August 23, 2019

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California Supreme Court Reigns in Arbitration Agreements

At the beginning of April, the California Supreme Court decided that arbitration agreements waiving the right to seek public injunctive relief run counter to the California Civil Code and are therefore unenforceable in that state. In McGill v. Citibank, the Court came to a unanimous decision that California state law (namely, the Broughton-Cruz rule) is not pre-empted by the Federal Arbitration Act (“FAA”) as interpreted by the Supreme Court in AT&T Mobility LLC v. Concepcion. Now, thanks to the California Supreme Court’s reversal of the Court of Appeal, arbitration agreements cannot stop consumers from pursuing injunctive relief to prevent illegal actions that may harm the general public.


The case of McGill v. Citibank involved a credit card consumer, Sharon McGill, who, after purchasing a “credit protector” plan from Citibank, filed a class action suit against the company. Under the plan, Citibank was obligated to credit McGill’s account when certain kinds of events occurred (e.g. divorce, unemployment, hospitalization etc.). But when in 2011 McGill was fired from her job, she filed a suit because she believed Citibank deceptively marketed the product. She claimed that the company’s marketing practices violated the Consumers Legal Remedies Act (CLRA), the unfair competition law (UCL), and the false advertising law.

She opened the account in 2001 and in the following years received several updates to the terms of agreement, including one update stating that “claims must be brought in the name of an individual person or entity and must proceed on an individual (non-class, non-representative) basis.”  

Trial Court and Court of Appeal

The initial trial court ruling stated that “[a]greements to arbitrate claims for public injunctive relief under the CLRA, the UCL, or the false advertising law are not enforceable in California,” referring to the Broughton-Cruz rule.

But the Court of Appeal reversed that decision, saying that the FAA preempts the Broughton-Cruz rule. They derived this ruling from Concepcion, which concluded that “[w]hen a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”

Final Ruling

McGill appealed the ruling of the Court of Appeal. In reviewing the case, the California Supreme Court turned to California Civil Code § 3513, which states that “a law established for a public reason cannot be contravened by a private agreement.” Relatedly, the higher court found that “the public injunctive relief available under the UCL, the CLRA, and the false advertising law […] is primarily for the benefit of the general public.” And since the private agreement specified that “claims must be brought in the name of an individual person” and thereby prohibited the pursuit of any form of public injunction, the court concluded that the terms of agreement are unenforceable under California law. Essentially, the court found that the arbitration agreement’s waiver of public injunction put the public (and therefore consumers) at risk of being harmed by deceptive practices.

Finally, the California Supreme Court clarified that the FAA does not put arbitration agreements on a pedestal, above other contracts. According to the saving clause of Section 2 of the FAA, an arbitration agreement is enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” In this case, California Civil Code § 3513 provides “such grounds.”

Wells Fargo Fiasco

Wells Fargo – which was found to have created over 3 million fake accounts – appears to have benefitted a great deal from arbitration agreements, according to a recent study. The study – which sifted through 215 cases filed between 2009 and 2016 – found that out of 48 consumer-initiated cases, consumers won only seven, for a total of $349,549. The bank, on the other hand, won 13 of those cases and took in $485,208. And in 28 other cases, Wells Fargo won $519,458, while consumers were awarded $82,527.

The study, carried out by Level Playing Field, illustrates perfectly the importance of McGill v. Citibank. Without more court rulings like this, consumers will continue to be forced into black box arbitrations where the balance is tipped in favor of powerful corporations.

About Sean Lally

Sean Lally holds a BA in Philosophy from Temple University where he also studied theatre for several years. Between 2007 and 2017, he worked as a professional actor for several regional theater companies in Philadelphia, including the Arden Theatre Co., EgoPo Productions, Lantern Theater and the Bearded Ladies. In 2010, Sean co-founded Found Theater Company, an avant-garde artist collective with whom he first started to cultivate an identity as a writer.

Over the past few years, Sean has been working as a content writer, focusing primarily on the ways in which unequal power distribution can negatively affect consumers, workers and “everyday people,” more broadly. He writes for a number of websites including,, and others.