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McGill v. Citibank: Arbitration Clauses

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On April 6, 2017, the Supreme Court of California issued an opinion in McGill v. Citibank, N.A., No. S224086, 2017 Cal. LEXIS 2551 (Apr. 6, 2017) that opens up new possibilities for consumers to hold defendants that are engaged in wrongful business practices accountable even where an arbitration clause is at issue.

After opening an account with Citibank, the plaintiff’s account agreement was amended to include arbitration provisions.  The plaintiff sued Citibank in part to enjoin its allegedly deceptive business practices (“public injunctive relief”).  Citibank argued that the plaintiff could not sue for injunctive relief because the U.S. Supreme Court’s decisions in Concepcion and Italian Colors held that such claims are preempted under the Federal Arbitration Act (“FAA”).  However, the California Supreme Court found that the arbitration agreement in McGill was invalid and unenforceable under California law because the agreement limited the plaintiff’s right to obtain public injunctive relief under the Unfair Competition Law (“UCL”), Consumers Legal Remedies Act (“CLRA”), and False Advertising Law (“FAL”) in any forum, not just within the arbitration context.  It cited Civil Code section 3513, which provides in part that “a law established for a public reason cannot be contravened by a private agreement.”  McGill, 2017 Cal. LEXIS 2551, at *23, 25, 30 (quoting Civ. Code § 3513).  Significantly, the California Supreme Court held that “the FAA does not require enforcement of a provision in a predispute arbitration agreement that, in violation of generally applicable California contract law, waives the right to seek in any forum public injunctive relief under the UCL, the CLRA, or the false advertising law.”  McGill, 2017 Cal. LEXIS 2551, at *28 (emphasis in the original).

The end result of McGill v. Citibank is that arbitration clauses may not be enforceable if they expressly or effectively prevent statutory claims for “public injunctive relief” (i.e., relief that by and large benefits the general public) in court and arbitration.  Post-McGill, there is now a chance for consumers in California to bring public injunctive relief claims against businesses even where an account or customer service agreement includes an arbitration clause, depending on the terms of the arbitration clause.  However, this case and the questions addressed by the California Supreme Court could find their way to the U.S. Supreme Court soon, prompting further analysis under Concepcion and Italian Colors.

If you are a consumer who has been the subject of potential unlawful, deceptive or fraudulent business practices, please contact our office.

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