke California’s
McGill rule if they have standing and seek public injunctive
relief in federal court. Stover v. Experien Holdings, Inc., 978
F.3d 1082, 1087 (9th Cir. 2020).
    In her original complaint, Spruell alleged that she had
“made several payments to [RAC] by telephone and was
charged, and paid, a $1.99 fee each time.” In her deposition,
she described making telephone payments that incurred the
$1.99 fee. She provided no other evidence of having made
those payments. When RAC asked, “What evidence do you
have that you made a payment by phone in this case?”
Spruell responded, “I don’t have no documents.” A few
minutes later, RAC asked again, “You don’t have any
14         MCBURNIE V. RAC ACCEPTANCE EAST, LLC

receipts showing that you ever paid an expedited payment
fee of $1.99, right?” Spruell responded, “No, like how
would I have a receipt?” In her written responses to RAC’s
interrogatories, Spruell admitted that she does not have
documents showing that she paid the $1.99 fee, and that she
“cannot identify any witnesses who could show” that she
paid the fee.
    The district court did not address the issue of Spruell’s
standing to challenge the $1.99 expedited payment fee in its
order denying RAC’s motion to compel arbitration. We
remand to allow the district court to do so.
                        Conclusion
     We AFFIRM in part and REMAND in part.