The fallout from Concepcion continues. AT&T Mobility LLC v Concepcion (2011) 131 S Ct 1740 ruled generally that the Federal Arbitration Act (“FAA”) preempted state law. The opinion recognized, however, that the FAA “permits agreements to arbitrate to be invalidated by `generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 131 S. Ct. At 1746.
The California Supreme Court has tried to exclude a number of disputes from the FAA preemption. Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 (Broughton) and Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303 (Cruz) combined to create the “Broughton-Cruz Rule” that deemed arbitration provisions unenforceable as contrary to public policy if they require arbitration of claims for injunctions under the California Unfair Competition Law, The California False Advertising Law, or the California Consumer Legal Remedies Act. Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 invalidated predispute waivers of an employee’s right to bring a representative action under the Labor Code Private Attorneys General Act of 2004.
In McGill v. Citibank, N.A., the Fourth District of the California Court of Appeals will likely give the California Supreme Court another opportunity to evaluate what disputes, if any, that California courts will except from federal preemption.
In McGill, an individual sued Citibank for unfair competition and false advertising in connection with a credit insurance plan. Citibank petitioned to compel arbitration under its account agreement with the plaintiff. The trial court granted the petition with respect to the monetary claims, but denied it with respect to the claims for injunctive relief, relying on the “Broughton-Cruz Rule.” The plaintiff relied on Iskanian, likening her claims to those of an individual making claims in lieu of the Attorney General.
The Fourth District Court of Appeals reversed, siding with federal court decisions that Concepcion preempted the “Broughton-Cruz Rule” and required all claims to be arbitrated. The opinion distinguished Iskanian, holding that a true Private Attorney General action is properly a “state” action, while the injunctive claims of Ms. McGill are not, even though they intend to help people similarly situated.
California has long tried to preserve the interests of individuals subject to the “small print” of arbitration agreements imposed upon them by people, businesses, and others with superior bargaining power. The federal courts, starting with Concepcion, seek to promote arbitration agreements. With McGill, at least one District Court of Appeal is thinking the same way. The extreme budget cuts facing many Superior Courts should encourage a policy favoring dispute resolution outside of the court system, but such a policy should not be so broad that it denies civil justice to the citizens of California. Iskanian could be the right balance, but the question remains as to whether McGill might tip the balance in the wrong direction.