For the second time in two years, the U.S. Supreme Court is being asked to decide whether the Federal Arbitration Act (FAA) preempts California law (the “McGill Rule”) which invalidates arbitration agreements that waive the right of consumers to seek public injunctive relief. This time, however, there are changed circumstances that increase the odds that the Court will grant review of this critically important arbitration issue.
Earlier, in June 2020, the Court denied two petitions for certiorari that presented the same FAA preemption issue. We reported on those cases extensively and filed an amicus brief on behalf of the American Bankers Association and the Consumer Bankers Association in support of the petitioners. Those cases arose from Ninth Circuit opinions which held that the FAA does not preempt the McGill Rule.
The new petition in HRB Tax Group, Inc. v. Snarr also seeks review of a Ninth Circuit decision holding that the FAA does not preempt the McGill Rule, but this time, the petitioners emphasize, there is now a conflict in federal law. An intervening decision by the Western District of Missouri, in a case involving the same corporate defendants, the same arbitration clause and the same types of California law claims, held that the FAA does preempt the McGill Rule. Review is needed, the petitioners argue, because whether the FAA preempts the McGill Rule “depends upon where a plaintiff chooses to file suit.” The petitioners also argue that review is needed because a public injunction is equivalent to class-wide injunctive relief, so plaintiffs’ attorneys can avoid arbitration agreements with class action waivers altogether simply by filing a claim for public injunctive relief in California. Hundreds of such claims have been filed in the past few years, with no end in sight.
The response to the petition for certiorari is due June 11. We will be tracking this important case closely and will update you as events unfold.