On June 28, 2019, the Ninth Circuit issued three decisions confirming that the FAA does not preempt California’s so-called “McGill” rule. As a result, the court invalidated provisions of the arbitration agreements in each case, which could have significant consequences in cases where plaintiffs seek public injunctive relief under California law.
- In California, contracts that purport to waive a consumer’s right to seek public injunctive relief are unenforceable. This is known as the McGill rule after the California Supreme Court’s decision in McGill v. Citibank, N.A., 393 P.3d 85 (2017).
- The Ninth Circuit unanimously held that the McGill rule is not preempted by the FAA.
- The court reached its conclusion by applying a two-prong preemption analysis and concluding that the McGill rule: (1) is a generally applicable contract defense (i.e., it applies equally to arbitration and non-arbitration contracts); and (2) does not mandate procedures that interfere with arbitration.
- Having found no preemption, the court applied the McGill rule and held that arbitration provisions purporting to waive a party’s right to seek public injunctive relief are unenforceable under California law.
- In two of the cases, the Ninth Circuit invalidated the arbitration agreements in full after applying the agreements’ non-severability clauses. In the other case, the Ninth Circuit rejected the defendant’s argument that a severability clause contained in its arbitration agreement required the plaintiff to submit her California statutory claims to arbitration for a determination of liability, with any public injunctive relief to be decided by a court in follow-on proceedings (if necessary). The Ninth Circuit’s latter holding turned entirely on the specific terms of the arbitration agreement at issue, which provided that a “claim”—rather than requests for relief—be severed from the arbitration and brought in court if applicable law precluded enforcement of the arbitration agreement’s limitations.
The lead case is Blair v. Rent-a-Center, Inc., No. 17-17221 (9th Cir. June 28, 2019). Read the court’s opinion here.
