McBurnie v. Acceptance Now, LLC

Background

Shannon McBurnie and April Spruell sued on behalf of themselves and a proposed class. They alleged that RAC Acceptance East, LLC, identified in the opinion as “RAC,” charged a $45 processing fee and a $1.99 fee for telephone payments in connection with rent-to-own furniture transactions. They asserted claims under California’s Karnette Rental-Purchase Act, Consumer Legal Remedies Act, and unfair competition law.

The plaintiffs’ contracts contained arbitration agreements allowing either the plaintiffs or RAC to elect binding arbitration. The agreements required arbitration to proceed individually and barred relief affecting other RAC account holders.

The case began in California state court in December 2020. RAC answered and identified arbitration as an affirmative defense, but it did not immediately ask the court to compel arbitration. After removing the case to federal court, RAC participated in a case-management conference, agreed to a protective order, stipulated to deadline extensions, engaged in discovery, brought discovery disputes to the court, and participated in settlement conferences and private mediation. More than eighteen months after the lawsuit began, RAC moved to compel individual arbitration.

Legal standard

The court applied the Federal Arbitration Act. Ordinarily, a court determines whether a valid arbitration agreement exists and whether it covers the dispute. The court explained that the right to arbitration can be waived. Under federal law, waiver requires knowledge of the right to compel arbitration and conduct inconsistent with that right. After the Supreme Court’s decision in Morgan v. Sundance, prejudice to the opposing party is not required to establish waiver.

Court’s analysis

The court concluded that RAC knew about its arbitration agreements before the lawsuit began. The court then found that RAC acted inconsistently with a right to arbitrate by litigating the case for more than eighteen months, engaging in substantive discovery, and using federal judicial resources in settlement conferences. The court said this was not a situation in which a defendant did the minimum necessary in court while promptly seeking arbitration.

RAC argued that it could not compel arbitration until the Supreme Court decided Viking River Cruises, Inc. v. Moriana or until a settlement involving RAC’s parent company and the California Attorney General was completed. The court rejected both explanations. RAC had not asked to pause the case while Viking River was pending, had not brought that case to the court’s attention until July 2022, and had not previously mentioned the Attorney General proceedings or requested an accommodation based on them.

The court also rejected RAC’s argument that Viking River changed the result. It explained that Viking River concerned California’s Private Attorneys General Act, while this case involved the California Supreme Court’s rule concerning waivers of public injunctive relief. The court said Viking River did not eliminate that rule or overrule the Ninth Circuit decision applying it to materially similar arbitration provisions.

The court further concluded that RAC had not shown that the plaintiffs’ requests for public injunctive relief were moot. Because the claims remained live, the court said the rule concerning public injunctive relief applied. Under the agreement’s severance provision, each claim had to be severed for judicial determination.

Disposition

The court denied RAC’s motion to compel arbitration. The opinion did not decide the underlying claims about the fees or whether RAC violated California law.