Court of Appeal:
Opinion Says Action Based on Harm to Plaintiff Precludes Seeking Injunctive Relief Under UCL, FAL, to Benefit Public; Incurring Person Detriment Is a Prerequisite to Bringing Such Suits, So Cause of Action Is Being Split
By a MetNews Staff Writer
A Burbank lawyer who sued a Delaware limited liability corporation that made cryptocurrency-collateralized loan, alleging liability to himself in the amount of $1 million based on selling off his bitcoin, could not later bring an action alleging the very harms to the public that formed the basis of his personal lawsuit, the Court of Appeal for this district declared yesterday.
The decision comes in an unpublished opinion from Div. One that affirms an order by Los Angeles Superior Court Judge William Stewart sustaining a demurrer to the complaint in the second action, but reverses Stewart’s order giving effect to a forum selection clause providing that any dispute would be resolved by a Delaware court.
The two lawsuits were brought by attorney George J. Gerro who borrowed $2.275 million from defendant BlockFi Lending LLC (BlockFi), putting up his bitcoin as collateral. He also named as a defendant Scratch Services, LLC, a payment processor that is also a Delaware LLC.
A clause in the loan agreement specifies that BlockFi would have “have actual possession of, and a first priority security interest in, the Collateral” and that it could “immediately liquidate Collateral in such an amount as necessary to establish a loan to value ratio where the total of the outstanding principal balance of the Loan plus all other amounts due is equal to or less than seventy percent (70.0%) of the Collateral Market Value.”
When the Block value of bitcoin fell in March 2020, BlockFi sold Gerro’s bitcoin, prompting his first suit on a variety of theories, including trespass to chattels. He later sought injunctive relief, on behalf of the public, under Unfair Competition Law (“UCL”) and the False Advertising Law (“FAL”).
In light of the pendency of the first action, the second one must be abated, Stewart ruled, reasoning that Gerro was impermissibly splitting his cause of action. In yesterday’s opinion, San Luis Obispo Superior Court Judge Charles S. Crandall, sitting on assignment, expressed agreement, declaring:
“A plaintiff cannot split a cause of action between two lawsuits that derive from the same primary right. Although Gerro claims his two lawsuits involve different primary rights (Gerro I claiming personal injuries and Gerro II seeking public injunctive relief), the legal claims asserted in Gerro II under the UCL also depend on personal injuries to Gerro. The overlapping personal injuries result in impermissible claim splitting. Accordingly, the trial court did not err in sustaining Defendants’ demurrer in Gerro II.”
Supreme Court Decision
Crandall pointed to the California Supreme Court’s 2017 decision in McGill v. Citibank, N.A. in which it was held that Proposition 64, enacted by voters in 2004, did not strip individuals from seeking injunctive relief on behalf of the public under the UCL so long as the individual was personally harmed by the conduct in issue.
Writing for a unanimous court, then-Justice Ming Chin said that the provisions of Proposition 64 “do not preclude a private individual who has ‘suffered injury in fact and has lost money or property as a result of’ a violation of the UCL or the false advertising law…—and who therefore has standing to file a private action—from requesting public injunctive relief in connection with that action.”
“Following McGill, notwithstanding any injunctive relief or other benefit that might inure to the general public, Gerro II’s claims under the UCL and FAL can only exist if they are brought on Gerro’s behalf based on injuries to him….Accordingly, the trial court properly found Gerro split primary rights between Gerro I and Gerro II.”
Forum Selection Clause
In finding the forum selection clause to be enforceable, Stewart rejected the contention that Delaware courts would honor a provision in the agreement that a jury would be waived, while California courts would not. The Los Angeles judge expressed confidence that “courts in Delaware will apply California law when fundamental California public policy is at issue.”
Disagreeing, Crandall wrote:
“[R]elevant case law provides insufficient assurance that Delaware courts will apply California’s important public policy to this dispute. Because California’s policy against contractual, predispute jury waivers could be violated if Gerro I were heard in Delaware, we reverse the trial court’s ruling in Gerro I.”
The case is Gerro v. BlockFi Lending, B307156.
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