California Supreme Court sends arbitration suit back to appeals court

By Mike Helenthal | Apr 17, 2017

SAN FRANCISCO — A decision handed down by the California Supreme Court on April 6 challenged federal law on arbitration hearings and returned the case back to the appellate court.

The case, Sharon McGill v. Citibank, started in 2001, when Citibank added a binding arbitration provision to McGill’s credit card agreement.

“All claims relating to your account or a prior related account or our relationship are subject to arbitration, including claims regarding the application, enforceability or interpretation of this agreement and this arbitration provision,” Citibank said in a notice sent to McGill and other customers, according to court documents.

The Citibank notice, which included an opt-out provision for McGill, said the changes were being made in accordance with the Federal Arbitration Act, which sought to create rules to limit class-action lawsuits.

But McGill filde a class-action suit, claiming that the rules in Citibank’s notice violated California state laws, among them rules governing false advertising and unfair competition. Her case stemmed from an unemployment claim she made in 2011 which asked the court to rule that the agreement with Citibank was unenforceable. She requested an injunction against Citibank, asking that it be prevented from continuing what she called deceptive practices.

Though an appeals court sided with Citibank, the California Supreme Court’s decision says that a pre-agreement like that between McGill and Citibank was invalid under the Federal Arbitration Act because the agreement “waives the right to seek statutory remedy in any forum," according to court documents.

In the appeal decision, the court cited the “Broughton-Cruz rule,” which “distinguished between private injunctive relief” and decisions outside of arbitration that “benefit the public.”

The high court said the Broughton-Cruz rule is “not at issue” in the McGill case because the arbitration language used by Citibank “precluded her from seeking public injunctive relief in any forum.”

“Given the parties' agreement, we do not independently analyze the arbitration provision, but proceed based on the parties' shared view that it purports to preclude McGill from seeking public injunctive relief in arbitration in court or in any forum,” the high court said in its decision.

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