DiCarlo v. MoneyLion, Inc.: Arbitration Agreement Allowing Public Injunctive Relief Dodges The McGill Rule, Says 9th Cir.

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In McGill v. Citibank, N.A., 2 Cal.5th 945 (2017), the California Supreme Court held that under California law, a provision in any contract purporting to waive a party’s right to seek public injunctive relief in any forum is contrary to public policy and unenforceable. Id. at 952. The legal requirement that contracts must allow public injunctive relief is known as the McGill rule. DiCarlo v. MoneyLion, Inc., 9th Cir. Feb. 19, 2021 (“DiCarlo”). Slip op. at 6 (available here). The McGill rule has provided consumer plaintiffs with a stalwart defense against being compelled to arbitration. In DiCarlo, the Ninth Circuit held that an arbitration agreement that allows a litigant “all remedies” available in an individual lawsuit does not violate the rule.

In DiCarlo, the defendant operated a smartphone app that provided financial services to its customers. The services included a product called the MoneyLion Plus program, which offered a credit-builder loan. The plaintiff joined the program and signed a membership agreement, but fell behind on her fees and loan payments. Unable to cancel her membership without paying off the loan, the plaintiff filed a putative class action under California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumers Legal Remedies Act (“CLRA”). Slip op. at 3-4.

The defendant moved to compel the plaintiff’s claims to arbitration under an arbitration provision contained in the membership agreement. DiCarlo opposed the motion based on the McGill rule, arguing that the provision violated California law by prohibiting public injunctive relief. Slip op. at 5. The defendant argued that its arbitration provision, in fact, allowed public injunctive relief. Id. The Ninth Circuit agreed.

The defendant’s arbitration provision “‘authorize[s] the arbitrator to ‘award all [injunctive] remedies available in an individual lawsuit under [California] law.’” Slip. op. at 7. McGill has made clear that a litigant can seek public injunctive relief in an individual lawsuit under the UCL and FAL. Id. at 14 (citing McGill, 2 Cal.5th at 959). Public injunctive relief is typically available in consumer arbitrations, according to the Ninth Circuit. Id. (citing Blair v. Rent-A-Ctr., Inc., 928 F.3d 819, 829 (9th Cir. 2019)). Thus, the court of appeals concluded, the “all remedies” clause in the arbitration provision allowed the plaintiff to seek public injunctive relief in arbitration. Furthermore, the Ninth Circuit held that a plaintiff need not act as a private attorney general or represent others in order to obtain a public injunction.

Authored by:
Robert Friedl, Senior Counsel