FYI: Ohio Sup Ct Rejects Borrower's Writ of Mandamus and Prohibition Challenges to Foreclosure

The Supreme Court of Ohio recently affirmed the dismissal of a borrower's complaint for a writ of mandamus and a writ of prohibition filed against the successor to trial court judges who presided over a foreclosure action in which judgment was entered against the borrower.

 

In so ruling, the Supreme Court held that the appellate court properly dismissed the borrower's mandamus claim because the trial court had already ruled on the motions cited in his complaint, and dismissal of his prohibition claim was appropriate because the borrower had adequate remedies through defense of the foreclosure action and appeal of the foreclosure judgment.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2013, a mortgagee ("Mortgagee") was granted summary judgment against a borrower ("Borrower") in a foreclosure action initiated in 2010 (the "Foreclosure Action").  The Borrower appealed the judgment, and on appeal the 10th District Court of Appeals for Franklin County ("10th District") affirmed the Mortgagee's standing to maintain the foreclosure action, but reversed judgment, in part, finding issues of material fact in the amount owed on the Borrower's mortgage loan and remanding for a trial to determine this amount (the "First Appeal"). 

 

Following conclusion of the First Appeal, the Supreme Court did not accept the Borrower's appeal of the Tenth District's affirmation of the Mortgagee's standard, and dismissed an original action in mandamus and prohibition filed in the Supreme Court.

 

Trial on the damages and amounts owed proceeded on remand wherein the Borrower appeared, asserted that the court lacked judicial power to conduct the trial and walked out.  The trial court entered a judgment on directed verdict in the full amount the Mortgagee claimed was owed, which was appealed by the Borrower. 

 

This second appeal (the "Second Appeal") was affirmed by the Tenth Circuit, noting that it had already determined that the Mortgagee possessed standing and that the trial court properly applied the law. 

 

Meanwhile, the Borrower filed several post-judgment filings in the underlying Foreclosure Action, a request to stay the judgment from the court of appeals and a bankruptcy petition to prevent the sale of his home.

 

In April 2019, the Borrower filed the underlying complaint for writ of mandamus and writ of prohibition in the Tenth Circuit against the successor judge to the judges who presided over the Foreclosure Action, which the judge sought to dismiss.  After a stay of the action was lifted following entry of discharge in the Borrower's bankruptcy proceedings, in January 2020, the Tenth District's assigned magistrate judge recommended dismissal of the mandamus action on the basis that the Borrower's motions in the foreclosure action had already been ruled on explicitly or were implicitly overruled by the foreclosure judgment. 

 

Dismissal of the prohibition claim was also recommended on the ground that the court of appeals had already ruled on the issue of the trial court's jurisdiction when it overruled the Borrower's standing argument in his first appeal. 

 

Over the Borrower's objections, the Tenth Circuit adopted the magistrate's recommendation and dismissed the action in April 2010.  The Borrower appealed as of right.  

 

On appeal, the Supreme Court of Ohio initially rejected the Borrower's argument that denial of relief would prejudice him because the court of appeals had not yet ruled on his appeal of the Foreclosure Action judgment as moot, because the Tenth Circuit issued its decision on October 22, 2020 affirming judgment in the Mortgagee's favor. 

 

The Supreme Court's opinion then addressed the Borrower's remaining arguments alleging defects in the Foreclosure Action that he claimed deprived the court of jurisdiction. 

 

Turning first to the elements required for the Borrower to demonstrate entitlement to a writ of mandamus — i.e., a clear legal right to the requested relief, a clear legal duty on the part of the trial court judge to grant that relief, and the lack of an adequate remedy in the ordinary course of law — the Supreme Court acknowledged that it has recognized that "mandamus (or procedendo) may lie when a defendant files a motion and the trial court fails or refuses to rule on the motion at all." State ex rel. Simmons v. Breaux, 160 Ohio St.3d 223, 2020-Ohio-3251, 155 N.E.3d 857, ¶ 11. 

 

Although the trial and appellate courts relied primarily on the principal that the entry of judgment implicitly overruled the pending motions, the motion and addenda referred to in the Borrower's writ complaint were filed after entry of final judgment in the foreclosure action. 

 

Nevertheless, upon review of the trial court's docket, the Supreme Court held that the Borrower's mandamus claim was moot, because the Borrower's postjudgment motion to withdraw his property from the sheriff's foreclosure sale was considered and denied by the Foreclosure Action court.  Accordingly, the appellate court's dismissal of the mandamus claim was appropriate.

 

Next, to demonstrate the Borrower was entitled to a writ of prohibition preventing the presiding judge from "further prosecuting" the foreclosure case, the Borrower was required to prove that (1) the trial judge exercised judicial power, (2) the exercise of judicial power by entering judgment in the foreclosure case was unauthorized by law, and (3) denying the writ would result in injury for which no other adequate remedy exists in the ordinary course of law.  Dismissal of [a] prohibition complaint… is appropriate if, after presuming the truth of all factual allegations of the complaint and making all reasonable inferences in [the relator's] favor, it appears beyond doubt that he can prove no set of facts entitling him to the requested extraordinary writ of prohibition."

 

Here, the appellate court dismissed the prohibition claim on the grounds that it had already determined that the Mortgagee had standing to maintain the Foreclosure Action in the First Appeal—in effect, for res judicata. 

 

While noting that res judicata is not a proper basis for dismissal for failure to state a claim. (Neguse, 161 Ohio St.3d 125, 2020-Ohio-3533, 161 N.E.3d 571, at ¶ 10), the Supreme Court determined that dismissal was appropriate on alternative grounds, rejecting the Borrower's arguments that the Foreclosure Action court lacked authority to enter judgment because of a defect in the Court's "preliminary judicial report" and failure to file a "final judicial report" was filed, reasoning that these errors and omissions may furnish the basis for dismissal or reversal of judgment on appeal, but not a basis for a lack of subject-matter jurisdiction as argued by the Borrower.  

 

Because the Supreme Court concluded that the Borrower's mandamus claim was rendered moot by the trial court's rulings on the motion and addenda cited therein and he failed to state a claim for writ of prohibition because adequate remedies existed in defending the foreclosure action and appealing the trial court's adverse judgment, the appellate court's dismissal of his complaint for a writ of mandamus and a writ of prohibition against the Foreclosure Action judge was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
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Mobile:  (312) 493-0874
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FYI: CFPB Seeks to Delay Effective Date of FDCPA Final Rules (Regulation F)

On April 7, 2021, the Consumer Financial Protection Bureau issued a Proposed Rule that would postpone the effective date of the Debt Collection Final Rules, Part 1 and Part 2, by 60 days, from Nov. 30, 2021, to Jan. 29, 2022.

 

The CFPB cites the "disruption caused by the global COVID-19 pandemic" as the impetus for the Proposed Rule, which if finalized would "afford stakeholders additional time to review and, if applicable, to implement the Debt Collection Final Rules."  The CFPB notes that because of the short delay proposed, any reduction in benefits provided to consumers should be minimal.

 

The CPFB advises that while "debt collectors could choose to comply with the rules' requirements and prohibitions before the effective date," the safe harbors would not yet apply. 

 

The CFPB specifically requests comment on:

 

• Whether the effective date should be extended;
• Whether 60 days is an appropriate timeline;
• Whether the original effective date should be kept for all or some of the safe harbors considering, for example, the costs and benefits they may provide to debt collectors;
• Whether the extension may reduce access to consumer financial products and services; and
• Any additional information relating to "potential benefits, costs, and impacts of this proposed rule."

 

Public comments must be submitted on or before the 30th day after the Proposed Rule is published in the Federal Register.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Holds FDCPA "Bona Fide Error" Defense Can Be Raised in "Out of Statute" (Time-Barred) Debt Cases

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's dismissal of allegations that the defendant violated the federal Fair Debt Collection Practices Act ("FDCPA") by sending a collection letter threatening litigation over a time-barred or "out-of-statute" debt and filing a lawsuit seeking to collect the debt.

 

In so ruling, the Ninth Circuit held that the FDCPA's prohibitions against filing or threatening to file a lawsuit on "out-of-statute" debts apply even if it was unclear at the time of the filing or threatening whether the debt was barred by any applicable statutes of limitations under state law.

 

However, the Ninth Circuit left it up to the trial court on remand to determine whether the defendant may avoid liability by asserting a bona fide error defense.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff purchased a car under a retail installment sale contract. He subsequently defaulted on his payments, and his car was repossessed and sold. The proceeds from the sale failed to cover the outstanding balance under the contract, and the plaintiff did not pay the remaining amount due.

 

The defendant attempted to collect the debt by sending a letter and ultimately filing a lawsuit in Oregon state court. These collection attempts occurred between four to six years after the plaintiff's default.

 

The plaintiff responded to the defendant's state court lawsuit by arguing that the debt was barred under Oregon's four-year statute of limitations for sale-of-goods contract claims, Or. Rev. Stat. § 72.7250. The defendant countered that Oregon's six-year statute of limitations for other contract claims, Or. Rev. Stat. § 12.080, applied instead. The state court ruled in favor of the plaintiff.

 

The plaintiff then filed a putative class action in federal court. He alleged that the defendant violated the FDCPA by threatening litigation over an "out-of-statute" debt in the collection letter and by filing a lawsuit to collect the "out-of-statute" debt. The trial court dismissed for failure to state a claim, reasoning in part that the defendant did not violate the FDCPA because the state statute of limitations had been unclear at the time the defendant attempted to collect the debt. The plaintiff timely appealed.

 

First, the Ninth Circuit addressed whether the plaintiff's debt was in fact "out-of-statute" under Oregon law. If the lawsuit more closely related to portion of the contract for the underlying sale of the car, then a four-year statute of limitations would apply; however, if the focus was the portion of the contract creating a security interest in the car, a six-year statute of limitations would apply. See Or. Rev. Stat. § 72.7250 (requiring claims of breach of contract for a sale of goods to be brought within four years), and Id. § 12.080 (requiring other contract claims to be brought within six years).

 

The Ninth Circuit used a passing statement from the Oregon Supreme Court case Chaney v. Fields Chevrolet Co., 503 P.2d 1239 (Or. 1972) to inform its decision: "[A]n action [by a creditor] for part of the purchase price is more closely related to the sale portion of the contract than it is to the security portion." Id. at 1241.

 

Furthermore, the Court noted that the four-year statute of limitations for breaches of contract for a sale of goods originated from Oregon's codification of Article 2 of the Uniform Commercial Code ("U.C.C."). See Or. Rev. Stat. § 72.7250. Oregon applies Article 2 to sales transactions with a security element unless the "collateral is transferred by a debtor to a creditor solely as security." AllStates Leasing Co. v. Ochs, 600 P.2d 899, 907 n.9 (Or. Ct. App. 1979).

 

Additionally, the Court observed that Oregon prefers interstate uniformity when interpreting the U.C.C., see Or. Rev. Stat. § 71.1030(1)(c), and that a clear majority of other states apply the Article 2 statute of limitations for sales of goods to actions to recover deficiency balances after repossession of the goods. See, e.g., Suntrust Bank v. Venable, 791 S.E.2d 5, 7–9 (Ga. 2016) (describing and adopting the majority view); Coastal Fed. Credit Union v. Brown, 790 S.E.2d 417, 420–22 (S.C. Ct. App. 2016) (same); see also Assocs. Disc. Corp. v. Palmer, 219 A.2d 858, 860–61 (N.J. 1966) (holding the same, and cited by Chaney, 503 P.2d at 1240–41). Therefore, the Court held that a four-year statute of limitations applied to the plaintiff's debt under Oregon law.

 

Given that the plaintiff's debt was "out-of-statute" at the time the defendant attempted to collect it, the Ninth Circuit held that the defendant's conduct violated the FDCPA, despite the fact that the defendant was unsure of the legal status of the debt during its collection attempts.

 

The FDCPA prohibits debt collectors from using any "unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f. It also prohibits using "any false, deceptive, or misleading representation" to collect a debt, including any "false representation of the character, amount, or legal status of any debt" and any "threat to take any action that cannot legally be taken." Id. § 1692e, (2)(A), (5).

 

The Ninth Circuit concluded that suing to collect on an "unenforceable" debt is patently unfair to the consumer. Additionally, according to the Ninth Circuit, both suing and threatening to sue on "out-of-statute" debts misrepresents the legal enforceability of those debts, and thus are false or misleading under 15 U.S.C. § 1692e.

 

The Ninth Circuit also noted that, while the collection letter the plaintiff received did not explicitly threaten to sue on the debt, "a threat need not be express: it can be implied when interpreting a letter as a whole." Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1064 (9th Cir. 2011).

 

Additionally, the Court interprets communications from debt collectors through the eyes of the "least sophisticated debtor." Id. at 1061. The Court was persuaded that the letter would be read as a threat by the least sophisticated debtor because it stated that a lawyer has been retained with the authority to file a lawsuit and that interest will not accrue on the debt until ordered by a court of competent jurisdiction.

 

In the view of the Ninth Circuit, these statements would indicate to the least sophisticated debtor that there is a real risk of litigation and that a court could potentially order interest to accrue on the unpaid balance. The Court held that this impression would not be dispelled by the letter's disclaimer that "no attorney has personally reviewed the particular circumstances of [the plaintiff's] account."

 

The defendant countered that unless a debt collector knew or should have known that the litigation was time barred, its filing of litigation or threating litigation cannot violate the FDCPA. The Ninth Circuit rejected this argument because the FDCPA makes debt collectors strictly liable for misleading and unfair debt collection practices. Clark v. Cap. Credit & Collection Servs., Inc., 460 F.3d 1162, 1175–76 (9th Cir. 2006).

 

However, the Ninth Circuit also concluded that the defendant may nonetheless be able to avoid liability through the FDCPA's affirmative defense for bona fide errors. To successfully invoke the defense, a debt collector must "show[] by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. § 1692k(c).

 

In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010), the US Supreme Court adopted the rule announced in Baker v. G.C. Servs. Corp., 677 F.2d 775 (9th Cir. 1982) that legal mistakes about the meaning of the FDCPA itself cannot be bona fide errors. Id. at 604–05.

 

In this case, the Ninth Circuit concluded that mistakes about the status of a debt under a state statute of limitations are substantively different from mistakes about the requirements of the FDCPA itself and therefore can be bona fide errors.

 

The Ninth Circuit stated that Jerman relied on the presumption that "ignorance of the law will not excuse any person, either civilly or criminally." Id. at 581 (quoting Barlow v. United States, 32 U.S. (7 Pet.) 404, 411 (1833)). "This maxim . . . normally applies where a defendant has the requisite mental state in respect to the elements of the crime but claims to be 'unaware of the existence of a statute proscribing his conduct.'" Rehaif v. United States, 139 S. Ct. 2191, 2198 (2019) (quoting 1 Wayne R. LaFave & Austin W. Scott, Jr., Substantive Criminal Law § 5.1(a) (1986)).

 

However, the Court recognized that in such cases "where the defendant is ignorant of an independently determined legal status or condition that is one of the operative facts of the crime… the mistake of the law is for practical purposes a mistake of fact." United States v. Fierros, 692 F.2d 1291, 1294 (9th Cir. 1982). Thus, the Court concluded that when a crime has a mens rea requirement, a defendant must have that mens rea as to such "a 'collateral' question of law." Rehaif, 139 S. Ct. at 2198.

 

The defendant here allegedly violated the prohibition against misrepresenting the legal enforceability of a debt, 15 U.S.C. § 1692e, and the prohibition against "unfair" collection tactics, Id. § 1692f. The Ninth Circuit stated that these allegations necessarily implicate a legal element entirely collateral to the FDCPA, the "out-of-statute" status of the debt under state law, and that this collateral legal element falls outside the ignorance-of-the law maxim described in Jerman.

 

Furthermore, while the strict liability offenses at issue lack a mens rea requirement, the Court pointed out that the bona fide error defense is the FDCPA's "narrow exception to strict liability." Clark, 460 F.3d at 1177. It relieves liability for certain "unintentional" violations, thereby functioning similarly to a mens rea requirement. See Vangorden v. Second Round, Ltd. P'ship, 897 F.3d 433, 441 n.5 (2d Cir. 2018). These background legal principles therefore suggested to the Court that the bona fide error defense should be available for mistakes about the time-barred status of a debt.

 

Accordingly, the Ninth Circuit concluded that the plaintiff has stated a claim for relief under the FDCPA. Therefore, the Court reversed the trial court's dismissal of the action and remanded for further proceedings, wherein the defendant may attempt to invoke the bona fide error defense.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Cal App Ct (4th Dist) Upholds Denial of Motion to Compel Arbitration

The Court of Appeal of the State of California, Fourth Appellate District, recently affirmed a trial court's order denying the defendant's motion to compel arbitration.

 

In so ruling, the Court held that the plaintiffs' complaint and prayer for relief did not limit the requested remedies to only class members, but rather encompassed all consumers and members of the public, and that requiring consumers to waive their right to pursue public injunctive relief violates the rule described in McGill v. Citibank, N.A., 2 Cal.5th 945 (2017).

 

A copy of the opinion is available at:  Link to Opinion

 

In a putative class action, the plaintiffs claimed that the defendant charged unconscionable interest rates on loans in violation of California Financial Code sections 22302 and 22303. The first amended complaint alleged (1) violations of California's Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200 et seq.), and (2) violations of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.).

 

In their prayer for relief, the plaintiffs requested that the trial court certify the lawsuit as a class action, determine that the defendant violated consumer protection statutory claims, and issue "a temporary, preliminary and/or permanent order for injunctive relief requiring [the defendant] to: (i) cease charging an unlawful interest rate on its loans exceeding $2,500; (ii) and institute corrective advertising and provide written notice to the public of the unlawfully charged interest rate on prior loans[.]" The complaint also sought a disgorgement of the defendant's revenue to pay restitution to the class members.

 

The defendant filed a motion to compel arbitration and stay the action pursuant to an arbitration clause contained in the plaintiffs' loan agreements. One paragraph of the clause stated a party could reject the arbitration provision if he or she mailed a written rejection notice following specific instructions. Another one noted that the arbitration provision was governed by the Federal Arbitration Act (FAA) because the agreement involved interstate commerce.

 

Relevant to this appeal, paragraph 14(d) stated that the parties must arbitrate any claim (with a few exceptions) "that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement." Paragraph 14(h), titled "Class Action Waiver" provided that the consumer had no right to participate in or join "a class action, private attorney general action, or other representative action[.]"

 

Paragraph 14(h) also contained a "poison pill" provision stating: "[t]he parties acknowledge that the Class Action Waiver is material and essential to the arbitration of any disputes between them and is non-severable from this Arbitration Provision. If the Class Action Waiver is limited, voided or found unenforceable, then this Arbitration Provision (except for this sentence) shall be null and void with respect to such proceedings, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The parties acknowledge and agree that under no circumstances will a class action be arbitrated."

 

Additionally, paragraph 14(n), titled "Severability and Survival" provided: "[i]f any part of this Arbitration Provision, other than the Class Action Waiver, is deemed or found to be unenforceable for any reason, the remainder shall be enforceable."

 

In short, the arbitration clause required the plaintiffs to agree to individual, non-class arbitration.

 

The defendant asserted that the arbitration clause was broadly written to cover all of the plaintiffs' claims. In addition, the defendant urged the trial court to enforce the agreement's Class Waiver provision, which requires arbitration to only take place on an individual basis.

 

The trial court denied the motion on the grounds that the Class Waiver provision was invalid and unenforceable because it required consumers to waive their right to pursue public injunctive relief, a rule described in McGill v. Citibank, N.A., (2017) 2 Cal.5th 945. Therefore, the entire arbitration clause was deemed invalid and unenforceable because the "poison pill" provision did not allow the Class Waiver provision to be severed. On appeal, the defendant argued that the "McGill rule" did not apply, but even if it did, other claims were subject to arbitration. Alternatively, the defendant contended that the McGill rule was preempted by the Federal Arbitration Act ("FAA").

 

The Court of Appeal of the State of California, Fourth Appellate District (Fourth District), noted that, in McGill, the California Supreme Court held that the arbitration provision in that case was "invalid and unenforceable under California law" because "it purport[ed] to waive the plaintiff's statutory right to seek public injunctive relief." McGill, 2 Cal. 5th at p. 961. In explaining its conclusion, the California Supreme Court cited Civil Code section 3513, which provides, in pertinent part, that "a law established for a public reason cannot be contravened by a private agreement." Id. at p. 962. In other words, a statutory right created to serve a public purpose is unwaivable.

 

In Mejia v. DACM Inc., 54 Cal.App.5th 691 (2020), the Fourth District applied the McGill rule. Mejia, supra, 54 Cal.App.5th at pp. 702-703. The arbitration terms discussed in Mejia were similarly broad to those found in the arbitration clause here, with the plaintiff agreeing to arbitrate any claims arising out of the credit agreement. Id.

 

The arbitration clause in Mejia also contained a class action waiver that "specifically barred arbitration of all class, representative, or private attorney general claims[.]" Id. As in this case, the class waiver paragraph contained a "'poison pill' provision" stating: "[i]f any portion of this Arbitration Provision other than [the Class Waiver provision] is deemed invalid or unenforceable, the remaining portions of this Arbitration Provision shall nevertheless remain valid and in force. If an arbitration is brought on a class, representative, or collective basis, and the limitations on such proceedings in [the Class Waiver provision] are finally adjudicated . . . to be unenforceable, then no arbitration shall be had." (Italics added.) Id. at p. 695.

 

The defendant in Mejia moved to compel arbitration, arguing that the plaintiff was seeking private injunctive relief. Id. at pp. 694-695. The defendant maintained that the plaintiff was not seeking to prevent future harm to the general public, but only to benefit members of his class of similarly situated individuals. Id. at p. 702. The Mejia court disagreed, pointing out that the plaintiff sought an injunction forcing the defendant "to cease selling motor vehicles in the state of California without first providing the consumer with all disclosures mandated by Civil Code [section] 2982 in a single document." Id. at p. 703.

 

The Mejia court noted that McGill defined "public injunctive relief" as "relief that by and large benefits the general public and that benefits the plaintiff, if at all, only incidentally and/or as a member of the general public." Id. Accordingly, the court held that the plaintiff's prayer for relief clearly meets this definition because the plaintiff "seeks to enjoin future violations of California's consumer protection statutes, relief oriented to and for the benefit of the general public." Id.

 

In the present case, the defendant argued that even though the plaintiffs requested a public injunction in the complaint, the relief sought is actually private because it will, at best, only benefit the plaintiffs and a discreet, narrowly-defined group of other customers. The Fourth District disagreed because the plaintiffs specifically stated that the injunctive relief should require the defendant to stop charging unlawful interest rates and adopt "corrective advertising."

 

Therefore, the Appellate Court held that the plaintiffs' complaint and prayer did not limit the requested remedies for only some class members, but rather encompassed all consumers and members of the public.

 

Moreover, the Fourth District concluded that an injunction under the CLRA against the defendant's unlawful practices would not directly benefit the plaintiffs because they had already been harmed and were already aware of the misconduct. Any benefit to the plaintiffs would be incidental to the "general public benefit of enjoining such a practice." McGill, supra, 2 Cal.5th at p. 955. Therefore, the Appellate Court agreed with the trial court on this issue, and held that the Class Waiver provision violated the McGill rule.

 

The defendant also asserted that the trial court erred in declaring the entire arbitration provision unenforceable simply because the Class Waiver provision was invalid. The defendant argued that the "subject to the right to appeal" language in the "poison pill" provision meant that the arbitration agreement would not become void until an appeal was taken from an adverse ruling, and that appeal did not succeed in overturning the trial court's ruling. Alternatively, the defendant maintained that any ambiguity in the contractual language must be construed in favor of arbitration.

 

The Fourth District concluded that the defendant's interpretation of the "poison pill" provision is incorrect and moot.

 

First, the Appellate Court pointed out that an appeal has now taken place and the appellate court was affirming the trial court's ruling. Therefore, this argument was no longer relevant even under the defendant's interpretation of the "poison pill" provision.

 

Second, the Fourth District interpreted the "subject to the right to appeal" language, when read in context, as simply acknowledging the defendant's right to appeal the decision and enforce the Class Waiver limitations if successful on appeal. Thus, the Court held that the "poison pill" provision prevented the Class Waiver provision from being severed from the rest of the arbitration clause.

 

The defendant lastly argued that the FAA preempts McGill, stating that there are two petitions currently before the US Supreme Court that make this same argument. However, the Fourth District noted that the Supreme Court of the United States has already denied these petitions, and that it is bound to follow the precedent set by the California Supreme Court in McGill.

 

Accordingly, the Fourth District concluded that the arbitration clause was invalid because the Class Waiver provision violated the McGill rule, and affirmed the trial court's order denying the defendant's motion to compel arbitration.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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