Court Opinion

ID: 2762748
Source: CourtListenerOpinion
Date Created: 2014-12-19 01:02:11.197802+00
Date Added: 2024-06-11T11:27:12.717064
License: Public Domain

Filed 12/18/14

                            CERTIFIED FOR PUBLICATION

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             FOURTH APPELLATE DISTRICT

                                     DIVISION THREE

SHARON McGILL,

    Plaintiff and Respondent,                        G049838

        v.                                           (Super. Ct. No. RIC1109398)

CITIBANK, N.A.,                                      OPINION

    Defendant and Appellant.

                 Appeal from an order of the Superior Court of Riverside County, John W.
Vineyard, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed and
remanded.
                 Stroock & Stroock & Lavan, Julia B. Strickland and Marcos D. Sasso for
Defendant and Appellant.
                 Capstone Law, Raul Perez, Melissa Grant, Glenn A. Danas and Katherine
W. Kehr for Plaintiff and Respondent.
                                 *            *            *
              Plaintiff and respondent Sharon McGill sued defendant and appellant
Citibank, N.A. (Citibank) for unfair competition and false advertising in offering a credit
insurance plan she purchased to protect her Citibank credit card account. Alleging claims
under California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.;
hereinafter UCL), false advertising law (Bus. & Prof. Code, § 17500 et seq.; hereinafter
FAL), and Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.; hereinafter CLRA),
McGill seeks monetary damages, restitution, and injunctive relief to prevent Citibank
from engaging in its allegedly unlawful and deceptive business practices.
              Citibank petitioned to compel McGill to arbitrate her claims based on an
arbitration provision in her account agreement. The trial court granted the petition on
McGill’s claims for monetary damages and restitution, but denied the petition on the
injunctive relief claims. In doing so, the court relied on the “Broughton-Cruz rule” the
California Supreme Court established in Broughton v. Cigna Healthplans (1999)
21 Cal. 4th 1066 (Broughton), and Cruz v. PacifiCare Health Systems, Inc. (2003)
30 Cal. 4th 303 (Cruz). Under that state-law rule, arbitration provisions are unenforceable
as against public policy if they require arbitration of UCL, FAL, or CLRA injunctive
relief claims brought for the public’s benefit. Citibank appeals the trial court’s order on
the injunctive relief claims; McGill does not challenge the order on the claims for
monetary damages and restitution.
              We reverse and remand for the trial court to order all of McGill’s claims to
arbitration. As explained below, we join several federal court decisions in concluding the
Federal Arbitration Act (9 U.S.C. § 1 et seq.; hereinafter FAA) preempts the
Broughton-Cruz rule. In AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___
[131 S. Ct. 1740] (AT&T Mobility), the United States Supreme Court unmistakably
declared the FAA preempts all state-law rules that prohibit arbitration of a particular type
of claim because an outright ban, no matter how laudable the purpose, interferes with the
FAA’s objective of enforcing arbitration agreements according to their terms. The

                                             2
Broughton-Cruz rule falls prey to AT&T Mobility’s sweeping directive because it is a
state-law rule that prohibits arbitration of UCL, FAL, and CLRA injunctive relief claims
brought for the public’s benefit.
              We must reject McGill’s contention the California Supreme Court’s recent
decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348
(Iskanian), “reaffirmed” the Broughton-Cruz rule. To the contrary, Iskanian confirmed
the expansive scope of the FAA’s preemption and overturned another state-law rule
invalidating class action waivers on claims for arbitration of unpaid wages. Iskanian also
established a new rule invalidating predispute waivers of an employee’s right to bring a
representative action under the Labor Code Private Attorneys General Act of 2004
(Lab. Code, § 2698 et seq.; hereinafter PAGA) to recover civil penalties for an
employer’s Labor Code violations. The Iskanian court concluded the FAA did not
preempt this new rule because a PAGA representative claim belongs to the state, and an
aggrieved employee simply brings the claim as an agent or proxy of the state.
Accordingly, a PAGA representative claim is not subject to a private arbitration
agreement between an employer and an employee or the FAA. As explained below, a
PAGA representative claim is not comparable to an injunctive relief claim under the
UCL, FAL, or CLRA, and therefore Iskanian’s narrow exclusion does not save the
Broughton-Cruz rule from preemption.

                                             I

                            FACTS AND PROCEDURAL HISTORY

              Citibank is a national banking association that offers consumers a variety of
financial services, including credit card accounts and credit insurance plans. Under its
“Credit Protector” plan, Citibank defers or credits certain amounts on a consumer’s
Citibank credit card account when one or more qualifying events occur, such as
long-term disability, unemployment, divorce, military service, and hospitalization.

                                             3
Citibank charges consumers who purchase the Credit Protector plan a monthly premium
based on the consumer’s credit card balance.
              McGill opened a Citibank credit card account and purchased the Credit
Protector plan. The operative “Citibank Card Agreement” (Agreement) when McGill
opened her account did not include an arbitration provision. Citibank, however, later sent
McGill a “Notice of Change in Terms Regarding Binding Arbitration to Your Citibank
Card Agreement” (Change in Terms Notice) that amended the Agreement to add an
arbitration provision. The provision stated, “Either you or we may, without the other’s
consent, elect mandatory, binding arbitration for any claim, dispute, or controversy
between you and us (called ‘Claims’).”
              The provision further provided, “All Claims relating to your account or a
prior related account, or our relationship are subject to arbitration, including Claims
regarding the application, enforceability, or interpretation of this Agreement and this
arbitration provision. All Claims are subject to arbitration, no matter what legal theory
they are based on or what remedy (damages, or injunctive or declaratory relief) they seek.
This includes Claims based on contract, tort (including intentional tort), fraud, agency,
your or our negligence, statutory or regulatory provisions, or any other sources of law;
. . . and Claims made independently or with other claims. . . . Claims and remedies
sought as part of a class action, private attorney general or other representative action are
subject to arbitration on an individual (non-class, non-representative) basis, and the
arbitrator may award relief only on an individual (non-class, non-representative) basis.
[¶] . . . [¶] . . . This arbitration provision is governed by the Federal Arbitration Act
(the ‘FAA’). [¶] . . . [¶] . . . Claims must be brought in the name of an individual
person or entity and must proceed on an individual (non-class, non-representative) basis.
The arbitrator will not award relief for or against anyone who is not a party. If you or we
require arbitration of a Claim, neither you, we, nor any other person may pursue the
Claim in arbitration as a class action, private attorney general action or other

                                              4
representative action, nor may such Claim be pursued on your or our behalf in any
litigation in any court.”
              Under the Change in Terms Notice, McGill could have refused to accept
the arbitration provision by sending Citibank written notice within 26 days of the closing
date for her next account statement. If McGill opted out, she could have continued to use
her credit card under the existing terms “until the end of [her] current membership year or
the expiration date on [her] card(s), whichever is later.” McGill did not opt out of the
arbitration provision.
              In 2011, McGill filed this class action based on Citibank’s marketing of the
Credit Protector plan and the manner in which Citibank administered McGill’s claim
under the plan when she lost her job in 2008. The operative complaint alleges claims
against Citibank for (1) violation of the UCL; (2) violation of the FAL; (3) violation of
the CLRA; and (4) improper sale of insurance (Ins. Code, § 1758.9). The relief McGill
seeks includes restitution, monetary and punitive damages, attorney fees and costs, and
injunctive relief enjoining Citibank from continuing to engage in its allegedly illegal and
deceptive practices.
              Citibank filed a petition to compel McGill to arbitrate her claims on an
individual basis as required by the Agreement’s arbitration provision. The trial court
granted the petition in part and denied it in part. Specifically, the court severed and
stayed the claims for injunctive relief under the UCL, FAL, and CLRA, and ordered
McGill to arbitrate all her other claims, including claims for restitution and damages
under the UCL, FAL, CLRA, and Insurance Code. Despite finding the Agreement’s
arbitration provision applied to all of McGill’s claims, the trial court refused to order
arbitration of the injunctive relief claims based on the California Supreme Court’s
Broughton-Cruz rule. Citibank timely appealed the trial court’s decision refusing to
require McGill to arbitrate her injunctive relief claims.

                                              5
                                              II

                                         DISCUSSION

A.     Standard of Review
              “‘“There is no uniform standard of review for evaluating an order denying a
motion to compel arbitration. [Citation.] If the court’s order is based on a decision of
fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the
court’s denial rests solely on a decision of law, then a de novo standard of review is
employed. [Citations.]” [Citation.]’ [Citation.]” (Network Capital Funding Corp. v.
Papke (2014) 230 Cal. App. 4th 503, 508-509.) Here, the trial court denied Citibank’s
petition to compel arbitration of McGill’s injunctive relief claims because the FAA did
not preempt the Broughton-Cruz rule, which rendered those claims inarbitrable. We
review these legal questions de novo.

B.     Governing FAA Preemption Principles
              The FAA “was designed ‘to overrule the judiciary’s longstanding refusal to
enforce agreements to arbitrate’ [citation], and place such agreements ‘“upon the same
footing as other contracts”’ [citations].” (Volt Info. Sciences v. Leland Stanford Jr. U.
(1989) 489 U.S. 468, 474 (Volt).) Toward that end, the FAA declares that a written
agreement to arbitrate in any contract involving interstate commerce or a maritime
transaction “shall be valid, irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.)
              “‘Section 2 [of the FAA] is a congressional declaration of a liberal federal
policy favoring arbitration agreements, notwithstanding any state substantive or
procedural policies to the contrary. The effect of the section is to create a body of federal
substantive law of arbitrability, applicable to any arbitration agreement within the
coverage of the Act.’ [Citation.] . . . [T]his body of substantive law is enforceable in
both state and federal courts . . . [and] ‘withdr[a]w[s] the power of the states to require a

                                              6
judicial forum for the resolution of claims which the contracting parties agreed to resolve
by arbitration.’ [Citation.]” (Perry v. Thomas (1987) 482 U.S. 483, 489 (Perry); see
American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. ___, ___ [133 S. Ct.
2304, 2309] (Italian Colors) [“consistent with [section 2 of the FAA], courts must
‘rigorously enforce’ arbitration agreements according to their terms”].)
               “The FAA contains no express pre-emptive provision, nor does it reflect a
congressional intent to occupy the entire field of arbitration. [Citation.] But even when
Congress has not completely displaced state regulation in an area, state law may
nonetheless be pre-empted to the extent that it actually conflicts with federal law — that
is, to the extent that it ‘stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.’ [Citation.]”1 (Volt, supra, 489 U.S. at p. 477.)
“The ‘principal purpose’ of the FAA is to ‘ensur[e] that private arbitration agreements are
enforced according to their terms.’ [Citations.]” (AT&T Mobility, supra, 131 S.Ct. at
p. 1748; Volt, supra, 489 U.S. at p. 478 [FAA’s “passage ‘was motivated, first and
foremost, by a congressional desire to enforce agreements into which parties had
entered’”].)

       1      The California Supreme Court recognizes “‘four species of federal
preemption: express, conflict, obstacle, and field.’ [Citation.] ‘First, express preemption
arises when Congress “define[s] explicitly the extent to which its enactments pre-empt
state law. [Citation.] . . . .” [Citations.] Second, conflict preemption will be found when
simultaneous compliance with both state and federal directives is impossible. [Citations.]
Third, obstacle preemption arises when “‘under the circumstances of [a] particular case,
[the challenged state law] stands as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress.’” [Citations.] Finally, field preemption,
i.e., “Congress’ intent to pre-empt all state law in a particular area,” applies “where the
scheme of federal regulation is sufficiently comprehensive to make reasonable the
inference that Congress ‘left no room’ for supplementary state regulation.” [Citation.]’
[Citations.]” (Parks v. MBNA America Bank, N.A. (2012) 54 Cal. 4th 376, 383.) As
stated above, this case presents an obstacle preemption issue.

                                             7
               The FAA’s displacement of state laws that interfere with its purpose “is
‘now well-established,’ [citation], and has been repeatedly reaffirmed [citations].”
(Preston v. Ferrer (2008) 552 U.S. 346, 353 (Preston).) Indeed, the FAA preempts state
statutes that expressly invalidate arbitration agreements (see, e.g., Perry, supra, 482 U.S.
at pp. 484, 490 [FAA preempts California Labor Code provision requiring judicial
resolution of certain wage claims despite arbitration agreement]), state statutes that do not
expressly invalidate arbitration agreements but have been judicially interpreted to do so
(see, e.g., Southland Corp. v. Keating (1984) 465 U.S. 1, 10 [FAA preempts state statute
interpreted by California Supreme Court to require judicial resolution of claims brought
under the California Franchise Investment Law]), and any other “state-law rules that
stand as an obstacle to the accomplishment of the FAA’s objective[]” of enforcing
arbitration agreements according to their specific terms (AT&T Mobility, supra, 131 S.Ct.
at p. 1748).
               The purpose underlying a state statute or rule is irrelevant. According to
AT&T Mobility, if the state law interferes with the FAA’s purpose of enforcing arbitration
agreements according to their terms, the state law is preempted no matter how laudable
its objective. (AT&T Mobility, supra, 131 S.Ct. at p. 1753; Iskanian, supra, 59 Cal.4th at
p. 384 [“a state law rule, however laudable, may not be enforced if it is preempted by the
FAA”].) For example, in AT&T Mobility, the Supreme Court held the FAA preempted a
state-law rule invalidating class-action waivers in certain consumer adhesion contracts
that required consumers to arbitrate their claims on an individual basis. The California
Supreme Court had created the “Discover Bank rule” because it found class-action
waivers in adhesion contracts allowed companies to effectively exonerate themselves
from liability for cheating large numbers of consumers out of money individually too
small for a consumer to bring an individual action. (AT&T Mobility, at p. 1746.)
               In finding the FAA preempted the Discover Bank rule, the United States
Supreme Court rejected the argument “class proceedings are necessary to prosecute

                                              8
small-dollar claims that might otherwise slip through the legal system” by declaring
“States cannot require a procedure that is inconsistent with the FAA, even if it is
desirable for unrelated reasons.” (AT&T Mobility, supra, 131 S.Ct. at p. 1753.) Simply
stated, if a state law conflicts with the FAA, the supremacy clause in the United States
Constitution (U.S. Const., art. VI, cl. 2) requires the state law to give way. (Nitro-Lift
Technologies, LLC v. Howard (2012) ___ U.S. ___, ___ [133 S. Ct. 500, 504]; Italian
Colors, supra, 133 S.Ct. at p. 2320 (dissenting opn., of Kagan, J.); Perry, supra, 482 U.S.
at p. 491.)
              Based on AT&T Mobility, the California Supreme Court has begun
revisiting other rules it established in the arbitration context to protect consumers and
employees from companies with superior bargaining power. For example, in
Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109 (Sonic II), the court
reconsidered its earlier decision in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th
659 (Sonic I), where it examined the enforceability of an employer’s arbitration
agreement that required employees to waive the right to participate in a nonbinding
administrative hearing process the California Legislature created to protect employees
and assist them in recovering unpaid wages. The Sonic I court established a categorical
rule declaring it against public policy and unconscionable for an employer to require its
employees to waive the right to a so-called “Berman hearing.” The court, however, did
not invalidate the entire arbitration agreement, but rather held the employer and employee
must first engage in the Berman hearing process, and then arbitrate their dispute
according to their arbitration agreement if they are not satisfied with the outcome.
(Sonic II, supra, 57 Cal.4th at p. 1124.)
              In Sonic II, the California Supreme Court overturned Sonic I’s categorical
prohibition against Berman hearing waivers based on AT&T Mobility’s “precept that
‘efficient streamlined procedures’ is a fundamental attribute of arbitration with which
state law may not interfere.” (Sonic II, supra, 57 Cal.4th at p. 1140.) The Sonic II court

                                              9
explained, “Because a Berman hearing causes arbitration to be substantially delayed, the
unwaivability of such a hearing, even if desirable as a matter of contractual fairness or
public policy, interferes with a fundamental attribute of arbitration—namely, its objective
‘“to achieve ‘streamlined proceedings and expeditious results,’”’ . . . [and therefore the
FAA preempts] Sonic I’s rule.”2 (Id. at p. 1141.)
              Similarly, in Iskanian, the California Supreme Court recently revisited its
earlier decision in Gentry v. Superior Court (2007) 42 Cal. 4th 443 (Gentry), where the
court examined whether a class action waiver that required employees to arbitrate
overtime wage disputes on an individual basis was unenforceable as against public
policy. (Iskanian, supra, 59 Cal.4th at pp. 359-360.) The Gentry court held, “If [the trial
court] concludes . . . a class arbitration is likely to be a significantly more effective
practical means of vindicating the rights of the affected employees than individual
litigation or arbitration, and finds that the disallowance of the class action will likely lead
to a less comprehensive enforcement of overtime laws for the employees alleged to be
affected by the employer’s violations, it must invalidate the class arbitration waiver to
ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration
forum.’ [Citation.]” (Gentry, at p. 463, italics added.)
              In Iskanian, the California Supreme Court overturned Gentry because the
FAA preempts Gentry’s rule against employment class action waivers. The Iskanian
court explained AT&T Mobility rendered any state-law rule against class action waivers
invalid, even if the waiver has an undesirable exculpatory effect, because requiring the
parties to an arbitration agreement to engage in class arbitration or litigation when they

       2       The Sonic II court held the arbitration agreement with the Berman hearing
waiver still could be unenforceable if the agreement was unreasonably one-sided and
unconscionable for reasons that did not single out arbitration. The court remanded the
case to the trial court to determine whether the agreement was unconscionable based on
rules equally applicable to all contracts, not just arbitration agreements. (Sonic II, supra,
57 Cal.4th at pp. 1124-1125.)

                                               10
agreed to bilateral arbitration interferes with the fundamental attributes of arbitration as a
streamlined, efficient, and less expensive dispute resolution mechanism, and thereby
interferes with the FAA’s primary purpose of enforcing arbitration agreements according
to their terms. (Iskanian, supra, 59 Cal.4th at pp. 362-364.)

C.     McGill’s UCL, FAL, and CLRA Injunctive Relief Claims Are Arbitrable

       1.     The Broughton-Cruz Rule
              The trial court refused to require McGill to arbitrate her injunctive relief
claims under the UCL, FAL, and CLRA based on another arbitration rule the California
Supreme Court created to protect consumers—the Broughton-Cruz rule. That rule
categorically prohibits arbitration of certain injunctive relief claims brought for the
public’s benefit.
              Broughton involved an individual plaintiff’s CLRA claims seeking
damages and injunctive relief based on a health insurer’s deceptive business practices.
(Broughton, supra, 21 Cal.4th at pp. 1072-1073.) The court held the plaintiff’s CLRA
claims for damages were subject to the parties’ arbitration agreement because settled
precedent established “statutory damages claims are fully arbitrable.” (Id. at p. 1084.)
“‘By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in an arbitral, rather than a
judicial, forum.’ [Citation.]” (Ibid.) The Broughton court, however, determined the
plaintiff’s CLRA claims for injunctive relief were not arbitrable because the California
Legislature never intended to allow arbitration of these claims. (Id. at pp. 1080-1082.)
              The Broughton court based its conclusion on an “‘inherent conflict’”
between arbitration and the underlying purpose of the CLRA’s injunctive relief remedy.
(Broughton, supra, 21 Cal.4th at p. 1082.) The court found this inherent conflict arose
from two factors. First, injunctive relief under the CLRA was for the benefit of the
general public rather than the individual plaintiff who brought the action. The individual

                                              11
plaintiff already had been deceived by the defendant’s deceptive business practices, and
therefore an injunction preventing those practices in the future would benefit the general
public, not the individual plaintiff. “Second, the judicial forum has significant
institutional advantages over arbitration in administering a public injunctive remedy,
which as a consequence will likely lead to the diminution or frustration of the public
benefit if the remedy is entrusted to arbitrators.” (Ibid.)
              In Broughton, the Supreme Court also concluded its interpretation of the
CLRA did not contravene the FAA, and therefore the FAA did not preempt Broughton’s
prohibition against arbitration of injunctive relief claims. (Broughton, supra, 21 Cal.4th
at pp. 1082-1083.) In reaching this conclusion, the court relied on earlier United States
Supreme Court cases holding statutory claims are subject to arbitration unless arbitration
would prevent the effective vindication of the statutory rights at issue. Those cases
explain a statutory claim is not arbitrable when the text of the statute creating the claim,
the statute’s legislative history, or an inherent conflict between arbitration and the
statute’s purpose demonstrate Congress did not intend the claim to be arbitrated. (Id. at
p. 1075.) The Broughton court acknowledged this exception to the general rule of
arbitrability only had been applied to federal statutory rights—not state statutory rights—
but nonetheless applied it to the CLRA’s injunctive relief provision because “it would be
perverse to extend the [federal] policy [of enforcing arbitration agreements] so far as to
preclude states from passing legislation the purposes of which make it incompatible with
arbitration, or to compel states to permit the vitiation through arbitration of the
substantive rights afforded by such legislation.” (Id. at p. 1083.)
              In Cruz, the California Supreme Court extended Broughton to injunctive
relief claims under the UCL and FAL. (Cruz, supra, 30 Cal.4th at p. 307.) As with
CLRA injunctive relief claims, the court concluded UCL and FAL injunctive relief
claims are not arbitrable because they are brought for the public’s benefit and the

                                              12
California Legislature never intended for these claims to be arbitrated. (Id. at
pp. 315-316.)

       2.       The FAA Preempts the Broughton-Cruz Rule
                Following AT&T Mobility, several federal district courts concluded the
FAA preempted the Broughton-Cruz rule based on AT&T Mobility’s holding that
displaced any state-law rule that interfered with arbitration, but at least two courts
concluded the rule was not preempted based on the public benefit rationale the California
Supreme Court employed in establishing the Broughton-Cruz rule. (Compare Meyer v.
T-Mobile USA, Inc. (N.D.Cal. 2011) 836 F. Supp. 2d 994, 1005-1006 [FAA preempts
Broughton-Cruz rule] and Kaltwasser v. AT&T Mobility LLC (N.D.Cal. 2011)
812 F. Supp. 2d 1042, 1050-1051 [same] with Ferguson v. Corinthian Colleges
(C.D.Cal. 2011) 823 F. Supp. 2d 1025, 1032-1036 [FAA does not preempt
Broughton-Cruz rule] and In re DirecTV Early Cancellation Fee Marketing and Sales
Practices Litigation (C.D.Cal. 2011) 810 F. Supp. 2d 1060, 1071-1073 [same].) The Ninth
Circuit Court of Appeals resolved this conflict by declaring the Broughton-Cruz rule
preempted and overturning the two lower court decisions reaching the opposition
conclusion. (Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928,
934-937 (Ferguson); Lombardi v. DirecTV, Inc. (9th Cir. 2013) 546 Fed.Appx. 715, 716.)
                Only one reported California case has addressed whether the FAA preempts
the Broughton-Cruz rule. In Nelson v. Legacy Partners Residential, Inc. (2012)
207 Cal. App. 4th 1115, the Court of Appeal concluded the FAA preempts the rule based
on the same rationale relied on by the federal courts. (Id. at p. 1136.) That conclusion,
however, was arguably dicta and the Nelson court relied on a Ninth Circuit decision that

                                             13
was vacated later based on a rehearing en banc. (See Kilgore v. KeyBank, N.A. (9th Cir.
2012) 697 F.3d 1191, 1192.)3
              We conclude the Supreme Court’s directive in AT&T Mobility requires us
to find the FAA preempts the Broughton-Cruz rule. In AT&T Mobility, the Supreme
Court dramatically broadened the FAA’s preemptive scope. This in turn requires a
reevaluation of all state statutes and rules that allowed courts to deny enforcement of
arbitration agreements. (See Phillips v. Sprint PCS (2012) 209 Cal. App. 4th 758, 769
(Phillips).) As the Supreme Court explained, “When state law prohibits outright the
arbitration of a particular type of claim, the analysis is straightforward: The conflicting
rule is displaced by the FAA.” (AT&T Mobility, supra, 131 S.Ct. at p. 1747.) “States
cannot require a procedure that is inconsistent with the FAA, even if it is desirable for
unrelated reasons.” (Id. at p. 1753.)
              The Broughton-Cruz rule is a state law that categorically prohibits
arbitration of all injunctive relief claims under the UCL, FAL, and CLRA that are
brought for the public’s benefit. The FAA therefore preempts the rule. Whatever views
we may hold regarding the relative wisdom of the Broughton-Cruz rule and AT&T
Mobility, “we are all bound to follow the law as it has been interpreted by our highest
court.” (Phillips, supra, 209 Cal.App.4th at p. 769.) Indeed, in Sonic II and Iskanian, the
California Supreme Court acknowledged state-law rules it announced to protect
consumers and employees from arbitration agreements that may have an exculpatory
effect cannot survive in the face of the FAA’s broad preemptive scope announced in
AT&T Mobility. (Iskanian, supra, 59 Cal.4th at p. 364; Sonic II, supra, 57 Cal.4th at
p. 1141.)

       3     Nelson relied on Kilgore v. KeyBank, N.A. (9th Cir. 2012) 673 F.3d 947.
On rehearing in that case, the Ninth Circuit concluded the Broughton-Cruz rule did not
apply because the claims at issue did not seek public injunctive relief. (Kilgore v.
KeyBank, N.A. (9th Cir. 2013) 718 F.3d 1052, 1060-1061.)

                                             14
               Moreover, the rationale the Broughton court adopted to support its
conclusion the FAA did not preempt its rule declaring public injunctive relief claims
inarbitrable no longer withstands scrutiny. As explained above, Broughton concluded the
FAA did not preempt its rule based on earlier United States Supreme Court precedent
holding statutory claims are not subject to arbitration if it would prevent the effective
vindication of the underlying statutory right. (Broughton, supra, 21 Cal.4th at
pp. 1082-1083.) Subsequent cases, however, refute Broughton’s conclusion the effective
vindication exception applies to state statutory claims. For example, in concluding the
FAA preempted the Broughton-Cruz rule, the Ferguson court explained the effective
vindication exception is “reserved for claims brought under federal statutes.” (Ferguson,
supra, 733 F.3d at p. 936; see Italian Colors, supra, 133 S.Ct. at p. 2320 (dissenting opn.
of Kagan, J.) [“We have no earthly interest (quite the contrary) in vindicating [a state]
law. Our effective-vindication rule comes into play only when the FAA is alleged to
conflict with another federal law” (original italics)].)
               The rationale for the effective vindication exception confirms the exception
only applies to federal statutory claims, and therefore may not justify the state-law
Broughton-Cruz rule. The effective vindication exception arises from the principle
Congress may exclude a federal statutory claim from the FAA’s coverage because it
enacted the statutes establishing both the FAA and the federal statutory claim. Under this
exception to the FAA’s broad scope, a federal statutory claim is not arbitrable when the
text of the statute creating the claim, its legislative history, or its operation reveals a
congressional intent to exclude the statutory claim from arbitration. (See, e.g., Gilmer v.
Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26 [“Although all statutory claims
may not be appropriate for arbitration, ‘having made the bargain to arbitrate, the party
should be held to it unless Congress itself has evinced an intention to preclude a waiver
of judicial remedies for the statutory rights at issue’”]; Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 628 [“We must assume that if Congress

                                               15
intended the substantive protection afforded by a given statute to include protection
against waiver of the right to a judicial forum, that intention will be deducible from text
or legislative history”].)
               Based on the United States Constitution’s supremacy clause only Congress
may exclude a statute from the FAA’s coverage; a state legislature lacks authority to do
so. (U.S. Const., art. VI, cl. 2 [“the Laws of the United States . . . shall be the supreme
Law of the Land”]; see, e.g., Volt, supra, 489 U.S. at p. 477 [“to the extent [a state law]
‘stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress[, it is preempted]’”].) Accordingly, the California Legislature’s
intent in enacting the UCL, FAL, and CLRA is irrelevant in determining whether the
FAA preempts a state-law rule prohibiting arbitration of injunctive relief claims under
those statutes.
               McGill nonetheless contends the United States Supreme Court applied the
effective vindication exception to state statutory rights in Preston. She is mistaken. In
Preston, the Supreme Court enforced the parties’ arbitration agreement and held the FAA
preempted a state statute that otherwise required the parties to submit their dispute to the
state labor commissioner for resolution. (Preston, supra, 552 U.S. at pp. 349-350,
358-359.) The Preston court noted the parties’ arbitration agreement merely changed the
forum in which their dispute would be resolved—an arbitral forum rather than an
administrative one—but did not affect the parties’ substantive state law rights. (Id. at
p. 359.) Contrary to McGill’s contention, the simple acknowledgment the parties did not
relinquish any substantive state law rights is not an application of the effective
vindication exception.
               McGill also cites two circuit court decisions that applied the effective
vindication exception to sever portions of arbitration agreements that required the parties
to forego certain state statutory rights. (See Kristian v. Comcast Corp. (1st Cir. 2006)
446 F.3d 25, 29, 64; Booker v. Robert Half Intern., Inc. (D.C. Cir. 2005) 413 F.3d 77,

                                             16
79.) Both of these cases, however, applied the exception to state statutory rights without
considering whether the exception’s underlying rationale supported its application to state
statutory rights. “An opinion is not authority for a point not raised, considered, or
resolved therein” (Styne v. Stevens (2001) 26 Cal. 4th 42, 57; Dameron Hospital Assn. v.
AAA Northern California, Nevada & Utah Ins. Exchange (2014) 229 Cal. App. 4th 549,
564), and “we are not bound by decisions of lower federal courts on issues of federal
law” (California Assn. for Health Services at Home v. State Dept. of Health Care
Services (2012) 204 Cal. App. 4th 676, 684; see Barrett v. Rosenthal (2006) 40 Cal. 4th 33,
58). As explained above, we conclude the United States Constitution’s supremacy clause
prevents courts from applying the effective vindication exception to state statutory rights,
and therefore we decline to follow these circuit court decisions.

       3.     Iskanian Does Not Reaffirm the Broughton-Cruz Rule or Otherwise Save It
              From FAA Preemption
              McGill contends the California Supreme Court’s Iskanian decision
reaffirmed Broughton’s conclusion the FAA does not preempt the Broughton-Cruz rule
and its prohibition against arbitrating UCL, FAL, and CLRA injunctive relief claims.
McGill misreads Iskanian.
              In Iskanian, the California Supreme Court examined whether the FAA
preempts state-law rules restricting the enforceability of arbitration agreements that
include a waiver of an employee’s right to bring class or representative actions based on
an employer’s failure to pay wages and provide meal and rest periods. (Iskanian, supra,
59 Cal.4th at pp. 359-360.) As explained above, Iskanian overturned Gentry’s state-law
rule invalidating class action waivers that required employees to pursue their Labor Code
claims on an individual basis only. Even if an individual proceeding is an ineffective
means to prosecute wage and hour claims, the Iskanian court concluded the FAA
preempts Gentry’s rule because it interferes with the FAA’s objective of enforcing
arbitration agreements according to their terms. (Iskanian, at pp. 363-364.)

                                             17
              The Iskanian court, however, distinguished an employee’s class action to
recover unpaid wages from an employee’s representative action to recover civil penalties
under the PAGA. In the former, an employee seeks to recover wages an employer failed
to pay the employee and all other similarly situated employees, plus all statutory penalties
the Labor Code awards to employees for their employer’s failure to pay all wages and
provide all required breaks. (See, e.g., Lab. Code, § 1194, subd. (a) [“any employee
receiving less than the legal minimum wage or the legal overtime compensation
applicable to the employee is entitled to recover in a civil action the unpaid balance of the
full amount of this minimum wage or overtime compensation, including interest thereon,
reasonable attorney’s fees, and costs of suit”]; see also id. at § 203, subd. (a) [“If an
employer willfully fails to pay . . . any wages of an employee who is discharged or who
quits, the wages of the employee shall continue as a penalty from the due date thereof at
the same rate until paid or until an action therefor is commenced; but the wages shall not
continue for more than 30 days”].)
              In a representative action under the PAGA, however, an aggrieved
employee may bring a civil action personally and on behalf of other current or former
employees to recover civil penalties from the employer that only the state’s labor law
enforcement agencies previously could recover. (Iskanian, supra, 59 Cal.4th at
pp. 380-381; Lab. Code, § 2699, subd. (a) [“any provision of this code that provides for a
civil penalty to be assessed and collected by the Labor and Workforce Development
Agency . . . for a violation of this code, may, as an alternative, be recovered through a
civil action brought by an aggrieved employee on behalf of himself or herself and other
current or former employees”].)
              As the Iskanian court explained, before the PAGA’s enactment in 2004,
several statutes imposed civil penalties on employers for certain Labor Code violations
and also made some violations criminal misdemeanors. The Labor Commissioner could
bring an action to recover the civil penalties, with all funds collected going to the state’s

                                              18
general fund or the Labor and Workforce Development Agency, and local district
attorneys could prosecute criminal violations. (Iskanian, supra, 59 Cal.4th at p. 378.)
These enforcement mechanisms proved ineffective, however. State labor enforcement
agencies lacked the necessary resources to investigate employers who may have violated
the Labor Code, and district attorneys rarely investigated and prosecuted misdemeanor
Labor Code violations because they used their limited resources to focus on more serious
offenses. The California Legislature therefore enacted the PAGA “‘to allow aggrieved
employees, acting as private attorneys general, to recover civil penalties for Labor Code
violations, with the understanding that labor law enforcement agencies were to retain
primacy over private enforcement efforts.’” (Iskanian, at p. 379, italics added.)
              Before an aggrieved employee may file a representative PAGA action, he
or she must give written notice of the alleged Labor Code violations to both the employer
and the Labor and Workforce Development Agency. The employee may not file the
action unless the agency declines to investigate, declines to issue a citation after
investigating, or fails to initiate and complete its investigation within the time periods the
Labor Code specifies. (Lab. Code, § 2699.3; Iskanian, supra, 59 Cal.4th at p. 380.) The
employee brings the action as a “‘proxy or agent of the state’s labor enforcement
agencies,’” and those agencies are “always the real part[ies] in interest in the suit.”
(Iskanian, at pp. 380, 382.) “‘In a lawsuit brought under the [PAGA], the employee
plaintiff represents the same legal right and interest as state labor law enforcement
agencies—namely, recovery of civil penalties that otherwise would have been assessed
and collected by the Labor and Workforce Development Agency.’” (Id. at p. 380.)
              “‘Because an aggrieved employee’s action under the [PAGA] functions as a
substitute for an action brought by the government itself, a judgment in that action binds
all those, including nonparty aggrieved employees, who would be bound by a judgment
in an action brought by the government.’” (Iskanian, supra, 59 Cal.4th at p. 381.) “The
civil penalties recovered on behalf of the state under the PAGA are distinct from the

                                              19
statutory damages to which employees may be entitled in their individual capacities.”4
(Ibid.) Seventy-five percent of the civil penalties recovered in a representative PAGA
action go to the Labor and Workforce Development Agency, with the remainder paid to
the aggrieved employees as an incentive to bring the action. (Id. at p. 380.)
              The Iskanian court held these characteristics make an employee’s waiver of
the right to bring a representative PAGA action unenforceable as against public policy
because a predispute waiver of that right would allow an employer to exculpate itself for
its own wrongdoing in violation of Civil Code section 1668, and also would allow a
private agreement to contravene a law established for a public purpose in violation of
Civil Code section 3513.5 (Iskanian, supra, 59 Cal.4th at pp. 382-383.) Unlike Gentry’s

       4       “Case law has clarified the distinction ‘between a request for statutory
penalties provided by the Labor Code for employer wage-and-hour violations, which
were recoverable directly by employees well before the [PAGA] became part of the
Labor Code, and a demand for “civil penalties,” previously enforceable only by the
state’s labor law enforcement agencies. An example of the former is [Labor Code]
section 203, which obligates an employer that willfully fails to pay wages due an
employee who is discharged or quits to pay the employee, in addition to the unpaid
wages, a penalty equal to the employee’s daily wages for each day, not exceeding
30 days, that the wages are unpaid. [Citation.] Examples of the latter are [Labor Code]
section 225.5, which provides, in addition to any other penalty that may be assessed, an
employer that unlawfully withholds wages in violation of certain specified provisions of
the Labor Code is subject to a civil penalty in an enforcement action initiated by the
Labor Commissioner in the sum of $100 per employee for the initial violation and $200
per employee for subsequent or willful violations, and [Labor Code] section 256, which
authorizes the Labor Commissioner to “impose a civil penalty in an amount not
exceeding 30 days [sic] pay as waiting time under the terms of [Labor Code]
Section 203.”’ [Citations.]” (Iskanian, supra, 59 Cal.4th at p. 381.)
       5       Civil Code section 1668 provides, “All contracts which have for their
object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or
willful injury to the person or property of another, or violation of law, whether willful or
negligent, are against the policy of the law.”

             Civil Code section 3513 provides, “Any one may waive the advantage of a
law intended solely for his benefit. But a law established for a public reason cannot be
contravened by a private agreement.”

                                             20
rule against waiver of an employee’s right to bring a class action for unpaid wages, the
Iskanian court held the FAA did not preempt its rule against waiver of an employee’s
right to bring a representative PAGA action to recover civil penalties because the latter
rule “does not frustrate the FAA’s objectives.” (Iskanian, at p. 384.)
              Based on its review of the FAA’s legislative history and the United States
Supreme Court precedent interpreting the FAA, the Iskanian court concluded the FAA
“aims to ensure an efficient forum for the resolution of private disputes” by requiring the
parties to an arbitration agreement to arbitrate their disputes in the manner to which they
agreed. (Iskanian, supra, 59 Cal.4th at p. 384, original italics.) “There is no indication[,
however,] that the FAA was intended to govern disputes between the government in its
law enforcement capacity and private individuals.” (Iskanian, at p. 385.)
              “Simply put, a PAGA claim lies outside the FAA’s coverage because it is
not a dispute between an employer and an employee arising out of their contractual
relationship. It is a dispute between an employer and the state, which alleges directly or
through its agents—either the [Labor and Workforce Development] Agency or aggrieved
employees—that the employer has violated the Labor Code. . . . [¶] . . . Nothing in the
text or legislative history of the FAA nor in the Supreme Court’s construction of the
statute suggests that the FAA was intended to limit the ability of states to enhance their
public enforcement capabilities by enlisting willing employees in qui tam actions.
Representative actions under the PAGA, unlike class action suits for damages, do not
displace the bilateral arbitration of private disputes between employers and employees
over their respective rights and obligations toward each other. Instead, they directly
enforce the state’s interest in penalizing and deterring employers who violate California’s
labor laws.” (Iskanian, supra, 59 Cal.4th at pp. 386-387, original italics.)
              Contrary to McGill’s contention, Iskanian did not “reaffirm”
Broughton-Cruz’s prohibition against arbitrating public injunctive relief claims or the
rationale the Broughton court adopted to support its conclusion the FAA did not preempt

                                             21
that rule. Indeed, Iskanian does not even mention Broughton or Cruz. As explained
above, Broughton found the right to seek public injunctive relief could not be vindicated
effectively through arbitration and the California Legislature never intended to allow
arbitration of these claims. Not only is Broughton’s rationale no longer viable for the
reasons discussed above, Iskanian relies on a different rationale to support its conclusion
the FAA does not preempt its rule prohibiting PAGA representative action waivers.
Iskanian concludes a PAGA action poses no obstacle to FAA purposes because the FAA
only applies to private agreements between parties to arbitrate their disputes. A PAGA
representative action is not subject to a private arbitration agreement between an
employer and employee because the action is a dispute between the state and an employer
to recover civil penalties for Labor Code violations. An aggrieved employee simply
brings the action as a “‘proxy or agent of the state’s labor law enforcement agencies’”;
the state at all times remains the real party in interest and the lion’s share of the recovery
goes to the state. (Iskanian, supra, 59 Cal.4th at pp. 380, 382, 387-388.)
              Moreover, the Iskanian court emphasized, “Our FAA holding applies
specifically to a state law rule barring predispute waiver of an employee’s right to bring
an action that can only be brought by the state or its representatives, where any resulting
judgment is binding on the state and any monetary penalties largely go to state coffers.”
(Iskanian, supra, 59 Cal.4th at p. 388.) The PAGA is unique in comparison to the UCL,
FAL, and CLRA because the state retains “primacy over private enforcement efforts.”
(Iskanian, at p. 379.) An employee may not file a PAGA action unless and until he or
she gives the state notice of the specific Labor Code violations on which the action will
be based, and the state declines to investigate, declines to issue a citation after
investigating, or fails to take action within certain statutory time periods.
              A plaintiff seeking injunctive relief under the UCL, FAL, or CLRA,
however, is not required to give advance notice to the state and await state action (or
inaction) before filing a lawsuit. McGill cites no authority, and we have found none, that

                                              22
designates the state as the real party in interest on an injunctive relief claim under the
UCL, FAL, or CLRA. Similarly, McGill cites no authority that binds the state to any
judgment on a citizen’s injunctive relief claims under the UCL, FAL, or CLRA.
Although a plaintiff in both a PAGA representative action and an action seeking
injunctive relief under the UCL, FAL, and CLRA generally acts as a private attorney
general, the PAGA representative action is fundamentally different than the injunctive
relief action under the other statutes. Accordingly, nothing in Iskanian’s analysis of
PAGA representative action waivers prevents the conclusion the FAA preempts the
Broughton-Cruz rule.

                                              III
                                        DISPOSITION

              The order is reversed and the matter remanded for the trial court to order all
claims to arbitration. Citibank shall recover its costs on appeal.

                                                    ARONSON, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

THOMPSON, J.

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