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Waiving Claims for Public Injunctive Relief in California Arbitration Agreements: The McGill Rule on Appeal

The inclusion in arbitration clauses of a waiver of public injunctive relief has gained popularity generally, but such a waiver is currently unenforceable in California.  However, California’s controversial precedent on the subject may be heading for review by an en banc Ninth Circuit panel or, ultimately, the U.S. Supreme Court.

In 2017, the California Supreme Court adopted what has become known as the “McGill Rule,” see McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017), holding that a waiver in an arbitration clause of a party’s right to seek public injunctive relief in any forum is unenforceable under California law.  The McGill Rule has been controversial from its pronouncement, with critics arguing it conflicts with the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 343 (2011).  In Concepcion, SCOTUS opined that a strong policy favors enforcement of the terms of an arbitration agreement, and that Section 2 of the Federal Arbitration Act (“FAA”) generally does not “save” state law rules that conflict with such enforcement.

The Ninth Circuit has addressed criticisms of McGill in three recent decisions, finding that the McGill Rule does not conflict with the FAA or Concepcion.  See Blair v. Rent-a-Center, Inc., 928 F.3d 819 (9th Cir. 2019); Tillage v. Comcast Corp., 772 Fed. Appx. 569 (9th Cir. 2019); McArdle v. AT&T Mobility LLC, 772 Fed. Appx. 575 (9th Cir. 2019).  Among other things, the Ninth Circuit distinguished Concepcion, holding that it did not “require the enforcement of all waivers of representative claims in arbitration agreements,” Blair, 928 F.3d at 828 (internal citations omitted), and that California’s preservation of public injunctive relief was distinguishable from the state law rule that was struck down in Concepcion, in that the California law did not impose on the parties “formalities inconsistent with arbitration,” id. at 830.

The defendants in Blair, Tillage and McArdle all moved in the Ninth Circuit for rehearing and rehearing en banc.  Although Blair has since been settled, Tillage and McArdle are in active briefing, and the Court of Appeals will likely issue orders soon regarding the respective rehearing petitions.

Those two cases certainly warrant monitoring by parties who regularly enter into arbitration agreements purporting to waive the right to seek public injunctive relief in arbitration.  If the Ninth Circuit panel or an en banc panel reverses in Tillage or McArdle, it could spell the end of the McGill Rule.  If rehearing is denied or the Ninth Circuit in effect reaffirms its original decisions, petitions for certiorari appear all but inevitable, and the Supreme Court’s history of reversing the Ninth Circuit on issues related to the McGill Rule suggests a likelihood that the high court would take an interest in the issue.

We will continue to monitor these cases and post updates concerning developments.

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Daniel T. Pascucci is a Mintz attorney who litigates international business disputes. He helps companies recover assets fraudulently laundered off-shore and hidden in renowned privacy and tax shelter nations. Dan defends clients in class action litigation, representing companies in many industries.