California Appeals Court Finds Federal Arbitration Act Preempts State’s Broughton-Cruz RuleA California appeals court has ruled that the Federal Arbitration Act (“FAA”) preempts California’s Broughton-Cruz rule prohibiting arbitration of claims for injunctive relief under the California Unfair Competition Law.

In McGill v. Citibank, N.A., plaintiff Sharon McGill purchased a credit card protection plan from Citibank that would defer or credit amounts due on her credit card account if she suffered from any qualifying events such as unemployment or disability. The agreement included an arbitration provision for all claims.

Pursuant to a job loss, McGill filed a class action against Citibank for its marketing and management of the credit card protection plan, claiming defendant violated California’s unfair competition law, false advertising law and the Consumer Legal Remedies Act. She sought injunctive relief, monetary damages and restitution. Citibank moved to compel arbitration with McGill on an individual basis.

A trial court stayed McGill’s claims for injunctive relief and directed her to arbitrate her claims for monetary damages and restitution. The court based its decision on California Supreme Court decisions in Broughton v. Cigna Healthplans and Cruz v. PacifiCare Health Systems, Inc., which gave rise to the Broughton-Cruz rule that states arbitration provisions requiring arbitration of injunctive relief claims for unfair competition, false advertising or violations of the Consumer Legal Remedies Act are unenforceable as against public policy.

On appeal, the Fourth Appellate District reversed the trial court’s finding, holding that the Federal Arbitration Act preempts the Broughton-Cruz rule. In making its ruling, the appeals court relied on the U.S. Supreme Court’s 2011 ruling in AT&T Mobility LLC v. Concepcion, which found that the FAA preempts all state-law rules that prohibit arbitration of a specific type of claim since such prohibitions interfere with the intentions of the FAA to enforce arbitration agreements according to their terms.

The appeals court remanded the case for the trial court to order plaintiff to arbitrate all her claims.

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