McGill v. Citibank, N.A.
An arbitration provision that waives the right to seek public injunctive relief in any forum is contrary to California public policy and unenforceable — and the FAA does not preempt this rule.
McGill v. Citibank, N.A. (2017) 2 Cal.5th 945
Arbitration
Public Injunctive Relief
UCL / CLRA
FAA Preemption
Reversed
In brief. A unanimous Court held that a provision “purporting to waive [a party’s] right to seek [public injunctive] relief in any forum” is invalid. (McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 952.) Because California law authorizes consumers to seek public injunctive relief under the UCL, the CLRA, and the false-advertising law, a contract waiving that statutory remedy “in any forum” is “contrary to California public policy and . . . unenforceable under California law.” (Id. at pp. 952, 961–962; see Civ. Code, § 3513.) The Federal Arbitration Act “does not preempt this rule.” (Id. at p. 962.)
Facts
Sharon McGill enrolled in Citibank’s “Credit Protector” plan, a product that promised to defer or credit certain credit-card payments upon qualifying events such as unemployment or disability. (2 Cal.5th at pp. 952–953.) She later sued Citibank under California’s Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA), and false-advertising law, alleging the product was deceptively marketed, and she sought — among other relief — a public injunction to stop the allegedly unlawful practices. (Ibid.) McGill’s account agreement contained an arbitration clause with a broad waiver of class and representative relief that, as construed, would bar her from seeking public injunctive relief in any forum, arbitral or judicial. (Id. at pp. 953–956.)
Procedural history
The trial court ordered some claims to arbitration but, relying on the Broughton–Cruz rule, refused to compel arbitration of the claims for public injunctive relief. (2 Cal.5th at pp. 953–954.) The Court of Appeal, citing Concepcion, held the Broughton–Cruz rule preempted and ordered all claims to arbitration. (Ibid.) The Supreme Court granted review and reversed, holding the waiver of public injunctive relief in any forum invalid and not preempted. (Id. at pp. 952, 966.)
Issue
Is a contractual provision that waives the right to seek public injunctive relief in any forum enforceable, and does the Federal Arbitration Act preempt a state-law rule that holds such a waiver invalid? (2 Cal.5th at pp. 951–952.)
Holding
The waiver is invalid and not preempted. A “provision in any contract — even a contract that has no arbitration provision — that purports to waive, in all fora, the statutory right to seek public injunctive relief under the UCL, the CLRA, or the false advertising law is invalid and unenforceable under California law.” (2 Cal.5th at p. 962.) Such a waiver contravenes Civil Code section 3513 (“a law established for a public reason cannot be contravened by a private agreement”). (Ibid.) And because this is “a generally applicable contract defense” — a ground “for the revocation of any contract” under FAA section 2 — that does not single out arbitration, “the FAA does not preempt this rule.” (Id. at pp. 962–966.) Reversed and remanded. (Id. at p. 966.)
Reasoning
1. Public injunctive relief is a statutory right serving the public. The Court explained that the UCL, CLRA, and false-advertising law authorize a private plaintiff to obtain “public injunctive relief” — relief “that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public.” (2 Cal.5th at pp. 954–961.) Such relief benefits the public at large rather than chiefly resolving a private dispute, and the Legislature made these consumer-protection remedies a matter of public policy. (Ibid.)
2. Civil Code section 3513 invalidates the waiver. Because the right to seek public injunctive relief exists for a public reason, a private agreement waiving it “in all fora” runs headlong into Civil Code section 3513: “a law established for a public reason cannot be contravened by a private agreement.” (2 Cal.5th at pp. 961–962.) The Court emphasized the breadth of the defect — the waiver fails not because it sends the claim to arbitration, but because it eliminates the public remedy entirely, in court and in arbitration alike. (Ibid.)
3. The rule is generally applicable — and not preempted. The Court distinguished the preempted Broughton–Cruz rule (which had barred arbitration of public-injunction claims) from the narrower principle it announced. (2 Cal.5th at pp. 956–966.) Its rule does not exempt public-injunction claims from arbitration or interfere with arbitration’s fundamental attributes; it simply refuses to enforce a contract term — wherever it appears — that waives an unwaivable statutory remedy. (Ibid.) Under FAA section 2’s saving clause, such a “generally applicable contract defense[]” survives preemption because it “appl[ies] equally to all contracts,” not just arbitration agreements. (Id. at pp. 962–966.) Nothing in Concepcion, the Court held, requires enforcing a waiver of a substantive statutory right. (Ibid.)
4. Remedy and remand. The Court did not decide whether the arbitration agreement’s severance clause saved the rest of the agreement; it held only that the public-injunction waiver was invalid and remanded for further proceedings, including determination of the consequences for the remaining arbitration provisions. (2 Cal.5th at pp. 965–966.)
Significance
McGill created one of the most important surviving limits on arbitration in the post-Concepcion era. Unlike Discover Bank and Gentry, the “McGill rule” has withstood FAA-preemption challenges — the Ninth Circuit upheld it in Blair v. Rent-A-Center, Inc. (9th Cir. 2019) 928 F.3d 819 — because it rests on a generally applicable refusal to enforce the waiver of an unwaivable public remedy rather than on hostility to arbitration. The rule has spawned extensive litigation over what qualifies as “public injunctive relief” (as opposed to private or class-wide relief), and over the “poison pill” effect: many arbitration agreements provide that if the public-injunction waiver is unenforceable, the entire arbitration clause falls. McGill therefore frequently determines whether consumer and employee claims proceed in court or arbitration. It sits alongside Iskanian’s PAGA carve-out as a principal state-law counterweight to Concepcion. See the Review’s coverage of the arbitration line.
Key quotes
A “provision in any contract . . . that purports to waive, in all fora, the statutory right to seek public injunctive relief under the UCL, the CLRA, or the false advertising law is invalid and unenforceable under California law.” (McGill, supra, 2 Cal.5th at p. 962.)
“[A] law established for a public reason cannot be contravened by a private agreement.” (Ibid., quoting Civ. Code, § 3513.)
Because the rule is “a generally applicable contract defense,” “the FAA does not preempt [it].” (Id. at p. 962.)
Read the full opinion (California Supreme Court — full text) →
Practice pointer
Plead public injunctive relief — and check for the poison pill. To invoke the McGill rule, a plaintiff must genuinely seek public injunctive relief: an injunction whose “primary purpose and effect” is to stop unlawful practices threatening the general public, not merely to benefit the plaintiff or a class. Frame UCL, CLRA, and false-advertising claims accordingly, and argue that any contractual waiver of that remedy “in all fora” is void under Civil Code section 3513. Then examine the arbitration agreement’s severance/“poison pill” language: many clauses provide that an unenforceable public-injunction waiver voids the entire arbitration agreement, sending all claims to court. Defendants drafting agreements must decide whether to carve public injunctive relief out of the waiver to preserve arbitrability of everything else.
Open questions
The contours of “public injunctive relief” after McGill remain heavily litigated — when relief is truly public versus private or class-based, and how the distinction maps onto particular UCL/CLRA claims. Courts also continue to work through the “poison pill” consequences for the remainder of an arbitration agreement, and the durability of the rule against renewed FAA-preemption arguments after later Supreme Court arbitration decisions.