In its decision last week in McGill v. Citibank, the California
Supreme Court fired the latest salvo in the battle over arbitration
clauses. In McGill, Citibank sought to compel
arbitration of claims under California's Unfair Competition Law
(UCL), False Advertising Law (FAL), and Consumers Legal Remedies
Act (CLRA) asserted by one of its customers. Citibank's
petition to compel arbitration turned on application of
California's Broughton-Cruz "rule," which makes
agreements to arbitrate claims seeking an injunction that would
benefit the public at large (and not just benefit an individual
consumer) invalid. Applying this rule, the trial court denied
the petition to arbitrate the plaintiff's claims for
relief. The Court of Appeal reversed, finding that
Concepcion preempts Broughton-Cruz. The
California Supreme Court took the case, seemingly prepared to
directly address the question of whether it views the
Broughton-Cruz rule as still valid in light of
The Court avoided addressing that issue, however, by finding
that the arbitration agreement at issue did NOT require arbitration
of claims seeking an injunction that might benefit the
public. Indeed, the Court determined that the agreement at
issue precluded arbitrating such claims -- and further precluded
customers from asserting such claims in court as well. In
other words, the arbitration provision "purports to preclude
[McGill] from seeking public injunctive relief in any
forum." That complete preclusion, the Court said,
rendered the arbitration agreement invalid because California law
prevents parties from waiving a right that is "established for
a public reason." Since the public injunctive relief
provisions of the UCL and CLRA are intended for the public benefit,
the Court found that they cannot be waived, and the arbitration
provision that stopped the customer from seeking such relief in any
forum was improper.
It is not the first time the California Supreme Court has
avoided the issue of continued validity of Broughton-Cruz
in a case seemingly primed to address the question. In 2015,
the California Court in Sanchez v. Valencia Holding Co.
declined to address Broughton-Cruz, noting that the
plaintiff chose not to argue against arbitration on that
basis. Meanwhile, the Ninth Circuit has spoken, but
only in a limited sense. In Kilgore v. KeyBank, a three judge
panel of the Ninth Circuit declared Broughton-Cruz
dead. However, a later en banc ruling avoided the direct
question, noting instead that "even assuming the continued
viability of the Broughton-Cruz rule, Plaintiffs'
claims do not fall within its purview." The issue
therefore remains murky.
In light of the courts' ability to tip-toe around addressing
the question of continued application of Broughton-Cruz in
a post-Concepcion world (including in McGill),
businesses are left in a difficult position. McGill
highlights the need for businesses to think carefully about how to
craft arbitration class action waiver provisions to meet their
goals, including consideration of the forum in which customers will
be permitted to seek injunctive relief.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Litigation involving claims of unfair or deceptive business practices under Chapter 93A of the Massachusetts General Laws is constantly evolving, and these claims remain a favourite for the plaintiffs' bar...
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