Whither McGill? The Intersection of FAA Preemption and Public Injunctions

Partner Michael P. Daly and associates Matthew J. Adler and Mark D. Taticchi co-authored an article for the ABA’s Class Actions & Derivative Suits Committee Newsletter titled “Whither McGill?  The Intersection of FAA Preemption and Public Injunctions”

Depending on a point of view, arbitration clauses are a mechanism for either managing risk by giving consumers an efficient forum for resolving disputes, or for avoiding liability by denying consumers their day in court.  Although extensive empirical evidence shows that consumers recover more quickly and more often in arbitration than they do in court, some courts including the California Supreme Court and Ninth Circuit have maintained an anti-arbitration animus.

The problem for arbitration’s detractors is that Congress responded with the Federal Arbitration Act (“FAA”), which declares that private agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

In 2017, the California Supreme Court issued its decision in McGill v. Citibank, N.A., which invalidated any arbitration provision that purports to bar an arbitrator from adjudicating a claim for so-called “public injunctive relief.” Two years later, the Ninth Circuit agreed with the California Supreme Court, holding unenforceable any arbitration provision that seeks to waive the ability to seek injunctive relief for the benefit of the (wholly uninjured) public at large, and concluding that this rule is not preempted by the FAA.

In their article, Daly, Taticchi and Adler dissect the decision in McGill v. Citibank, N.A. and subsequent Ninth Circuit decisions, and provide an overview of the considerations for companies that deploy such arbitration agreements while the appellate processes continue to unfurl.