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By Perry Cooper
A recent California Supreme Court decision makes it easier for California consumers to get businesses to change allegedly unfair business practices, consumer advocates say ( McGill v. Citibank N.A. , 2017 BL 114091, Cal., No. S224086, 4/6/17 ).
The court said April 6 companies can’t completely bar individuals through arbitration and other contract provisions from seeking statutorily allowed injunctions to alter such practices on behalf of the public.
But a significant question consumer advocates and class action attorneys hoped the state top court would address went unanswered: Whether these injunctive relief claims also must be allowed to proceed in court rather than in arbitration.
The court “carefully avoided considering whether” a California rule that says companies can’t move public injunctive claims to arbitration clashes with U.S. Supreme Court arbitration jurisprudence, defense attorney Fredrick Levin told Bloomberg BNA in an email. Levin is a partner with Buckley Sandler LLP in Los Angeles.
That limitation greatly diminishes the win for those on the plaintiffs’ side.
“I’m not sure this is much more than a narrow victory, given the other remaining barriers to class actions erected in recent years,” consumer protection scholar Rebecca L. Tushnet told Bloomberg BNA in an email. She is a professor at the Georgetown University Law Center in Washington.
“It’s not clear how many contracts would be covered, but I would expect most companies that attempted to preclude class arbitration to have similar provisions,” Tushnet said. “In response to this decision, they might allow arbitration of public injunctive relief as better than the alternative.”
But what many have missed about the decision is that it allows individuals to seek public injunctions without seeking class status , consumer advocate Harvey Rosenfield said.
“According to the California Supreme Court you can, as an individual, bring a lawsuit in which you request injunctive relief not just for yourself but for the general public. And that is huge,” Rosenfield, founder of the Santa Monica, Calif.-based nonprofit Consumer Watchdog, told Bloomberg BNA.
But that news alone “isn’t really going to thrill” private plaintiffs’ law firms as much, Rosenfield said.
That’s because, while many consumer class actions seek injunctive relief, “typically a big class action for them involves financial damages.”
Big financial damages mean a big cut for class counsel in fees meaning monetary relief is generally more motivating to class attorneys than injunctions alone.
Plaintiffs’ attorney David Stein said it’s likely Citibank, the defendant in the suit, and the U.S. Chamber of Commerce will try to have the U.S. Supreme Court reverse the decision. But the court might not take it up because the decision is narrow and less controversial than anticipated, Stein of Girard Gibbs LLP in Oakland, Calif., told Bloomberg BNA in an email.
“With the appointment of Justice Gorsuch and an ostensible conservative majority, I’m sure conventional wisdom will be that the Supreme Court is likely to reverse if it takes the case,” Stein said. But its past arbitration decisions suggest that the court “may not uphold an arbitration clause that outright bars a statutorily-provided substantive remedy” like the right to seek a public injunction.
The other attorneys agreed that Citibank is likely to seek review, but had different predictions of what might happen.
“The issue will ultimately end up in the U.S. Supreme Court, although it may take several years to get there,” defense attorney Levin said.
Georgetown’s Tushnet isn’t so sure.
“I haven’t seen any suggestion that there’s a split in the case law, which would usually make a poor candidate for a grant of cert.,” Tushnet said. “But especially with a new Justice who is expected to be very business-friendly, I hesitate to make predictions.”
“On its face, the California Supreme Court’s reasoning is sound, but that assumes that the U.S. Supreme Court sticks to what it said before about preserving statutory rights,” she said.
Rosenfield agreed that this case would be tough for the court to reverse. “Everybody recognizes that the U.S. Supreme Court seems to have a particular antipathy towards the laws and judicial rulings of California, but I think this is pretty unassailable,” he said.
“They’d really have to dismantle all of their prior jurisprudence in order to reverse this decision,” he said. “It just depends on how far into renegade territory they want to move.”
Sharon McGill brought a class action against Citibank N.A. for unfair competition and false advertising in relation to a credit insurance plan she bought to protect her credit card account. Citibank sought to invoke the arbitration clause in its service contract that required all claims to be arbitrated and barred public injunctive claims outright.
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