Arbitration: Will U.S. Supreme Court Step In to Solve California’s McGill Problem?

Financial Services Law

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It now looks as though the Supreme Court is ready to receive, and we think grant, a petition for writ of certiorari in Blair v. Rent-A-Center (and related cases) that could spell doom for California’s McGill rule under which arbitration agreements are enforceable only if they exclude court claims for public injunctive relief. We provide details below.

What Happened

In a 2017 decision in McGill v. Citibank, the California Supreme Court held that an agreement preventing a party from seeking public injunctive relief in any forum is unenforceable under state law, notwithstanding the Federal Arbitration Act (FAA) and U.S. Supreme Court precedent that private litigants properly may restrict the scope of an arbitration to the parties’ individual claims. As a result, class action plaintiffs have been flocking to California courts to seek public injunctive relief in an attempt to avoid individual arbitration.

We have previously reported that the Ninth Circuit, in Blair, passed on an opportunity to fix the so-called McGill problem in California, affirming the denial of a motion to compel arbitration of a claim for public injunctive relief in Blair,and reached similar results in two companion cases. We provided a fulsome discussion of the rulings back in August 2019.

The current U.S. Supreme Court features some unabashedly pro-arbitration justices including Brett Kavanaugh, who authored a 9-0 decision in Henry Schein v. Archer & White Sales, in which the high court ruled that an arbitration agreement can require a court to refer the arbitrability determination to an arbitrator even if the court finds the arbitrability claim “wholly groundless.” And the same Court, even in closer decisions such as Lamps Plus v. Varela, has found a way to deal a near-death blow to class action arbitration, among other pro-arbitration rulings of recent vintage.

We expect the high court to tackle the McGill ruling as soon as the opportunity to do so presents itself. Here, the defendants in Blair are expected to ask the Supreme Court to rule that the FAA preempts McGill. If it does so, this will follow other prominent reversals of Ninth Circuit anti-arbitration jurisprudence, not just in Varela, but likewise in cases such as AT&T Mobility v. Concepcion.

Why It Matters

California’s public injunctive relief exception is a material impediment to arbitration in California. It has created a roadblock for businesses seeking to reduce the burden and expense of litigation for all parties, and defending against the recidivist class action bar. Will McGill ultimately be reversed? Stay tuned.