Arbitration, Policy, Choice of Law, FAA, Severance: McGill v Citibank Lives: Arbitration Provision Eliminating Any Forum For Public Injunctive Relief Is Unenforceable

Case Offers Primer On McGill v. Citibank, N.A.

        Defendant and appellant DACM, Inc. (Del Amo) sold a motorcycle to Joseph Mejia, who paid some cash and financed the remainder of the purchase with a credit card. And, the credit card included an arbitration provision covering Del Amo. So when Mejia sued Del Amo for violation of consumer protection statutes, Del Amo sought to compel arbitration. When Del Amo's motion was denied, it appealed. Joseph Mejia v. DACM, Inc., G058112 (4/3  9/15/20) (Aronson, Moore, Ikola).

        Del Amo lost the  appeal, because the arbitration provision would have prevented Mejia from obtaining public injunctive relief and such a prohibition is unenforceable under McGill v. Citibank, N.A., 2 Cal.5th 945 (2017). We posted about McGill on April 6, 2017.

        The arbitration provision provided for the application of Utah law. So why did California's McGill case apply? California public policy  outweighs the Utah choice-of-law provision, and it is California  policy, as encapsulated in McGill, that courts may invalidate arbitration clauses that waive public injunctive relief in any forum -- something Utah law does not permit.

        So why couldn't the unenforceable waiver provision be severed? The arbitration provision had been drafted to contain a "poison pill" restricting the right of the court to sever, once the prohibition on public injunctive relief was found to be unenforceable.

        So why didn't the Federal Arbitration Act preempt McGill? McGill itself answers that question: "The contract defense at issue here—'a law established for a public reason cannot be contravened by a private agreement' (Civ. Code, § 3513)—is a generally applicable contract defense, i.e., it is a ground under California law for revoking any contract. . . . It is not a defense that applies only to arbitration or that derives its meaning from the fact that an agreement to arbitrate is at issue." McGill v. Citibank, N.A., 2 Cal. 5th 945, 962 (2017). In short, the defense does not unduly burden an arbitration agreement, because it would also apply to another contract.