Now that Justice Gorsuch is confirmed and can take the open seat on the Supreme Court, maybe SCOTUS can move forward on the cases about whether employers can make employees waive their right to class actions in an arbitration agreement. (Btw, here’s a nice SCOTUSblog piece on Gorsuch’s arbitration decisions.) In the meantime, California’s high court has decided a similar arbitration issue that seems likely to be the subject of a future cert petition. In McGill v. Citibank, issued April 6, a unanimous California Supreme Court held that consumers cannot validly waive their statutory right to injunctive relief under California law, and found that the FAA did not preempt that result.
The case involves a woman who purchased a “credit protector” plan from the credit card issuer. She felt the credit card did not keep its end of the bargain when she lost her job. Although she had agreed to arbitrate claims and had waived representative or class actions, she started a putative class action in California state court alleging violations of multiple California consumer statutes. Part of the relief she sought was an injunction preventing the credit card from continuing to violate California statutes. (The parties agreed that the arbitration waiver prohibited the consumer from obtaining injunctive relief in any forum, not just arbitration.)
Each of the statutes at issue in her lawsuit was intended to protect consumers and each authorized injunctive relief. One of the statutes also explicitly prohibited waiver of the statutory protections. The Consumers Legal Remedies Act (CLRA), for example, declares that “[a]ny waiver by a consumer” of the CLRA’s provisions “is contrary to public policy and shall be unenforceable and void.”
California has codified the following contractual defense: “Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” (Civil Code Section 3513.) Applying that doctrine in this case, California’s high court found the waiver of public injunctive relief in the arbitration agreement invalid, as it “would seriously compromise the public purposes the statutes were intended to serve.”
Now comes the tricky part of every state court opinion in this area. Having found the arbitration agreement invalid under state law, how will the court clear the hurdles of the FAA and Concepcion/DirecTV? The McGill opinion took the standard path: it reasoned that because the contractual defense at issue applies to every contract, this decision withstands FAA scrutiny. (It did not, however, cite any cases in which this defense has been applied outside the arbitration context, which I believe is the unstated requirement of DirecTV.)
Furthermore, the court found reasons to distinguish the banning of class action waivers (prohibited in Concepcion) from the banning of public injunction waivers (at issue here). For example, it noted class actions are a procedural device, while injunctions are substantive remedies. It also found that its ruling would not interfere with the fundamental arbitration-ness of arbitration, because the injunctive relief cases will stay in court and can be heard once individual arbitrations are concluded.
Finally, the California high court remanded to the lower court to decide whether the rest of the arbitration clause should be thrown out with the bath water. (There was conflicting language in the agreement.)
Ah, just when I worried California arbitration decisions were becoming too staid and dull…