By Yixian Sun
The U.S. Supreme Court this morning let stand a Ninth U.S. Circuit Court of Appeals ruling that struck a consumer arbitration agreement because it waived litigation including “public injunctive relief,” California’s so-called McGill Rule.
Specifically, today, the Court this morning declined to hear AT&T Mobility LLC v. McArdle, Docket No. 19-1078, and Comcast Corp. v. Tillage, Docket No. 19-1066, two companion cases that raised a prominent question on consumer arbitration agreements.
Arbitration experts believed the Court would take the case as a sequel to Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1623 (2018), and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which, respectively, backed individual arbitrations in employment and consumer cases.
McArdle is a Ninth Circuit case concerning the enforceability of a consumer arbitration agreement. The specific issue, according to AT&T’s petition for certiorari, is that: “[w]hether California’s public-policy rule conditioning the enforceability of arbitration agreements on acquiescence to public-injunction proceedings is preempted by the Federal Arbitration Act (FAA).” Brief for Petitioner at i, AT&T Mobility LLC v. McArdle, No. 19-1078 (available on the Supreme Court’s website at https://bit.ly/2TYos7M).
Under the McGill Rule, any provision that precludes consumers from seeking public injunctive relief–injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public–in arbitration or in other dispute resolution forums, is contrary to California public policy and thus is unenforceable in California. McGill v. Citibank, N.A., 393 P.3d 85, 86 (Cal. 2017).
In 2019, the Ninth Circuit issued similar holdings in three cases including McArdle; it held that the McGill Rule was not preempted by the FAA, which directed courts to treat arbitration agreements as “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” McArdle v. AT&T Mobility LLC, 772 Fed. Appx. 575, 575 (9th Cir. 2019) (unpublished) (available at https://bit.ly/3eQsmrx); see also Blair v. Rent-A-Ctr. Inc., 928 F.3d 819 (9th Cir. 2019) (articulating reasons for upholding the McGill Rule).
AT&T filed its cert petition in February, seeking to have the Ninth Circuit’s decision overruled. According to the petition, since public-injunction claims focus on third parties’ interests and frequently involve complicated proceedings, they are “fundamentally inconsistent with arbitration’s traditionally individualized and informal nature” protected by the FAA. Brief for Petitioner at 14–20.
Relying on Justice Clarence Thomas’s previous interpretation of the FAA’s saving clause, it added that the McGill Rule cannot be saved because it deals with the enforceability rather than the validity of arbitration clause. FAA Section 2, the source of the saving clause, states “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S. Code § 2.
Many commentators believed that the petitioners should have had a compelling case if they were able to set foot into the Supreme Court, given the Court’s “35-year history of declaring numerous California laws preempted by the FAA,” and its “unabashedly pro-arbitration Justices” including the Chief Justice John G. Roberts Jr. and Justice Brett Kavanaugh. See, e.g., Mark J. Levin, Possible Supreme Court Review of California’s “McGill Rule” Moves One Step Closer as Ninth Circuit Stays Mandates in Blair Appeals, JDsupra (Jan. 31) (available at https://bit.ly/2XNsFfz); Richard E. Gottlieb & Brad W. Seiling, Arbitration: Will U.S. Supreme Court Step In to Solve California’s McGill Problem? Manatt (Feb. 5) (available at https://bit.ly/2XmEgn5). See also Alan S. Kaplinsky & Mark J. Levin, “FAA Preemption Petitions Now Ripe for Scotus Conference,” Consumer Finance Monitor (Ballard Spahr) (May 12) (available at https://bit.ly/3eFpOwg).
In addition to AT&T Mobility LLC v. Concepcion, and Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018), last year the Supreme Court sought to preserve the enforceability and the individualized nature of bilateral arbitration in the context of consumer and employment disputes via Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019). A major argument made by the petitioners is that Concepcion governed, because granting public injunctive relief would interfere with the bilateral nature of arbitration just as class action does. Brief for Petitioner at 20–22.
Precedents at lower courts on public injunction suits and arbitration are split, however, as AT&T Mobility reported itself in the McArdle cert petition. Brief for Petitioner at 26 (citing McGovern v. U.S. Bank, N.A., 362 F. Supp. 3d 850, 862-64 (S.D. Cal. 2019)).
The petitioners believed that the stakes are high. AT&T Mobility warned that under the Ninth Circuit ruling, it would only take a public-injunctive request for parties to circumvent an arbitration provision, thereby forcing companies to abandon consumer arbitration altogether.
Business interests strongly backed AT&T Mobility’s claim. In order to support AT&T Mobility and Comcast’s position, more than half dozen pro-business groups, including the U.S. Chamber of Commerce, filed amicus curiae briefs, reasoning that the McGill rule’s deterrence effect against traditional bilateral arbitration will leave both businesses and consumers worse off. See., e.g., Brief amici curiae of The Chamber of Commerce of the United States of America at 7–11.
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The author, a second-year Harvard Law School student, is a 2020 CPR Institute Summer Intern in Cambridge, Mass.