This Stroock Special Bulletin provides an update with respect to litigation involving arbitration provisions. Recently, a California federal district court held that relief sought in a putative class action was not "public injunctive" relief that would render the defendant bank's arbitration provision unenforceable under the California Supreme Court's decision in McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017).
Following the California Supreme Court's decision in McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017), the issue of whether relief sought in a putative class action is "public injunctive" relief has been a focus of arbitration-related litigation. The issue is critical because the California Supreme Court held in McGill that claims seeking public injunctive relief are not subject to arbitration unless the parties' arbitration provision allows the arbitrator to award such relief.
Yesterday, Judge Bernal of the Central District of California ruled in Johnson v. JPMorgan Chase Bank, N.A. that the relief sought by plaintiffs in the action was not public injunctive relief as defined by the California Supreme Court in McGill.
In Johnson, plaintiffs asserted various claims against JPMorgan Chase Bank, N.A. ("Chase") arising from overdraft charges and other fees assessed to their checking accounts. Plaintiffs alleged that the various fees breached the terms of their deposit account agreements and also violated California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. (the "UCL"). Plaintiffs sought monetary relief on behalf of putative classes of Chase accountholders and also purported to seek injunctive relief on behalf of other California consumers. Chase moved to compel arbitration, and plaintiffs contended in response that their UCL claims were not subject to arbitration under McGill due to plaintiffs' requests for public injunctive relief.
The district court rejected plaintiffs' argument, reasoning that under McGill and Kilgore v. Keybank, N.A., 718 F.3d 1052 (9th Cir. 2013),
relief that would primarily benefit or prevent injury to identified plaintiffs or plaintiff classes, with no real prospective benefit to the public at large, was not public injunctive relief. Based on a review of the pleadings, the court concluded that while plaintiffs expressly requested a general injunction and public injunctive relief, a closer
inspection revealed that the relief sought was actually intended to redress and prevent further injury to Chase customers—who allegedly had already been injured—rather than the general public. In particular, the court focused on plaintiffs' prayer for monetary relief and found that any benefit to the general public "would be incidental to [p]laintiffs' primary purpose of seeking redress for their own injuries."
The court expressly rejected plaintiffs' remaining arguments, including that a suit against one of the largest banks in the country would necessarily result in a benefit to the general public, reasoning that such a rule would effectively convert any consumer action against a large company into a non-arbitrable suit. The court concluded that the size of a class alone could not elevate a class action seeking injunctive relief into a case seeking non-arbitrable public injunctive relief under McGill. Having decided the issue on state-law grounds, the district court did not reach Chase's alternative argument that the McGill rule is preempted by federal law under the Federal Arbitration Act because the rule improperly interferes with and effectively disfavors arbitration.
Absent a definitive ruling on the preemption question, the issue of whether claims seeking public injunctive relief are subject to arbitration will no doubt continue to be litigated in California state and federal courts. Judge Bernal's reasoned decision in Johnson should assist proponents of arbitration in ensuring that their arbitration agreements are enforced as written, as directed by the United States Supreme Court.
We represented Chase in Johnson and also represented Citibank in McGill.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
