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California High Court Limits Arbitration Waiver

Tue 11 Apr, 2017  /  by   /   Client Alerts

04/11/17 — Law360 reports that California’s highest court has ruled that an arbitration agreement that waives the right to public injunctive relief is contrary to California public policy and is therefore unenforceable under California law.

According to Law360, in a unanimous decision, the California justices rejected the defendant’s contention that, under precedent set forth by the nation’s highest court, an arbitration agreement contained in a “credit protection plan” the bank sold to the plaintiff and other consumers was enforceable.

The California justices sided with the plaintiff, who had argued that the arbitration agreement was unenforceable because it sought to prohibit her from pursuing claims for public injunctive relief in any forum under California’s Unfair Competition and False Advertising laws and Consumer Legal Remedies Act.

“A provision in any contract … that purports to waive … the statutory right to seek public injunctive relief under the UCL, the CLRA, or the False Advertising Law is invalid and unenforceable under California law,” the state high court wrote. “The [Federal Arbitration Act] does not require enforcement of such a provision, in derogation of this generally applicable contract defense, merely because the provision has been inserted into an arbitration agreement. To conclude otherwise would [be] contrary to Congress’s intent.”

In reversing the appeals court Thursday, the California Supreme Court sent back to it the question of whether the remainder of the defendant’s  arbitration provision was enforceable.

The case is McGill v. Citibank NA, case number S224086, in the Supreme Court of the State of California.

Law360 (sub. req.).