McGill v. Citibank Held Agreement To Waive Right To Seek Public Injunctive Relief Is Unenforceable.
In McGill v. Citibank, N.A. (2017), the California Supreme Court held that a contract purporting to waive a party's right to seek public injunctive relief in any forum is unenforceable under California law. The key issue in Blair v. Rent-A-Car, No. 17-17221 (9th Cir. 6/28/19) (Fletcher, McKeown, Murguia), is whether the Federal Arbitration Act preempts California's McGill rule. The Ninth Circuit holds that the FAA does not preempt the McGill rule.
Blair brought a putative class action against the Rent-A-Center defendants, alleging they overcharged for rent-to-own plans for household items. Such plans provide for installment payments, and if all payments are timely made, the consumer owns the item. Blair's agreement contained an arbitration clause providing that it was "intended to be interpreted as broadly as the FAA allows." The agreement also provided that arbitration was to be on an individual basis and relief could not affect other account holders. There could be no class, collective, mass, private attorney general, or representative action. If the provision was held to be unenforceable, then the claims for relief had to be severed and brought in a judicial forum.
The district court concluded that this agreement violated the McGill rule because it waived Blair's right to seek public injunctive relief in any forum (1) because all claims had to be heard in arbitration; and (2) because claims for public injunctive relief could not exist in arbitration consistent with the parties' agreement. The Court of Appeals agreed, and severed the claims providing for public injunctive relief, which will now be heard in court.
The court analyzes federal preemption in two steps. First, it explains the McGill rule is a "generally applicable contract defense." In other words, it applies equally to arbitration and non-arbitration agreements. In contrast, a rule that uniquely burdens arbitration would be preempted by the FAA. Second, even a generally applicable contract defense may not prevent preemption, if the rule interferes with the accomplishment of the FAA's objectives. However, the McGill rule does not deprive the parties of the benefits of arbitration, because according to the Blair court, a public injunctive relief claim could be sought in arbitration or in court. And seeking a public injunction in arbitration does not require all the procedural formality that a class action would require.
Here, however, the parties' agreement precluded the pursuit of a public injunction in arbitration, and triggered severance of public injunctive relief claims -- so such claims will go to the district court.
COMMENT: In Blair, the claims for public injunctive relief are severed and go to court only because the agreement does not allow such claims to be heard in arbitration. But an agreement could be drafted that would allow for a hearing of such claims in arbitration. How much protection would that give to the public?
It would seem that the interests of the public would be better served by hearing public injunctive relief claims in court, because mistakes of law and fact made by an arbitrator would be no basis for vacating the award. While that is exactly what private parties should expect, in the case of public injunctive relief, broader interests are at stake. If one could write on a blank slate, the public's interests would be better protected by a court hearing than by arbitration. But one does not write here on a blank slate.
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