Arbitration, Public Policy, Preemption: California Supreme Court Will Consider Whether Federal Arbitration Act Preempts California Rule That Statutory Claims For Public Injunctive Relief Are Not Subject To Compulsory Private Arbitration.

Fourth District, Division Three Ruled Earlier In Citibank v. McGill That “Broughton-Cruz” Rule Fell Prey To Federal Arbitration Act Preemption.

Fallen Prey.  Circa 1934-39.  Library of Congress.

    Under California’s “Broughton-Cruz” rule, arbitration provisions are unenforceable as against public policy if they require arbitration of Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act injunctive relief claims brought for the public’s benefit.  Broughton v. Cigna Healthplans , 21 Cal.4th 1066 (1999).  The reasoning behind the Broughton-Cruz rule  is somewhat similar to that behind Iskanian v. CLS Transportation Los Angeles, LLC, which held that claims brought under California’s Private Attorney General Act of 2004 are really brought on behalf of the public, and therefore not subject to Federal Arbitration Act preemption governing claims between private parties.

     On December 18, 2014, I posted about McGill v. Citibank, N.A., the Fourth District, Division 3 case holding:  “The Broughton-Cruz rule falls prey to AT&T Mobility’s sweeping directive because it is a state-law rule that prohibits arbitration of UCL, FAL, and CLRA injunctive relief claims brought for the public’s benefit.”  The Court of Appeal walked a fine line, distinguishing the rationale for preserving the right to sue in court under PAGA (consistent with Iskanian), from the rationale for the Broughton-Cruz rule, by explaining that the PAGA action “is fundamentally different than the injunctive relief action under the other statutes [UCL, FAL, or CLRA].”  In other words, PAGA is practically sui generis.  So PAGA survived pre-dispute arbitration waivers, whereas the Broughton-Cruz rule was swept away by FAA preemption.  

     On April 1, 2015, the California Supreme Court granted a petition to review this case, No. S224086.  Cantil-Sakauye, C.J., Werdegar, Chin, Liu, Cuéllar and Kruger, JJ. voted in favor, and Corrigan, J., was recused and did not participate.   The case presents the issue whether the Federal Arbitration Act preempts the Broughton-Cruz rule that statutory claims for public injunctive relief are not subject to compulsory private arbitration.