Ninth Circuit Reaffirms McGill and Blair, Holds Mandatory Arbitration Agreement that Prohibits “Public Injunctions” Unenforceable in Consumer Class Action

On March 14, 2024, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit unanimously affirmed a decision by U.S. District Court Judge James Donato denying Defendant RAC Acceptance East, LLC’s (RAC) motion to compel arbitration.

The underlying case, McBurnie v. Acceptance Now, Case No. 3:21-cv-01429, in which Altshuler Berzon LLP is co-counsel with Dostart Hannink LLP, is a putative class action on behalf of California consumers that challenges predatory fees charged to consumers by RAC in connection with rent-to-own transactions.  Plaintiffs allege that RAC charged California consumers two unlawful fees—1) a $45 “processing fee” at the point of transaction; and 2) a $1.99 “expedited payment fee” whenever a consumer made a rental payment by telephone rather than at a store or online—in violation of California’s Karnette Act and other statutes, which prohibits companies from charging fees for rent-to-own transactions unless the fees are reasonable and cover costs actually incurred by the company. Plaintiffs seek statutory damages and a public injunction that would prohibit this practice.

In denying the motion to compel arbitration, Judge Donato rejected RAC’s argument that the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022), overruled prior Ninth Circuit precedent in Blair v. Rent-A-Center, Inc., 928 F.3d 819 (9th Cir. 2019), which had held that RAC’s consumer arbitration agreements were unenforceable under California law because they required consumers to waive their ability to seek public injunctive relief – a remedy the California Supreme Court in McGill had held was an unwaivable substantive statutory right.  In its published decision, the Ninth Circuit agreed with Judge Donato, holding that “[f]ar from overruling our holding in Blair, Viking River reaffirms it.”  This ruling is a key victory in clarifying post-Viking River that California consumers cannot be forced into arbitration if they would be required to give up their ability to seek public injunctive relief.

The case will now return to the district court where plaintiffs’ motion for class certification is currently fully briefed and awaiting hearing.

The decision can be found here.