Arbitration Clause Waiving Consumer Rights Declared Unenforceable

An arbitration agreement that waives a consumer's right to seek public injunctive relief in any forum is contrary to public policy and invalid according to the California Supreme Court. The court unanimously held that the Federal Arbitration Act (FAA) does not preempt state laws disfavoring arbitration provisions that waive substantive statutory remedies. The court declined to consider, however, whether the FAA preempts California's Broughton-Cruz rule, which provides that agreements to arbitrate certain claims for public injunctive relief are unenforceable.

Credit Card Holder Seeks Injunctive Relief in Class Action

The dispute arose from a putative class action brought by Sharon McGill against Citibank regarding a credit protection plan she had purchased. Under that plan, Citibank agreed to defer or credit certain amounts to McGill's account if a qualifying event, such as job loss, occurred. The original agreement did not contain an arbitration provision, but subsequent modifications to the plan added arbitration provisions with class action waivers. With each change in terms, McGill had the opportunity to opt out of the program but declined to do so.