`FOR THE WESTERN DISTRICT OF MISSOURI
`WESTERN DIVISION
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`Case No. 19-00788-CV-W-GAF
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`ORDER
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`AARICKA SWANSON,
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`Plaintiff,
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`vs.
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`H&R BLOCK, INC., et al,
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`Defendants.
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`Now before the Court is Defendants H & R Block, Inc., H & R Block Tax Group, Inc., and
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`HRB Digital, LLC’s (collectively “H & R Block” or “Defendants”) Motion to Compel Arbitration
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`and to Stay Litigation.1 (Doc. # 17). Plaintiff Aaricka Swanson (“Plaintiff”) opposes. (Docs. ##
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`31). For the following reasons Defendants’ Motion is GRANTED.
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`DISCUSSION
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`BACKGROUND
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`The present lawsuit arises from an alleged scheme perpetrated by H & R Block to deceive
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`I.
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`low-income tax-payers who are eligible to receive free tax preparation and filing services under
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`the United States Internal Revenue Service’s (“IRS”) Free File Program by diverting those tax-
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`payers to paid tax-filing products. (Doc. # 1 (“Complaint”), ¶ 1)). Plaintiff asserts H & R Block
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`carried out its scheme by creating two programs, the “Free File” program and “Free Online”
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`program with “similar and misleading names” to guarantee payment. (Id. ¶ 39). According to
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`1 Defendant Free File Inc. (“Free File”), joined H & R Block’s Motion to Compel Arbitration and
`Stay Litigation on December 2, 2019. (Doc. # 19). However, on June 19, 2020, the Court
`dismissed FFI as a party for lack of subject matter jurisdiction. (Doc. # 39). Accordingly, Free
`File’s Motion to Compel Arbitration and Stay Litigation (Doc # 19) is DENIED as moot.
`1
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 1 of 17
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`Plaintiff, the “Free File” program is H & R Block’s free product but is not conspicuously displayed
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`or linked on H & R Block’s main website and can only be accessed through a different web page.
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`(Id. ¶¶ 40, 45). By contrast, Plaintiff claims the “Free Online” program is available on H & R
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`Block’s main website and advertises a $0 filing fee to entice users to create an account and input
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`tax information. (Id. ¶¶ 45, 52, 53). Once the information is entered, Plaintiff alleges the user is
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`frequently required to upgrade to a premium product before the tax return can be submitted without
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`being informed that he or she may qualify for the “Free File” option. (Id. ¶¶ 51, 53). Plaintiff
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`further alleges H & R Block hid the Free File option from consumers during the 2018 tax year by
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`adding a line of code that prevented the option from populating in online search results. (Id. ¶ 46).
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`II.
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`FACTS
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`On March 2, 2019, Plaintiff, a California resident, used H & R Block’s online tax
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`preparation and filing services to file her 2018 state and federal tax returns. (Id. ¶ 13; (Doc. # 18-
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`1 (Declaration of Renee Gibson “Gibson Decl.”), ¶¶ 3, 5) 2). After navigating to H & R Block’s
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`website, Plaintiff was presented with an acknowledgment screen that stated, “We’ve updated our
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`terms and policies.” (Gibson Decl., ¶ 5; Doc. # 18-2). The acknowledgment screen contained a
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`toggle button, a circle that moves between two positions from left to right, that Plaintiff had to
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`click to agree to the terms of the H & R Block Online Services Agreement (“Online Services
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`Agreement”). (Gibson Decl., ¶ 6; Doc. # 18-2). The toggle button was located immediately to the
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`left of an acknowledgement that stated, “I agree to H & R Block’s Online Services Agreement,
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`which includes the requirement that any dispute be resolved through binding arbitration.” (Id.).
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`The acknowledgment screen also contained a hyperlink to the Online Services Agreement’s full
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`2 Plaintiff does not dispute any of the facts offered in the Gibson Declaration. (Doc. # 31).
`Accordingly, the Court accepts these facts as true.
`2
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 2 of 17
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`text, including its arbitration agreement. (Gibson Decl., ¶¶ 6, 11; Doc. # 18-4). The Arbitration
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`Agreement, which is governed by the Federal Arbitration Act (“FAA”), states in relevant part:
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`11.1 Scope of Arbitration Agreement. All disputes and claims between you and
`any one or more of the H&R Block Parties . . . will be resolved through binding
`individual arbitration unless you opt out of this Arbitration Agreement using the
`process explained below. However, either you or the H&R Block Parties may bring
`an individual claim in small claims court, as long as it is brought and maintained as
`an individual claim. All issues are for the arbitrator to decide, except that issues
`relating to the validity, enforceability, and scope of this Arbitration Agreement,
`including the interpretation of paragraph 11.3 below, must be determined by the
`court and not the arbitrator.
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`* * * *
`11.3 Waiver of right to bring class action and representative claims. All
`arbitrations will proceed on an individual basis. The arbitrator is empowered to
`resolve the dispute with the same remedies available in court, including
`compensatory, statutory, and punitive damages; attorneys' fees; and declaratory,
`injunctive, and equitable relief. However, any relief must be individualized to you
`and will not affect any other client. The arbitrator is also empowered to resolve the
`dispute with the same defenses available in court, including but not limited to
`statutes of limitation. You and the H&R Block Parties also agree that each may
`bring claims against the other in arbitration only in your or their respective
`individual capacities and in so doing you and the H&R Block Parties hereby
`waive the right to a trial by jury, to assert or participate in a class action
`lawsuit or class action arbitration, to assert or participate in a private attorney
`general lawsuit or private attorney general arbitration, and to assert or
`participate in any joint or consolidated lawsuit or joint or consolidated
`arbitration of any kind. If a court decides that applicable law precludes
`enforcement of any of this paragraph's limitations as to a particular claim for relief,
`then that claim for relief (and only that claim for relief) must remain in court and
`be severed from any arbitration. The H&R Block Parties do not consent to and the
`arbitrator will not have authority to conduct, any class action arbitration, private
`attorney general arbitration, or arbitration involving joint or consolidated claims,
`under any circumstance.
`* * * *
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`11.5 Other terms & information. This Arbitration Agreement will be governed
`by, and interpreted, construed ,and enforced in accordance with, the Federal
`Arbitration Act and other applicable federal law. Except as set forth above, if any
`portion of this Arbitration Agreement is deemed invalid or unenforceable, it will
`not
`invalidate
`the
`remaining portions of
`the Arbitration Agreement.
`Notwithstanding any provision in this Agreement to the contrary, we will not make
`any material change to this Arbitration Agreement without providing you with an
`opportunity to reject that change by following the directions in the notice of
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 3 of 17
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`3
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`changes. Rejection of any future change will not impact this or any prior Arbitration
`Agreement you have made.
`(Doc. # 18-4) (emphasis in original).
`In order to proceed past the acknowledgment screen, Plaintiff had to move the toggle button
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`and click the “NEXT” button that appeared at the bottom of the screen. (Gibson Decl., ¶¶ 6-7).
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`Failure to perform either action would result in an “error” message. (Id. ¶ 7). H & R Block’s
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`records indicate Plaintiff agreed to the terms of the Online Services Agreement on March 2, 2019
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`at 6:03:08 PM Central Standard Time. (Id. ¶ 10). Despite qualifying for the Free File option,
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`Plaintiff alleges she was charged $64.94 to file her taxes after inputting information on H & R
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`Block’s website. (Complaint, ¶ 13).
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`On August 26, 2019, Plaintiff instituted the current lawsuit in this Court on behalf of
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`herself, a proposed Nationwide Class,3 and a California Subclass.4 (Id.). Plaintiff’s Complaint
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`alleges violations of the California Consumer Legal Remedies Act (“CLRA”) (Count I), violations
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`of the California Unfair Competition Law (“UCL”) (Count II), violations of the California False
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`Advertising Law (“FAL”) (Count III), Breach of Contract (Count IV), and Fraud (Count V). (Id.).
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`Pursuant to her CLRA, UCL, and FAL claims, Plaintiff seeks public injunctive relief requiring H
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`& R Block to prominently display differences between the Free File software and its competing
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`“Free Online” service on its website, provide a link to the Free File software, and institute changes
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`to correctly identify eligible Free File participants and direct them to the Free File option.
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`(Complaint, ¶¶ 57-125). Defendants move to compel arbitration on an individual basis and stay
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`litigation during the arbitration process. (Doc. # 18).
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`3 Defined as “All Free File Program-eligible persons in the United States who paid to use an H&R
`Block product to file an online tax return for the 2002 through 2018 tax filing years.” (Complaint,
`¶ 61).
`4 Defined as “All Free File Program-eligible persons in the State of California who paid to use an
`H&R Block product to file an online tax return for the 2002 through 2018 tax filing years.”
`(Complaint, ¶ 61).
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 4 of 17
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`III.
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`LEGAL STANDARD
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`“The Federal Arbitration Act (FAA), 9 U.S.C. § 4, provides that a party aggrieved by the
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`failure of another party to arbitrate under a written agreement may petition the district court for an
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`order compelling arbitration.” Koch v. Compucredit Corp., 543 F.3d 460, 463 (8th Cir. 2008).
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`“Under § 3 [of the FAA], a party may apply to a federal court for a stay of the trial of an action
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`‘upon any issue referable to arbitration under an agreement in writing for such arbitration.’” Rent-
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`A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (citation omitted). The goal of the FAA is ‘“to
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`move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as
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`possible.”’ Koch, 543 F.3d at 460 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
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`460 U.S. 1, 22 (1983)). To carry out this purpose, Congress limited the role of courts to ‘“issues
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`relating to the making and performance of the agreement to arbitrate.”’ Id. (quoting Prima Paint
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`Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)). A district court must compel
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`arbitration “upon being satisfied that the making of the agreement for arbitration or the failure to
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`comply therewith is not in issue.” Rent-A-Ctr., 561 U.S. at 68 (citation omitted).
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`IV. ANALYSIS
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`A.
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`Does the Court have Jurisdiction over Plaintiff’s Fraudulent Inducement Claim?
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`Defendants argue the Arbitration Agreement is enforceable under the FAA and move to
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`compel all claims to individual arbitration pursuant to a provision that states, “[a]ll disputes and
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`claims between you and any one or more of the H & R Block parties . . . will be resolved through
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`binding individual arbitration.” (Doc. # 18, p. 6-8; Doc. # 18-4, ¶ 11.1). Section 2 of the FAA
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`provides an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such
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`grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 5 of 17
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`thereby places arbitration agreements on equal footing with other contracts and requires courts to
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`enforce arbitration agreements according to their terms. AT&T Mobility LLC v. Concepcion, 563
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`U.S. 333, 339 (2011) (citations omitted). However, the final clause of section 2, frequently
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`referred to as the “savings clause,” allows arbitration agreements to be invalidated “upon such
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`grounds as exist at law or in equity for the revocation of any contract.” Id. Thus, an arbitration
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`agreement can be revoked based on “generally applicable contract defenses, such as fraud, duress
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`or unconscionability.” Id.
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`Plaintiff does not dispute acceptance of the Online Services Agreement. (Doc. # 31). Nor
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`does she dispute the Arbitration Agreement is governed by the FAA. (Id.). Rather, she argues the
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`Arbitration Agreement is voidable under the savings clause because it was induced by fraud. (Doc.
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`# 31 pp. 5-7). As a result, she asks the Court to decide her fraudulent inducement claim (Count
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`V) at the outset. (Id.). For reasons explained below, the Court lacks jurisdiction to grant Plaintiff’s
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`request.
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`The Supreme Court recognizes two challenges to validity under section 2: “One type
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`challenges specifically the validity of the agreement to arbitrate, and [t]he other challenges the
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`contract as a whole.” Rent-A-Ctr., 561 U.S. at 70 (quotation and citation omitted). The question
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`of who has jurisdiction to consider gateway issues of validity—court or arbitrator—turns on what
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`type of challenge is asserted. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006).
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`Claims of fraudulent inducement involving commercial transactions that go to the making of the
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`arbitration clause itself are reserved for adjudication by federal courts under sections 3 and 4 of
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`the FAA. Prima Paint, 388 U.S. at 403-04. By contrast, federal courts are prohibited from
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`considering claims of fraudulent inducement of the contract generally and must compel those
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`claims to arbitration. Id. at 404; see also Creson v. Quickprint of Am., Inc., 558 F. Supp. 984, 987
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`(W.D. Mo. 1983); Bush v. AT & T Corp., No. 12-6106-CV-SJ-DGK, 2012 WL 6016719, at *2
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`(W.D. Mo. Dec. 3, 2012). Put another way, a federal court must enforce an arbitration clause even
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`if the entire contract is invalid unless the challenge to validity is expressly directed at the formation
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`of the arbitration agreement. Id. This doctrine, known as the Prima Paint severability rule, allows
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`an arbitration agreement to be severed and enforced separately from an underlying contract.
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`Buckeye, 546 U.S. at 445.
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`Plaintiff argues her fraudulent inducement claim is not subject to arbitration because the
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`Arbitration Agreement is not severable under Prima Paint. (Doc. # 31, p. 8). Specifically, she
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`asserts her inducement into the commercial transaction presents a direct challenge not only to the
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`Online Services Agreement, but to all terms arising thereunder, including the Arbitration
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`Agreement. (Id., pp. 8-9). The Court disagrees and finds the current facts are substantially on
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`point with the Prima Paint.
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`In Prima Paint, two business entered into a non-compete agreement for consulting services
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`in return for a percentage of receipts from listed customers. 388 U.S. at 397-98. When the
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`defendant company defaulted on the payment terms, Prima Paint, the plaintiff company, sued to
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`rescind the agreement based on fraud. Id. at 398. Prima Paint argued, absent the promise of
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`solvency, it would have never entered into the consultation agreement. Id. As a result of the
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`alleged fraudulent inducement, Prima Paint sought to enjoin enforcement of the agreement’s
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`arbitration clause. Id. at 399. The Supreme Court found Prima Paint did not allege it was
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`fraudulently induced to enter into the arbitration agreement. Id. at 406. Rather, Prima Paint
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`claimed “execution and acceleration” of the contract, not the arbitration agreement, “were
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`produced by fraud.” Id. Because Prima Paint’s allegations did not pertain to the making of the
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 7 of 17
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`arbitration agreement, the Supreme Court determined the district court could not adjudicate the
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`question. Id. at 402, 406; see also Buckeye, 546 U.S. at 444-45
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` Similarly, Plaintiff’s allegations are confined to inducement of the contract generally.
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`(Complaint). She claims she was induced into purchasing the falsely marketed “Free Online”
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`software as a result of H & R Block’s deceptive advertising tactics. (Complaint, ¶¶ 126-131). Like
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`Prima Paint, Plaintiff alleges, absent Defendants’ misrepresentations, she would not have
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`purchased H & R Block’s software in the first instance. (Id. ¶ 13). To the extent Plaintiff is arguing
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`she is differently situated from Prima Paint because she is not a sophisticated party, the Supreme
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`Court has applied the severability rule to enforce arbitration of individual consumer contracts. See
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`Buckeye, 546 U.S. at 446 (severing a fraudulent inducement claim where customers to a loan
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`contract alleged they were fraudulently induced to pay usurious interest rates in violation of Florida
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`law). See also Houlihan v. Offerman & Co., 31 F.3d 692, 695 (8th Cir. 1994) (compelling a
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`fraudulent inducement claim for investment losses to mandatory arbitration where a husband and
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`wife’s alleged misrepresentations related to the contract as a whole).5 Accordingly, Plaintiff’s
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`fraudulent inducement claim (Count V) is severable and must be compelled to arbitration.
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`Plaintiff argues even if the Online Services Agreement is enforceable, her fraudulent
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`inducement claim is subject to judicial determination under the terms of the Arbitration
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`Agreement. (Doc. # 31, pp. 7-8). She relies on a provision of the Arbitration Agreement that
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`states, “All issues are for the arbitrator to decide, except that issues relating to the validity,
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`5 The Eighth Circuit has declined to apply the severability rule where a plaintiff contested the
`existence of an arbitration agreement, but that is not the case here. See Express Scripts, Inc. v.
`Aegon Direct Mktg. Servs., Inc., 516 F.3d 695, 701 (8th Cir. 2008) (holding Prima Paint
`inapplicable where it was unclear if an arbitration agreement from a previous contract applied to a
`subsequent oral agreement) (citing AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S.
`643, 648 (1986)).
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 8 of 17
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`8
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`enforceability, and scope of this Arbitration Agreement, including the interpretation of [the class
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`action waiver] must be determined by the court and not the arbitrator.” (Doc. # 31, p. 7; Doc. #
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`18-4, ¶ 11.1) (emphasis added). This language does not change the analysis regarding Plaintiff’s
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`fraudulent inducement claim. Rather, it affirms that all gateway issues regarding validity are for
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`the arbitrator, save for those directed at the Arbitration Agreement itself. Because Plaintiff
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`challenges the entirety of the Online Services Agreement, this language does not convey
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`jurisdiction to the Court to determine the issue of fraudulent inducement.
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`Plaintiff further asserts, “if this court is persuaded that initial determination of fraudulent
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`inducement must be made by an arbitrator, the arbitrator’s jurisdiction should be limited to
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`determining whether Plaintiff was fraudulently induced into entering into the Online Services
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`Agreement.” (Doc. # 31, p. 10). The Court is sympathetic to this position because the arbitrator
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`could decide both the Online Services Agreement and Arbitration Agreement are voidable due to
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`fraud. However, this result is not guaranteed under the severability rule. Prima Paint mandates
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`the Court evaluate the enforceability of the Arbitration Agreement on its own terms. The Court
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`will so proceed.
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`B.
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`Is there a Valid Arbitration Agreement?
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`In deciding questions of arbitrability, a court’s role is “limited to determining (1) whether
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`a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the
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`dispute.” Pro Tech Indus. v. URS Corp., 377 F.3d 868, 871 (8th Cir. 2004); see also Int’l Bhd. of
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`Elec. Workers v. Hope Elec. Corp., 380 F.3d 1084, 1098-99 (8th Cir. 2004). This is because
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`“[a]rbitration is strictly a matter of consent.” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561
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`U.S. 287, 299 (2010) (quotation and citation omitted). Arbitration may be ordered “only where
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`the court is satisfied that the parties agreed to arbitrate that dispute.” Id. at 297 (emphasis in
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 9 of 17
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`9
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`original) (citation omitted). “[A]ny doubts concerning the scope of arbitrable issues should be
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`resolved in favor of arbitration, whether the problem at hand is the construction of the contract
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`language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses, 460 U.S.
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`at 24-25. State law must be applied to determine if a binding agreement exists. Arthur Anderson
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`LLP v. Carlisle, 556 U.S. 624, 629-31 (2009). The parties agree California applies for purposes
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`of contract construction. (Docs. ## 18, 31).
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`California law places the burden of proving a valid arbitration agreement exists on the party
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`moving to compel arbitration. Hotels Nevada v. L.A. Pac. Ctr., Inc., 144 Cal. App. 4th 754, 765
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`(2006). Defendants presented evidence that Plaintiff electronically accepted the terms of the
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`Online Services Agreement and attendant Arbitration Agreement by moving the toggle button
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`from left to right and clicking “Next.” (Gibson Decl., ¶¶ 6,7,10). Plaintiff does not dispute these
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`facts. (Doc. # 31). California courts have determined the procedures employed by Defendants
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`and utilized by Plaintiff constitute valid contract formation. See Lee v. Postmates, Inc., No. 18-
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`cv-3421-JCS, 2018 WL 4961802, at *4 (N.D. Cal. Oct. 15, 2018) (holding a “click through”
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`process where food couriers had to click either “Agree” or “Dismiss” before proceeding to the
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`next step was sufficient to assent to arbitration)6 (citing Levin v. Caviar, Inc., 146 F. Supp. 3d
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`1146, 1157 (N.D. Cal. 2015) (collecting district court cases)). Therefore, Defendants have met
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`their burden. The Court finds the Arbitration Agreement is valid.
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`C.
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`Is the McGill Rule Preempted by the FAA?
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`Turning to the question of scope, Plaintiff argues her CLRA, UCL, and California false
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`advertising law (“FAL”) claims (Counts I through III) must be excluded from arbitration under
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`6 The result is the same under Missouri Law. See Major v. McCallister, 302 S.W.3d 227, 229
`(Mo. Ct. App. 2009) (“Assent is manifested on clickwrap sites, usually by clicking a box or a
`button (i.e., ‘I Agree’).”) (citations omitted).
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`McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017). Unlike Plaintiff’s fraudulent inducement claim,
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`the scope of arbitration and interpretation of the class action waiver is clearly delegated to the
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`Court. (Doc. # 18-4, ¶ 11.1). In McGill, the California Supreme Court held an arbitration clause
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`waiving a party’s right to seek public injunctive relief in any forum is unenforceable under
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`California law. 2 Cal. 5th at 961. The Court explained, pursuant to California Civil Code § 3513,
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`“a law established for a public reason cannot be contravened by a private agreement.” Id. Because
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`public injunctive relief under the CLRA, UCL, and FAL is primarily “for the benefit of…the
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`general public” the court reasoned pre-dispute waivers denying this relief violates § 3513 and runs
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`afoul of public policy. Id. (quotation and citation omitted).
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`Though unclear, it appears Plaintiff argues the Arbitration Agreement waives her right to
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`seek “public” injunctive relief because the terms specify “any relief must be individualized to you
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`and will not affect any other client.” (Doc. # 31, pp. 11-14; Doc. # 18-4, ¶ 11.3). Plaintiff
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`maintains this prohibition renders the Arbitration Agreement unenforceable with respect to her
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`CLRA, UCL, and FAL claims. (Doc. # 31, pp. 11-14). She further maintains these claims are
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`severable, and subject to litigation, pursuant to a later provision that states if “applicable law
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`precludes enforcement of any of this paragraph’s limitations as to a particular claim for relief, then
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`that claim for relief (and only that claim for relief) must remain in court and be severed from any
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`arbitration” (Doc. # 31, p. 15; Doc. # 18-4, ¶ 11.3).
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`Defendants argue McGill is preempted by the FAA and irreconcilable with Supreme Court
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`precedent for three reasons: (1) arbitrating a public injunction request would transform the
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`proceeding from an individualized determination of redressing injury to a single claimant into an
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`expansive inquiry aimed at preventing future injury to the general public; (2) arbitrating a public
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`injunction claim will be more procedurally complex than a one-on-one arbitration; and (3) the
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`stakes of a public-injunction action are massive because Defendants could be forced to alter their
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`practices on a nationwide scale with limited judicial review of arbitral awards. (Doc. # 18, p. 8-
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`12). In making these arguments, Defendants rely on Supreme Court cases enforcing class action
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`waivers. (Id.). The Court adopts this approach and finds Defendants’ first point dispositive of the
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`issue.
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`The Supreme Court has repeatedly rejected state contract defenses that interfere with the
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`“traditionally individualized and informal nature of arbitration.” Epic Sys. Corp. v. Lewis, 138 S.
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`Ct. 1612, 1623 (2018) (emphasis added) (citing Concepcion, 536 U.S. at 338) (holding the FAA
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`preempts arbitration of NLRA collective bargaining actions)); see also Lamps Plus, Inc. v. Varela,
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`139 S. Ct. 1407, 1418 (2019) (holding California’s contract contra proferentem doctrine does not
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`overcome ambiguities in drafting where parties have not expressly agreed to arbitrate class claims).
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`Notably, in Concepcion, the Supreme Court rejected a California rule, known as the Discover Bank
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`rule, which “classif[ied] most collective-arbitration waivers
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`in consumer contracts as
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`unconscionable.” 463 U.S. at 340. The Supreme Court found the Discover Bank rule frustrated
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`the FAA’s objectives by failing to enforce individualized private arbitration agreements according
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`to their terms and allowing “any party to a consumer contract to demand [classwide arbitration]
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`ex-post.” Id. at 346. The majority reasoned that, if allowed, the Discover Bank rule could be
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`applied to any consumer contract because they are all contracts of adhesion and the remaining
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`requirements for falling within the rule’s ambit are overbroad and “malleable.” Id. at 346-47.
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`The Supreme Court concluded, “class arbitration, to the extent it is manufactured by
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`Discover Bank rather than consensual, is inconsistent with the FAA.” Id. at 348. Thus, although
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`the savings clause protects “generally applicable contract defenses, nothing in it suggests an intent
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`to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s
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`Case 4:19-cv-00788-GAF Document 40 Filed 07/27/20 Page 12 of 17
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`objectives.” Id. at 343 (citations omitted); see also Epic, 138 S. Ct. at 1622 (2018) (explaining a
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`shift from individualized arbitration to class arbitration interferes with the fundamental attributes
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`of “speed and simplicity and inexpensiveness” protected by the FAA).
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`More recently, the Supreme Court revisited the issue of classwide arbitration in Epic and
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`emphasized the FAA’s “liberal federal policy favoring arbitration agreements.” 138 S. Ct. at 1621
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`(quotation and citation omitted). Epic calls upon lower courts to “rigorously” enforce terms of
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`arbitration agreements specifying “with whom the parties choose to arbitrate their disputes and the
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`rules under which that arbitration will be conducted” consistent with sections three and four of the
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`FAA. Id. (quotations omitted) (emphasis in original). Epic reinforces Concepcion’s holding:
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`“courts may not allow a contract defense to reshape traditional individualized arbitration by
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`mandating classwide arbitration procedures without the parties’ consent.” Id. at 1623 (emphasis
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`added). This directive is strictly construed, as evidenced by the Supreme Court declining to allow
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`arbitration of class claims where the arbitration agreement is silent or ambiguous on the point. See
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`Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 683-87 (2010); Lamps Plus, 139 S.
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`Ct. at 1418. Epic further counsels the judiciary to be alert to new threats to individualized
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`arbitration hiding behind the guise of public policy. 138 S. Ct. 1612 at 1623. Any “rule seeking
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`to declare individualized proceedings off limits” constitutes such a threat. Id.
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`Defendants argue California’s McGill rule runs afoul of the FAA for exactly this reason.
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`(Doc. # 18, p. 9-10). Unlike a private injunction which has the ‘“primary effect of redressing or
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`preventing an injury to an individual plaintiff,”’ Defendants assert a public injunction shifts the
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`adjudicator’s focus to crafting relief for the benefit of third parties, thereby rendering agreements
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`for “individualized” arbitration irrelevant. (Doc. # 18, p. 10) (quoting McGill, 393 P.3d at 90).
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`Plaintiff counters McGill is consistent with Supreme Court precedent, relying on Blair v.
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`Rent-A-Center, Inc., 928 F.3d 819 (9th Cir. 2019). (Doc. # 31, pp. 11-13). In Blair, the Ninth
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`Circuit Court of Appeals held McGill is not preempted by the FAA. 923 F.3d at 829. The Ninth
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`Circuit also distinguished McGill from Concepcion and Epic on the grounds that public injunctive
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`relief does not require the same procedural formality as a class action because claims for public
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`injunctive relief “need not comply with state-law class procedures.” Id. Blair further held McGill
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`does not impermissibly target bilateral arbitration. Id. (“The McGill rule leaves undisturbed an
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`agreement that both requires bilateral arbitration and permits public injunctive claims. A plaintiff
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`requesting a public injunction files the lawsuit on his or her own behalf and retains sole control
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`over the suit.”) (quotation and citation omitted).
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`Defendants argue Blair misses the point because the relevant inquiry is not whether the
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`procedures at issue are exactly equivalent to class arbitration, but whether the contract defense in
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`question interferes with the FAA’s protection of individualized arbitration because the ‘“form of
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`arbitration envisioned by the FAA” is “individual arbitration.”’ (Doc. # 18, p. 9) (quoting Lamps
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`Plus, 139 S. Ct. at 1416). Despite Blair’s insistence that the McGill rule does not unfairly target
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`bilateral arbitration, Defendants argue the rule has the same practical effect as a Rule 23(b)(2) class
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`action. (Doc. # 35, p. 7). The Court agrees.
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`Setting aside Plaintiff’s claim of fraudulent inducement of the underlying contract, Plaintiff
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`does not deny the Arbitration Agreement calls for bilateral arbitration. (Doc. # 31). The terms of
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`the Arbitration Agreement specify, “[a]ll disputes and claims between you and any one or more of
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`the H&R Block Parties . . . will be resolved through binding individual arbitration. (Doc. # 18-
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`4, ¶ 11.1). The terms also specify, “any relief must be individualized to you and will not affect
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`any other client.” (Id., ¶ 11.2). Concepcion and Epic both reinforce the notion that arbitration is
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`a matter of consent.
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`Defendants did not consent to the public injunctive relief requested by Plaintiff, and McGill
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`does not “save” enforcement of a contract that clearly delineates Plaintiff as the only potential
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`claimant. A state contract defense that mandates reclassification of available relief from one
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`individual to multiple (or in this case, millions) of people impermissibly targets one-on-one
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`arbitration by restructuring the entire inquiry. Plaintiff’s individual retention of the suit does not
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`vitiate McGill’s interference with the FAA’s protection of individualized arbitration just because
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`other members of the putative class are not formally joined as parties.
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`Moreover, under McGill and Blair, a plaintiff could avoid individual arbitration by
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`claiming violations of California’s advertising statutes and subsequently requesting a public
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`injunction when an arbitration agre