November 07, 2018

Predispute Arbitration Clauses Targeting Public Injunctive Relief Are Unenforceable: CA Supreme Court

Adam E. Polk – April 24, 2017

On April 6, 2017, in McGill v. Citibank, N.A., the California Supreme Court held that that predispute arbitration provisions aimed at public injunctive relief that result in barring certain statutory claims for such relief are unenforceable. McGill applies to claims for public injunctive relief sought under California’s Consumer Legal Remedies Act, Cal. Civ. Code § 1750, et seq.; the unfair competition law, Cal. Bus. & Prof. Code § 17500, et seq.; and the false advertising law, Cal. Bus. & Prof. Code § 17500, et seq.

McGill involved a credit protection agreement plaintiff Sharon McGill entered into with defendant Citibank, N.A. Under the agreement, Citibank agreed to defer or credit certain amounts owed if an event capable of adversely impacting her ability to pay—like unemployment or divorce—occurred. After McGill signed up for the agreement, Citibank added an arbitration clause with a class waiver which provided that “All Claims are subject to arbitration, no matter what legal theory they are based on or what remedy (damages, or injunctive or declaratory relief) they seek.”

McGill lost her job in 2008, and Citibank allegedly failed to honor the terms of the credit protection agreement. She filed suit in 2011, and pursuant to the arbitration clause, Citibank moved to compel arbitration. Applying the Broughton-Cruz rule (which renders arbitration clauses requiring arbitration injunctive relief claims brought for the public’s benefit unenforceable), the trial court ordered arbitration of McGill’s claims other than those seeking injunctive relief under the CLRA, the UCL, and false advertising law. The Court of Appeal reversed and remanded “for the trial court to order all of McGill’s claims to arbitration” under AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). The California Supreme Court granted McGill’s petition for review of this decision.

The California Supreme Court reversed the Court of Appeal, finding that the Federal Arbitration Act (under which Concepcion was decided) does not preempt the Broughton-Cruz rule. In its decision, the Court distinguished between private injunctive relief (which resolves private disputes among parties, rectifying individual wrongs) on the one hand, and public injunctive relief (which “by and large” benefits the general public), on the other hand. And because the relief requested—enjoining Citibank from continued deceptive marketing of the credit protection agreements—was public in nature, the Court found the arbitration provision was “invalid and unenforceable.” (The parties had agreed that the arbitration clause, if enforceable, precluded McGill from seeking public injunctive relief in any forum.)

Consequently, claims for public injunctive relief—injunctive relief with a primary effect of prohibiting acts that threaten the general public—brought under California's CLRA, UCL, or false advertising law are unlikely to be compelled to arbitration, particularly if doing so would preclude any relief on those claims.

Adam E. Polk is a partner with Girard Gibbs LLP in San Francisco, California.

Adam E. Polk – April 24, 2017