Arbitration provisions have become fairly commonplace for a variety of reasons, including to minimize litigation costs and to keep disputes out of the public spotlight that can accompany litigation. Arbitration provisions have also been used to limit the remedies available to the parties in the event arbitration is necessary. The Federal Arbitration Act ("FAA") has been construed to liberally promote the use of arbitration provisions. However, in recent years, a sort of tug-of-war has played out between federal courts and California as to the enforceability of arbitration provisions governed by the FAA.
The latest round of this tug-of-war occurred in the California Supreme Court's recent ruling in McGill v. Citibank NA ("McGill"). McGill involves an arbitration clause in a consumer credit card account agreement that purported to bar any claim for public injunctive relief in any forum. Public injunctive relief is a court order that prohibits unlawful acts that threaten future injury to the general public. The consumer filed suit against the credit card issuer, asserting causes of action under the Consumer Legal Remedies Act and California's unfair competition and false advertising laws, seeking public injunctive relief. The credit card issuer sought to compel arbitration under the account agreement's arbitration provision.
The McGill court ultimately determined that the arbitration provision was unenforceable because it purported to waive the consumer's right to seek public injunctive relief "in any forum." Because public injunctive relief is a public benefit, the waiver of such a benefit would be contrary to California's statutory public policy. The court left undecided the question of whether an arbitration provision containing an invalid waiver of public injunctive relief may nonetheless be enforced if the invalid waiver were to be severed from the remaining provision, as the parties did not raise the issue on appeal.
The McGill ruling has important implications for businesses, particularly those utilizing arbitration provisions that limit the scope of relief the parties may seek. Furthermore, the McGill ruling could raise broader issues as to the grounds on which an arbitration provision could be declared unenforceable.
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