January 22, 2016

Can Californians arbitrate claims for public injunctive relief?

By Deborah J. La Fetra Senior Attorney

Sharon McGill sued Citibank under California’s consumer protection laws for alleged unfair competition and false advertising in offering a credit insurance plan she purchased to protect her Citibank credit card account.  McGill signed a contract that contained an arbitration provision and allowed her to opt-out if she chose not to accept that provision.  McGill did not opt-out.  Citibank therefore asked the court to compel McGill to arbitrate her claims, which fell within the purview of the arbitration provision.  The trial court held that she must arbitrate her claims for monetary damages and restitution, but that California law prohibits arbitration of public injunctive relief claims.

That “California law” refers to the holdings of the California Supreme Court in Broughton v. Cigna Healthplans and Cruz v. PacifiCare Health Sys., Inc. according to which arbitration provisions are unenforceable as against public policy if they require arbitration of injunctive relief claims brought for the public’s benefit under the Unfair Competition Law, California Legal Remedies Act, or False Advertising Law.  The appellate court reversed, correctly holding that the Federal Arbitration Act effectively preempts the Broughton-Cruz doctrine, just as it preempts “all state-law rules that prohibit arbitration of a particular type of claim because an outright ban, no matter how laudable the purpose, interferes with the FAA’s objective of enforcing arbitration agreements according to their terms.”  The California Supreme Court agreed to review the case, to determine whether Broughton-Cruz survives recent pro-FAA decisions from the United States Supreme Court.

In PLF’s amicus brief filed this week, we argue that the Broughton-Cruz doctrine stands only as a relic of the California Supreme Court’s earlier approach to arbitration contracts.  Both Broughton and Cruz were based on predicates that the U.S. Supreme Court has since squarely rejected in AT&T Mobility v. Concepcion and American Express v. Italian Colors Restaurant.  The Broughton-Cruz doctrine presumes to allow a state legislature to create exemptions from federal law for the state’s own purposes, a presumption forbidden by the U.S. Constitution’s Supremacy Clause.  The California Supreme Court has been slowly, and reluctantly, coming into line—recognizing in Iskanian v. CLS Transportation Los Angeles, for example, that Concepcion abrogated Gentry v. Superior Court which prohibited class action waivers in employment contracts; and holding in Sanchez v. Valencia Holding that Concepcion abrogated prior case law prohibiting class action waivers in consumer arbitration agreements.  A ruling upholding the contract between McGill and Citibank in this case will further the ability of Californians to determine their own preferred method of dispute resolution, free of judicial second-guessing prohibited by the Federal Arbitration Act.

What to read next