A recent California Supreme Court decision has significant implications for any agreement attempting to waive a substantive statutory remedy in California. In McGill v. Citibank, the Court held that an arbitration provision that provides for a waiver of the right to seek public injunctive relief is contrary to California public policy and unenforceable. The Court also held that California law prohibiting such waivers is not preempted by the Federal Arbitration Act (FAA). Crowell & Moring’s Product Liability & Torts and Litigation Groups provided a thorough analysis of the McGill decision in an alert posted on April 10, 2017.

Overview

Plaintiff Sharon McGill filed a class action against Citibank under California consumer protection laws, including the Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA) and false advertising law. Among other remedies, McGill sought public injunctive relief that would prohibit Citibank from continuing to engage in its allegedly illegal and deceptive practices. Citibank petitioned to compel McGill to arbitrate her claims on an individual basis, pursuant to the terms and conditions of their agreement.

The trial court ordered McGill to arbitrate all claims other than those for injunctive relief. The Court of Appeal reversed, concluding that the FAA preempted California’s Broughton-Cruz rule,[1] which prohibits agreements to arbitrate claims for public injunctive relief under the UCL, CLRA, or the false advertising law.

The Supreme Court of California held that the Broughton-Cruz rule was not applicable. Rather, the panel’s decision centered on the application of the California Civil Code § 3513, which states that “a law established for a public reason cannot be contravened by a private agreement.” The Court held that McGill’s statutory right to seek certain injunctive relief cannot be waived through an arbitration provision.

Implications for Health Care Plans

The Supreme Court’s opinion has several implications for health plans that use binding arbitration to resolve disputes with enrollees. The Court’s opinion only carves out from the requirement of binding arbitration only those claims that seek injunctive relief on behalf of the general public and does not impact the arbitrability of claims seeking other forms of relief including other remedies under the UCL, CLRA, and the false advertising law. For instance, the decision does not preclude parties from agreeing to arbitrate claims that seek compensatory, monetary and punitive damages, or claims that seek injunctive relief in form of restitution. But, the McGill opinion stands for the proposition that waivers of the right to seek public injunctive relief in any contract are void under California Civil Code § 3513, including those waivers in health plan contracts with enrollees.