In a case closely watched by the class action bar, the California Supreme Court has punted on deciding whether to jettison a long-standing rule that bars consumer suits seeking broad injunctive relief from being pushed into arbitration.
Thursday’s unanimous ruling, in McGill v. Citibank, sets the stage for a potential clash before the U.S. Supreme Court, which has repeatedly sided against California in key arbitration cases. One such case was the 2011 Supreme Court decision in AT&T v. Concepcion, which found that the Federal Arbitration Act pre-empted California’s ban on class-action waivers in arbitration clauses.
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McGill addressed whether Concepcion and more recent U.S. Supreme Court decisions, such as a 2013 ruling in American Express v. Italian Colors, now require the California court to overrule its previous decisions allowing consumers to avoid arbitration when they bring injunctive relief claims on behalf of the public. Groups such as the U.S. Chamber of Commerce, Pacific Legal Foundation and the International Association of Defense Counsel urged the court to abandon what they view as a loophole in federal arbitration policy. Public Citizen and the AARP backed the plaintiff.
In its Thursday decision, the California Supreme Court declined to decide the fate of the so-called Broughton-Cruz doctrine, named for the two cases that established the rule forbidding compulsory arbitration of claims for public injunctive relief. Instead, the unanimous panel found that the arbitration contract at issue was unenforceable because it made it impossible for the plaintiff, Sharon McGill, to pursue injunctive relief “in any forum.”
In so ruling, the state’s high court leaned on a portion of the Italian Colors decision that found the FAA does not apply to an arbitration agreement that bans “the assertion of certain statutory rights.”
“Here, we likewise conclude that the FAA does not require enforcement of a provision in a predispute arbitration agreement that, in violation of generally applicable California contract law, waives the right to seek in any forum public injunctive relief” under California consumer laws, wrote Associate Justice Ming Chin.
The court thus distinguished the case from Concepcion, which dealt with the procedural tool of pursuing class actions, not statutory remedies.
McGill’s attorney, Glenn Danas, a partner at Capstone Law in Los Angeles, had argued against Citibank’s position that the FAA pre-empted the Broughton-Cruz rule. But he also presented the narrower view that Citibank’s arbitration provision at issue was unconscionable.
“We are very pleased that the California Supreme Court unanimously reversed the Court of Appeal in our favor, holding that corporations like Citibank cannot force California consumers to waive their right to seek public injunctive relief under California’s consumer protection statutes,” Danas wrote in an email. “This is the right result, and preserves a powerful tool for maintaining corporate accountability.”