McGill v. Citibank, N.A.

2 Cal. 5th 945, 216 Cal. Rptr. 3d 627, 393 P.3d 85 (2017)

 

RULE:

Civ. Code, § 3513, provides that any one may waive the advantage of a law intended solely for his or her benefit. But a law established for a public reason cannot be contravened by a private agreement. Consistent with this provision, a party may waive a statutory provision if a statute does not prohibit doing so, the statute's public benefit is merely incidental to its primary purpose, and waiver does not seriously compromise any public purpose that the statute was intended to serve. By definition, the public injunctive relief available under the unfair competition law, Bus. & Prof. Code, § 17200 et seq., the Consumers Legal Remedies Act, Civ. Code, § 1750 et seq., and the false advertising law, Bus. & Prof. Code, § 17500 et seq., is primarily for the benefit of the general public. Its evident purpose is to remedy a public wrong, not to resolve a private dispute, and any benefit to the plaintiff requesting such relief likely would be incidental to the general public benefit of enjoining such a practice. Accordingly, the waiver in a pre-dispute arbitration agreement of the right to seek public injunctive relief under these statutes would seriously compromise the public purposes the statutes were intended to serve.

FACTS:

A credit card customer filed a class action against a credit card company based on its marketing of a “credit protector” plan and the handling of a claim she made under it when she lost her job. She alleged claims under the unfair competition law, the Consumers Legal Remedies Act (CLRA), and the false advertising law, as well as the Insurance Code and requested, among other things, an injunction prohibiting the credit card company from continuing to engage in its allegedly illegal and deceptive practices. Pursuant to the arbitration provision in a notice of change in terms  to the credit card agreement and in subsequent account documents, the credit card company petitioned to compel the customer to arbitrate her claims on an individual basis. The trial court ordered the customer to arbitrate all claims other than those for injunctive relief under the UCL, the false advertising law, and the CLRA. 

ISSUE:

Under the California Law, can a provision in a pre-dispute arbitration agreement, which waives the right to seek statutory remedy in any forum, be held valid?

ANSWER:

No

CONCLUSION:

The court held that a provision in a pre-dispute arbitration agreement that waives the right to seek public injunctive relief in any forum is contrary to California public policy and is thus unenforceable under California law. The court further held that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) does not preempt this rule of California law or require enforcement of the waiver provision. The defense to the waiver at issue—that a law established for a public reason cannot be contravened by a private agreement (Civ. Code, § 3513)—is a ground that exists under California law for the revocation of any contract (9 U.S.C. § 2). Thus, applying this defense to invalidate the waiver does not modify the FAA; it implements the FAA as written. Because public injunctive relief remains a remedy available to private plaintiffs under the UCL and the false advertising law, as well as under the CLRA, the arbitration provision at issue was invalid and unenforceable under state law insofar as it purported to waive the customer's statutory right to seek such relief against the credit card company.

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