By Michael Early

In McGill v. Citibank, ____ Cal.4th ____ (2017), decided on April 6, 2017, the California Supreme Court made yet another effort to avoid the long reach of the Federal Arbitration Act by ruling that an arbitration agreement that prevents a plaintiff from seeking public injunctive relief is invalid.

McGill, a Citibank credit card customer, sued Citibank under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) and the  Unfair Competition Act (Bus. & Prof. Code, § 17200 et seq.) seeking, among other things, an injunction against Citibank’s alleged unlawful acts. The trial court ordered McGill’s claims for monetary damages and restitution to arbitration, but held that California law prohibits arbitration of public injunctive relief claims.

Writing for a unanimous court, Justice Chin affirmed, holding that the arbitration provision—which the court characterized as preventing litigation over public injunctive relief in any forum—violates California public policy and is thus unenforceable. In the summary of the Court’s holding, Justice Chin cited Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316 (Cruz) and Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1077 (Broughton) for the proposition “that the statutory remedies available for a violation of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.), the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.), and the false advertising law (id., § 17500 et seq.) include public injunctive relief, i.e., injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.”

The Court’s opinion sidestepped whether Cruz and Broughton are still viable in light of the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion 563 U.S. 333 (2011), which upheld class action waivers in arbitration agreements. Instead, Justice Chin addressed a different issue: “the validity of a provision in a predispute arbitration agreement that waives the right to seek this statutory remedy [public injunctive relief] in any forum.” The Court found that the combination of an agreement to arbitrate plus the agreement to forego public injunctive relief in arbitration means that there is no forum in which plaintiff could obtain public injunctive relief. In other words, the arbitration agreement improperly interferes with a remedy that is primarily for the benefit of the public. The Court held such provisions to be contrary to California public policy and thus unenforceable. The Court dismissed the idea that its holding is preempted by the Federal Arbitration Act by characterizing the rule as a “principal of California law that governs contracts generally” as opposed to an arbitration-specific holding.

In all likelihood, Citibank will petition the U.S. Supreme Court to review this decision, and the law in this area is likely to be remain unclear for several years. For now, claims for public injunctive relief, like PAGA claims (Iskanian v. CLS Transportation,59 Cal.4th 348 (2014)), can be brought in court despite an otherwise enforceable arbitration agreement.

In McGill v. Citibank, ____ Cal.4th ____ (2017), decided on April 6, 2017, the California Supreme Court made yet another effort to avoid the long reach of the Federal Arbitration Act by ruling that an arbitration agreement that prevents a plaintiff from seeking public injunctive relief is invalid.

McGill, a Citibank credit card customer, sued Citibank under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) and the Unfair Competition Act (Bus. & Prof. Code, § 17200 et seq.) seeking, among other things, an injunction against Citibank’s alleged unlawful acts. The trial court ordered McGill’s claims for monetary damages and restitution to arbitration, but held that California law prohibits arbitration of public injunctive relief claims.

Writing for a unanimous court, Justice Chin affirmed, holding that the arbitration provision—which the court characterized as preventing litigation over public injunctive relief in any forum—violates California public policy and is thus unenforceable. In the summary of the Court’s holding, Justice Chin cited Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315-316 (Cruz) and Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1077 (Broughton) for the proposition “that the statutory remedies available for a violation of the Consumers Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.), the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.), and the false advertising law (id., § 17500 et seq.) include public injunctive relief, i.e., injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.”

The Court’s opinion sidestepped whether Cruz and Broughton are still viable in light of the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion 563 U.S. 333 (2011), which upheld class action waivers in arbitration agreements. Instead, Justice Chin addressed a different issue: “the validity of a provision in a predispute arbitration agreement that waives the right to seek this statutory remedy [public injunctive relief] in any forum.” The Court found that the combination of an agreement to arbitrate plus the agreement to forego public injunctive relief in arbitration means that there is no forum in which plaintiff could obtain public injunctive relief. In other words, the arbitration agreement improperly interferes with a remedy that is primarily for the benefit of the public. The Court held such provisions to be contrary to California public policy and thus unenforceable. The Court dismissed the argument idea that its holding is preempted by the Federal Arbitration Act by characterizing the rule as a “principal of California law that governs contracts generally” as opposed to an arbitration-specific holding.

In all likelihood, Citibank will petition the U.S. Supreme Court to review this decision, and the law in this area is likely to be remain unclear for several years. For now, claims for public injunctive relief, like PAGA claims (Iskanian v. CLS Transportation,59 Cal.4th 348 (2014)), can be brought in court despite an otherwise enforceable arbitration agreement.