In the recent case of McGill vs. Citibank, when a dispute arose between a consumer and her credit card company regarding the application of certain credits on her charge account, the Plaintiff, Sharon McGill, sued Citibank under the theory of unfair competition and false advertising. She also sought an injunction to compel Citibank to cease from engaging in the conduct of which she complained.
Citibank wanted to arbitrate the claim, which of course is a form of alternative dispute resolution that takes place outside of the courtroom setting. Arbitration can be binding (meaning the decision is final) or non-binding and is often governed by the Federal Arbitration Act (FAA). Unfair competition is any fraudulent, deceptive, or dishonest trade practice that is prohibited by statute, regulation or the common law. False advertising is the use of false or misleading statements in advertising and misrepresentation of the product at hand.
In this case, despite finding that the plaintiff’s arbitration agreement with Citibank applied to all of her claims, the trial court refused to require McGill to arbitrate her injunctive relief claims. This decision was based on another arbitration rule the California Supreme Court created to protect consumers—the Broughton-Cruz rule. Broughton-Cruz prohibits arbitration of claims seeking injunctive relief under unfair competition and false advertising laws.
Citibank immediately appealed this ruling under the premise that federal law preempts or takes precedence over, conflicting state law. In the end, the Fourth District Court of appeals sided with other federal court decisions that have relied upon recent U.S. Supreme Court cases which require that federal law pre-empts the Broughton-Cruz rule holding that all injunctive must be arbitrated.
This case expands on a 2011 case, AT&T Mobility LLC v. Concepcion, in which the United States Supreme Court declared that the Federal Arbitration Act preempts all state-law rules that prohibit arbitration of a particular type of claim because an outright ban, no matter how credible the purpose, interferes with the FAA’s objective of enforcing arbitration agreements according to their terms.
This ruling is a victory for companies doing business in California that want to force parties to arbitrate any claims. To discuss this case in further detail, please feel free to contact experienced business litigator Drew E. Pomerance.