Jeong v. Nexo Financial LLC

• Court: District Court, N.D. California
• Decided: March 29, 2023
• Docket: 5:21-cv-02392
• Status: Unknown

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 JUNHAN JEONG, Case No. 21-cv-02392-BLF

8 Plaintiff, ORDER GRANTING DEFENDANT'S 9 v. MOTION TO DISMISS AND/OR STRIKE CLASS ALLEGATIONS 10 NEXO CAPITAL INC., [Re: ECF No. 74] 11 Defendant.

12 13 This is a breach of contract and consumer protection case regarding Nexo Capital Inc.’s 14 Crypto Credit service, which allows users to borrow cash by pledging cryptocurrency as collateral. 15 Plaintiff Junhan Jeong alleges that Nexo sold cryptoassets that he and others had staked Nexo in 16 violation of Nexo’s Borrow Terms & Conditions. Jeong also alleges that Nexo engaged in 17 deceptive advertising. Jeong seeks to bring his claims on behalf of himself and three classes. 18 Before the Court is Nexo’s Motion to Dismiss And/Or Strike Class Allegations Pursuant to 19 Federal Rules of Civil Procedure 12(b)(6), 12(f), and 23(d). Mot. 3, ECF No. 74. Nexo asks this 20 Court to strike or dismiss Jeong’s class allegations for two independent reasons: (1) Jeong’s 21 agreement with Nexo bars him from bringing a class action and (2) Jeong’s counsel cannot 22 adequately represent a class. In the alternative, Nexo asks the Court to strike Jeong’s class 23 allegations against putative class members who do not live in California because they are not 24 subject to California law. Jeong opposes Nexo’s motion. Opp’n, ECF No. 76. Nexo has filed a 25 reply. Reply, ECF No. 77. 26 The Court heard oral argument on Nexo’s motion on February 23, 2023. See ECF No. 27 83. For the reasons below and stated on the record during the hearing, the Court GRANTS Nexo’s 1 I. BACKGROUND 2 Nexo operates a website through which users can access Nexo’s “Crypto Credit” service. 3 See TAC ¶¶ 2, 33, ECF No. 71. Using the Crypto Credit service, users can stake any of a variety 4 of cryptoassets as collateral for cash loans. See id. ¶¶ 2, 33, 35. 5 To use the Crypto Credit service a user must agree to Nexo’s Borrow Terms & Conditions 6 (“Borrow Terms”). TAC ¶ 34; see also Shelton Decl. Ex. 1 (“Borrow Terms”), ECF No. 74-2. 7 The Borrow Terms are non-negotiable. Id. ¶ 34. Under the Borrow Terms, a user can borrow as 8 much as they want so long as they stake enough collateral to maintain a particular loan-to-value 9 (“LTV”) ratio. See id. ¶¶ 36, 51-52. If a user’s LTV ratio rises above a particular threshold, Nexo 10 will, after providing notice to the user, sell the user’s collateral to the extent necessary to bring the 11 LTV ratio back in line. Id. ¶ 38. Because the collateral is comprised of cryptoassets that fluctuate 12 in value, a user’s LTV ratio fluctuates with the value of the underlying collateral. See id. ¶ 3. 13 On December 22, 2020, the SEC announced an action against Ripple Labs Inc.—the issuer 14 of a cryptocurrency called XRP—and two of its executives, alleging that XRP constituted an 15 unregistered securities offering. See id. ¶ 47. In response to the news, over the course of a few 16 hours on December 23, 2020, the price of XRP dropped from $0.45 to $0.21. Id. ¶ 47. Nexo, 17 seeing the price drop, suspended users’ ability to use XRP as collateral or to pay down loans (the 18 “Suspension”). Id. ¶¶ 48-49. The Suspension remains in place today. Id. ¶ 48. Nexo provided no 19 notice of the Suspension to users. Id. ¶ 48. 20 As a result of the Suspension, users with loans based on XRP collateral were “effectively 21 locked out” of maintaining their LTV ratios, since they could neither use their XRP to pay down 22 their loans nor sell their XRP on the open market, since this would require withdrawing XRP 23 collateral and further raising the LTV ratio. See id. ¶ 90. Meanwhile, within hours of the 24 Suspension, Nexo proceeded to sell “massive quantities” of XRP held as customer collateral, 25 including U.S.-based customers and customers outside the U.S. See id. ¶ 49. 26 At the time of the Suspension, Jeong had staked collateral of 598,384.6188 XRP— 27 approximately $269,300—for a loan of $169,400 from Nexo. See id. ¶ 139. As a result of Nexo’s 1 following digital assets that he liquidated in an unsuccessful attempt to pay down his loans as his 2 LTV value rose: 47,190.47043 Lumen (approximately $6,000); 0.009255 Bitcoin (approximately 3 $215); 6.1674 Ether (approximately $3,600); and 168.18851 Link (approximately $1,800). See id. 4 ¶ 139. Jeong was assessed an undisclosed 1.26% fee for each liquidation, costing him 5 approximately $1,607.01. See id. 6 Jeong alleges that Nexo breached the Borrow Terms through the implied covenant of good 7 faith and fair dealing when it stopped allowing users to pay down their loans with XRP and failed 8 to provide notice to users of the suspension of XRP payments. Id. ¶¶ 55, 178-79. 9 Jeong also alleges that Nexo engaged in false and misleading advertising in violation of the 10 UCL in three ways. First, Jeong alleges that Nexo has advertised to consumers that it does not 11 own users’ collateral while acting otherwise—invoking its ownership right over users’ collateral 12 to justify liquidation of that collateral. See id. ¶¶ 41-44; 115–37; 194, 197-199. Second, Jeong 13 alleges that Nexo has advertised that its users would have certain legal rights in connection with 14 their purported loans when the Borrow Terms do not in fact guarantee those rights. See id. ¶ 200. 15 Third, Jeong alleges that Nexo has falsely advertised to consumers that there are “#ZeroFees – no 16 hidden fees, no origination fees, no liquidation fees, no FX commissions” associated with its 17 services. See id. ¶¶ 40; 201. Jeong alleges that he was charged fees when Nexo liquidated his 18 XRP collateral. See id. ¶ 139. 19 Finally, Jeong alleges that Nexo has engaged in unlawful or unfair business practices under 20 the UCL. In addition to alleging Nexo engaged in unlawful and unfair business practices through 21 its breach of contract outlined above, Jeong alleges that Nexo violated the unlawful prong of the 22 UCL by offering loans in California despite lacking a California Finance Lender (“CFL”) License. 23 See id. ¶¶ 45–46; 193. 24 Jeong brings his action on behalf of the following three classes: 25 Damages class: All persons who reside in the United States who suffered damages from breach of contract arising from Nexo’s 26 suspension of XRP payments on December 23, 2020, and thereafter. 27 Equitable-Relief Class: All persons who reside in the United States California UCL Class: All persons who reside in California and who, 1 as a result of Nexo’s violations of the UCL as set forth in this Amended Complaint, suffered losses from their use of Nexo’s Crypto 2 Credit service. 3 See id. ¶ 148. 4 II. LEGAL STANDARD 5 A. Rule 12(b)(6) – Motion to Dismiss for Failure to State a Claim 6 “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 7 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 8 Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 9 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 10 as true all well-pled factual allegations and construes them in the light most favorable to the 11 plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 12 Court need not “accept as true allegations that contradict matters properly subject to judicial 13 notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 14 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 15 (internal quotation marks and citations omitted). While a complaint need not contain detailed 16 factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 17 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 18 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 19 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 20 On a motion to dismiss, the Court’s review is limited to the face of the complaint and matters 21 judicially noticeable. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star 22 Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). 23 B. Rule 12(f) – Motion to Strike 24 Rule 12(f) permits a court to “strike from a pleading an insufficient defense or any 25 redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). Motions to 26 strike are “generally viewed with disfavor, and will usually be denied unless the allegations in the 27 pleading have no possible relation to the controversy, and may cause prejudice to one of the 1 omitted); see also United States v. Wang, 404 F.Supp.2d 1155, 1156 (N.D. Cal. 1991) (“[M]otions 2 to strike should not be granted unless it is clear that the matter to be stricken could have no 3 possible bearing on the subject matter of the litigation.”). If a claim is stricken, “[i]n the absence 4 of prejudice to the opposing party, leave to amend should be freely given.” Wyshak v. City Nat’l 5 Bank, 607 F.2d 824, 826 (9th Cir. 1979) (citations omitted). 6 C. Rule 23(d)(1)(D) – Motion to Strike Class Allegations 7 A court may “require that the pleadings be amended to eliminate allegations about 8 representation of absent persons and that the action proceed accordingly.” Fed. R. Civ. P. 9 23(d)(1)(D). Even under this rule, courts have determined that “class allegations are not tested at 10 the pleading stage and are instead scrutinized after a party has filed a motion for class 11 certification.” Yastrab v. Apple Inc., No. 14-cv-01974-EJD, 2015 WL 1307163, at *8 (N.D. Cal. 12 Mar. 23, 2015); cf. In re Wal-Mart Stores, Inc. Wage & Hour Litig., 505 F. Supp. 2d 609, 616 13 (N.D. Cal. 2007) (“[T]he granting of motions to dismiss class allegations before discovery has 14 commenced is rare.”). However, in some cases the issue may be “plain enough” based on the 15 pleadings. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982); see also Tietsworth v. Sears, 16 720 F. Supp. 2d 1123, 1146 (N.D. Cal. 2010) (under Rule 23(d), a court “has authority to strike 17 class allegations prior to discovery if the complaint demonstrates that a class action cannot be 18 maintained”). 19 III. DISCUSSION 20 Nexo asks the Court to strike Jeong’s class allegations. According to Nexo, Jeong waived 21 his right to bring a class action when he agreed to the Borrow Terms, which contain a class action 22 waiver. Mot. 6-17. Nexo also argues that the Court should strike Jeong’s class allegations 23 because Jeong’s counsel is inadequate. Id. at 17-24. Finally, Nexo argues in the alternative that 24 the Court should strike non-California class allegations on the ground that Jeong does not have 25 standing to assert claims on behalf of non-California users. Id. at 24-25. 26 Jeong responds to each of Nexo’s arguments. Jeong argues that the class action waiver in 27 the Borrow Terms does not bar him from bringing a class action because it is unenforceable. 1 reasons: it is unconscionable, and it purports to waive public injunctive relief. Id. Jeong argues 2 that Nexo’s argument that Jeong’s counsel is inadequate is premature and baseless. Id. at 13-22. 3 Finally, Jeong argues that Nexo’s alternative argument regarding non-California class allegations 4 is premature and wrong. Id at 22-24. 5 As explained below, the Court agrees with Nexo that Jeong waived his right to bring a 6 class action when he agreed to the Borrow Terms. The Court therefore does not reach Nexo’s two 7 other challenges. 8 A. The Class Action Waiver in the Borrow Terms is not Unconscionable. 9 Nexo argues that Jeong waived his right to bring his claims on behalf of the class when he 10 agreed to the Borrow Terms because they contain the following class action waiver: 11 Any dispute arising out of or in connection with the Agreement (the General Terms), unless amicably settled between the Parties, shall be 12 referred to the competent court or other dispute resolution authority, determined as per the procedural law of Nexo jurisdiction. You agree 13 that any dispute resolution proceeding subject to the Applicable Law under the preceding sentence shall be conducted only on an 14 individual basis and not as a plaintiff or class member in any purported class, consolidated or representative action or 15 proceeding. No court or other dispute resolution authority can consolidate or join more than one claim and can otherwise preside 16 over any form of a consolidated, representative, or class proceeding. Any relief awarded cannot affect other Clients of Nexo. 17 Borrow Terms § XV.2. 18 Jeong argues that the class action waiver is unconscionable and therefore unenforceable 19 under the test articulated by the California Supreme Court in Discover Bank v. Superior Court, 36 20 Cal. 4th 148, 162-63 (2005). Opp’n 2-8. In Discover Bank, the California Supreme Court held 21 that a class action waiver is unconscionable under California law when “[1] the waiver is found in 22 a consumer contract of adhesion [2] in a setting in which disputes between the contracting parties 23 predictably involve small amounts of damages, and [3] when it is alleged that the party with the 24 superior bargaining power has carried out a scheme to deliberately cheat large numbers of 25 consumers out of individually small sums of money.” 36 Cal. 4th 148, 162-63 (2005); see also 26 Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 983 (9th Cir. 2007) (describing the 27 Discover Bank test). The Court considers each of the three prongs of the Discover Bank test 1 below.1 2 1. Whether the Borrow Terms are a Consumer Contract of Adhesion 3 Jeong argues, and Nexo does not dispute, that the Borrow Terms are a consumer contract 4 of adhesion. Opp’n 3; Reply 3. According to the Third Amended Complaint, Nexo presents its 5 Borrow Terms on a “take it or leave it” basis and does not negotiate the terms with customers. See 6 TAC ¶ 164. The Court finds these allegations sufficient to satisfy the first prong of the Discover 7 Bank rule. See Shroyer, 498 F.3d at 983 (“Under California law, a contract of adhesion is defined 8 as a standardized contract, imposed upon the subscribing party without an opportunity to negotiate 9 the terms.” quoting Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir.2006) (cleaned 10 up)). Accordingly, the Court proceeds to analyze the other two prongs of the Discover Bank test. 11 2. Whether the Class Action Waiver is Found in a Setting in which Disputes Predictably Involve Small Amounts of Damages 12 The parties dispute whether the class action waiver “is found . . . in a setting in which 13 disputes between the contracting parties predictably involve small amounts of damages.” See 14 Discover Bank, 36 Cal. 4th at 162-63. 15 Jeong argues that disputes between Nexo and its users will predictably involve small 16 amounts of damages. Jeong argues that claims that Nexo misleadingly advertises no fees concern 17 small amounts of damages. Opp’n 4. Jeong notes that he seeks only $1,607.01 on this basis. Id. 18 Jeong also argues that the Borrow Terms contain a limitation-of-liability provision that limits 19 disputes to a user’s fees, which would be less than $2,500 for many members of Jeong’s proposed 20 Damages Class. Id. at 5. Finally, Jeong argues that his UCL claim is also based on Nexo’s 21 claimed right to impose changes to the Borrow Terms unilaterally with respect to interest, loan 22 repayment, or notice terms and that some of these changes would predictably involve small 23

24 1 Although the United States Supreme Court held that Federal Arbitration Act preempts the Discover Bank rule when the rule would require classwide arbitration, see AT&T Mobility LLC v. 25 Concepcion, 563 U.S. 333, 352 (2011), the parties do not dispute that the rule remains in force when a class waiver is not coupled with an arbitration provision, see Opp’n 2; Reply 2-8; see also 26 Suski v. Marden-Kane, Inc., 21-CV-04539-SK, 2022 WL 3974259, at *4 n.1 (N.D. Cal. Aug. 31, 2022) (“Where, as here, the class action waiver in the Official Rules is not coupled with an 27 arbitration provision, Concepcion does not apply.”); Meyer v. Kalanick, 185 F. Supp. 3d 448, 458 1 amounts of damages. Id. at 6. 2 Nexo disputes each of Jeong’s arguments. Nexo replies that Jeong wrongly asks the Court 3 to assess the amount of damages involved in the dispute on a claim-by-claim basis to escape the 4 fact that he seeks over $100,000 in damages. Reply 3-4. Nexo next argues that the limitation-of- 5 liability provision has nothing to do with the enforceability of the class action waiver. Id. at 5. 6 Finally, Nexo replies that Jeong’s argument regarding its ability to change the Borrow Terms has 7 no connection to any alleged injury in this case and should therefore be ignored. Id. at 5-6. 8 The Court agrees with Nexo that disputes between Nexo and its users that implicate the 9 Borrow Terms do not “predictably involve small amounts of damages.” The present dispute 10 provides a case in point. Jeong seeks, among other things, “the full value of the collateral that 11 Nexo liquidated . . . (less the outstanding loan amounts on that collateral as of breach).” TAC 12 ¶ 182. For Jeong, these damages allegedly amount to $99,900. TAC ¶ 139. Added to the fees 13 Jeong seeks to recover, Jeong’s requested damages exceed $100,000. This is not a small amount 14 of damages under the Discover Bank test. See Arguelles-Romero v. Superior Ct., 184 Cal. App. 15 4th 825, 844 (2010) (stating that $16,000 is not an amount “so small that individuals would not be 16 willing to spend the time and effort to pursue and individual claim for the amount”). 17 Jeong’s arguments to the contrary do not undermine this conclusion. Jeong first argues 18 that the Court should isolate the portion of its false advertising claim that seeks to recover 19 $1,607.01 that Jeong paid in liquidation fees. Opp’n 4-5. Jeong cites no authority for the 20 proposition that a Court should consider only certain claims when analyzing whether disputes 21 implicating a class action waiver will predictably involve small amounts of damages. More 22 important, the concerns underlying the Discover Bank test do not support Jeong’s proposal to 23 isolate certain claims. In Discover Bank, the court summarized the “justifications for class action 24 lawsuits.” See 36 Cal. 4th at 156. The Discover Bank court explained that “[t]he policy at the 25 very core of the class action mechanism is to overcome the problem that small recoveries do not 26 provide the incentive for any individual to bring a solo action prosecuting his or her rights.” Id. at 27 156-57 (quoting Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 617 (1997)). The concern driving 1 a solo action to remedy the alleged wrong. This concern is best addressed by analyzing the total 2 amount of damages an individual may recover in the prosecution of his action, not the amount of 3 damages that individual may seek in relation to a single claim in his action. Here, Jeong seeks 4 more than $100,000 for his liquidated collateral and related fees. The Court finds that this is the 5 amount to be used for analyzing the second prong of the Discover Bank test, regardless of how the 6 amount may be apportioned among Jeong’s claims, and this amount confirms that the class action 7 waiver is not found in a setting in which disputes between the contracting parties predictably 8 involve small amounts of damages. 9 Jeong’s argument regarding the limitation-of-liability provision in the Borrow Terms is 10 also unconvincing. The provision states: 11 IN NO EVENT WILL OUR AGGREGATE LIABILITY FOR ANY LOSS OR DAMAGE ARISING IN CONNECTION WITH THE 12 NEXO CRYPTO CREDIT EXCEED THE FEES YOU PAID TO NEXO FOR YOUR USE OF THEIR SERVICES DURING THE 12 13 MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO THE CLAIM OR LIABILITY. THE 14 FOREGOING LIMITATIONS OF LIABILITY SHALL APPLY TO THE FULLEST EXTENT PERMITTED BY ANY APPLICABLE 15 LAW. 16 Borrow Terms § XII.5. Jeong contends that this provision shows that “the Borrow Terms are 17 intended to involve ‘predicably small amounts of damages’ because Nexo attempts to limit 18 liability solely to the fees paid by its users” and many members of the putative Damages Class 19 paid less than $2,500 in fees. Opp’n 5. But Nexo’s intent is immaterial to the second prong of the 20 Discover Bank test. The relevant inquiry is whether disputes will predictably involve small 21 amounts of damages. Here, Jeong seeks over $100,000 in damages, despite any purported 22 limitation of liability by the Borrow Terms. Jeong therefore cannot credibly argue that the 23 limitation-of-liability provision places the Borrow Terms’ class action waiver in a setting in which 24 disputes between the contracting parties predictably involve small amounts of damages. 25 In light of the foregoing, the Court finds that Jeong has not demonstrated that the class 26 action waiver is found in a setting in which disputes will predictably involve small amounts of 27 damages. Jeong’s allegations therefore do not satisfy the second element of the Discover Bank 3. Whether it is Alleged that Nexo has Carried out a Scheme to Deliberately 1 Cheat Large Numbers of Consumers out of Individually Small Sums of Money 2 Because the Court has determined that Jeong’s allegations do not satisfy the second prong 3 of the Discover Bank test the Court does not reach the third prong—whether Jeong adequately 4 alleges that the party with the superior bargaining power has carried out a scheme to deliberately 5 cheat large numbers of consumers out of individually small sums of money. See Arguelles- 6 Romero, 184 Cal. App. 4th at 844-45 (holding that class action waiver was not unconscionable 7 without analyzing alleged scheme because “plaintiffs ha[d] not established the prerequisite to their 8 theory of substantive unconscionability—that the claims are so small that a class action is the only 9 viable means of enforcement”). 10 * * * 11 The Court finds that Jeong has not demonstrated that the Borrow Terms’ class action 12 waiver is unconscionable because he has not shown that the waiver is found in a setting in which 13 disputes will predictably involve small amounts of damages. The Court therefore proceeds to 14 Jeong’s argument that the waiver is unenforceable because it precludes him from seeking public 15 injunctive relief. 16 B. The Borrow Terms Impermissibly Preclude Jeong from Seeking Public Injunctive 17 Relief, but the Offending Provision is Severable. 18 In McGill v. Citibank, N.A., the California Supreme Court held that a provision in a 19 predispute arbitration agreement that waives the right to seek public injunctive relief in any forum 20 is unenforceable under California law. 2 Cal. 5th 945, 952 (2017). The court defined public 21 injunctive as “injunctive relief that has the primary purpose and effect of prohibiting unlawful acts 22 that threaten future injury to the general public.” Id. at 951. 23 Although the provision at issue in McGill was found in an arbitration agreement, the 24 McGill court explained that “a provision in any contract—even a contract that has no arbitration 25 provision—that purports to waive, in all fora, the statutory right to seek public injunctive relief 26 under the UCL, the CLRA, or the false advertising law is invalid and unenforceable under 27 California law.” Id. at 962. This is because, under California law, “a law established for a public 1 The parties dispute whether the Borrow Terms’ class action waiver precludes Jeong from 2 seeking public injunctive relief in violation of McGill. As noted above, the section of the Borrow 3 Terms’ containing the class action waiver states in full: 4 Any dispute arising out of or in connection with the Agreement (the General Terms), unless amicably settled between the Parties, shall be 5 referred to the competent court or other dispute resolution authority, determined as per the procedural law of Nexo jurisdiction. You agree 6 that any dispute resolution proceeding subject to the Applicable Law under the preceding sentence shall be conducted only on an individual 7 basis and not as a plaintiff or class member in any purported class, consolidated or representative action or proceeding. No court or other 8 dispute resolution authority can consolidate or join more than one claim and can otherwise preside over any form of a consolidated, 9 representative, or class proceeding. Any relief awarded cannot affect other Clients of Nexo. 10 Borrow Terms § XV.2. 11 Nexo argues that nothing in the section above precludes Jeong from seeking public 12 injunctive relief. Mot. 14-16. Nexo notes that a party may seek public injunctive relief in an 13 individual lawsuit. Id. at 15. Nexo further argues that the Borrow Terms contain a severability 14 clause that would permit the Court to sever any provision that would preclude Jeong from seeking 15 public injunctive relief. Id. at 15-16. 16 Jeong does not contend that the class action waiver, alone, causes a violation of the McGill 17 rule. As the Ninth Circuit held in DiCarlo v. MoneyLion, Inc., “a plaintiff bringing an individual 18 lawsuit may seek public injunctive relief. The McGill court made clear that a litigant proceeding as 19 an ‘individual’ ‘on his or her own behalf’ may ‘request[ ] public injunctive relief.’” 988 F.3d 20 1148, 1156 (9th Cir. 2021) (quoting McGill, 2 Cal. 5th at 959). 21 Jeong argues that the sentence stating that “[a]ny relief awarded cannot affect other Clients 22 of Nexo” precludes him from seeking public injunctive relief. Opp’n 10-12. Jeong further argues 23 that this sentence is not severable from the rest of the section and therefore renders the Borrow 24 Terms’ class action waiver unenforceable. Id. at 12-13. 25 For the reasons explained below, the Court agrees with Jeong that the Borrow Terms 26 preclude Jeong from seeking public injunctive relief. The Court finds, however, that the provision 27 precluding public injunctive relief is severable under the Borrow Terms’ severability clause. 1 Accordingly, the Court finds that the class action waiver remains intact and enforceable. 2 1. The Borrow Terms Preclude Jeong from Seeking Public Injunctive Relief 3 In addressing whether a contract provision is unenforceable under McGill, a court must 4 first determine whether the plaintiff’s complaint seeks public injunctive relief within the meaning 5 of the McGill rule. See Hodges v. Comcast Cable Commc’ns, LLC, 21 F.4th 535, 541 (9th Cir. 6 2021). It is not sufficient that the agreement at issue may theoretically purport to waive public 7 injunctive relief in any case. See id. at 540. 8 Here, Jeong’s Third Amended Complaint seeks several forms of public injunctive relief 9 under California’s UCL. The complaint requests that the Court (1) “prohibit Nexo from engaging 10 in the business of a finance lender or broker without obtaining a license”; (2) “prohibit Nexo from 11 advertising to the public that it offers ‘loans’ through a ‘lending’ relationship”; (3) “prohibit Nexo 12 from advertising to the public that it would owe and afford its borrowing customers legal rights in 13 connection with their purported loans, or in the alternative require that Nexo disclose, in 14 connection with any advertisement, that it reserves the sole and absolute discretion to change the 15 terms governing its relationship with its customers”; and (4) “prohibit Nexo from advertising that 16 it does not charge fees, including liquidation fees.” 3AC ¶ 193, ¶ 198, ¶¶ 200-01, p.56-57. Each 17 request seeks to “by and large benefit[] the general public” and would “benefit[] the plaintiff, if at 18 all, only incidentally and/or as a member of the general public” and therefore qualifies as public 19 injunctive relief. See DiCarlo, 988 F.3d at 1152 (quoting McGill, 2 Cal. 5th at 955). 20 The Court must therefore determine whether the Borrow Terms preclude an award of this 21 public injunctive relief. The final sentence in the Borrow Terms’ section concerning dispute 22 resolution states, “Any relief awarded cannot affect other Clients of Nexo.” See Borrow Terms § 23 XV.2. Jeong contends that this sentence precludes him from seeking public injunctive relief. 24 Opp’n 11-12. Nexo replies that this provision implicates only private injunctive relief because it 25 prohibits the award of relief only to “other Clients of Nexo,” not to “anyone who is not a party” or 26 “any other person.” Reply 9-10. 27 The Court agrees with Jeong that the provision precludes Jeong from seeking public 1 (9th Cir. 2019). In Blair, a plaintiff sued a rent-to-own business for allegedly structuring its 2 pricing in violation of state law. Id. at 822. The plaintiff sought, among other things, an 3 injunction on behalf of the people of California to enjoin the business from continuing to 4 implement its pricing structure. Id. at 823. The business moved to compel arbitration based on 5 the plaintiff’s rent-to-own agreement. Id. The district court held, among other things, that the 6 agreement violated the McGill rule because it constituted a waiver of the plaintiff’s right to seek 7 public injunctive relief. Id. The Ninth Circuit agreed. Id. at 831. Relevant to the present dispute, 8 the rent-to-own agreement prohibited the arbitrator from awarding “relief that would affect [the 9 business’s] account holders other than [the plaintiff].” Id. The Ninth Circuit held that this 10 provision “preclude[d] the arbitrator from awarding public injunctive relief.” Id. 11 The disputed provision in the Borrow Terms is not meaningfully different from the 12 provision in Blair. Both preclude the award of relief to the defendants’ other customers—Nexo’s 13 “Clients” and the Blair defendant’s “account holders.” Neither goes so far as to preclude the 14 award of relief to “anyone who is not a party” or “any other person” as Nexo would suggest is 15 required. Based on the similarity of these provisions, the Court finds that, like the provision in 16 Blair, the provision in the Borrow Terms precludes an award of public injunctive relief in 17 violation of the McGill rule. 18 Contrary to Nexo’s contention, the Ninth Circuit’s decision in Hodges v. Comcast Cable 19 Commc’ns, LLC, 21 F.4th 535 (9th Cir. 2021), does not undermine Blair’s application to this case. 20 See Reply 10. In Hodges, the Ninth Circuit held that requests for relief that on their face stood to 21 benefit only the defendant’s “cable subscribers” did not qualify as public injunctive relief even if 22 the requests sought forward-looking prohibitions against future violations of the law. 21 F.4th at 23 549. This is because “‘public injunctive relief’ within the meaning of the McGill rule refers to 24 prospective injunctive relief that aims to restrain future violations of law for the benefit of the 25 general public as a whole, rather than a discrete subset of similarly situated persons, and that does 26 so without requiring consideration of the individual claims of non-parties.” Id. at 548. Here, and 27 in Blair, the requested relief stands to benefit the general public, not a discrete subset of similarly 1 injunctive relief or that the Borrow Terms would preclude his right to do so. 2 Accordingly, the Court finds that the Borrow Terms’ provision stating that “[a]ny relief 3 awarded cannot affect other Clients of Nexo” precludes Jeong from seeking public injunctive 4 relief. The Court therefore proceeds to analyze whether this provision is severable from the 5 Borrow Terms. 6 2. The Offending Provision is Severable 7 As discussed above, the Court has found that the sentence in the Borrow Terms requiring 8 that “[a]ny relief awarded cannot affect other Clients of Nexo” precludes public injunctive relief in 9 violation of the McGill rule. This sentence is the final sentence in Section XV.2 of the Borrow 10 Terms. In full, the section states: 11 Any dispute arising out of or in connection with the Agreement (the General Terms), unless amicably settled between the Parties, shall be 12 referred to the competent court or other dispute resolution authority, determined as per the procedural law of Nexo jurisdiction. You agree 13 that any dispute resolution proceeding subject to the Applicable Law under the preceding sentence shall be conducted only on an individual 14 basis and not as a plaintiff or class member in any purported class, consolidated or representative action or proceeding. No court or other 15 dispute resolution authority can consolidate or join more than one claim and can otherwise preside over any form of a consolidated, 16 representative, or class proceeding. Any relief awarded cannot affect other Clients of Nexo. 17 Borrow Terms § XV.2. 18 Despite the offending sentence, the remaining portions of the Borrow Terms may remain 19 effective because the Borrow Terms contain a severability clause. See Pereyra v. Guaranteed 20 Rate, Inc., No. 18-CV-06669-EMC, 2019 WL 2716519, at *10 (N.D. Cal. June 28, 2019) 21 (“Severability ‘clauses evidence the parties’ intent that, to the extent possible, the valid provisions 22 of the contracts be given effect, even if some provision is found to be invalid or unlawful.’” 23 (quoting Baeza v. Superior Court, 201 Cal. App. 4th 1214, 1230 (2011)); cf. Serafin v. Balco 24 Properties Ltd., LLC, 235 Cal. App. 4th 165, 183-84 (2015) (“[A] court should sever an 25 unconscionable provision unless the agreement is so ‘permeated’ by unconscionability that it 26 cannot be cured by severance.”). The Borrow Terms’ severability clause states: 27 The invalidity of the whole or part of any provision of these General Terms shall not affect the validity of the whole or part of any other General Terms shall remain in full force and effect. 1 Borrow Terms § XVI.5. The Court therefore must determine whether it should sever the 2 offending sentence to preserve the remainder of the Borrow Terms. 3 Nexo argues that the Court should apply the severability clause to strike the offending 4 sentence. According to Nexo, the offending sentence is a separate provision from the class action 5 waiver in the sentences preceding it and therefore can be severed under the severability clause. 6 Reply 11. Nexo contends that severance is appropriate here because neither the Borrow Terms nor 7 the class action waiver are so permeated with illegality as to render them unsalvageable. Id. at 11- 8 12. 9 Jeong argues that the severability clause does not authorize severance of the offending 10 sentence. According to Jeong, the severability clause authorizes the severance of whole 11 provisions to salvage other provisions and does not authorize the severance of portions of 12 provisions to salvage other portions of the same provision. Opp’n 12-13. Jeong contends that the 13 offending sentence and the class action waiver are part of the same provision and must therefore 14 fall together. Id. 15 The Court agrees with Nexo that the severability clause permits severance of the offending 16 sentence. The parties’ dispute turns on whether the word “provision” must refer to one of the 17 numbered items in the Borrow Terms or whether it can refer to some part of a given numbered 18 item. In interpreting terms within a severability clause, the Ninth Circuit has consulted Black’s 19 Law Dictionary. See Blair, 928 F.3d at 831 (reviewing definitions of “claim” and “claim for 20 relief” in Black’s Law Dictionary to analyze a severability clause that refers to a “particular claim 21 for relief”). As Nexo states in its briefing, Black’s Law Dictionary defines “provision” as “[a] 22 clause in a statute, contract, or other legal instrument.” Black’s Law Dictionary (11th ed. 2019). 23 In contrast, “section” is defined as “a distinct part or division of a writing, esp. a legal instrument.” 24 Id. The Court finds that the offending sentence is a “provision” within the meaning of the 25 severance clause because it is a single clause in the Borrow Terms. Accordingly, the Court finds 26 that the severability clause authorizes severance of the sentence. 27 1 than the unenforceable provision, the agreement is not “permeated with illegality.” See Nguyen v. 2 || Tesla, Inc., No. 8:19-cv-01422-JLS-JDE, 2020 WL 2114937, at *5 (C.D. Cal. Apr. 6, 2020). 3 Jeong does not argue, much less show, that the Borrow Terms or the relevant section of the 4 || Borrow Terms is permeated with illegality. Nor does Jeong “show how the McGill-violative 5 || provision here . . . is integral to the remaining terms.” See Brown v. Madison Reed, Inc., 21-cv- 6 01233-WHO, 2021 WL 3861457, at * 9 (N.D. Cal. Aug. 30, 2021). The Court therefore severs 7 || the offending sentence from the Borrow Terms, as doing so comports with California’s “very 8 liberal view of severability,” which “enforc[es] valid parts of an apparently indivisible contract 9 || where the interests of justice or the policy of the law would be furthered.” Baeza, 201 Cal. App. 10 || 4th at 1230. 11 12 The Court’s severance of the sentence stating that “[a]ny relief awarded cannot affect other 13 Clients of Nexo” cures the McGill violation and allows Jeong to pursue claims for public 14 || injunctive relief as pled in his UCL claim in his individual capacity while upholding the valid 3 15 class action waiver. See DiCarlo, 988 F.3d at 1156. a 16 Nexo’s separate argument regarding adequacy of class counsel is moot under this ruling. 3 17 However, the Court notes that the argument is premature and would have been deferred to 18 || consideration at the time of class certification. 19 || IV. ORDER 20 For the foregoing reasons, IT IS HEREBY ORDERED that Nexo’s motion to strike class 21 allegations is GRANTED. 22 23 Dated: March 29, 2023 __ fedinfrecicad BETH LABSON FREEMAN 25 United States District Judge 26 27 28