Tuesday, May 30, 2017

Broughton-Cruz Lives to Fight Another Day

McGill v. Citibank, N.A., No. S224086 (Cal. Apr. 6, 2107)

The Supreme Court granted review of this case to address whether claims brought under statutes like the CLRA and UCL, which permit a private plaintiff to seek injunctive relief on behalf of the public, can be subjected to mandatory arbitration wherein that relief is completely waived. The Court of Appeal said yes. The Supreme Court says no.

The main issue in the case is whether a California rule that claims seeking public injunctive relief are not arbitrable is preempted under § 2 of the Federal Arbitration Act, which makes all contracts to arbitrate enforceable except to the extent that state law would generally invalidate the contract. The California Supreme Court had previously upheld such a rule (known as the “Broughton-Cruz rule), but there’s a question as to whether it survives the U.S. Supreme Court’s ruling in AT&T v. Concepcion, which held that class-action waivers were enforceable and any rule otherwise was preempted by § 2. Plaintiff analogizes Broughton-Cruz to Iskanian v. Superior Court, in which the California Supreme Court held that Private Attorney General Act claims, in which private plaintiffs seek relief on behalf of the state, cannot be compelled to arbitration because the state is not a party to the arbitration agreement.

But the Court sidesteps the brewing Concepcion/Iskanian debate—which will sooner or later make it to the U.S. Supreme Court—to decide the case on narrower grounds. The agreement here effectively precluded plaintiff from seeking public injunctive relief in any forum, arbitral or otherwise. But unlike Concepcion—where the class action waiver was a procedure inconsistent with arbitration— the contract here waived a substantive remedy that is un-waivable as a matter of statute. Which means that the waiver is unenforceable, Concepcion notwithstanding. 

Court of Appeal reversed.

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