JOSE E. CRUZ et al., Plaintiffs and Respondents, v. PACIFICARE HEALTH SYSTEMS, INC., et al., Defendants and Appellants.
No. S101003
Supreme Court of California
Apr. 24, 2003.
30 Cal. 4th 303
Cooley Godward, William E. Grauer, Martin S. Schenker, Christopher R. J. Pace and James V. Fazio III for Defendants and Appellants.
Fred Main; Wiggin & Dana, Mark R. Kravitz and Jonathan Freiman for California Chamber of Commerce as Amicus Curiae on behalf of Defendants and Appellants.
Epstein Becker & Green, William A. Helvestine and Michael Horan for American Association of Health Plans and California Association of Health Plans as Amici Curiae on behalf of Defendants and Appellants.
McDermott, Will & Emery, Elizabeth D. Mann, Michael L. Meeks and Sarah A. Sommer for American Specialty Health Plans of California, Inc., and American Specialty Health Networks, Inc., as Amici Curiae on behalf of Defendants and Appellants.
Severson & Werson and William L. Stern for California Bankers Association, Securities Industry Association, California Financial Services Association and American Financial Services Association as Amici Curiae on behalf of Defendants and Appellants.
Gibson, Dunn & Crutcher, Gail E. Lees and Mark A. Perry for Aetna Health, AT&T Wireless Services, Cingular Wireless, Sprint and Verizon Wireless as Amici Curiae on behalf of Defendants and Appellants.
Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, Ronald A. Reiter and Michele R. Van Gelderen, Deputy Attorneys General, as Amici Curiae on behalf of Plaintiffs and Respondents.
Robinson, Calcagnie & Robinson, Sharon J. Arkin; The Sturdevant Law Firm, James C. Sturdevant; Paul Bland; Deborah M. Zuckerman and Stacy J. Canan for Trial Lawyers for Public Justice, AARP, National Association of Consumer Advocates and Consumer Attorneys of California as Amici Curiae on behalf of Plaintiffs and Respondents.
Opinion
MORENO J.—In Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 [90 Cal.Rptr.2d 334, 988 P.2d 67] (Broughton), we held that claims for injunctive relief under the Consumers Legal Remedies Act (CLRA) designed to protect the public from deceptive business practices were not subject to arbitration. In this case, we consider whether Broughton is good law in light of two recent United States Supreme Court cases pertaining to arbitration, Green Tree Fin. Corp.-Ala. v. Randolph (2000) 531 U.S. 79 [121 S.Ct. 513, 148 L.Ed.2d 373] (Green Tree) and Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105 [121 S.Ct. 1302, 149 L.Ed.2d 234] (Circuit City). We conclude that it is.
We also consider whether Broughton‘s holding on the inarbitrability of CLRA public injunctions should be extended to include claims to enjoin unfair competition under
We further consider whether Broughton should be extended to statutory and common law claims for equitable monetary relief—for restitution, disgorgement, and unjust enrichment. We conclude that Broughton should not be thus extended.
I. Statement of Facts
In November 1999, plaintiff Jose E. Cruz filed an action against defendants PacifiCare Health Systems, Inc., and PacifiCare of California, Inc.
Cruz emphasized in his first amended complaint that he “does not challenge the denial of medical benefits to any enrollee or subscriber,” but “challenges the manner in which PacifiCare . . . induced persons to subscribe to its Health Plans . . . by misrepresenting or failing to disclose internal policies that lower the quality of services provided.” Cruz alleged that he was filing the action “in his individual capacity and on behalf of the general public,” and he sought to represent a class of “approximately 1.6 million PacifiCare Health Plan enrollees in California.”
Based on these general allegations, Cruz alleged four causes of action. In the first, he alleged that PacifiCare had violated
PacifiCare moved for an order compelling Cruz to arbitrate his claims and staying the action pending completion of arbitration. PacifiCare argued that Cruz, who obtained health coverage through his employer, was required to arbitrate his claims under several provisions of the subscriber agreement between his employer and PacifiCare. PacifiCare relied primarily on paragraph 15.02 of the subscriber agreement, which provides in part: “ARBITRATION. PACIFICARE USES BINDING ARBITRATION TO RESOLVE ANY AND ALL DISPUTES BETWEEN PACIFICARE AND GROUP OR MEMBER, INCLUDING . . . DISPUTES RELATING TO THE DELIVERY OF SERVICES UNDER THE PACIFICARE HEALTH PLAN. PACIFICARE, GROUP AND MEMBER EACH UNDERSTAND AND EXPRESSLY AGREE THAT BY ENTERING INTO THE PACIFICARE SUBSCRIBER AGREEMENT, PACIFICARE, GROUP AND MEMBER ARE EACH VOLUNTARILY GIVING UP THEIR CONSTITUTIONAL RIGHT TO HAVE ALL SUCH DISPUTES DECIDED IN A COURT OF LAW BEFORE A JURY, AND INSTEAD ARE ACCEPTING THE USE OF BINDING ARBITRATION.” PacifiCare also relied on paragraph 7.01.01 of the subscriber agreement, which establishes a procedure for “Member Appeals not related to quality of care” and provides that a member who is not satisfied with the outcome of PacifiCare‘s internal appeals process “may . . . submit or request that PacifiCare submit the Appeal to binding arbitration before the American Arbitration Association” (AAA). Paragraph 7.01.01 also provides: “Upon submission of a dispute to the [AAA], Member and PacifiCare agree to be bound by the rules of procedure and decision of the [AAA].” Paragraph 7.01.01 concludes by stating: “PACIFICARE AND MEMBER UNDERSTAND THAT BY ENTERING INTO THIS AGREEMENT, THEY ARE GIVING UP THEIR CONSTITUTIONAL RIGHT TO HAVE ANY DISPUTE DECIDED IN A COURT OF LAW BEFORE A JURY AND INSTEAD ARE ACCEPTING THE USE OF ARBITRATION.” PacifiCare also relied on Cruz‘s signed enrollment form, which stated that he
Cruz opposed PacifiCare‘s motion on several grounds. He first argued that the applicable arbitration provision does not encompass this dispute because the paragraph in the subscriber agreement requiring arbitration before the AAA governs appeals “not related to quality of care” and his complaint “is solely . . . directed to the ‘quality of care’ provided by PacifiCare.” Second, he argued that his requests for injunctive relief are inarbitrable under Broughton. Third, he argued that the arbitration clause is unconscionable. Finally, he argued that because PacifiCare did not enter into any agreement with either him or his employer, it may not invoke the arbitration clause.
PacifiCare offered several arguments in response. Regarding Cruz‘s contention under Broughton, PacifiCare argued that Broughton prohibits arbitration only of claims for injunctive relief under the CLRA, and does not prohibit arbitration of Cruz‘s “monetary” claims for disgorgement, restitution and reimbursement or his request for injunctive relief under
The Court of Appeal affirmed, relying on Broughton and rejecting PacifiCare‘s argument that the United States Supreme Court had abrogated Broughton in subsequent decisions. It also upheld the trial court‘s extension of Broughton to claims for disgorgement and restitution under
II. Discussion
A. Did Green Tree and Circuit City Overrule Broughton?
PacifiCare contends that our decision in Broughton, supra, 21 Cal.4th 1066, holding that injunctive relief claims under the CLRA are inarbitrable, should be overruled in light of Green Tree, supra, 531 U.S. 79, and Circuit City, supra, 532 U.S. 105. According to PacifiCare, these two post-Broughton decisions, read in conjunction with earlier United States Supreme Court decisions, make clear that only Congress—and not state legislatures—may create exceptions to the Federal Arbitration Act‘s (FAA) requirement that arbitration agreements be enforced according to their terms, and that therefore state courts cannot hold that certain requests for public injunctive relief are inarbitrable. We disagree.
In Broughton, we recognized that the United States Supreme Court has emphasized Congress‘s and its own policy in favor of arbitration and, at least since 1984, has rejected numerous efforts and arguments by state courts, federal courts and litigants to declare certain classes of cases not subject to arbitration. (Broughton, supra, 21 Cal.4th at pp. 1074-1075.) Indeed, we acknowledged the Supreme Court‘s broad statement in its seminal arbitration case, Southland Corp. v. Keating (1984) 465 U.S. 1, 10 [104
We nonetheless held that requests for injunctive relief designed to benefit the public presented a narrow exception to the rule that the FAA requires state courts to honor arbitration agreements. We reasoned that the Supreme Court has acknowledged that Congress may “require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration” (Broughton, supra, 21 Cal.4th at p. 1074, quoting Southland Corp. v. Keating, supra, 465 U.S. at p. 10 [104 S.Ct. at p. 858]), and that “[t]he unsuitability of a statutory claim for arbitration turns on congressional intent, which can be discovered in the text of the statute in question, its legislative history or in an ‘inherent conflict’ between arbitration and the [statute‘s] underlying purposes.” (Broughton, supra, 21 Cal.4th at p. 1075, quoting Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26 [111 S.Ct. 1647, 1652, 114 L.Ed.2d 26] (Gilmer).)
We then concluded that there was indeed an inherent conflict between arbitration and the CLRA‘s authorization in
to the contrary, that the Legislature did not intend that the injunctive relief claims be аrbitrated.” (Broughton, at p. 1082.) We discerned no such legislative intent. (Ibid.)
We further concluded that denying arbitration in this one area would not violate the FAA. As we stated: “[A]lthough the court has stated generally that the capacity to withdraw statutory rights from the scope of arbitration agreements is the prerogative solely of Congress, not state courts or legislatures (Southland Corp. v. Keating, supra, 465 U.S. at p. 18 [104 S.Ct. at p. 862]), it has never directly decided whether a legislature may restrict a private arbitration agreement when it inherently conflicts with a public statutory purpose that transcends private interests. In the present case, as discussed, we believe there is such an inherent conflict between arbitration and a statutory injunctive relief remedy designed for the protection of the general public. Although both California and federal law recognize the important policy of enforcing arbitration agreements, it would be perverse to extend the policy 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.
“In other terms, our holding does not represent a ‘suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants’ . . . ‘out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes’ [Citation.] Rather, it is a recognition that arbitration cannot necessarily afford all the advantages of adjudication in the area of private attorney general actions, that in a narrow class of such actions arbitration is inappropriate, and that this inappropriateness does not turn on the hаppenstance of whether the rights and remedies being adjudicated are of state or federal derivation.
The recent United States Supreme Court cases cited by PacifiCare have little if any bearing on our holding in Broughton. In Circuit City, supra, 532 U.S. 105, the court concluded that section 1 of the FAA, which exempts from the scope of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” (
Still less is Green Tree, supra, 531 U.S. 79, relevant to Broughton. That case was narrowly focused on the issue of cost sharing in the arbitration of federal statutory claims. Green Tree‘s holding did not concern federal preemption of state arbitration claims. Nor did its reiteration of Congress‘s strong pro-arbitration policy (id. at p. 92 [121 S.Ct. at pp. 522-523]) call Broughton into question. As discussed above, Broughton takes such a policy as a given. (Broughton, supra, 21 Cal.4th at pp. 1074-1075.)
In sum, nothing that is novel about Green Tree or Circuit City has any bearing on Broughton. The only parts of these opinions that remotely pertain to Broughton are recapitulations of familiar themes regarding the importance of enforcing arbitration agreements and the inability of states to prevent that enforcement. These were amply considered in Broughton. Moreover, we were presented in Broughton with extensive argument that CLRA public
B. Are Injunctions Under Business and Professions Code Sections 17200 and 17500 Arbitrable?
PacifiCare contends that even if we affirm our holding in Broughton that claims for injunctive relief under the CLRA are inarbitrable, the same should not hold true for injunctive relief claims under the unfair competition law (UCL),
The UCL is intended to proscribe “unfair or fraudulent business act[s] or practice[s] and unfair, deceptive, untrue or misleading advertising . . . .” (
We need not decide whether UCL injunctive relief actions brought by injured business compеtitors are arbitrable. In the present case, the request for injunctive relief is clearly for the benefit of health care consumers and the general public by seeking to enjoin PacifiCare‘s alleged deceptive advertising practices. The claim is virtually indistinguishable from the CLRA claim that was at issue in Broughton. (Broughton, supra, 21 Cal.4th at p. 1072 [Broughton sought to enjoin health care company‘s alleged deceptive advertising of its medical services].)
The same is true of Cruz‘s request to enjoin PacifiCare‘s alleged misleading advertising under
We therefore conclude that Cruz‘s injunctive relief claim is inarbitrable unless there are indications of legislative intent to the contrary in the UCL or
PacifiCare contends the Court of Appeal erred in extending Broughton to hold that claims for restitution and disgorgement under the UCL are inarbitrable. We agree.
In Broughton, we held that damages claims under the CLRA are arbitrable, notwithstanding the fact that such claims vindicate important statutory rights. After reviewing United States Supreme Court precedent regarding the arbitration of antitrust and other federal statutory claims, we concluded that such precedent establishes that “statutory damages claims are fully arbitrable. Such an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important public interests. [Citation.] In the context of statutory damage claims, the United States Supreme Court has consistently rejected plaintiffs’ arguments that abbreviated discovery, arbitration‘s inability to establish binding precedent, and a plaintiff‘s right to a jury trial render the arbitral forum inadequate, or that submission of resolution of the claims to arbitration is in any sense a waiver of the substantive rights afforded by statute. [Citations.] ‘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.‘” (Broughton, supra, 21 Cal.4th at p. 1084.)3
Under the UCL, remedies are limited. “A UCL action is equitable in nаture; damages cannot be recovered. [Citation.] . . . ‘[P]revailing plaintiffs are generally limited to injunctive relief and restitution.‘” (Korea Supply, supra, 29 Cal.4th at p. 1144.) In the UCL context, an order for restitution is an order “compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126-127 [96 Cal.Rptr.2d 485, 999 P.2d 718], fn. omitted.)
As we noted in Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173 [96 Cal.Rptr.2d 518, 999 P.2d 706],
The Court of Appeal in the present case expressly limited its holding of inarbitrability to UCL class action suits. A class action may be primarily for the public benefit. But public benefit is only one of the factors we identified in Broughton as weighing in favor of the action‘s inarbitrability. (Broughton, supra, 21 Cal.4th at p. 1082.) The other factor, the “institutional advantages” of the judicial forum over arbitration in the administration оf a public injunction, is not present. (Ibid.) It may be the case that under the UCL, a class action would allow for disgorgement into a fluid recovery fund and distribution by various means. (See Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th at pp. 127, 137; Korea Supply, supra, 29 Cal.4th at p. 1148, fn. 6.) But the establishment of such a fund and the distribution of its proceeds does not present the same order of institutional difficulty as does the maintenance of a permanent statewide injunction requiring judicial supervision. We agree with the one published case on this issue that “[u]nlike a public injunction, disgorgement of funds does not need to be continuously monitored because its object is limited in time and scope. Once the profits to be disgorged and the recipients of those funds are identified, there is no need for long term modification and correction necessitating judicial supervision. Therefore, . . . disgorgement of funds is essentially the same as awarding money damages, and within the power of the arbitrators to award. [T]here is no ‘herent conflict’ between this remedy and arbitration.” (Arriaga v. Cross Country Bank (S.D.Cal. 2001) 163 F.Supp.2d 1189, 1197.)
Amici Curiae Trial Lawyers for Public Justice et al. argue that a recent United States Supreme Court case, EEOC v. Waffle House, Inc. (2002) 534 U.S. 279 [122 S.Ct. 754, 151 L.Ed.2d 755], supports their position that all UCL claims are inarbitrable. In Waffle House, the Supreme Court majority held that the Equal Employment Opportunity Commission (EEOC) may sue employers not only when it seeks to enjoin discriminatory employment practices, but also for victim-specific relief, such as reinstatement and backpay, even when the employee on whose behalf it is acting is a party to a binding arbitration agreement. The court reasoned that the EEOC was neither a party to the arbitration agreement nor a mere proxy for the employee on whose behalf the action was brought, but rather an agency charged by Congress with the vindication of the public interest. (Id. at pp. 288-291 [122 S.Ct. at pp. 761-762].) The court noted their conclusion might have differed if the EEOC could prosecute the action without the employee‘s consent, or if the employee had the final say in the EEOC‘s prayer for relief. (Id. at p. 291 [122 S.Ct. at p. 763].) The three-person dissent agreed with the majority that the EEOC was not bound by employee arbitration agreements when it pursued non-victim-specific relief, but would have held that it was prevented by the arbitration agreement from bringing an action for victim-specific relief on those employees’ behalf. (Id. at p. 298 [122 S.Ct. at pp. 766-767] (dis. opn. of Thomas, J.).)
We therefore conclude that Cruz‘s actions for restitution and/or disgorgement, whether brought as an individual or as a class action, are arbitrable.7 By the same logic, his common law claim for unjust enrichment, which is essentially an action for restitution (see Lauriedale Associates Ltd. v. Wilson (1992) 7 Cal.App.4th 1439, 1448 [9 Cal.Rptr.2d 774]), is also arbitrable.
Finally, we note that when there is a severance of arbitrable from inarbitrable claims, the trial court has the discretion to stay proceedings on the inarbitrable claims pending resolution of the arbitration. (
Although Cruz‘s monetary equitable relief claims are not inherently inarbitrable, he contends, as noted, that the arbitration agreement should not be enforced for other reasons, such as because his claims are outside the scope of the arbitration agreement and because the agreement is unconscionable. The trial court, holding all of the claims inarbitrable per se, did not address these contentions. These objections to arbitration may be reasserted on remand.
The judgment of the Court of Appeal is affirmed in part and reversed in part, and the cause is remanded for further proceedings consistent with this opinion.
George, C. J., Kennard, J., and Reardon, J.,* concurred.
BAXTER, J., Concurring and Dissenting.—The Fedеral Arbitration Act (
I joined the majority opinion in Broughton, supra, 21 Cal.4th 1066. But as Justice Chin cogently and compellingly explains in his concurring and dissenting opinion herein, Broughton‘s reasoning has been undermined by three subsequent decisions of the United States Supreme Court: EEOC v. Waffle House, Inc. (2002) 534 U.S. 279 [122 S.Ct. 754, 151 L.Ed.2d 755]; Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105 [121 S.Ct. 1302, 149 L.Ed.2d 234]; and Green Tree Fin. Corp.-Ala. v. Randolph (2000) 531 U.S. 79 [121 S.Ct. 513, 148 L.Ed.2d 373]. Accordingly, while I concur fully in the majority‘s conclusion here that plaintiff Jose E. Cruz‘s claims for restitution, disgorgement, and unjust enrichment are arbitrable pursuant to the parties’ agreement, I cannot join in its determination to follow and extend Broughton to bar arbitration of plaintiff‘s requests for injunctive
arbitration agreement in this case. We decline to address this argument because Cruz failed to raise it below. (See Cal. Rules of Court, rule 29(b)(1); People v. Slayton (2001) 26 Cal.4th 1076, 1083 [112 Cal.Rptr.2d 561, 32 P.3d 1073].)
*Associate Justice of the Court of Appeal, First Appellate District, Division Four, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Not only do the recent Supreme Court authorities cast grave doubt on Broughton‘s legal analysis and conclusion, but as Justice Chin also points out, claims under the UCL are easily alleged in the context of business activities. (Conc. & dis. opn. of Chin, J., post, at p. 339.) Therefore, extending Broughton to UCL injunctive relief requests will surely frustrate the legitimate contract expectations of a great many who seek to secure the benefits of a nonjudicial forum for resolving their disputes. Indeed, virtually every lawsuit involving a business entity will be subject to compounded costs and delayed resolution of claims when bifurcated litigation of the suit proceeds one part after the other in dual fora: first, an arbitration proceeding in which any UCL-based restitution, disgorgement, and unjust enrichment claims and any non-UCL damages claims are resolved; and second, a judicial action in which the UCL claims seeking public injunctive relief are litigated. (See maj. opn., ante, at p. 320.) This additional consideration is a paramount one that further contributed to my reevaluation of Broughton.
For all the foregoing reasons, I hereby dissent from the majority‘s decision that plaintiff‘s requests for injunctive relief are inarbitrable.
CHIN, J., Concurring and Dissenting.—I concur in the majority‘s holding that the claims of plaintiff Jose E. Cruz for restitution, disgorgement, and unjust enrichment are arbitrable. However, I dissent from the majority‘s decision to follow and extend Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 [90 Cal.Rptr.2d 334, 988 P.2d 67] (Broughton), in holding that Cruz‘s requests for injunctive relief under the Consumers Legal Remedies Act (CLRA) (
I. THE FAA PREEMPTS STATE LAWS THAT LIMIT THE ENFORCEABILITY OF ARBITRATION AGREEMENTS.
In enacting the FAA, Congress “intended to ‘revers[e] centuries of judicial hostility to arbitration agreements,’ [citation], by ‘plac[ing] [them] “upon the same footing as other contracts.“‘” (Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220, 225-226 [107 S.Ct. 2332, 2337, 96 L.Ed.2d 185].) Section 2 of the FAA provides: “A written provision in ... a contract evidencing a transaction involving [interstate] commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (
The United States Supreme Court has demonstrated the primacy and scopе of this duty by repeatedly invalidating, under the supremacy clause of the federal Constitution, state laws that attempt to limit the enforceability of arbitration agreements.1 In invalidating these state laws, the high court has explained that section 2 of the FAA “is a congressional declaration of a
II. BROUGHTON MANUFACTURES AN EXCEPTION TO THE RULE OF FAA PREEMPTION.
In Broughton, the plaintiffs sued a defendant that had provided them with health care coverage. (Broughton, supra, 21 Cal.4th at p. 1072.) They alleged in part that the defendant had violated the CLRA by deceptively advertising the quality of medical services provided under its health plan. (Broughton, supra, 21 Cal.4th at p. 1072.) They requested actual damages, punitive damages, and an order enjoining the defendant’s deceptive conduct. (Ibid.)
In a closely divided decision, a four-justice majority of this court affirmed the superior court’s decision insofar as it declined to order arbitration of the plaintiffs’ request for an injunction under the CLRA. (Broughton, supra, 21 Cal.4th at pp. 1073-1084.) The majority opinion in Broughton concluded the California Legislature “did not intend” that requests under the CLRA for “this type of injunctive relief . . . be arbitrated.” (Id. at p. 1080.) This conclusion rested on “two factors.” (Id. at p. 1082.) First, according to Broughton, “the evident purpose of the [CLRA’s] injunctive relief provision . . . is . . . to remedy a public wrong” and to protect “the general public” from “being victimized by the same deceptive practices as the plaintiff suffered,” not to “compensat[e]” the plaintiff who brings and pursues the CLRA claim. (Id. at p. 1080.) “In other words,” Broughton continued, “the plaintiff in a CLRA damages action is playing the role of a bona fide private attorney general. [Citation.]” (Ibid.) Second, Broughton found that private arbitration is “inherent[ly] unsuitabl[e] . . . as a means of resolving” CLRA injunction requests. (Id. at p. 1088.) Broughton based this finding on the view that “private arbitration” has several “institutional shortcomings . . . in the field of such public injunctions,” specifically: (1) arbitrators are not “accountable to the public“; (2) “continuing supervision of an injunction” is problematic because arbitrators “are not necessarily bound by earlier decisions of other arbitrators in the same case” and are “unconstrained by judicial review“; (3) “an arbitration award does not have collateral estoppel effect in favor of nonparties to an arbitration unless the arbitral parties so agree“; and (4) “modification or vacation of [arbitral] injunctions involves the cumbersome process of initiating a new arbitration proceeding.” (Id. at p. 1081.) According to Broughton, these “two factors taken in combination . . . make for an ‘inherent conflict’ between arbitration and the underlying purpose of the CLRA’s injunctive relief remedy.” (Id. at p. 1082.) Based on this “inherent conflict,” Broughton “presume[d] . . . the Legislature did not intend that [CLRA] injunctive relief claims be arbitrated,” and found no “indications” of a contrary legislative intent to overcome this presumption. (Ibid.) In reaching this conclusion, Broughton held that despite the express statutory declaration in
Broughton next found that this construction of the CLRA, although invalidating agreements to arbitrate CLRA injunction requests, did not violate the
Though invalidating agreements to arbitrate CLRA injunction requests, Broughton also held that agreements to arbitrate CLRA claims for damages are enforceable, “at least to the extent the FAA governs such claims.” (Broughton, supra, 21 Cal.4th at p. 1084Broughton stated that the CLRA “might be interpreted” as requiring that CLRA damage claims “be resolved solely in a judicial forum.” (Ibid.) However, Broughton also explained: “[A]s [the high court’s decisions] make clear, statutory damages claims are fully arbitrable [under the FAA]. Such an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important
III. THE HIGH COURT’S POST-BROUGHTON DECISIONS REQUIRE THAT WE OVERRULE BROUGHTON.
Since we decided Broughton, the high court has issued three relevant arbitration decisions. The high court’s statements in these three decisions require us to overrule Broughton’s holding that California may prohibit enforcement of agreements to arbitrate CLRA requests for public injunctions.
The first decision—Circuit City—directly refutes one of Broughton’s critical premises: that Gilmer’s “inherent conflict” exception to the FAA may apply based on the intent of a state legislature—as opposed to Congress—and that a state legislature therefore may, notwithstanding the FAA, prohibit enforcement of an arbitration agreement where the legislature concludes that arbitration inherently conflicts with a statutory right or remedy. In Circuit City, the high court construed the FAA to apply to “all contracts of employment” except those of “transportation workers.” (Circuit City, supra, 532 U.S. at p. 109 [121 S.Ct. at p. 1306].) Opposing this conclusion, “[v]arious amici, including the attorneys general of 21 States,” argued that this broad construction of the FAA would “intrude[] upon the policies of the separate States” by “effective[ly] pre-empt[ing] . . . state employment laws [that] restrict or limit the ability of employees and employers to enter into arbitration agreements.” (Id. at pp. 121-122 [121 S.Ct. at p. 1312].) Amici curiae contended “that States should be permitted, pursuant to their traditional role in regulating employment relationships, to prohibit employees . . . from contracting away their right to pursue state-law discrimination claims in court.” (Id. at p. 122 [121 S.Ct. at p. 1312].) The high court responded that under Gilmer, arbitration agreements in employment contracts “can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law.” (Circuit City, supra, 532 U.S. at p. 123 [121 S.Ct. at p. 1313], italics added.) As for the policies of state laws, the court found them irrelevant under Southland’s holding “that Congress intended the FAA . . . to pre-empt state antiarbitration laws to the contrary. [Citation.]” (Circuit City, supra, 532 U.S. at p. 122 [121 S.Ct. at p. 1312]; see also id. at p. 112 [Southland held that the FAA is “pre-emptive of state laws hostile to arbitration“].) The court also declared that courts may “not chip away at Southland by indirection.” (Circuit City, supra, 532 U.S. at p. 122.) Thus, Circuit City holds that we may not, as Broughton did, chip away at Southland by applying Gilmer’s exemption analysis, including the “inherent conflict” exception, based on the intent or policies of a state legislature. Under Circuit City, only “the policies of congressional enactments” are relevant to this analysis; state policies are simply irrelevant unless, as the FAA provides, they establish grounds as exist at law or in equity for the revocation of any contract. (Circuit City, supra, 532 U.S. at p. 123 [121 S.Ct. at p. 1313], italics added.)
Circuit City also undermines Broughton’s analysis and conclusion in another important respect. As I have explained, amici curiae in Circuit City argued for a construction of the FAA that would leave states free to prohibit employees from contracting away their right to a judicial forum for resolving discrimination claims under state law. (Circuit City, supra, 532 U.S. at pp. 121-122 [121 S.Ct. at p. 1312].) In rejеcting this argument, the high court reasoned in part that amici curiae’s construction would enable states to deprive parties of the “real benefits to the enforcement of arbitration provisions.” (Id. at pp. 122-123 [121 S.Ct. at pp. 1312-1313].) “Arbitration,” the court explained, “allow[s] parties to avoid the costs of litigation .... These litigation costs . . . would be compounded by the difficult choice-of-law questions that are often presented in disputes arising from the employment relationship [citation], and the necessity of bifurcation of proceedings in those cases where state law precludes arbitration of certain types of employment claims but not others.” (Id. at p. 123 [121 S.Ct. at p. 1313].) The court also explained that amici curiae’s construction would produce “considerable complexity and uncertainty” regarding “the enforceability of arbitration agreements in employment contracts,” which “would call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the Nation’s employers, in the process undermining the FAA’s proarbitration purposes and ‘breeding litigation from a statute that seeks to avoid it.’ [Citation.]” (Ibid.) As both Broughton and the case now before us amply demonstrate, Broughton’s holding produces precisely these effects; it deprives parties of the benefits of arbitration, necessitates bifurcated proceedings and compounds litigation costs, and creates both complexity and uncertainty regarding the enforceability of arbitration agreements, thereby placing in doubt arbitration’s efficacy as an alternative dispute resolution
The majority here errs in asserting that because Circuit City “was principally concerned with” thе construction of section 1 of the FAA, whereas Broughton involved “the preemptive scope of section 2,” Circuit City has “little if any bearing on” Broughton. (Maj. opn., ante, at p. 314.) First and foremost, as I have explained, Circuit City expressly relied on “the preemptive scope of section 2” (maj. opn., ante, at p. 314) in rejecting the argument that the high court should construe the FAA so as to leave states free to implement their own “policies” regarding the nonarbitrability of discrimination claims under state law. (Circuit City, supra, 532 U.S. at pp. 121-122 [121 S.Ct. at p. 1312].) Again, the high court found the argument foreclosed by Southland’s holding—reaffirmed in Allied-Bruce—that section 2 of the FAA “pre-empt[s] state antiarbitration laws.” (Circuit City, supra, 532 U.S. at p. 122 [121 S.Ct. at p. 1312].) Second, the high court based its construction of section 1 on the language and judicial construction of section 2. Regarding the former, the court contrasted the expansive language of section 2 with the narrower language of section 1. (Circuit City, supra, 532 U.S. at pp. 115, 117-118 [121 S.Ct. at pp. 1309, 1310].) Regarding the latter, the court explained that the plaintiff’s broad reading of section 1 was inconsistent with the court’s “expansive reading of § 2.” (Circuit City, supra, 532 U.S. at p. 119 [121 S.Ct. at p. 1311].) The court reasoned that the plaintiff’s construction of section 1 would deprive parties of the arbitration benefits that section 2 confers and, by creating “considerable complexity and uncertainty” regarding “the enforceability of arbitration agreements,” would “undermin[e]” section 2’s “proarbitration purposes.” (Circuit City, supra, 532 U.S. at p. 123 [121 S.Ct. at p. 1313].) The court also explained that “it would be incongruous to adopt” a reading of section 1 that would “undo” the broad “coverage in § 2” that “implement[s] proarbitration policies.” (Circuit City, supra, 532 U.S. at p. 122 [121 S.Ct. at p. 1313]Circuit City regarding section 1 was premised on the high court’s “construction of § 2’s coverage provision.” (Circuit City, supra, 532 U.S. at p. 114 [121 S. Ct. at p. 1308].) Fourth, and finally, before even discussing the scope of section 1, the high court considered, and rejected, the plaintiff’s argument regarding the “construction of § 2,” i.e., that section 2 of the FAA did not apply because “an employment contract is not a ‘contract evidencing a transaction involving interstate commerce’ within the meaning of section 2.” (Circuit City, supra, 532 U.S. at p. 113 [121 S.Ct. at p. 1308].) Thus, the majority errs in asserting that section 2 of the FAA—and specifically its “preemptive scope” (maj. opn., ante, at p. 314)—were not critical components of the high court’s opinion in Circuit City.
In this regard, Circuit City is consistent with another high court decision that Broughton completely ignored: Mastrobuono. There, the high court held that the FAA preempts a New York rule prohibiting an arbitrator from awarding punitive damages even where an arbitration agreement authorizes the award. (Mastrobuono, supra, 514 U.S. at pp. 53-58 [115 S.Ct. at pp. 1214-1217].) New Yоrk established this rule based on its view that punitive damages are exemplary social remedies intended to punish and deter, not to compensate, and that as a matter of strong public policy, only the state—and not private arbitrators—may wield the power to punish. (Garrity v. Lyle Stuart, Inc. (1976) 40 N.Y.2d 354 [386 N.Y.S.2d 831, 832-835, 353 N.E.2d 793] (Garrity).) According to the state’s highest court, New York’s public policy requires “rather close judicial supervision” in the administration of this public penal sanction and, contrary to this public policy, “there [is] no effective judicial supervision over punitive awards in arbitration.” (Id. at p. 834 [353 N.E.2d at pp. 796-797].) In finding that the FAA preempts the New York rule, the high court explained that under its prior decisions, “if contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration.” (Mastrobuono, supra, 514 U.S. at p. 58 [115 S.Ct. at p. 1216], italics added.) Therefore, “in the absence of contractual intent to the contrary, the FAA would pre-empt the [New York] rule,” despite its basis in the state’s public policy. (Mastrobuono, supra, 514 U.S. at p. 59 [115 S.Ct. at p. 1217].) According to the
Mastrobuono, which Broughton did not consider or even cite, undermines Broughton’s analysis and conclusion in several critical respects. First, it directly contradicts Broughton’s statement that the high court “ha[d] never directly decided whether a legislature may restrict a private arbitration agreement when it inherently conflicts with a public statutory purpose that transcends private interests.” (Broughton, supra, 21 Cal.4th at p. 1083.) Second, it directly refutes Broughton’s view that arbitration of CLRA injunction requests is impermissible because of the need for continuing judicial supervision of CLRA injunctions. (Broughton, supra, 21 Cal.4th at p. 1081.) Finally, and perhaps most importantly, Mastrobuono directly refutes the fundamental premise of Broughton’s analysis: that the high court cases leave states free to prohibit arbitration of a state remedy if “the primary purpose and effect of” that remedy is to protect the public, “not to compensate for an individual wrong.” (Broughton, supra, 21 Cal.4th at p. 1077.) In the high court’s view, “by definition,” the purpose of punitive damages is “not . . . to compensate the injured party, but rather to punish the tortfeasor” (Newport v. Fact Concerts, Inc. (1981) 453 U.S. 247, 266 [101 S.Ct. 2748, 2759, 69 L.Ed.2d 616]) and to “protect[] the public by [deterring] the defendant and others from doing such wrong in the future.” (Pacific Mutual Life Insurance Co. v. Haslip (1991) 499 U.S. 1, 19 [111 S.Ct. 1032, 1044, 113 L.Ed.2d 1].) Given the court’s view that the purpose of punitive damages is to protect the public and not to compensate the victim in any sense, Mastrobuono’s invalidation of New York’s rule against arbitration of punitive damages clearly established that the FAA preempts state laws prohibiting arbitration of such public, noncompensatory remedies.
The majority errs in suggesting that Broughton can be reconciled with Mastrobuono because punitive damages are different from public injunctions in some relevant sense. (Maj. opn., ante, at 312, fn. 1.) Consistent with the high court’s view, we have explained that the “purpose” of a punitive damages award “is a purely public one“—“to punish wrongdoing and
The majority’s attempt to distinguish Mastrobuono fails for an additional reason. The majority suggests that regarding “judicial supervision” in
In Circuit City and Mastrobuono, the high court simply applied the general constitutional rule regarding the suprеmacy of federal law specifically in the arbitration context. The supremacy clause of the United States Constitution (
The high court in Waffle House held that under the FAA, a distinction in terms of arbitrability between requests for brоad, large-scale injunctive relief to protect the public and requests for monetary relief, including punitive damages, is invalid. (Waffle House, supra, 534 U.S. at pp. 294-296 [122 S.Ct. at pp. 764-765].) The court explained that this distinction does not serve “its avowed purpose of preserving the EEOC’s public function while favoring arbitration. For that purpose, the category of victim-specific relief is both overinclusive and underinclusive. For example, it is overinclusive because . . . punitive damages . . . serve an obvious public function in deterring future violations. [Citations.] Punitive damages may often have a greater impact on the behavior of other employers than the threat of an injunction, yet the EEOC is precluded from seeking this form of relief under the Court of Appeals’ compromise scheme. And, it is underinclusive because injunctive relief, although seemingly not ‘victim-specific,’ can be seen as more closely tied to the employees’ injury than to any public interest.” (Id. at pp. 294-295 [122 S.Ct. at pp. 764-765].) “‘While injunctive relief may appear more “broad based,” it nonetheless is redress for individuals.‘” (Id. at p. 295 [122 S.Ct. at p. 765].) Thus, the court held, “if the [FAA’s] policy
The high court’s post-Broughton decision in Waffle House requires that we overrule Broughton as being inconsistent with binding high court precedent. As I have explained, Broughton held that CLRA requests for injunctive relief are not arbitrable bеcause the “purpose” of such relief is “to remedy a public wrong” and to protect “the general public,” not to “compensat[e]” the plaintiff who pursues the CLRA claim. (Broughton, supra, 21 Cal.4th at p. 1080.) In Waffle House, the high court rejected this analysis, explaining that even large-scale requests for public “injunctive relief . . . can be seen as more closely tied to the [victim’s] injury than to any public interest” and “is redress for individuals.” (Waffle House, supra, 534 U.S. at p. 295 [122 S.Ct. at p. 765].) The high court also explained that in terms of public protection, “[p]unitive damages may often have a greater impact on” a defendant’s “behavior . . . than the threat of an injunction . . . .” (Ibid.) This statement, in light of Mastrobuono’s holding that the FAA requires enforcement of agreements to arbitrate requests for punitive damages notwithstanding a state law precluding such arbitration (Mastrobuono, supra, 514 U.S. at pp. 53-58 [115 S.Ct. at pp. 1214-1217]), contradicts Broughton’s conclusion that we may base an FAA exception for CLRA injunctive relief on the public nature of such relief. As I have also explained, Broughton held that although the FAA requires enforcement of agreements to arbitrate requests for monetary relief, it does not require enforcement of agreements to arbitrate requests for injunctive relief designed to protect the public. The high court in Waffle House rejected this approach as well, holding that the precise distinction Broughton drew—between large-scale requests for injunctive relief to protect the public and requests for victim-specific, monetary relief—is invalid under the FAA, and that as a matter of federal law, the FAA requires courts to enforce an agreement to arbitrate requests for injunctive relief, even if that relief is designed principally to protect the public. (Waffle House, supra, 534 U.S. at pp. 294-296 [122 S.Ct. at pp. 764-765].) Thus, Waffle House requires that we overrule Broughton and hold that federal law rеquires enforcement of agreements to arbitrate CLRA requests for injunctive relief.
The majority’s discussion of Waffle House completely misses the point of that decision. In Waffle House, the high court did not, as the majority
While the high court’s post-Broughton decisions in Circuit City and Waffle House undermine one of Broughton’s fundamental premises—that states may decide that injunctive relief is somehow different from monetary damages for purposes of applying the FAA—the high court’s third relevant post-Broughton decision in Green Tree undermines Broughton’s other fundamental premise: its assumption that “private arbitration” has several “institutional shortcomings” that render it inherently unsuitable for resolving requests for “public injunctions.” (Broughton, supra, 21 Cal.4th at p. 1081.) In Green Tree, the plaintiff argued that the arbitration agreement she signed left her “unable to vindicate her statutory rights in arbitration“—and was therefore unenforceable—because its “silence with respect to [payment of] costs and fees creаte[d] a ‘risk’ that she [would] be required to bear prohibitive arbitration costs if she pursue[d] her claims in an arbitral forum.” (Green Tree, supra, 531 U.S. at p. 90 [121 S.Ct. at p. 522].) The high court disagreed, finding that the agreement’s mere “silence on the subject” of fees was “alone . . . insufficient to render it unenforceable.” (Id. at p. 91 [121 S.Ct. at p. 522].) Instead, the court held, “a party seek[ing] to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive . . . bears the burden of showing the likelihood of incurring such costs.” (Id. at p. 92 [121 S.Ct. at p. 522].) In reaching this conclusion, the court acknowledged that “the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory
Broughton’s analysis is fundamentally inconsistent with the high court’s subsequent decision in Green Tree. As I have explained, in invalidating agreements to arbitrate CLRA requests for injunctive relief, Broughton asserted that several “institutional shortcomings” of arbitration render it inherently unsuitable for resolving requests for “public injunctions.” (Broughton, supra, 21 Cal.4th at p. 1081.) However, Broughton cited no evidence—in the record or otherwise—or judicially noticeable facts to establish, or even support, this assertion. Nor does the majority here cite any such evidence. Nor did the plaintiff in Broughton or Cruz in this case offer any evidence on this question; under Green Tree, it was their burden, as the parties seeking to invalidate the arbitration agreements, to offer such evidence. Thus, “the ‘risk’ that arbitration’s so-called institutional shortcomings render it less effective than court proceedings for dealing with public injunctions is completely speculative” and insufficient “to justify the invalidation of an arbitration agreement” requiring arbitration of CLRA requests for injunctive relief. (Green Tree, supra, 531 U.S. at p. 91 [121 S.Ct. at p. 522].) Indeed, the very existence of those shortcomings is completely speculative. In short, Broughton’s holding regarding arbitration of CLRA injunction requests rests on the very “generalized” and unproven “‘suspicion of arbitration‘” that Green Tree holds may not be a basis for invalidating an arbitration agreement. (Green Tree, supra, 531 U.S. at p. 89 [121 S.Ct. at p. 521].) As the high court stated in Green Tree, “[t]o invalidate [arbitration] agreements on [such a speculative] basis . . . undermine[s] the ‘liberal federal policy favoring arbitration agreements.’ [Citation.]” (Green Tree, supra, 531 U.S. at p. 91 [121 S.Ct. at p. 522].) Thus, Green Tree and the high court’s other relevant post-Broughton decisions require that we overrule Broughton insofar as it invalidates agreements to arbitrate CLRA injunction requests, and that we hold that all of Cruz’s claims are arbitrable.
As Broughton recognized, the FAA is a “federal statutory mandate” that establishes a “strong public policy in favor of enforcing arbitration agreements.” (Broughton, supra, 21 Cal.4th at p. 1073.) “Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements . . . .” (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 [103 S.Ct. 927, 941, 74 L.Ed.2d 765].) It “create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA].” (Ibid.) “[Q]uestions of arbitrability must be addressed with a heаlthy regard for [this] federal policy favoring arbitration. . . . The [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration,” whatever the question at hand. (Id. at pp. 24-25 [103 S.Ct. at pp. 941-942].)
As Broughton also recognized, “California has a similar statute [citation] and a similar policy in favor of arbitration. [Citation.]” (Broughton, supra, 21 Cal.4th at p. 1074.)
In extending Broughton to hold that UCL claims for injunctive relief are not arbitrable, the majority guts the strong federal and state public policy favoring enforcement of arbitration agreements. As we have explained, the UCL’s “scope is broad” and “[i]ts coverage is ‘sweeping, embracing “anything that can properly be called a business practice and that at the same time
More specifically, because a UCL action may be based on a violation of other laws, the majority’s holding will enable plaintiffs—through artful pleading—to obtain judicial determination of claims that they agreed to arbitrate and that the United States Supreme Court has expressly held to be arbitrable. In Southland, the high court held that where the FAA applies, claims under the California Franchise Investment Law are arbitrable notwithstanding a California statute prohibiting arbitration of such claims. (Southland, supra, 465 U.S. at p. 16 [104 S.Ct. at pp. 860-861].) Similarly, in Perry, the high court held that where the FAA applies, claims under California law for unpaid wages are arbitrable notwithstanding a California statute prohibiting arbitration of such claims. (Perry, supra, 482 U.S. at pp. 489-491 [107 S.Ct. at pp. 2525-2526].) Of course, a plaintiff may easily plead a violation of either our Franchise Investment Law or our wage payment statutes as a violation of the UCL. Under the majority’s conclusion,
Finally, given the extremely broad standing provisions applicable to claims under the UCL and
Baxter, J., and Brown, J., concurred.