The McGill Decision’s Impact On Arbitration Cases Is Proving To Be Limited

Jul 31, 2017 | Topics: Class Actions, Business Litigation, Product Liability

In April of this year, we reported on the California Supreme Court’s finding in McGill v. Citibank, N.A. that an arbitration agreement was unenforceable because the agreement effectively denied the plaintiff the right to seek public injunctive relief (i.e. relief that is primarily designed to stop unlawful acts that threaten future injury to the general public).  In the article, we questioned the effect McGill would have on future cases given the fact that Citibank conceded that its arbitration agreement barred the plaintiff from seeking public injunctive relief, which was likely fatal to its position in McGill.  

A couple months later and it seems that courts—as we predicted—are not inclined to see the courts’ ruling in McGill as fatal to all arbitration agreements that are similar to the agreement at issue in McGill.  First, came DeVries v. Experian Information Solutions, Inc.  The DeVries court granted the defendant’s motion to compel arbitration, after which the California Supreme Court issued its decision in McGill.  The Plaintiff decided to file a motion for reconsideration based on the court’s decision in McGill.  The DeVries court found that because the parties’ arbitration agreement stated that all issues were for the arbitrator to decide, including the scope and enforceability of this arbitration provision, McGill had no effect.  Accordingly, whether the “agreement purports to waive [plaintiff’s] right to seek public injunctive relief in all for and, if so, what impact this has on the enforceability of the arbitration agreement as a whole, is for the arbitrator to decide.”  DeVries, 2017 U.S. Dist. LEXIS 26471, at *7-8 (N.D. Cal. June 1, 2017).  More importantly, the court did not take the decision in McGill to stand for the proposition that any arbitration agreement similar to the one in McGill would automatically be deemed unenforceable.

Next came Garcia v. Kakish, which similarly found that McGill did not mandate a finding that the arbitration provision, in that case, was de facto unenforceable.  In Garcia, there was an arbitration provision that stated that any claim or dispute was to be arbitrated by a single arbitrator on an individual basis and not as a class action.  Plaintiffs argued that this banned arbitration of any private attorney general action (“PAGA”) for public injunctive relief, and, since the alleged arbitration clause did not otherwise permit a court action for private attorney general claims, it completely waived the right to seek public injunctive relief as a private attorney general.  Garcia, 2017 U.S. Dist. LEXIS 99480, *19–20 (E.D. Cal. June 27, 2017).  Similar to the arbitration agreement in Devries, the arbitration agreement in Garcia specifically provided that “the interpretation and scope” of the agreement was left to the determination of the arbitrator.  Id. at *21–22.  Again, the court refused to find the arbitration provision unenforceable simply because of any similarity it had with the arbitration provision in McGill and specified that the parties in McGill agreed that the scope of effect of the provision was to waive the right to injunctive relief in any forum.

Finally, on July 13, 2017, Los Angeles Superior Court Judge Ann I. Jones granted Toyota Motor Credit Corp.’s (“Toyota”) motion to compel arbitration and ordered to arbitration a putative class action alleging Toyota applies illegal fees when repossessing leased vehicles.  Judge Jones’ ruling soundly rejected the plaintiff’s arguments that a class waiver within Toyota’s arbitration clause was unenforceable in light of McGill.  Judge Jones found that the class action waiver within the arbitration clause of the plaintiff’s lease agreement only prohibited the plaintiff from participating in a private attorney general action in court and that public injunctive relief appeared to be available in arbitration.  Further, in line with DeVries and Garcia, the Judge found that pursuant to the delegation clause in the agreement, it was up to the arbitrator to decide the validity of the entire arbitration provision.  In addition, Judge Jones found that the U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion abrogated the Broughton-Cruz rule (which established that agreements to arbitrate claims for public injunctive relief under the CLRA or false advertising law are not enforceable).  This is particularly significant, given that the McGill court failed to reach a similar ruling. 

Much to the chagrin of Plaintiffs, courts are not finding that McGill automatically stands for the proposition that agreements similar to the one in McGill are unenforceable.  The parties’ fatal mistake in McGill (i.e. agreeing at the outset that the arbitration agreement waived the plaintiff’s right to seek public injunctive relief in any forum) is proving to be the basis for the limited effect of McGill on future cases.