December 7, 1941, is a day that will live in infamy.
December 7, 2016, is sure to be far less infamous. Nevertheless, it could prove to be a significant day for thousands of California attorneys whose practices involve consumer rights and the mandatory arbitration provisions often found in consumer contracts.

McGill v. Citibank NA Oral Argument

On the afternoon of December 7, the proposed class action case McGill v. Citibank NA will finally be called for oral argument by the California Supreme Court after review was granted more than a year-and-a-half ago. The question in McGill is whether the Broughton-Cruz Rule — established by the California Supreme Court more than a decade ago in Broughton v. Cigna Healthplans[1] and Cruz v. PacifiCare Health Systems Inc.[2] — is preempted by the U.S. Supreme Court’s AT&T Mobility LLC v. Concepcion[3] decision and other recent pro-arbitration decisions by the high court.

Hanging in McGill’s balance is a California consumer’s ability to avoid mandatory arbitration when he or she seeks injunctive relief on behalf of the public under California’s Unfair Competition Law, False Advertising Law, and/or Consumer Legal Remedies Act. Plaintiffs attorneys very much want to keep the path to court open even when their clients have agreed to an arbitration clause (and often class action and jury trial waivers as well), and defense attorneys very much want to add teeth to a bevy of recent favorable rulings — including most importantly Concepcion — that compel consumers to abide by the arbitration agreements found in countless consumer contracts and online terms and conditions of use.

As avid California Supreme Court watchers know, oral argument is only scheduled after the justices have reached a tentative decision (including any tentative concurrences and dissents), and the argument itself triggers a 90-day statutory period within which a final decision must be reached. Thus, barring any unexpected delays, we should know whether Broughton-Cruz or Concepcion will reign supreme in California by no later than early March 2017.

McGill’s Path to the California Supreme Court

The California Supreme Court granted review in McGill on April 1, 2015. Four years prior, Sharon McGill sued Citibank for unfair business practices and false advertising related to an insurance plan Citibank offered related to her credit card. The trial court compelled her damages claims to arbitration in accordance with the terms of the consumer contract. However, citing the Broughton-Cruz rule, the trial court stayed her claims for injunctive relief on behalf of the general public.

Citing Concepcion, the court of appeal reversed the portion of the trial court’s order that stayed the claims seeking injunctive relief. The court of appeal determined that Concepcion effectively preempted the Broughton-Cruz rule and held that all of McGill’s claims against Citibank should have been compelled to arbitration regardless of the type of relief being sought.[4] Since 2011, several federal district courts split on whether Concepcion preempted the Broughton-Cruz rule, but that split was resolved by the Ninth Circuit in 2013.[5] One other California court of appeal also found preemption, but relied on a Ninth Circuit decision that was later vacated.

After five years, the trend and weight of persuasive authority suggests that that Concepcion preempts the Broughton-Cruz rule.

Setting the Odds

So what are the odds that California’s aging consumer rights champion (the Broughton-Cruz rule) can withstand the assault being waged by the pro-arbitration challenger (Concepcion) who has a longer reach and multiple decisions in its corner? Some observers are setting the odds in Concepcion’s favor based on the recent lower court rulings and the overall trend favoring the enforcement of arbitration clauses.

However, the California Supreme Court has proved itself to be quite stubborn in the realm of mandatory arbitration, particularly when it believes California laws are designed to serve the public interest and cannot be vindicated if a statutory right to seek relief on behalf of the public must kowtow to every private consumer arbitration agreement that implicitly eliminates such procedural rights.

A prime example is the California Supreme Court’s 2014 decision in Iskanian v. CLS Transportation Los Angeles LLC.[6] Certainly, the court felt compelled to concede that California’s “Gentry rule” that a class action waiver in an employment-related arbitration agreement is unenforceable because it is contrary to public policy was preempted by Concepcion. It was too much to expect the court to defy the high court on nearly the precise issue addressed by Concepcion. Yet in the same decision the court refused to place California’s Private Attorneys General Act on the same footing as other state laws or rules (such as Gentry) because PAGA was expressly designed to protect the public rather than benefit private parties. The Gentry rule was preempted, but the PAGA statute survived the court’s preemption analysis largely due to its purpose of vindicating the public’s interest.

With this history in mind, observers who are familiar with the California Supreme Court’s longstanding reticence to easily give up “public” rights based on a “private” arbitration agreement may give better-than-even odds that the Broughton-Cruz rule will not only survive Concepcion’s pro-arbitration assault, but it could actually be strengthened by (1) a thorough examination of the public purposes served by the UCL, FAL and CLRA injunctive relief remedies, and (2) the potential anti-arbitration shift of the U.S. Supreme Court following Justice Antonin Scalia’s passing (thereby making a grant of certiorari less likely).

Consequences and Strategies

So what are some of the consequences of a “pro-arbitration” or “pro-consumer rights” ruling? Several come to mind if the California Supreme Court agrees with the lower courts’ and Ninth Circuit’s preemption analysis. First, the extent of a private arbitrator’s power to order and enforce broad injunctive relief under the UCL, FAL and/or CLRA must be examined and fleshed out in future cases. Second, there may be new challenges to the unconscionability of arbitration terms that seek to limit the relief an arbitrator may award some of which, arguably, could be “unwaivable” and akin to bringing a PAGA action to vindicate public interests.

There are sure to be more intended and unintended consequences as the practical effects of such a decision become known. If the California Supreme Court rejects Citibank’s argument and decides that the Broughton-Cruz rule is not preempted by Concepcion, then plaintiffs attorneys will continue to have strong incentives to prosecute low-dollar-value claims on behalf of consumers — even in the face of enforceable class action and jury trial waivers — because California Code of Civil Procedure Section 1021.5 and Section 1780 of the CLRA both provide for the recovery of attorneys’ fees under certain circumstances.

Additionally, if the Broughton-Cruz rule becomes the “Broughton-Cruz-McGill rule,” plaintiffs attorneys may consider the strategic choice of (1) bringing claims that seek damages and injunctive relief and having to deal with mandatory arbitration (and possibly class action waiver), or (2) bringing claims that seek only injunctive relief on behalf of the public and therefore cannot be compelled into arbitration or delayed by arbitration of damages-based claims. If the latter option is pursued, that approach will raise new questions and could have its own pitfalls: Will an action seeking only injunctive relief toll other consumers’ damages claims? Could it be malpractice to advise your client to seek only injunctive relief and forego seeking compensatory damages? Can a consumer maintain a court action seeking only injunctive relief and an arbitration seeking damages simultaneously? If injunctive relief is granted by a court, would it be res judicata for other consumers who could then seek and almost automatically recover damages in arbitration on an individual basis?

We should know by early March 2017 whether the California Supreme Court will once again stand up to the U.S. Supreme Court in the arena of public rights and mandatory arbitration agreements. The recent history is mixed (see the split decision in Iskanian), so in many ways the case is a toss-up. Only time will tell what consequences and strategies will result from the McGill decision regardless of which side wins.

[1] (1999) 21 Cal.4th 1066.

[2] (2003) 30 Cal.4th 303.

[3] (2011) 563 U.S. 333.

[4] McGill v. Citibank NA (2014) 232 Cal.App.4th 753 (review granted April 1, 2015).

[5] Ferguson v. Corinthian Colleges Inc. (9th Cir. 2013) 733 F.3d 928.

[6] (2014) 59 Cal. 4th 348.

[This Article was published on on November 7, 2016. ]