California Supreme Court Invalidates Contractual Waivers Of Public Injunctive Relief

Seyfarth Synopsis: No California contractual provision, including one in an arbitration agreement, can waive the statutory right to seek injunctive relief to protect the general public. McGill v. Citibank, N.A. (April 6, 2017).

The Facts

Sharon McGill had a Citibank credit card. The account had a "credit protector" plan, by which Citibank would defer certain amounts on the credit card account if a qualifying condition occurred, such as divorce, hospitalization, or unemployment.

In 2001, Citibank gave notice to McGill that their disputes would be subject to arbitration unless she opted out. She did not do so, either in 2001, or when Citibank gave renewed notices in 2005 and in 2007. In 2011, McGill filed a class action against Citibank based on how it handled her account following her loss of a job in 2008. By the time McGill sued, the arbitration agreement provided that disputes would be handled "on an individual (non-class, non-representative) basis, and the arbitrator may award relief only on an individual (non-class, non-representative) basis." By way of emphasis, the agreement stated: "Claims must be brought in the name of an individual person or entity and must proceed on an individual (non-class, non-representative) basis. The arbitrator will not award relief for or against anyone who is not a party."

McGill alleged claims under California's Unfair Competition Law ("UCL"), Consumer Legal Remedies Act ("CLRA"), and false advertising law. McGill sought an injunction prohibiting Citibank from continuing "illegal and deceptive practices" against the public.

Trial and Appellate Court Decisions

Citibank, invoking the arbitration agreement, petitioned to compel McGill to arbitrate her claim on an individual basis. The trial court ordered her to arbitrate all claims other than those for injunctive relief under the UCL, the CLRA, and the false advertising law. The trial court held that, under the Broughton-Cruz rule, agreements to arbitrate claims for public injunctive relief under these statutes are not enforceable.

On Citibank's appeal, the Court of Appeal reversed, directing the trial court to compel all claims to arbitration because the Federal Arbitration Act ("FAA") preempts the Broughton-Cruz rule. McGill then filed a petition for review, asserting (1) that the Court of Appeal erred in finding FAA preemption of the Broughton-Cruz rule, and (2) the arbitration provision is invalid and unenforceable because it waives her right to seek...