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Blair v. Rent-A-Center, Inc.

United States Court of Appeals, Ninth Circuit

June 28, 2019

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.

          Argued and Submitted February 12, 2019 San Francisco, California

          Appeal from the United States District Court No. 3:17-cv-02335-WHA for the Northern District of California William Alsup, District Judge, Presiding

          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.

         SUMMARY [*]

         Arbitration / Preemption

         The panel affirmed the district court's denial of Rent-A-Center's motion to compel arbitration and motion for a mandatory stay in a putative class action alleging Rent-A-Center charged excessive prices; and dismissed for lack of jurisdiction Rent-A-Center's appeals of the district court's denial of a discretionary stay and deferral on the motion to strike class claims.

         In McGill v. Citibank, N.A., 393 P.3d 85 (Cal. 2017), the California Supreme Court held that a contractual agreement purporting to waive a party's right to seek public injunctive relief in any forum was unenforceable under California law. The panel held that the Federal Arbitration Act does not preempt California's McGill rule.

         Turning to the parties' 2015 rent-to-own agreement for an air conditioner, the panel held that its severance clause, which severs plaintiff's California's Karnette Rental-Purchase Act, Unfair Competition Law, and Consumer Legal Remedies Act claims from the scope of arbitration, was triggered by the McGill rule. The panel further held that the severance clause permitted such claims to be brought in court.

         The panel affirmed the district court's refusal to impose either a mandatory or discretionary stay on the non-arbitrable claims pending arbitration of plaintiff's usury claim.

          The panel held that it lacked jurisdiction to review the district court's denial of a discretionary stay because appellate jurisdiction under the Federal Arbitration Act over interlocutory appeals is limited to the orders listed in 9 U.S.C. § 16(a)(1). The panel held that a discretionary stay that was based on the district court's inherent authority to manage its docket was not a stay under section 3 of the Federal Arbitration Act, and the exceptions that might justify extension of appellate jurisdiction did not apply to the denial of a stay. The panel also held that it lacked jurisdiction to review the district court's decision to defer ruling on Rent-A-Center's motion to strike because it was a non-final appealable order not covered by one of the categories set forth in 9 U.S.C. § 16(a)(1)(A).

          OPINION

          W. FLETCHER JUDGE

         In McGill v. Citibank, N.A., 393 P.3d 85 (Cal. 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 ...


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