In an April 5, 2017 unanimous opinion, the California Supreme
Court (the "Court") held that private arbitration
agreements which prohibit public injunctive relief in any forum are
contrary to California public policy and unenforceable under
California law. Furthermore, the court held that the Federal
Arbitration Act ("FAA") did not preempt this rule of
California law nor did it require enforcement of the waiver
In McGill vs. Citibank, the plaintiff opened a credit card
account and purchased a credit protection plan in 2001. The credit
protection plan purported to defer or to credit amounts on the
credit card in the event of certain circumstances. At three
separate times after opening the account and purchasing the plan,
Citibank sent notices of change in terms regarding arbitration and
provided the plaintiff an opportunity to opt out. The plaintiff did
not opt out at any time. The arbitration provisions included
requirements that an award in arbitration: (1) only determines the
rights and obligations of named parties and no one else; (2) will
not include an award against anyone who is not a party; (3) may
only award relief on an individual (non-class, non-representative)
basis; and (4) may not include class action, attorney general, or
other representative actions. Finally, Citibank's terms
provided that the arbitration provision was governed by the FAA.
The plaintiff brought a class action suit based on Citibank's
marketing of the credit protection plan and the handling of her
2008 claim under the credit protection plan when she lost her job.
Among other things, she alleged that Citibank engaged in illegal
and deceptive practices.
Citibank sought to compel the plaintiff to arbitrate her claims
on an individual basis. The plaintiff argued that the arbitration
claim was unenforceable because it purported to prohibit her from
pursuing claims for public injunctive relief not just through
arbitration, but through any forum.
The Court stated that the California Consumers Legal Remedies
Act, the California unfair competition law, and the California
false advertising law all included provisions for injunctive relief
aimed at prohibiting unlawful acts that threaten future injury to
the general public. In that regard, the Court would not enforce a
private arbitration agreement that violates public policy by not
allowing the public injunctive relief provided by the legislature
in the state law. The Court further stated that the aim of the FAA
was to give arbitration clauses the same weight as any other
contractual clause — not more. In short, the Court reasoned
that because general contract provisions that violate public policy
are not enforceable, arbitration provisions that violate public
policy will also not be enforceable. Whether this reasoning can
withstand potential review by the United States Supreme Court
remains to be seen.
What does this mean for you?
You should review your arbitration provisions in your agreements
governing California residents and consider whether they could be
deemed as violating the policy against providing public injunctive
relief. You should also consider whether you want your arbitration
agreements to include a statement that if any portion of the
arbitration provision is deemed invalid or unenforceable, the
remaining arbitration provisions shall nevertheless remain in
force. Absent such a provision, or if it includes a provision like
the one at issue in McGill, the entire arbitration provision may be
thrown out if any part of it is deemed inconsistent with public
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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