Ninth Circuit: District Court Acted Properly When It Reconsidered and Reversed Previously Granted Order Compelling Arbitration
Posted on Categories Arbitration Agreements, Class Action/Collective Waivers, Court Decisions, Non-Securities ArbitrationTags , , ,

By George H. Friedman, SAA Editor-in-Chief

The District Court did not abuse its discretion when it reconsidered and reversed in part its previous Order compelling arbitration, based on new case law that was established after the Court had initially ruled, the Ninth Circuit holds.

We usually don’t cover trial court cases, especially where the case is still in progress. We broke with that tradition in reporting in SAA 2018-14 (Apr. 11) on Roberts v. AT&T Mobility, LLC, No. 3:15-cv-03418-EMC (N.D. Calif. 2018), because we had previously covered both the case and the precedent on which the new development rested -- and Motions to Reconsider in our experience rarely are granted.

Prior Iterations

We previously covered this case in SAA 2017-48 (Dec. 20). There, we reported that Plaintiffs brought a consumer class action against cell phone service provider AT&T Mobility LLC (“AT&T”), alleging that it falsely advertised that its mobile service plans were “unlimited” when it intentionally slowed data at certain usage levels. AT&T moved to compel arbitration, to which Plaintiffs objected on the ground that arbitration violated their First Amendment right to petition the courts for redress of their grievances. The district court granted the Motion to Compel but certified an immediate appeal on the arbitrability issue. The appeal in Roberts v. AT&T Mobility LLC, 877 F.3d 833 (2017) (9th Cir. 2017) turned on whether AT&T was a “State actor” when it imposed a predispute arbitration agreement (“PDAA”) on its customers, since it was otherwise not subject to First Amendment constraints. The Court of Appeals rejected each of Plaintiffs’ two theories for concluding that it was and affirmed. First, Plaintiffs had relied on Denver Area Educational Telecommunications Consortium, Inc. v. FCC, 518 U.S. 727 (1996). Denver Area held that cable companies were State actors when they censored “patently offensive” sexual content, as permitted by a statute. However, the Court chose to construe Denver Area narrowly, distinguishing it because the statute targeted a specific type of speech and granted the power to censor it to parties with “monopolistic-like power over cable systems.” Secondly, Plaintiffs contended that “the FAA’s mandate and the Supreme Court’s corresponding enforcement of consumer adhesion forced arbitration contracts” represented State action. The Court rejected the theory; the FAA “simply ensured that courts would ‘place arbitration agreements on an equal footing with other contracts and enforce them according to their terms'” (emphasis in original).

Intervening California Precedent

Four months later, the California Supreme Court issued its Opinion in McGill v. Citibank, 2 Cal. 5th 945 (2017), a case we covered in SAA 2017-14 (Apr. 12). There, the Court held that a PDAA waiving the right to seek the statutory remedy of public injunctive relief in any forum is contrary to California public policy and is thus unenforceable under the State’s law. Further, the FAA does not preempt this rule of State law or require enforcement of the waiver provision. Stated differently, California law now holds that a specific PDAA requirement for individual arbitration may be deemed an unwarranted attempt to prohibit public injunctive relief. How so? Plaintiffs’ suit against the bank asserted several State law claims, including alleged violations of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.), the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.), and the false advertising law (id., § 17500 et seq.). These statutes all provide for, among other things, injunctive relief, which this Court has characterized in previous decisions as “public injunctive relief,” -- injunctive relief whose primary purpose is to halt unlawful acts “that threaten future injury to the general public.”

The District Court Reconsiders

A month after McGill was decided, the Roberts Plaintiffs “asked the District Court to reconsider its arbitration ruling because there is a new basis not previously considered by the Court as to why arbitration should not be compelled.” After review of the Briefs, Judge Edward Chen granted the Motion “and, on reconsideration, concluded that arbitration shall be compelled [only] as to Mr. Krenn but not as to Mr. Roberts or the Cheweys.” (ed: Krenn’s claims were governed by Alabama law, and Judge Chen held that “it is not clear that Alabama courts would rule the same as California courts regarding a waiver of public injunctive relief (in any forum)”.)

Upon Further Review, the Ninth Circuit is OK with It

In Roberts v. AT&T Mobility, LLC, No. 18-15593 (9th Cir. Feb. 20, 2020) (unpublished), a unanimous Ninth Circuit affirms. As to whether the District Court abused its discretion in reconsidering, the Court finds: “The district court found that McGill changed the controlling law and that Plaintiffs could not have reasonably raised McGill’s public injunctive relief issue earlier in the litigation: As to the substance, the Court states: “We recently held in Blair v. Rent-A-Ctr., Inc., a case with similar factual and legal issues as this one, that the FAA does not preempt the McGill rule. 928 F.3d 819 (9th Cir. 2019). We reasoned that because the McGill rule is a generally applicable contract defense derived from long established California public policy in favor of public injunctive relief, the rule fell within the FAA’s saving clause at the first step of the preemption analysis. Moreover, we held that the McGill rule does not mandate procedures that interfere with arbitration, namely with arbitration’s informality. The arbitration clause here, like the one in Blair, prohibits public injunctive relief in any forum, including arbitration. As discussed previously, such a clause is unenforceable in California under the McGill rule. Because we are bound by our decision in Blair, we hold that AT&T’s arbitration agreement is unenforceable. Accordingly, we affirm the district court’s order denying AT&T’s motion to compel arbitration.”

(ed: *Of course, the PDAA in AT&T’s cell phone agreements was also the subject of the Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which found a “liberal federal policy favoring arbitration.” **A possible SCOTUS FAA preemption battle in Blair was avoided February 3 when the parties settled. But this decision opens the door anew…) (SAC Ref. No. 2020-09-02)

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