California Supreme Court Bans Waiver of Public Injunctive Relief in Arbitration Agreements

In a unanimous decision on April 6, 2017, the California Supreme Court found an arbitration agreement that precluded the Plaintiff from seeking public injunctive relief in any forum was contrary to California public policy.  It reversed the court of appeals, which had concluded that the Federal Arbitration Act (FAA), as construed by the U.S. Supreme Court in 2011 in AT&T Mobility, LLC v. Concepcion, preempts California’s Broughton Cruz Rule, which forbids agreements to arbitrate claims for public injunctive relief under the California Legal Remedies Act, the unfair competition law, and false advertising.

In the case of McGill v. Citibank, the California Supreme Court found that the arbitration agreement in question forbid the Plaintiff from seeking public injunctive relief in any forum, rather than limiting the availability of such relief to arbitration.  Therefore, the court did not address the validity of the Broughton-Cruz Rule.  Instead, the court invalidated the arbitration agreement as to the public injunctive relief requested, pursuant to California Civil Code § 3513, which states, “a law established for a public reason cannot be contravened by private agreement.”  The court found that this California law allows the Plaintiff’s public injunctive relief claims to continue in court and does not run afoul of Concepcion because it falls under the FAA’s savings clause which “permits arbitration agreements to be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.’”  The court found that California Civil Code § 3513 is a generally applicable contract defense which can be the grounds under California law for revoking any contract.

The court did not address whether its decision renders the remainder of the arbitration provision unenforceable.