McGill v. Citibank, N.A.
216 Cal. Rptr. 3d 627, 393 P.3d 85, 2 Cal. 5th 945 (2017)
Rule of Law:
A provision in a predispute arbitration agreement that waives the statutory right to seek public injunctive relief in any forum (arbitration or court) is contrary to California public policy, unenforceable under state law, and not preempted by the Federal Arbitration Act (FAA).
Facts:
- In 2001, Sharon McGill opened a credit card account with Citibank and purchased a 'credit protector' plan.
- In October 2001, Citibank sent McGill a 'Notice of Change in Terms' amending her original agreement to include arbitration provisions.
- These arbitration provisions stipulated that claims for injunctive relief were subject to arbitration on an individual basis, and relief could only be awarded on an individual basis.
- The provisions also stated that claims, including class actions, private attorney general actions, or other representative actions, could not be pursued in arbitration or any other litigation forum on a non-individual basis.
- McGill did not decline the arbitration provisions and continued using her credit card.
- In February 2005 and January 2007, Citibank sent McGill further notices and a complete agreement, which included identical arbitration provisions.
- In 2008, McGill lost her job and made a claim under the credit protector plan.
- In 2011, McGill filed a class action lawsuit against Citibank, alleging violations of the Consumers Legal Remedies Act (CLRA), the unfair competition law (UCL), and the false advertising law, and requested public injunctive relief.
Procedural Posture:
- Sharon McGill filed a class action lawsuit in Riverside County Superior Court (trial court/court of first instance) against Citibank.
- Citibank petitioned the trial court to compel McGill to arbitrate her claims on an individual basis.
- The trial court granted Citibank's petition in part and denied it in part, ordering McGill to arbitrate all claims except those for public injunctive relief under the UCL, the false advertising law, and the CLRA.
- Citibank appealed the trial court's decision to the California Court of Appeal (intermediate appellate court).
- The Court of Appeal reversed the trial court's order, concluding that the FAA preempted the Broughton-Cruz rule, and remanded the case for the trial court to order all of McGill's claims to arbitration.
- McGill filed a petition for review with the California Supreme Court (highest court).
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Issue:
Does the Federal Arbitration Act (FAA) preempt a California rule that invalidates a provision in a predispute arbitration agreement waiving the statutory right to seek public injunctive relief in any forum?
Opinions:
Majority - Chin, J.
No, the Federal Arbitration Act does not preempt a California rule that invalidates a provision in a predispute arbitration agreement waiving the statutory right to seek public injunctive relief in any forum. The court first clarified that the core issue was not the Broughton-Cruz rule (which concerns the arbitrability of public injunctive relief claims), but rather the validity of a provision purporting to waive the right to seek such relief in any forum, whether arbitration or court. California Civil Code section 3513 states that "a law established for a public reason cannot be contravened by a private agreement." Public injunctive relief under the CLRA, UCL, and false advertising law is primarily for the benefit of the general public, seeking to remedy public wrongs and only incidentally benefiting individual plaintiffs. Therefore, a predispute arbitration agreement provision waiving the right to seek this statutory remedy in any forum is contrary to California public policy and unenforceable under state law, as it would seriously compromise the public purposes of these consumer protection statutes. The court rejected Citibank's argument that the FAA preempts this California rule. The FAA's saving clause permits arbitration agreements to be declared unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract" (9 U.S.C. § 2). The rule against waiving public rights is a generally applicable contract defense in California, not a defense that applies only to arbitration or disfavors it. Applying this defense merely makes arbitration agreements as enforceable as other contracts, not more so. The court distinguished this case from AT&T Mobility LLC v. Concepcion, which addressed class action waivers. Concepcion found state rules requiring class arbitration to interfere with arbitration's fundamental attributes (efficiency, informality). Here, the waiver concerns a substantive statutory remedy (public injunctive relief), not a procedural mechanism like a class action. Citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. and American Express Co. v. Italian Colors Restaurant, the court affirmed that the FAA does not require enforcement of provisions that forbid the assertion of certain statutory rights or eliminate the right to pursue a statutory remedy. Invalidation of the waiver does not interfere with arbitration's attributes because the parties agreed to exclude public injunctive relief from arbitration, allowing arbitrable claims to proceed as agreed, with public injunctive relief claims to be addressed in court if necessary.
Analysis:
This decision significantly bolsters consumer protection under California law by safeguarding the availability of public injunctive relief, preventing its waiver in predispute arbitration agreements. It clarifies that while the FAA promotes arbitration, it does not mandate the enforcement of contract provisions that eliminate substantive statutory rights intended for the public good. The ruling reinforces the distinction between procedural mechanisms (like class actions, which can be waived in arbitration under federal law) and substantive statutory remedies, thereby limiting the scope of arbitration preemption. Future cases will likely cite McGill to challenge arbitration clauses that attempt to strip away fundamental rights designed to prevent harm to the general public, rather than simply dictating the forum for resolving individual disputes.
