Once more unto the Federal Arbitration Act

An article in the Boston University Law Review referred to the California's Supreme Court's 25-year-plus hostility to the Federal Arbitration Act as the "endless battleground." In 2014, the state high court began losing its will to maneuver over the terrain of FAA jurisprudence with the U.S. Supreme Court. The grant of review on April 1 of the 4th District Court of Appeal's decision in McGill v. Citibank, S224086, suggests that it may be continuing to lose its appetite for this fight.

In Broughton v. Cigna Health Plans of California, 21 Cal. 4th 1066 (1999), and Cruz v. Pacificare Health Systems Inc., 30 Cal. 4th 303 (2003), the court established a rule barring arbitration of claims for public injunctive relief under the Unfair Competition Law (UCL) or the Consumers Legal Remedies Act (CLRA). This so-called "Broughton-Cruz rule" was called into serious question by AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), where the U.S. Supreme Court held that the FAA preempts state law rules which prohibit the arbitration of particular claims, or that otherwise frustrate the FAA's objective of ensuring that arbitration agreements are enforced according to their terms (such as - which was at issue in Concepcion - rules that render class relief waivers in arbitration unenforceable).

In Ferguson v. Corinthian Colleges Inc., 733 F.3d 928 (9th Cir. 2013), the 9th U.S. Circuit Court of Appeals followed Concepcion to hold that the FAA preempted the Broughton-Cruz rule. In McGill, the 4th District adopted the 9th Circuit's reasoning, holding that Broughton-Cruz was no longer good law.

There is an important subtext here. At stake is not only the viability of Broughton-Cruz in consumer class actions, but the state Supreme Court's potentially short-lived attempt to save Private Attorneys General Act (PAGA) claims from representative action waivers in arbitration, an issue pending before the U.S. Supreme Court.

Last summer, in Iskanian v. CLS Transp. Los Angeles LLC, 59 Cal. 4th 348 (2014) - relying on the U.S. Supreme Court decisions in Stolt-Nielson S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), and Concepcion - a six-to-one California Supreme Court overturned its prior decision in Gentry v. Superior Court, 42 Cal. 4th 443 (2007), cert. denied sub nom Circuit City Stores Inc. v. Gentry, 552 U.S. 1296 (2008), and held that California's rule prohibiting class action relief waivers in arbitration was preempted by the FAA. However, Iskanian saved the corollary to Gentry established in Franco v. Athens Disposal Co., 171 Cal. App. 4th 1277 (2009), and Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011), which applied the same rule to PAGA representative actions, despite the fact that no fewer than 11 federal district courts held before Iskanian that the FAA preempted the Franco-Brown rule along with Gentry, and five more district courts have issued opinions rejecting Iskanian's analysis of the Franco-Brown rule, reaching the same holding.

Although the U.S. Supreme Court denied review of Iskanian's affirmance of the Franco-Brown rule, the same question is pending before the U.S. high court in Bridgestone Retail Operations LLC v. Brown, 14-790. In February, Brown waived his right to file a response to Bridgestone's petition for certiorari. A few weeks later, the Supreme Court issued an order requiring a response.

A "call for response" (CFR) from the U.S. Supreme Court is a sign that the court is keenly interested in the questions raised in the petition. Studies of the practice show that a CFR increases the likelihood that certiorari will be granted four-fold (to nearly 17 percent of all non-indigent petitions), and that another 12 percent of cases receive a summary disposition on the merits. All told, the CFR in Bridgestone means that there is nearly a one-in-three chance the court will take some significant action in the case. Given the unabated flood of district court decisions rejecting the Franco-Brown-Iskanian rule, it seems quite likely that any such action will abrogate the rule.

Indeed, McGill expressly argued that the Franco-Brown-Iskanian rule required the Court of Appeal to decline to follow Ferguson. McGill rejected this argument on narrow grounds: It reasoned that a PAGA representative action was "fundamentally different than the injunctive relief action under" the UCL or the CLRA, because under PAGA, the employee prosecutes the action on behalf of the state, which is not a party to the arbitration agreement. In PAGA representative actions, the state retains "primacy over private enforcement efforts." But this narrow distinction may not hold.

More broadly, Franco-Brown-Iskanian is based on the idea that PAGA is a mechanism necessary for the "effective vindication of statutory rights," giving the state a heightened interest in actions under PAGA, which interest may not be compromised by private actors who are "standing in the shoes" of the state. Indeed, Justice Ming Chin's concurrence in Iskanian's affirmance of the Franco-Brown rule is expressly based on this broader ground. But the U.S. Supreme Court's "effective vindication" cases - like Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614 (1985) - make it crystal-clear that the FAA only yields in certain cases to "effective vindication" of federal statutory rights - not state rights. Ferguson expressly drew this federal-state distinction when it held that the "effective vindication" does not save Broughton-Cruz from FAA preemption.

The subtext goes even deeper. McGill shakes the foundations of Armendariz v. Foundation Health Psychcare Svcs. Inc., 24 Cal. 4th 83 (2000), which relied extensively on Broughton to justify conditioning enforcement of agreements to arbitrate claims under the Fair Housing and Employment Act on the provision of extensive remedial and procedural rights in arbitration.

Armendariz was already in trouble after the state Supreme Court was summarily reversed by the U.S. Supreme Court in Sonic-Calabasas A Inc. v. Moreno, 57 Cal.4th 1109 (2013), cert denied, 134 S.Ct. 2724 (2014). Although Sonic attempts to carve out some breathing room for Armendariz, Justices Chin and Marvin Baxter vigorously dissented, raising serious concerns about FAA. At least one published Court of Appeal decision, Lona v. Citibank N.A., 202 Cal. App. 4th 89 (2011), recognizes that Armendariz sits on shaky FAA ground.

It remains to be seen whether McGill is the vehicle the state Supreme Court chooses to announce that it has finally, and completely, surrendered to FAA preemption. But McGill is clearly another step in retreat.