Litigants of demands for public injunctive relief based on alleged violations of California’s unfair competition law, Bus. & Prof. Code § 17200 et seq. (UCL), should be aware of the differing treatment of motions to compel arbitration in California state and federal courts under the so-called McGill Rule.
In McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017), the California Supreme Court reviewed the arbitrability of claims for injunctive relief brought under the UCL and distinguished between claims for “private” and “public” injunctive relief. The court noted that “private” injunctive relief primarily resolves a dispute “between the parties” and rectifies “individual wrongs” and “benefits the public, if at all, only incidentally.” Id. at 955. So-called “public” injunctive relief, in contrast, is relief that by and large “benefits the general public” and benefits the plaintiff, if at all, only “incidentally” and/or as a “member of the general public.” Id. The McGill court held that a provision in an arbitration agreement that purports to waive the right to seek public injunctive relief is “contrary to California public policy” and unenforceable under California law. Id. at 951–52. That holding has become known as the “McGill Rule.”
Two California cases broadened the definition of “public” injunctive relief for prospective plaintiffs following McGill. First, in Mejia v. DACM Inc., 54 Cal. App. 5th 691, 703 (2020), the California Court of Appeal substantially broadened the McGill Rule by effectively defining “public injunctive relief” as any forward-looking injunction that restrains any unlawful conduct. Second, the Court of Appeal’s ruling in Maldonado v. Fast Auto Loans, Inc., 60 Cal. App. 5th 710, 721 (2021), relying in part on Mejia, held that an injunction aimed at preventing “unconscionable” loan agreements with excessive interest rates constituted public injunctive relief and could not be arbitrated.
After Mejia and Maldonado, the Ninth Circuit Court of Appeals addressed the issue in Hodges v. Comcast Cable Commc’ns, LLC, 21 F.4th 535, 545 (9th Cir. 2021). Specifically, the Ninth Circuit found that “public injunctive relief within the meaning of McGill is limited to forward-looking injunctions that seek to prevent future violations of law for the benefit of the general public as a whole, as opposed to a particular class of persons, and that do so without the need to consider the individual claims of any non-party.” Id. at 542. The Ninth Circuit distinguished Mejia, stating that it employed a “misreading of McGill” by resting on “the implicit premise that any forward-looking relief to enjoin any illegal conduct is automatically public injunctive relief.” Id. at 539. The Ninth Circuit likewise distinguished Maldonado, finding that its “conclusion that an injunction against unconscionable loan agreements ‘encompasses all consumers and members of the public,’ rather than just a discrete class of persons who are similarly situated to the plaintiffs, is clearly wrong.” Id. at 545.
Prospective litigants should be aware that California state courts and federal courts in the Ninth Circuit have applied the McGill Rule differently. Plaintiffs bringing a UCL claim should consider whether or how to seek public injunctive relief given the different analyses by the California state and federal courts. Defendants facing a purported UCL claim for public injunctive relief in state courts will want to remove those claims whenever possible because federal courts will be more inclined to grant motions to compel the arbitration of such claims under the Ninth Circuit’s reading of the McGill Rule.
How the Ninth Circuit’s treatment of the McGill Rule is ultimately reconciled, if at all, with Mejia and Maldonado remains to be seen. A recent decision from California’s Court of Appeal for the First District, Vaughn v. Tesla, Inc., noted that the court was “not bound by” Hodges, which “declined to follow Maldonado and Mejia.” 87 Cal. App. 5th 208, 231 n.16 (2023). Other courts, including at least one outside California, have relied on Hodge’s analysis. See, e.g., Bodie v. Cricket Wireless, LLC, 350 So. 3d 480, 482, n.2 (Fla. Dist. Ct. App. 2022) (concurrence) (citing Hodges and distinguishing McGill in finding no “public injunctive relief” available under Florida Deceptive and Unfair Trade Practices Act); see also Evans v. PayPal, Inc., No. 22-15979, 2023 WL 6058490, at *2 (9th Cir. Sept. 18, 2023) (citing rule in Hodges).
