Impact Litigation Journal · 2021. 2. 10. · Cruz v. PacifiCare Health Systems, Inc., 91 Cal. App. 4th 1179, 2001 Cal. App. LEXIS 680, 111 Cal. Rptr. 2d 395 (Cal. App. 1st Dist.,

JOSE E. CRUZ et al., Plaintiffs and Respondents, v. PACIFICARE HEALTHSYSTEMS, INC., et al., Defendants and Appellants.

No. S101003.

SUPREME COURT OF CALIFORNIA

30 Cal. 4th 303; 66 P.3d 1157; 133 Cal. Rptr. 2d 58; 2003 Cal. LEXIS 2624; 2003 Cal.Daily Op. Service 3428; 2003 Daily Journal DAR 4329

April 24, 2003, DecidedApril 24, 2003, Filed

PRIOR HISTORY: Superior Court of the City andCounty of San Francisco, No. 307611 David A. GarciaJudge.Cruz v. PacifiCare Health Systems, Inc., 91 Cal. App.

4th 1179, 2001 Cal. App. LEXIS 680, 111 Cal. Rptr. 2d395 (Cal. App. 1st Dist., 2001)

DISPOSITION: The judgment of the Court of Appealis affirmed in part and reversed in part, and the cause isremanded for further proceedings consistent with thisopinion.

SUMMARY:

CALIFORNIA OFFICIAL REPORTS SUMMARY

An enrollee in a health care plan brought an actionagainst his health care providers, alleging claims forunfair competition (Bus. & Prof. Code, § 17200 et seq.),false advertising (Bus. & Prof. Code, § 17500 et seq.),violation of the Consumer Legal Remedies Act (CLRA),and unjust enrichment. Plaintiff sought injunctive relief,as well as restitution and disgoregement. The trial courtdenied defendants' motion for arbitration pursuant to anarbitration agreement between the parties and theprovisions of the Federal Arbitration Act (FAA). SuperiorCourt of the City and County of San Francisco, No.207611, David A. Garcia, Judge.) The Court of Appeal,

First Dist., Div. Two, No. A093002, affirmed, andremanded for further proceedings.

The Supreme Court affirmed in part and reversed inpart the judgment of the Court of Appeal. The court heldthat the injunctive relief claim under the CLRA was notarbitrable. Requests for injunctive relief designed tobenefit the public present a narrow exception to the rulethat the FAA requires state courts to honor arbitrationagreements. The court held that plaintiff's action to enjoindefendants' alleged deceptive business practices wasundertaken for the public benefit, whether designated as aclaim under the CLRA, Bus. & Prof. Code, § 17200, orBus. & Prof. Code, § 17500, since it was designed toprevent further harm to the public at large rather than toredress or prevent injury to a plaintiff. The court furtherheld, however, that the claims for restitution,disgorgement, and unjust enrichment were fullyarbitrable. Unlike injunctive relief claims, damagesclaims under the CLRA are arbitrable, since theyprimarily benefit a party to the arbitration, even thoughthe action may incidentally vindicate important publicrights. Similarly, although restitution under the unfaircompetition law accomplished a public purpose bydeterring unlawful conduct, the deterrent effect isincidental to the private benefits obtained from thosebringing the restituionary action. Moreover, the courtheld, these claims were arbitrable whether brought as anindividual or as a class action. (Opinion by Moreno, J.,

Page 1

with George, C. J., Kenard, J., and Reardon, J.,*concurring. Concurring and dissenting opinion byBaxter, J. (see P. 321). Concurring and dissentingopinion by Chin, J., with Baxter and Brown, JJ.,concurring. (see p. 322).)

* Associate Justice of the Court of Appeal, FirstAppellate District, Division Four, assigned by theChief Justice pursuant to article VI, section 6 ofthe California Constitution.

HEADNOTES

CALIFORNIA OFFICIAL REPORTS HEADNOTESClassified to California Digest of Official Reports

(1a) (1b) Consumer and Borrower Protectin Laws §39--Consumer Legal Remedies Act--Arbitrability ofClaims for Injunctive Relief: Arbitration and Award§ 5.5--Injunctive Relief.-- --In an action by an enrolleein a health care plan against his providers, alleging claimsfor unfair competition (Bus. & Prof. Code, § 17200 etseq.) and false advertising (Bus. & Prof. Code, § 17500 etseq.) in connection with defendants' sale, marketing, andrendering of medical services, and seeking injunctiverelief under the Consumer Legal Remedies Act (CLRA),the trial court properly denied defendants' motion forarbitration of the injunctive relief claim pursuant to anarbitration agreement between the parties and theprovisions of the Federal Arbitration Act (FAA).Requests for injunctive relief designed to benefit thepublic present a narrow exception to the rule that theFAA requires state courts to honor arbitrationagreements. Plaintiff's action to enjoin defendants'alleged deceptive business practices was undertaken forthe public benefit, whether designated as a claim underthe CLRA, Bus. & Prof. Code, § 17200, or Bus. & Prof.Code, § 17500, since it was designed to prevent furtherharm to the public at large rather than to redress orprevent injury to a plaintiff. There was not indications oflegislative intent in the unfair competition law or Bus. &Prof. Code, § 17500, that the Legislature intended toallow arbitration of public injunctive relief requests underthese laws.

[See 6 Witkin, Cal. Procedure (4th ed. 1997)Proceedings Without Trial, § 488]

(2) Unfair Competition § 3--Unfair CompetitionLaw--Purpose and Procedure.-- --The unfaircompetition law (UCL) (Bus. & Prof. Code, § 17200 et

seq.) is intended to proscribe unfair or fraudulentbusiness acts or practices and unfair, deceptive, untrue ormisleading advertising. The law provides that any personengaged in unfair competition may be enjoined.Moreover, standing to sue under the ECL is expansive.Unfair competition actions can be brought by a publicprosecutor or by any person acting for the interest ofitself, its members, or the general public. The UCL isintended to protect competitors as well as consumersfrom unfair practices. thus, there may be occasions inwhich the injunctive power of the UCL is used primarilyto redress injuries to competing businesses and onlyincidentally for the public benefit.

(3a) (3b) Unfair Competition § 10--UnfairCompetition Law--Actions--Arbitrability of ClaimSeeking Restitution--Federal Arbitration Act.-- --In anaction under the unfair competition law by an enrollee ina health care plan against his providers, arising fromdefendants' alleged deceptive business practices, in whichplaintiff sought injunctive relief under the ConsumerLegal Remedies Act (CLRA), and also alleged claims forrestitution, disgorgement, and unjust enrichment forhimself and similarly situated persons, the trial courterred in denying defendants' motion to arbitrate therestitution, disgorgement, and unjust enrichment claimspursuant to an arbitration agreement between the partiesand the provisions of the Federal Arbitration Act (FAA),Although claims for injunctive relief under the CLRA arenot arbitrable the FAA due to the fact that they benefitthe public and not an individual plaintiff, that rule wasnot applicable to plaintiff's claims for equitable monetaryrelief. Damages claims under the CLRA are arbitrable,since they primarily benefit a party to the arbitration,even though the action may incidentally vindicateimportant public rights. There is no reason that restitutionclaims, like damages claims, should not be similarlyarbitrable. Although restitution under the unfaircompetition law accomplishes a public purposes bydeterring unlawful conduct, the deterrent effect isincidental to the private benefits obtained from thosebringing the restitutionary actin. Moreover, the claimswere arbitrable whether brought as an individual or as aclass action.

(4) Unfair Competition § 10--Unfair CompetitionLaw--Actions--Remedies.-- --Under the unfaircompetition law (UCL) (Bus. & Prof. Code, § 17200 etseq.), remedies are limited. A UCL actin is equitable innature; damages cannot be recovered. Prevailing

Page 230 Cal. 4th 303, *; 66 P.3d 1157, **;

133 Cal. Rptr. 2d 58, ***; 2003 Cal. LEXIS 2624

plaintiffs are generally limited to injunctive relief andrestitution. In the UCL context, an order for restitution isan order compelling a UCL defendant to return moneyobtained through an unfair business practice to thosepersons in interest from whom the property was taken,that is, to persons who had an ownership interest in theproperty or those claiming through that person.

(5) Arbitration and Award § 3--ArbitrationAgreements--Enforceability--Claimant Acting asClass Representative.-- --In light of the United StatesSupreme Court's strong presumption in favor of enforcingarbitration agreements, a party to an arbitrationagreement may not evade its contractual obligation tosettle its own restitutionary claims through arbitrationmerely by acting as a representative on behalf of othersimilarly situated claimants. However, not all forms ofrelief must be arbitrable for private parties bound byarbitration agreements. For consumers bound byarbitration agreements, public injunctions areinarbitrable.

(6) Unfair Competition § 10--Unfair CompetitionLaw--Actions--Arbitrable Claims--Stay of OtherClaims.-- --In actions under the unfair competition law(ECL) (Bus. & Prof. Code. § 17200 et seq.), when thereis a severance of arbitrable from inarbitrable claims, thetrial court has the discretion to stay proceedings on theinarbitrable claims pending resolution of the arbitration.A stay is appropriate where in the absence of a stay, thecontinuation of the proceedings in the trial court disruptsthe arbitration proceedings and can render themineffective.

COUNSEL: 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 andJonathan Freiman for California Chamber of Commerceas Amicus Curiae on behalf of Defendants andAppellants.

Epstein Becker & Green, William A. Helvestine andMichael Horan for American Association of Health Plansand California Association of Health Plans as AmiciCuriae on behalf of Defendants and Appellants.

McDermott, Will & Emery, Elizabeth D. Mann, MichaelL. Meeks and Sarah A. Sommer for American SpecialtyHealth Plans of California, Inc., and American Specialty

Health Networks, Inc., as Amici Curiae on behalf ofDefendants and Appellants.

Severson & Werson and William L. Stern for CaliforniaBankers Association, Securities Industry Association,California Financial Services Association and AmericanFinancial Services Association as Amici Curiae on behalfof 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 AmiciCuriae on behalf of Defendants and Appellants.

The Furth Firm, Frederick P. Furth, Michael P. Lehmannand Ben Furth for Plaintiffs and Respondents.

Bill Lockyer, Attorney General, Richard M. Frank, ChiefAssistant Attorney General, Herschel T. Elkins, AssistantAttorney General, Ronald A. Reiter and Michele R. VanGelderen, Deputy Attorneys General, as Amici Curiae onbehalf of Plaintiffs and Respondents.

Robinson, Calcagnie & Robinson, Sharon J. Arkin; TheSturdevant Law Firm, James C. Sturdevant; Paul Bland;Deborah M. Zuckerman and Stacy J. Canan for TrialLawyers for Public Justice, AARP, National Associationof Consumer Advocates and Consumer Attorneys ofCalifornia as Amici Curiae on behalf of Plaintiffs andRespondents.

JUDGES: (Opinion by Moreno, J., with George, C. J.,Kennard, J., and Reardon, J., * concurring. Concurringand dissenting opinion by Baxter, J. (see p. 321).Concurring and dissenting opinion by Chin, J., withBaxter and Brown, JJ., concurring. (see p. 322).)


OPINION BY: MORENO

OPINION

[***60] MORENO [*307] J.

[**1159] In Broughton v. Cigna Healthplans(1999) 21 Cal.4th 1066 [90 Cal. Rptr. 2d 334, 988 P.2d67] (Broughton), we held that claims for injunctive reliefunder the Consumer Legal Remedies Act (CLRA)

Page 330 Cal. 4th 303, *; 66 P.3d 1157, **;

133 Cal. Rptr. 2d 58, ***; 2003 Cal. LEXIS 2624

designed to protect the public from deceptive businesspractices were not subject to arbitration. In this case, weconsider whether Broughton is good law in light of tworecent United States Supreme Court cases pertaining toarbitration, [***61] Green Tree Fin. Corp.-Ala. v.Randolph (2000) 531 U.S. 79 [148 L. Ed. 2d 373, 121 S.Ct. 513] (Green Tree) and Circuit City Stores, Inc. v.Adams (2001) 532 U.S. 105 [149 L. Ed. 2d 234, 121 S.Ct. 1302] (Circuit City). We conclude that it is.

We also consider whether Broughton's holding onthe inarbitrability of CLRA public injunctions should beextended to include claims to enjoin unfair competitionunder Business and Professions Code section 17200 etseq. and to enjoin misleading advertising under Businessand Professions Code section 17500 et seq. We concludethat Broughton should be extended to such claims, atleast under the circumstances of the present case.

We further consider whether Broughton should beextended to statutory and common law claims forequitable monetary relief--for restitution, disgorgement,and unjust enrichment. We conclude that Broughtonshould not be thus extended.

I. STATEMENT OF FACTS

In November 1999, plaintiff Jose E. Cruz filed anaction against defendants PacifiCare Health Systems,Inc., and PacifiCare of California, Inc. [*308](collectively PacifiCare), alleging claims for unfaircompetition and false advertising in connection withPacifiCare's sale, marketing, and rendering of medicalservices. In his first amended complaint, Cruz allegedthat he was an enrollee in one of the various health plansPacifiCare offers and operates in California. He alsoalleged that "through its misleading and deceptivematerial representations and omissions," PacifiCare hasemployed a "fraudulent, unlawful, and/or unfair schemedesigned to induce" persons to enroll in its health plansby "misrepresenting . . . that its primary commitment . . .is to maintain and improve the quality of healthcareprovided." In fact, Cruz alleged, PacifiCare "has beenaggressively engaged in implementing undisclosedsystemic internal policies that are designed, inter alia, todiscourage PacifiCare's primary care physicians fromdelivering medical services and to interfere with themedical judgment of PacifiCare healthcare providers."The result of these policies, he alleged, is a "reduction inthe quality of [provided] healthcare" that "is directlycontrary to PacifiCare's representations."

Cruz emphasized in his first amended complaint thathe "does not challenge the denial of medical benefits toany enrollee or subscriber," but "challenges the manner inwhich PacifiCare . . . induced persons to subscribe to itsHealth Plans . . . by misrepresenting or failing to discloseinternal policies that lower the quality of servicesprovided." Cruz alleged that he was filing the action "inhis individual capacity and on behalf of the generalpublic," and he sought to represent a class of"approximately 1.6 million PacifiCare Health Planenrollees in California."

Based on these general allegations, Cruz alleged fourcauses of action. In the first, he alleged that PacifiCarehad violated Business and Professions Code section17500 by "engaging in false advertising" that "reduce[d]the quality of medical services available to . . . enrollees"and "decrease[d] the value of the [health coverage] forwhich [they] paid." To remedy this alleged violation,Cruz requested "an order [*309] enjoining [PacifiCare]from violating [Business and Professions Code section]17500 and requiring [it] to disgorge . . . all of [its]ill-gotten gains and monies wrongfully acquired." Thesecond cause of action alleged that in violating variousstate statutes, PacifiCare had committed an unfair,unlawful, or fraudulent business act or practice underBusiness and Professions Code section 17200 that"reduce[d] the quality of medical services available to"enrollees and "decrease[d] the value of their [**1160]respective [h]ealth [p]lans." To remedy [***62] thisalleged violation, Cruz requested "an order enjoining[PacifiCare] from violating [Business and ProfessionsCode section] 17200 and requiring [it] to disgorge . . . allof [its] ill-gotten gains and monies wrongfully acquired."The third cause of action alleged that PacifiCare'smisrepresentations violated the CLRA (Civ. Code, §1770). To remedy this alleged violation, Cruz requested"an order enjoining [PacifiCare's] wrongful acts andpractices" and requiring that PacifiCare "make restitution. . . of all monies paid to" it. Cruz also stated his intent toadd a request for actual damages if PacifiCare failed toremedy the damage from its violation. The fourth causeof action was for unjust enrichment, and alleged that as aresult of PacifiCare's conduct, enrollees had "receiv[ed] alower quality of care than advertised and represented by"PacifiCare. As to remedy, Cruz requested "restitution,refund, or reimbursement of" certain monies paid by oron behalf of enrollees, and "disgorgement of theexcessive and ill-gotten monies obtained by [PacifiCare]as a result of the unlawful, fraudulent, or unfair business

Page 430 Cal. 4th 303, *307; 66 P.3d 1157, **1159;

133 Cal. Rptr. 2d 58, ***60; 2003 Cal. LEXIS 2624

acts and practices and untrue and misleadingadvertisements."

PacifiCare moved for an order compelling Cruz toarbitrate his claims and staying the action pendingcompletion of arbitration. PacifiCare argued that Cruz,who obtained health coverage through his employer, wasrequired to arbitrate his claims under several provisionsof the subscriber agreement between his employer andPacifiCare. PacifiCare relied primarily on paragraph15.02 of the subscriber agreement, which provides inpart: "ARBITRATION. PACIFICARE USESBINDING ARBITRATION TO RESOLVE ANYAND ALL DISPUTES BETWEEN PACIFICAREAND GROUP OR MEMBER, INCLUDING . . .DISPUTES RELATING TO THE DELIVERY OFSERVICES UNDER THE PACIFICARE HEALTHPLAN. PACIFICARE, GROUP AND MEMBEREACH UNDERSTAND AND EXPRESSLY AGREETHAT BY ENTERING INTO THE PACIFICARESUBSCRIBER AGREEMENT, PACIFICARE,GROUP AND MEMBER ARE EACHVOLUNTARILY GIVING UP THEIRCONSTITUTIONAL RIGHT TO HAVE ALL SUCHDISPUTES DECIDED IN A COURT OF LAWBEFORE A JURY, AND INSTEAD AREACCEPTING THE USE OF BINDINGARBITRATION." PacifiCare also relied on paragraph7.01.01 of the subscriber agreement, which establishes aprocedure for "Member Appeals not related to quality ofcare" and provides that a member who is not satisfiedwith the outcome of PacifiCare's internal appeals process"may . . . submit or request that PacifiCare submit theAppeal to binding arbitration before the AmericanArbitration Association" (AAA). Paragraph 7.01.01 alsoprovides: "Upon submission of a dispute to the [AAA],Member and PacifiCare agree to be bound by the rules ofprocedure and decision of the [AAA]." PARAGRAPH7.01.01 CONCLUDES BY STATING: "PACIFICAREAND MEMBER UNDERSTAND THAT BYENTERING INTO THIS AGREEMENT, THEYARE GIVING UP THEIR CONSTITUTIONALRIGHT TO HAVE ANY DISPUTE DECIDED IN ACOURT OF LAW BEFORE A JURY ANDINSTEAD ARE ACCEPTING THE USE OFARBITRATION." PacifiCare also relied on Cruz'ssigned enrollment form, which stated that he [*310]"agree[d] to and underst[ood]" SEVERAL TERMS ANDCONDITIONS, INCLUDING: (1) "To be bound by thePacifiCare . . . Subscriber Agreement"; and (2) that

"[a]ny differences between myself . . . and PacifiCare . . .relating to PacifiCare . . . or its performance are subject tobinding arbitration." Finally, PacifiCare relied on the[***63] member handbook it sent to Cruz, whichdescribes PacifiCare's internal appeals process and, formembers unsatisfied with the result of that process, theoption of arbitration before the AAA. The memberhandbook also states: "MEMBERS UNDERSTANDTHAT BY ENROLLING IN PACIFICARE, THEYAGREE TO GIVE UP THEIR CONSTITUTIONALRIGHT TO HAVE ANY DISPUTE DECIDED IN ACOURT OF LAW BEFORE A JURY ANDINSTEAD ARE ACCEPTING THE USE OFARBITRATION FOR RESOLVING DISPUTESWITH PACIFICARE."

Cruz opposed PacifiCare's motion on severalgrounds. He first argued that the applicable [**1161]arbitration provision does not encompass this disputebecause the paragraph in the subscriber agreementrequiring arbitration before the AAA governs appeals "'not related to quality of care' " and his complaint "issolely . . . directed to the 'quality of care' provided byPacifiCare." Second, he argued that his requests forinjunctive relief are inarbitrable under Broughton. Third,he argued that the arbitration clause is unconscionable.Finally, he argued that because PacifiCare did not enterinto any agreement with either him or his employer, itmay not invoke the arbitration clause.

PacifiCare offered several arguments in response.Regarding Cruz's contention under Broughton, PacifiCareargued that Broughton prohibits arbitration only of claimsfor injunctive relief under the CLRA, and does notprohibit arbitration of Cruz's "monetary" claims fordisgorgement, restitution and reimbursement or hisrequest for injunctive relief under Business andProfessions Code sections 17200 and 17500. Regardingthe scope of arbitration, PacifiCare argued that becausethe language of paragraph 15.02 of the subscriberagreement requires "BINDING ARBITRATION TORESOLVE ANY AND ALL DISPUTES BETWEENPACIFICARE AND GROUP OR MEMBER" (italicsadded), it includes claims related to quality of care.Supporting this interpretation, PacifiCare asserted, is thefact that "the one example [paragraph 15.02] provides ofa covered dispute--'allegations against PacifiCare ofmedical malpractice'--addresses a claim involving qualityof care." PacifiCare also argued that "even if 'quality ofcare' issues were exempt from arbitration," Cruz does not

Page 530 Cal. 4th 303, *309; 66 P.3d 1157, **1160;


raise quality of care issues, and his claims therefore donot fall within this exemption. Finally, PacifiCare arguedthat the arbitration clause was not unconscionable.

[*311] The trial court denied PacifiCare's motion tocompel arbitration. It reasoned that Broughton expresslyprecludes arbitration of Cruz's claim for injunctive reliefunder the CLRA, and it "extended" Broughton'sreasoning to claims for injunctive relief under Businessand Professions Code sections 17200 and 17500 "by anindividual acting as a private attorney general." The courtalso reasoned that Cruz's claims for disgorgement,restitution, and unjust enrichment are inarbitrable asessentially equitable remedies distinct from damages.Given these conclusions, the court expressly declined torule on any of Cruz's other objections to PacifiCare'smotion.

The Court of Appeal affirmed, relying on Broughtonand rejecting PacifiCare's argument that the United StatesSupreme Court had abrogated Broughton in subsequentdecisions. It also upheld the trial court's extension ofBroughton to claims for disgorgement and restitutionunder Business and Professions Code section 17200 etseq., relying primarily on the public benefit derived fromthose remedies and the interrelationship between those[***64] remedies and injunctive relief. The court limitedits holding to equitable remedies within the context ofclass action claims. Like the trial court, the Court ofAppeal did not consider any of Cruz's other argumentsagainst arbitration. We then granted PacifiCare's petitionfor review.

II. DISCUSSION

A. Did Green Tree and Circuit City OverruleBroughton?

(1a) PacifiCare contends that our decision inBroughton, supra, 21 Cal.4th 1066, holding thatinjunctive relief claims under the CLRA are inarbitrable,should be overruled in light of Green Tree, supra, 531U.S. 79, and Circuit City, supra, 532 U.S. 105. Accordingto PacifiCare, these two post-Broughton decisions, readin conjunction with earlier United States Supreme Courtdecisions, make clear that only Congress--and not statelegislatures--may create exceptions to the FederalArbitration Act's (FAA) requirement that arbitrationagreements be enforced according to their terms, and thattherefore state courts cannot hold that certain requests forpublic injunctive relief are inarbitrable. We disagree.

In Broughton, we recognized that the United StatesSupreme Court has emphasized Congress's and its ownpolicy in favor of arbitration and, at least since 1984, has[**1162] rejected numerous efforts and arguments bystate courts, federal courts and litigants to declare certainclasses of cases not subject to arbitration. ( Broughton,supra, 21 Cal.4th at pp. 1074-1075.) Indeed, weacknowledged the Supreme Court's broad statement in itsseminal arbitration case, [*312] Southland Corp. v.Keating (1984) 465 U.S. 1, 10 [79 L. Ed. 2d 1, 104 S. Ct.852], that " '[i]n enacting § 2 of the [FAA], Congressdeclared a national policy favoring arbitration andwithdrew the power of the states to require a judicialforum for the resolution of claims which the contractingparties agreed to resolve by arbitration.' " ( Broughton,supra, 21 Cal.4th at p. 1074.)

We nonetheless held that requests for injunctiverelief designed to benefit the public presented a narrowexception to the rule that the FAA requires state courts tohonor arbitration agreements. We reasoned that theSupreme Court has acknowledged that Congress may "'require a judicial forum for the resolution of claimswhich the contracting parties agreed to resolve byarbitration' " ( Broughton, supra, 21 Cal.4th at p. 1074,quoting Southland Corp. v. Keating, supra, 465 U.S. at p.10), and that "[t]he unsuitability of a statutory claim forarbitration turns on congressional intent, which can bediscovered in the text of the statute in question, itslegislative history or in an ' "inherent conflict" betweenarbitration and the [statute's] underlying purposes.' " (Broughton, supra, 21 Cal.4th at p. 1075, quoting Gilmerv. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26[114 L. Ed. 2d 26, 111 S. Ct. 1647] (Gilmer).)

We then concluded that there was indeed an inherentconflict between arbitration and the CLRA'sauthorization in Civil Code section 1780,subdivision(a)(2) for injunctive relief designed to protectthe public, e.g., to stop deceptive business practices. Aswe stated: "[T]here are two factors taken in combinationthat make for an 'inherent conflict' between arbitrationand the underlying purpose of the CLRA's injunctiverelief remedy. First, that relief is for the benefit of thegeneral public rather than the party bringing the action." ([***65] Broughton, supra, 21 Cal.4th at p. 1082 [90Cal. Rptr. 2d 334, 988 P.2d 67].) In reaching thisconclusion, we distinguished requests for publicinjunctions from other sorts of actions, such as antitrustsuits, in which the public benefit is incidental to the

Page 630 Cal. 4th 303, *310; 66 P.3d 1157, **1161;


plaintiff's award of damages; unlike private suits fordamages, in a public injunction action a plaintiff acts inthe purest sense as a private attorney general. ( Id. at pp.1075-1077.) "Second, the judicial forum has significantinstitutional advantages over arbitration in administeringa public injunctive remedy, which as a consequence willlikely lead to the diminution or frustration of the publicbenefit if the remedy is entrusted to arbitrators." ( Id. at p.1082.) We reasoned that an arbitrator lacked theinstitutional continuity and the appropriate jurisdiction tosufficiently enforce and, if needed, modify a publicinjunction. ( Id. at p. 1081.) 1 We concluded: "Given thisinherent conflict, we [**1163] will presume, absentindications [*313] to the contrary, that the Legislaturedid not intend that the injunctive relief claims bearbitrated." ( Id. at p. 1082.) We discerned no suchlegislative intent. (Ibid.)

1 Justice Chin's concurring and dissentingopinion finds significant the United StatesSupreme Court's holding that a decision of theNew York Court of Appeals, Garrity v. LyleStuart, Inc. (1976) 40 N.Y.2d 354 [386 N.Y.S.2d831, 353 N.E.2d 793], prohibiting arbitration ofpunitive damages claims, is preempted by theFAA. ( Mastrobuono v. Shearson Lehman Hutton,Inc. (1995) 514 U.S. 52, 58 [131 L. Ed. 2d 76,115 S. Ct. 1212].) In particular, the opinionpoints to the Supreme Court's implicit rejection ofGarrity's rationale that punitive damage awardsrequire "rather close judicial supervision" thatwould be lacking in arbitration. ( Garrity, supra,386 N.Y.S.2d at p. 834.) Yet it is evident that whatGarrity meant by "judicial supervision" wassimply adequate judicial and appellate review ofpunitive damage awards, not the ongoingmonitoring, enforcement, and modification that isrequired of public injunctions. (See id. at p. 835.)As we have recognized, the supposed inadequacyof judicial review of arbitration awards is notgrounds for holding a claim inarbitrable, evenwhen the arbitration involves a matter of publicimportance. ( Broughton, supra, 21 Cal.4th at p.1086.) Moreover, punitive damages, unlike publicinjunctions, confer a direct benefit on theplaintiffs seeking them, and are in principle littledifferent from the treble damages antitrust awardsthat we acknowledged in Broughton to be fullyarbitrable. ( Id. at pp. 1075-1076.)

We further concluded that denying arbitration in thisone area would not violate the FAA. As we stated:"[A]lthough the court has stated generally that thecapacity to withdraw statutory rights from the scope ofarbitration agreements is the prerogative solely ofCongress, not state courts or legislatures ( Southland,supra, 465 U.S. at p. 18), it has never directly decidedwhether a legislature may restrict a private arbitrationagreement when it inherently conflicts with a publicstatutory purpose that transcends private interests. In thepresent case, as discussed, we believe there is such aninherent conflict between arbitration and a statutoryinjunctive relief remedy designed for the protection of thegeneral public. Although both California and federal lawrecognize the important policy of enforcing arbitrationagreements, it would be perverse to extend the policy sofar as to preclude states from passing legislation thepurposes of which make it incompatible with arbitration,or to compel states to permit the vitiation througharbitration of the substantive rights afforded by suchlegislation.

"In other terms, our holding does not represent a '"suspicion of arbitration as a method of weakening theprotections afforded [***66] in the substantive law towould-be complainants" . . . "out of step with our currentstrong endorsement of the federal statutes favoring thismethod of resolving disputes" ' [Citation.] Rather, it is arecognition that arbitration cannot necessarily afford allthe advantages of adjudication in the area of privateattorney general actions, that in a narrow class of suchactions arbitration is inappropriate, and that thisinappropriateness does not turn on the happenstance ofwhether the rights and remedies being adjudicated are ofstate or federal derivation.

[*314] "Nor does anything in the legislative historyof the FAA suggest that Congress contemplated 'publicinjunction' arbitration within the universe of arbitrationagreements it was attempting to enforce. Indeed, theprimary focus of the drafters of the FAA appears to havebeen on the utility of arbitration in resolving ordinarycommercial disputes. [Citations.] Although the court hasinterpreted the FAA to extend to noncommercialstatutory claims, it is doubtful Congress would haveenvisioned the extension of the FAA to enforce arbitraljurisdiction over a public injunction." ( Broughton,supra, 21 Cal.4th at pp. 1083-1084, fn. omitted.)

The recent United States Supreme Court cases cited

Page 730 Cal. 4th 303, *312; 66 P.3d 1157, **1162;


by PacifiCare have little if any bearing on our holding inBroughton. In Circuit City, supra, 532 U.S. 105, thecourt concluded that section 1 of the FAA, which exemptsfrom the scope of the FAA "contracts of employment ofseamen, railroad employees, or any other class of workersengaged in foreign or interstate commerce" (9 U.S.C. §1), did not exempt most employment contracts. Theopinion was principally concerned with an analysis of themeaning of section 1, not the preemptive scope of section2. The majority rejected the position of various amicicuriae, including attorneys general of 22 states, whoargued that applying the FAA to employment contractswould interfere with the employment policies of thestates. In rejecting this argument, the court reaffirmedSouthland, and declined to "chip away" at that case bywhat the majority termed "an unconventional reading" ofsection 1. ( Circuit City, supra, 532 U.S. at p. 122.)Broughton, of course, was neither predicated onoverruling Southland nor on construing section 1 of theFAA. The Circuit City court did not address the centralquestion in Broughton--whether public [*315]injunctions were arbitrable. Nor did it shed any furtherlight on the "inherently incompatible" exception toarbitrability.

Still less is Green Tree, supra, 531 U.S. 79, relevantto Broughton. That case was narrowly focused on theissue of cost sharing in the arbitration of federal statutoryclaims. Green Tree's holding did not concern federalpreemption of state arbitration claims. Nor did itsreiteration of Congress's strong pro-arbitration policy[**1164] ( id. at p. 92) call Broughton into question. Asdiscussed above, Broughton takes such a policy as agiven. ( Broughton, supra, 21 Cal.4th at pp. 1074-1075.)

In sum, nothing that is novel about Green Tree orCircuit City has any bearing on Broughton. The onlyparts of these opinions that remotely pertain to Broughtonare recapitulations of familiar themes regarding theimportance of enforcing arbitration agreements and theinability of states to prevent that enforcement. Thesewere amply considered in Broughton. Moreover, we werepresented in Broughton with extensive argument thatCLRA public injunctions were arbitrable. (See [***67]Broughton, supra, 21 Cal.4th at pp. 1088-1103 [90 Cal.Rptr. 2d 334, 988 P. 2d 67] (dis. opn. of Chin, J.).) Wedecline PacifiCare's invitation to revisit this argument.

B. Are Injunctions Under Business and ProfessionsCode Sections 17200 and 17500 Arbitrable?

PacifiCare contends that even if we affirm ourholding in Broughton that claims for injunctive reliefunder the CLRA are inarbitrable, the same should nothold true for injunctive relief claims under the unfaircompetition law (UCL), Business and Professions Codesection 17200 et seq., and claims of false advertisingunder Business and Professions Code section 17500. Wedisagree under the circumstances of the present case.

(2) The UCL is intended to proscribe "unfair orfraudulent business act[s] or practice[s] and unfair,deceptive, untrue or misleading advertising . . . . " (Bus.& Prof. Code, § 17200.) The law provides that anyperson engaged in unfair competition may be enjoined.(Id., § 17203.) Moreover, "[s]tanding to sue under theUCL is expansive . . . . Unfair competition actions can bebrought by a public prosecutor or 'by any person actingfor the interests of itself, its members or the generalpublic.' " ( Korea Supply Co. v. Lockheed Martin Corp.((2003) 29 Cal.4th 1134, 1143 [131 Cal. Rptr. 2d 29, 63P.3d 937] (Korea Supply), quoting Bus. & Prof. Code, §17204.) The UCL is intended to protect competitors aswell as consumers from unfair practices. ( Tippett v.Terich (1995) 37 Cal.App.4th 1517, 1536 [44 Cal. Rptr.2d 862].) Thus, there may be occasions in which theinjunctive power of the UCL is used primarily to redressinjuries to competing businesses and only incidentally forthe public benefit. (See, e.g., Cel-Tech Communications,Inc. v. Los Angeles Cellular Telephone Co. (1999) 20Cal.4th 163, 188-190 [83 Cal. Rptr. 2d 548, 973 P.2d527].) In Broughton, we declined to decide whetherrequests for injunctive relief designed primarily to rectifyindividual wrongs were arbitrable. ( Broughton, supra, 21Cal.4th at p. 1080, fn. 5.(1b))

We need not decide whether UCL injunctive reliefactions brought by injured business competitors arearbitrable. In the present case, the request for injunctiverelief is clearly for the benefit of health care consumersand the general public by seeking to enjoin PacifiCare'salleged deceptive advertising practices. The claim isvirtually indistinguishable from the CLRA claim that wasat issue in Broughton. ( Broughton, supra, 21 Cal.4th atp. 1072 [Broughton sought to enjoin health carecompany's alleged deceptive advertising of its medicalservices].)

The same is true of Cruz's request to enjoinPacifiCare's alleged misleading advertising underBusiness and Professions Code section 17500. That

Page 830 Cal. 4th 303, *314; 66 P.3d 1157, **1163;


[*316] section makes unlawful "untrue or misleading"statements designed to "induce the public to enter intoany obligation" to purchase various goods and services.(Ibid.) Section 17535 authorizes the enjoining of suchstatements by various government officials and membersof the public. Cruz's injunctive relief claim under section17535 is essentially requesting the same relief for thesame reason as is his UCL claim. (See Committee onChildren's Television, Inc. v. General Foods Corp.(1983) 35 Cal.3d 197, 210 [197 Cal. Rptr. 783, 673 P.2d660] [same false advertising claim may give rise toactions under the UCL and Bus. & Prof. Code, § 17500].)In other words, Cruz's action to enjoin PacifiCare'salleged deceptive business practices is undertaken for thepublic benefit, whether designated as a claim under theCLRA or [***68] Business and Professions Codesection 17200 or section 17500: [**1165] it is designedto prevent further harm to the public at large rather thanto redress or prevent injury to a plaintiff. As such, for thereasons discussed in Broughton, there is an " 'inherentconflict' between arbitration and the underlying purposeof [those statutes'] injunctive relief remedy." ( Broughton,supra, 21 Cal.4th at p. 1082.)

We therefore conclude that Cruz's injunctive reliefclaim is inarbitrable unless there are indications oflegislative intent to the contrary in the UCL or Businessand Professions Code section 17500. ( Broughton,supra, 21 Cal.4th at p. 1082.) We discern no such intent.Business and Professions Code sections 17203 and 17535both provide that injunctive relief claims are to bebrought in "any court of competent jurisdiction." (Italicsadded.) PacifiCare points to certain features in the CLRAnot present in the UCL, such as the CLRA antiwaiverprovision (Civ. Code, § 1751) and the fact that it providesfor more extensive remedies than the UCL or Businessand Professions Code section 17500 (Civ. Code, § 1780).(See Broughton, supra, 21 Cal.4th at p. 1077.) But thesewere not the characteristics we relied on in concludingthat requests for injunctive relief under the CLRA areinarbitrable. ( Broughton, at p. 1082.) The absence ofthese features in the UCL or in Business and ProfessionsCode section 17500 does not persuade us that theLegislature intended to allow arbitration of publicinjunctive relief requests under these statutes. Wetherefore conclude that each of Cruz's injunctive reliefrequests is inarbitrable. 2

2 We note that the Courts of Appeal that haveconsidered this issue have reached a similar

conclusion. (See Warren-Guthrie v. Health Net(2000) 84 Cal.App.4th 804, 817 [101 Cal. Rptr.2d 260] [concluding injunctive relief requestunder Bus. & Prof. Code, § 17200 inarbitrableunder Broughton]; Coast Plaza Doctors Hospitalv. Blue Cross of California (2000) 83 Cal.App.4th677, 692 [99 Cal. Rptr. 2d 809] [same]; Groomv. Health Net (2000) 82 Cal.App.4th 1189, 1199[98 Cal. Rptr. 2d 836] [same].)

[*317] C. Are Cruz's Claims for Restitution andDisgorgement Under the UCL Arbitrable?

(3a) PacifiCare contends the Court of Appeal erredin extending Broughton to hold that claims for restitutionand disgorgement under the UCL are inarbitrable. Weagree.

In Broughton, we held that damages claims under theCLRA are arbitrable, notwithstanding the fact that suchclaims vindicate important statutory rights. Afterreviewing United States Supreme Court precedentregarding the arbitration of antitrust and other federalstatutory claims, we concluded that such precedentestablishes that "statutory damages claims are fullyarbitrable. Such an action is primarily for the benefit of aparty to the arbitration, even if the action incidentallyvindicates important public interests. [Citation.] In thecontext of statutory damage claims, the United StatesSupreme Court has consistently rejected plaintiffs'arguments that abbreviated discovery, arbitration'sinability to establish binding precedent, and a plaintiff'sright to a jury trial render the arbitral forum inadequate,or that submission of resolution of the claims toarbitration is in any sense a waiver of the substantiverights afforded by statute. [Citations.] 'By agreeing toarbitrate a statutory claim, a party does not forgo thesubstantive rights afforded by the statute; it only submitsto their resolution in an arbitral, rather than a judicial,forum.' " ( [***69] Broughton, supra, 21 Cal.4th at p.1084 [90 Cal. Rptr. 2d 334, 988 P. 2d 67].) 3

3 In Armendariz v. Foundation HealthPsychcare Services, Inc. (2000) 24 Cal.4th 83,99-113 [99 Cal. Rptr. 2d 745, 6 P.3d 669], weheld that arbitration of unwaivable statutoryclaims pursuant to a mandatory arbitrationemployment agreement required the incorporationof certain procedural protections. Cruz does notraise the issue whether those protections apply inthe present context of arbitrating statutory

Page 930 Cal. 4th 303, *316; 66 P.3d 1157, **1164;


consumer protection claims, and we do notaddress this issue.

(4) Under the UCL, remedies are limited. "A UCLaction is equitable in nature; damages cannot berecovered. [Citation.] . . . '[P]revailing plaintiffs aregenerally limited to injunctive relief and restitution.' " ([**1166] 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 obtainedthrough an unfair business practice to those persons ininterest from whom the property was taken, that is, topersons who had an ownership interest in the property orthose claiming through that person." ( Kraus v. TrinityManagement Services, Inc. (2000) 23 Cal.4th 116,126-127 [96 Cal. Rptr. 2d 485, 999 P.2d 718], fn.omitted.(3b))

As we noted in Cortez v. Purolator Air FiltrationProducts Co. (2000) 23 Cal.4th 163, 173 [96 Cal. Rptr.2d 518, 999 P.2d 706], Civil Code section 3281 defines"damages": "Every person who suffers detriment fromthe unlawful act or omission of another, may recoverfrom the person in fault [*318] a compensation thereforin money, which is called damages." We concluded thatdamages, thus broadly defined, "may include arestitutionary element." ( Cortez, supra, 23 Cal.4th at p.174.) Given this overlap, there appears to be no reasonwhy restitutionary claims, like CLRA claims fordamages, should not be arbitrable. Nothing inBroughton's functional analysis suggests that the meredesignation of restitution as an equitable remedy makesthe request for the remedy inarbitrable. Moreover,although Cruz argues that restitution under the UCLaccomplishes a public purpose by deterring unlawfulconduct, the same could be said of damages under theCLRA or under various federal statutes. This deterrenteffect is, however, incidental to the private benefitsobtained from those bringing the restitutionary ordamages action. ( Broughton, supra, 21 Cal.4th at p.1084.) The Supreme Court has made clear that suchactions, notwithstanding the public benefit, are fullyarbitrable under the FAA. (Ibid.) 4

4 We note that the language authorizingrestitution for misleading advertising practicesunder Business and Professions Code section17535 is virtually identical to the languageauthorizing restitution found in section 17203under the UCL. Both provisions declare that a

"court may make such orders or judgments" as"may be necessary to restore to any person ininterest any money or property, real or personal,which may have been acquired by" the businesspractices made unlawful by the statute inquestion. We therefore assume, at least on theissue of arbitrability, that section 17535 should beconstrued the same way as section 17203.

The Court of Appeal in the present case expresslylimited its holding of inarbitrability to UCL class actionsuits. A class action may be primarily for the publicbenefit. But public benefit is only one of the factors weidentified in Broughton as weighing in favor of theaction's inarbitrability. ( Broughton, supra, 21 Cal.4th atp. 1082.) The other factor, the "institutional advantages"of the judicial forum over arbitration in the administrationof a public injunction, is not present. (Ibid.) It may be[***70] the case that under the UCL, a class actionwould allow for disgorgement into a fluid recovery fundand distribution by various means. (See Kraus, supra, 23Cal.4th at pp. 127, 137; Korea Supply, supra, 29 Cal.4that p. 1148, fn. 6.) But the establishment of such a fundand the distribution of its proceeds does not present thesame order of institutional difficulty as does themaintenance of a permanent statewide injunctionrequiring judicial supervision. We agree with the onepublished case on this issue that "[u]nlike a publicinjunction, disgorgement of funds does not need to becontinuously monitored because its object is limited intime and scope. Once the profits to be disgorged and therecipients of those funds are identified, there is no needfor long term modification and correction necessitatingjudicial supervision. Therefore, . . . disgorgement offunds is essentially the same as awarding moneydamages, and within the power of the arbitrators toaward. [T]here is no 'inherent conflict' between thisremedy and arbitration." ( Arriaga v. Cross Country Bank(S.D.Cal. 2001) 163 F. Supp. 2d 1189, 1197.)

[*319] Moreover, in this state we recognizeclasswide arbitration as a means of bringing collectivelegal action by parties bound to an arbitration agreement.( Keating v. Superior Court (1982) 31 Cal.3d 584,612-613 [183 Cal. Rptr. 360, 645 P.2d 1192], overruledon other grounds in Southland, supra, 465 U.S. 1;[**1167] Blue Cross of California v. Superior Court(1998) 67 Cal.App.4th 42 [78 Cal. Rptr. 2d 779].)Without addressing questions not before us, we anticipatethat courts may find it appropriate to become involved in

Page 1030 Cal. 4th 303, *317; 66 P.3d 1157, **1165;


supervising the equitable distribution of assets resultingfrom a class recovery, assuming entitlement to suchrecovery has been established. But we foresee that theywould be able to do so without becoming involved in themerits of the underlying dispute. The same cannot be saidfor the supervision, continued enforcement, andmodification of a public injunction, wherein judicialinvolvement would appear to be both inevitable anddesirable. (See Broughton, supra, 21 Cal.4th at pp.1080-1082.) 5

5 We note that the United States Supreme Courthas recently granted a writ of certiorari in a casethat may decide the validity of classwidearbitration when class action is not provided for inthe arbitration agreement. ( Green Tree Fin. Corp.v. Bazzle, cert. granted Jan. 15, 2003, No. 02-634,537 U.S. 1098 [154 L.Ed.2d 766, 123 S. Ct. 817].)The unavailability of classwide arbitration wouldnot alter our conclusion in the present case. As theSupreme Court has stated in rejecting theargument that the unavailability of classwiderelief is grounds for not enforcing an arbitrationagreement: " '[E]ven if the arbitration could notgo forward as a class action or class relief couldnot be granted by the arbitrator, the fact that [astatute] provides for the possibility of bringing acollective action does not mean that individualattempts at conciliation were intended to bebarred.' " ( Gilmer, supra, 500 U.S. at p. 32.)

Amici Curiae Trial Lawyers for Public Justice et al.argue that a recent United States Supreme Court case,Equal Employment Opportunity Commission v. WaffleHouse, Inc. (2002) 534 U.S. 279 [151 L. Ed. 2d 755, 122S. Ct. 754], supports their position that all UCL claimsare inarbitrable. In Waffle House, the Supreme Courtmajority held that the Equal Employment OpportunityCommission (EEOC) may sue employers not only whenit seeks to enjoin discriminatory employment practices,but also for victim-specific relief, such as reinstatementand backpay, even when the employee on whose behalf itis acting is a party to a binding arbitration agreement. Thecourt reasoned that the EEOC was neither [***71] aparty to the arbitration agreement nor a mere proxy forthe employee on whose behalf the action was brought,but rather an agency charged by Congress with thevindication of the public interest. ( Id. at pp. 288-291.)The court noted their conclusion might have differed ifthe EEOC could prosecute the action without the

employee's consent, or if the employee had the final sayin the EEOC's prayer for relief. ( Id. at p. 291.) Thethree-person dissent agreed with the majority that theEEOC was not bound by employee arbitrationagreements when it pursued non-victim-specific relief,but would have held that it was prevented by thearbitration agreement from bringing an action forvictim-specific relief on those employees' behalf. ( Id. atp. 298 (dis. opn. of Thomas, J.).)

[*320] Amici curiae compare the private attorneygeneral action brought under Business and ProfessionsCode section 17204 with an action brought by the EEOC,and argue that anyone acting in a private attorney generalcapacity should not be bound by an arbitrationagreement. (5) But in light of the United States SupremeCourt's strong presumption in favor of enforcingarbitration agreements reviewed above, we do not readWaffle House as permitting a party to an arbitrationagreement to evade its contractual obligation to settle itsown restitutionary claims through arbitration merely byacting as a representative on behalf of other similarlysituated claimants. 6

6 Although we do not agree with amici curiaethat Waffle House requires us to extendBroughton, neither do we agree with JusticeChin's concurring and dissenting opinion that theformer case requires us to overrule the latter.(Conc. & dis. opn. of Chin, J., post, at p. 335.) Aswe have discussed, Waffle House recognizes thatthe EEOC's action on behalf of parties to anarbitration agreement in order to vindicate thepublic interest is not confined to injunctions, butcan encompass the full range of victim-specificrelief. But it does not follow, either logically orintuitively, that all forms of relief must thereforebe arbitrable for private parties bound byarbitration agreements. For reasons explainedabove, and in Broughton, we hold that forconsumers bound by arbitration agreements,public injunctions are inarbitrable. Nothing inWaffle House contradicts or calls into questionthat conclusion. If anything, Waffle Housesuggests the Supreme Court's agreement that aparty acting entirely on behalf of the public--inthe EEOC's case in all of its actions and in Cruz'scase when he pursues a public injunction--actsbeyond the scope of any arbitration agreement.

Page 1130 Cal. 4th 303, *319; 66 P.3d 1157, **1167;


[**1168] We therefore conclude that Cruz's actionsfor restitution and/or disgorgement, whether brought asan individual or as a class action, are arbitrable. 7 By thesame logic, his common law claim for unjust enrichment,which is essentially an action for restitution (seeLauriedaoe Associates Ltd. v. Wilson (1992) 7Cal.App.4th 1439, 1448), is also arbitrable.

7 The question whether someone who is not aparty to an arbitration agreement may bring arepresentative action pursuant to Business andProfessions Code section 17204 for restitution onbehalf of injured consumers who are parties to thearbitration agreement is one that is not before us,and about which we express no opinion.

(6) Finally, we note that when there is a severance ofarbitrable from inarbitrable claims, the trial court has thediscretion to stay proceedings on the inarbitrable claimspending resolution of the arbitration. (Code Civ. Proc., §1281.4; Madden v. Kaiser Foundation Hospitals (1976)17 Cal.3d 699, 714 [131 Cal. Rptr. 882, 552 P.2d 1178].)We agree with the Court of Appeal in Coast PlazaDoctors Hospital v. Blue Cross of California, supra, 83Cal.App.4th at page 693, that such a stay is generally inorder under these circumstances. "A stay is appropriatewhere '[i]n the absence [***72] of a stay, thecontinuation of the proceedings in the trial court disruptsthe arbitration proceedings and can render themineffective.' " (Ibid.) 8

8 In his brief, Cruz argues for the first time thatunder an FAA exemption established by thefederal McCarran-Ferguson Act (15 U.S.C. §1011 et seq.), the FAA does not apply to thearbitration agreement in this case. We decline toaddress this argument because Cruz failed to raiseit 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].)

[*321] III. DISPOSITION

Although Cruz's monetary equitable relief claims arenot inherently inarbitrable, he contends, as noted, that thearbitration agreement should not be enforced for otherreasons, such as because his claims are outside the scopeof the arbitration agreement and because the agreement isunconscionable. The trial court, holding all of the claimsinarbitrable 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 inpart and reversed in part, and the cause is remanded forfurther proceedings consistent with this opinion.

George, C. J., Kennard, J., and Reardon, J., *

concurred.


CONCUR BY: BAXTER; CHIN

DISSENT BY: BAXTER; CHIN

DISSENT

BAXTER, J., Concurring and Dissenting.

The Federal Arbitration Act (9 U.S.C. § 1 et seq.(FAA)) evinces a supreme and preemptive federal policyfavoring the enforcement of arbitration agreementsinvolving interstate commerce. In Broughton v. CignaHealthplans (1999) 21 Cal.4th 1066 [90 Cal. Rptr. 2d334, 988 P.2d 67] (Broughton), this court articulated theprinciple that, notwithstanding the FAA, California mayact in contravention of that policy by requiring a judicialforum for public injunction requests that partiescontracting in interstate commerce have agreed to resolveby arbitration. There we held that claims by one partyagainst another for public injunctive relief under ourstate's Consumer Legal Remedies Act (CLRA) wereinarbitrable despite the parties' agreement to arbitrate alltheir disputes.

I joined the majority opinion in Broughton, supra, 21Cal.4th 1066. But as Justice Chin cogently andcompellingly explains in his concurring and dissentingopinion herein, Broughton's reasoning has beenundermined by three subsequent decisions of the UnitedStates Supreme Court: Equal Employment OpportunityCommission v. Waffle House, Inc. (2002) 534 U.S. 279[151 L. Ed. 2d 755, 122 S. Ct. 754]; Circuit City Stores,Inc. v. Adams (2001) 532 U.S. 105 [149 L. Ed. 2d 234,121 S. Ct. 1302]; and Green Tree Fin. Corp.-Ala. v.Randolph (2000) 531 U.S. 79 [148 L. Ed. 2d 373, 121 S.Ct. 513]. Accordingly, while I concur fully in themajority's conclusion [**1169] here that plaintiff Jose E.

Page 1230 Cal. 4th 303, *320; 66 P.3d 1157, **1167;


Cruz's claims for restitution, disgorgement, and unjustenrichment are arbitrable pursuant to the parties'agreement, I cannot join in its determination to followand extend Broughton to bar arbitration of plaintiff'srequests for injunctive [*322] relief under the CLRA,the unfair competition law (UCL) (Bus. & Prof. Code, §17200 et seq.), and Business and Professions Codesection 17500.

Not only do the recent Supreme Court authoritiescast grave doubt on [***73] Broughton's legal analysisand conclusion, but as Justice Chin also points out,claims under the UCL are easily alleged in the context ofbusiness activities. (Conc. & dis. opn. of Chin, J., post, atp. 339.) Therefore, extending Broughton to UCLinjunctive relief requests will surely frustrate thelegitimate contract expectations of a great many who seekto secure the benefits of a nonjudicial forum for resolvingtheir disputes. Indeed, virtually every lawsuit involving abusiness entity will be subject to compounded costs anddelayed resolution of claims when bifurcated litigation ofthe suit proceeds one part after the other in dual fora:first, an arbitration proceeding in which any UCL-basedrestitution, disgorgement, and unjust enrichment claimsand any non-UCL damages claims are resolved; andsecond, a judicial action in which the UCL claimsseeking public injunctive relief are litigated. (See maj.opn., ante, at p. 320.) This additional consideration is aparamount one that further contributed to myreevaluation of Broughton.

For all the foregoing reasons, I hereby dissent fromthe majority's decision that plaintiff's requests forinjunctive relief are inarbitrable.

CHIN, J., Concurring and Dissenting.

I concur in the majority's holding that the claims ofplaintiff Jose E. Cruz for restitution, disgorgement, andunjust enrichment are arbitrable. However, I dissent fromthe 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'srequests for injunctive relief under the Consumers LegalRemedies Act (CLRA) (Civ. Code, § 1750 et seq.), theunfair competition law (UCL) ( Bus. & Prof. Code, §17200 et seq.), and Business and Professions Codesection 17500 are not arbitrable. Broughton's holding thatCLRA claims for so-called public injunctive relief are notarbitrable is inconsistent and incompatible with theUnited States Supreme Court's binding construction of

the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.)in three post-Broughton decisions: Circuit City Stores,Inc. v. Adams (2001) 532 U.S. 105 [149 L. Ed. 2d 234,121 S. Ct. 1302] (Circuit City), Equal EmploymentOpportunity Commission v. Waffle House, Inc. (2002)534 U.S. 279, 294-296 [151 L. Ed. 2d 755, 122 S. Ct.754] (Waffle House), and Green Tree FinancialCorp.-Alabama v. Randolph (2000) 531 U.S. 79 [148 L.Ed. 2d 373, 121 S. Ct. 513] (Green Tree) . Moreover,given the ease with which a plaintiff may allege a claimunder the UCL, the majority's extension of Broughton toUCL claims destroys the enforceability of arbitrationagreements and eviscerates the public policy--expresslyestablished by both the California Legislature and theUnited States Congress--that strongly favors enforcementof arbitration agreements according to their terms.Finally, the [*323] majority sacrifices this public policyfor no good reason; even if we hold an individual plaintiffto his or her agreement to arbitrate, under this court'sprior construction of the UCL, the Attorney General ofCalifornia and any other California citizen who has notsigned an arbitration agreement may bring a court actionfor injunctive relief to protect the public and vindicate thepublic interest in enforcement of the statutes here inquestion.

I. THE FAA PREEMPTS STATE LAWS THAT LIMITTHE ENFORCEABILITY OF ARBITRATIONAGREEMENTS.

In enacting the FAA, Congress "intended to'revers[e] centuries of judicial hostility [***74] toarbitration agreements,' [citation], by 'plac[ing] [them]"upon the same footing as other contracts." ' " ( [**1170]Shearson/American Express Inc. v. McMahon (1987) 482U.S. 220, 225-226 [96 L. Ed. 2d 185, 107 S. Ct. 2332].)Section 2 of the FAA provides: "A written provision in . .. a contract evidencing a transaction involving [interstate]commerce to settle by arbitration a controversy thereafterarising out of such contract or transaction, . . . shall bevalid, irrevocable, and enforceable, save upon suchgrounds as exist at law or in equity for the revocation ofany contract." (9 U.S.C. § 2.) This provision "requirescourts to enforce privately negotiated agreements toarbitrate, like other contracts, in accordance with theirterms" ( Volt Info. Sciences v. Leland Stanford Jr. U.(1989) 489 U.S. 468, 478 (Volt)), and "mandatesenforcement of agreements to arbitrate," even if theyinclude "statutory claims." ( Shearson, supra, 482 U.S. atp. 226.) "The 'liberal federal policy favoring arbitration

Page 1330 Cal. 4th 303, *321; 66 P.3d 1157, **1169;


agreements,' [citation], manifested by this provision andthe [FAA] as a whole, is at bottom a policy guaranteeingthe enforcement of private contractual arrangements: the[FAA] simply 'creates a body of federal substantive lawestablishing and regulating the duty to honor anagreement to arbitrate.' [Citation.]" ( Mitsubishi Motors v.Soler Chrysler-Plymouth (1985) 473 U.S. 614, 625 [87 L.Ed. 2d 444, 105 S. Ct. 3346], fn. omitted.)

The United States Supreme Court has demonstratedthe primacy and scope of this duty by repeatedlyinvalidating, under the supremacy clause of the federalConstitution, state laws that attempt to limit theenforceability of arbitration agreements. n1 Ininvalidating these state laws, the high court has explainedthat section 2 of the FAA " 'is a congressional declarationof a [*324] liberal federal policy favoring arbitrationagreements, notwithstanding any state substantive orprocedural policies to the contrary.' " ( Perry, supra, 482U.S. 483 at p. 489, italics added.) According to the court,in enacting section 2 of the FAA, Congress "withdrew thepower of the states to require a judicial forum for theresolution of claims which the contracting parties agreedto resolve by arbitration" ( Southland, supra, 465 U.S. atp. 10) in order "to foreclose state legislative attempts toundercut the enforceability of arbitration agreements." (Id. at p. 16, fn. omitted.) Thus, "the FAA ensures" that anagreement to arbitrate specified claims "will be enforcedaccording to its terms even if a rule of state law wouldotherwise exclude such claims from arbitration." (Mastrobuono, supra, 514 U.S. at p. 58, italics added.)"[A]ny . . . state policy" that purports to invalidate anarbitration clause in a contract that is otherwiseenforceable under state law is "unlawful, for that kind ofpolicy would place arbitration clauses on an unequal'footing,' directly contrary to the [FAA's] language andCongress' intent. [Citation.]" ( Allied-Bruce, supra, 513U.S. 265 at p. 281, italics added.) In short, under the highcourt's [***75] binding construction of federal law, "theFAA pre-empts state laws which 'require a judicial forumfor the resolution of claims which the contracting partiesagreed to resolve by arbitration.' [Citation.]" ( Volt,supra, 489 U.S. at p. 478.) Accordingly, "state courtscannot apply state statutes that invalidate arbitrationagreements" to which the FAA applies. 2 ( Allied-Bruce,supra, 513 U.S. at p. 272.) Mastrobuono v. ShearsonLehman Hutton, Inc. (1995) 514 U.S. 52, 58 [131 L. Ed.2d 76, 115 S. Ct. 1212] (Mastrobuono) (FAA preemptsNew York prohibition against arbitrating punitivedamages); Allied-Bruce Terminix Cos., Inc. v. Dobson

(1995) 513 U.S. 265, 268-277 [130 L. Ed. 2d 753, 115 S.Ct. 834] (Allied-Bruce) (FAA preempts Alabama statutemaking predispute arbitration agreements unenforceable);Perry v. Thomas (1987) 482 U.S. 483, 489 [96 L. Ed. 2d426, 107 S. Ct. 2520] (Perry) (FAA preempts Californiastatute prohibiting arbitration of wage collection actions);Southland Corp. v. Keating (1984) 465 U.S. 1, 10 [79 L.Ed. 2d 1, 104 S. Ct. 852] (Southland) (FAA preemptsCalifornia statute prohibiting arbitration of claims underthe California Franchise Investment Law).

2 States "may," however, "regulate contracts,including arbitration clauses, under generalcontract law principles," and thus "may invalidatean arbitration clause 'upon such grounds as existat law or in equity for the revocation of anycontract.' [Citation.]" ( Allied-Bruce, supra, 513U.S. at p. 281.) "Thus state law, whether oflegislative or judicial origin, is applicable if thatlaw arose to govern issues concerning the validity,revocability, and enforceability of contractsgenerally. A state-law principle that takes itsmeaning precisely from the fact that a contract toarbitrate is at issue does not comport with thisrequirement of [the FAA]. [Citations.]" ( Perry,supra, 482 U.S. at p. 492, fn. 9.)

[**1171] II. BROUGHTON MANUFACTURESAN EXCEPTION TO THE RULE OF FAAPREEMPTION.

In Broughton, the plaintiffs sued a defendant that hadprovided them with health care coverage. ( Broughton,supra, 21 Cal.4th at p. 1072.) They alleged in part thatthe defendant had violated the CLRA by deceptivelyadvertising the quality of medical services providedunder 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.) [*325] The defendant moved to compelarbitration, relying on a mandatory arbitration clause inits combined evidence of coverage and disclosure form.(Ibid.) The superior court denied the motion as to theCLRA claim. (Ibid.)

In a closely divided decision, a four-justice majorityof this court affirmed the superior court's decision insofaras it declined to order arbitration of the plaintiffs' requestfor an injunction under the CLRA. ( Broughton, supra,21 Cal.4th at pp. 1073-1084.) The majority opinion inBroughton concluded the California Legislature "did not

Page 1430 Cal. 4th 303, *323; 66 P.3d 1157, **1170;


intend" that requests under the CLRA for "this type ofinjunctive relief . . . be arbitrated." ( Id. at p. 1080.) Thisconclusion rested on "two factors." ( Id. at p. 1082.) First,according to Broughton, "the evident purpose of the[CLRA's] injunctive relief provision . . . is . . . to remedya public wrong" and to protect "the general public" from"being victimized by the same deceptive practices as theplaintiff suffered," not to "compensat[e]" the plaintiffwho brings and pursues the CLRA claim. ( Id. at p.1080.) "In other words," Broughton continued, "theplaintiff in a CLRA damages action is playing the role ofa 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.) Broughtonbased this finding on the view that "private arbitration"has several "institutional shortcomings . . . in the field ofsuch public injunctions," SPECIFICALLY: (1) arbitratorsare not "accountable to the public"; (2) "continuingsupervision of an injunction" is problematic becausearbitrators "are not necessarily bound by earlier decisionsof other arbitrators in the same case" and are"unconstrained by judicial review"; (3) "an [***76]arbitration award does not have collateral estoppel effectin favor of nonparties to an arbitration unless the arbitralparties so agree"; and (4) "modification or vacation of[arbitral] injunctions involves the cumbersome process ofinitiating a new arbitration proceeding." ( Id. at p. 1081.)According to Broughton, these "two factors taken incombination . . . make for an 'inherent conflict' betweenarbitration and the underlying purpose of the CLRA'sinjunctive relief remedy." ( Id. at p. 1082.) Based on this"inherent conflict," Broughton "presume[d] . . . theLegislature did not intend that [CLRA] injunctive reliefclaims be arbitrated," and found no "indications" of acontrary legislative intent to overcome this presumption.(Ibid.) In reaching this conclusion, Broughton held thatdespite the express statutory declaration in Code of CivilProcedure section 1281 that arbitration agreements are"valid, enforceable and irrevocable, save upon suchgrounds as exist for the revocation of any contract," theLegislature "may express its intention to make a statutoryright inarbitrable . . . implicitly in those rarecircumstances in which the fulfillment of the statutorypurpose inherently conflicts with arbitration." (Broughton, supra, 21 Cal.4th at p. 1082, fn. 7.)

Broughton next found that this construction of theCLRA, although invalidating agreements to arbitrateCLRA injunction requests, did not violate the [*326]

FAA. ( Broughton , supra, 21 Cal.4th at pp. 1082-1084.)Relying on [**1172] Gilmer v. Interstate/Johnson LaneCorporation (1991) 500 U.S. 20 [114 L. Ed. 2d 26, 111 S.Ct. 1647] (Gilmer), Broughton concluded that despitethe FAA, a court may invalidate an arbitration agreementif it finds, based on an " 'inherent conflict' " betweenarbitration and a state statutory right or remedy, that thestate legislature intended to prohibit arbitration of claimsinvolving that state right or remedy. ( Broughton, supra,21 Cal.4th at pp. 1082-1083.) Broughton acknowledgedthat the high court had "recognize[d] an 'inherent conflict'exception" to the FAA only with respect to "federalstatutory claims," and that Gilmer and the other highcourt cases discussing that exception "occurred in thecontext of an inquiry into whether Congress had intendedfederal statutory claims to be exempt from arbitration."(Ibid., first italics added.) Citing Southland, Broughtonalso recognized that "the [high] court has stated generallythat the capacity to withdraw statutory rights from thescope of arbitration agreements is the prerogative solelyof Congress, not state courts or legislatures [citation] . . .." ( Broughton, supra, 21 Cal.4th at p. 1083.)Nevertheless, according to Broughton, the high court'sFAA preemption decisions "ha[d] never directly decidedwhether a legislature may restrict a private arbitrationagreement when it inherently conflicts with a publicstatutory purpose that transcends private interests." (Ibid.)Broughton also reasoned that "it would be perverse toextend the policy [of the FAA] so far as to preclude statesfrom passing legislation the purposes of which make itincompatible with arbitration . . . ." (Ibid.) Finally,Broughton reasoned that the "inappropriateness" ofarbitration as a means for resolving certain "privateattorney general actions . . . does not turn on thehappenstance of whether the rights and remedies beingadjudicated are of state or federal derivation." (Ibid.)Broughton thus concluded that notwithstanding the highcourt's pronouncement that "the FAA pre-empts statelaws which 'require a judicial forum for the resolution ofclaims which the contracting parties agreed to [***77]resolve by arbitration' " ( Volt, supra, 489 U.S. at p. 478),state legislatures and state courts may require a judicialforum for public injunction requests that contractingparties have agreed to resolve by arbitration.

Though invalidating agreements to arbitrate CLRAinjunction requests, Broughton also held that agreementsto arbitrate CLRA claims for damages are enforceable,"at least to the extent the FAA governs such claims." (Broughton, supra, 21 Cal.4th at p. 1084.) Broughton

Page 1530 Cal. 4th 303, *325; 66 P.3d 1157, **1171;


stated that the CLRA "might be interpreted" as requiringthat CLRA damage claims "be resolved solely in ajudicial forum." (Ibid.) However, Broughton alsoexplained: "[A]s [the high court's decisions] make clear,statutory damages claims are fully arbitrable [under theFAA]. Such an action is primarily for the benefit of aparty to the arbitration, even if the action incidentallyvindicates important [*327] public interests. [Citation.]In the context of statutory damages claims, the [highcourt] has consistently rejected [the] arguments thatabbreviated discovery, arbitration's inability to establishbinding precedent, and a plaintiff's right to a jury trialrender the arbitral forum inadequate, or that submissionof resolution of the claims to arbitration is in any sense awaiver of the substantive rights afforded by statute.[Citations.] 'By agreeing to arbitrate a statutory claim, aparty does not forgo the substantive rights afforded by thestatute; it only submits to their resolution in an arbitral,rather than a judicial, forum.' [Citation.]" (Ibid.) "Thus,"in order to make the CLRA "consistent with the FAA,"Broughton "interpret[ed] the CLRA as permittingarbitration of damages claims, at least to the extent theFAA governs such claims." (Ibid.)

III. THE HIGH COURT'S POST-BROUGHTONDECISIONS REQUIRE THAT WE OVERRULEBROUGHTON.

Since we decided Broughton , the high court hasissued three relevant arbitration decisions. The highcourt's statements in these three decisions require us tooverrule Broughton's holding that California may prohibitenforcement of agreements to arbitrate CLRA requestsfor public injunctions.

The first decision--Circuit City--directly refutes oneof Broughton's critical premises: that Gilmer's "inherentconflict" exception to [**1173] the FAA may applybased on the intent of a state legislature--as opposed toCongress--and that a state legislature therefore may,notwithstanding the FAA, prohibit enforcement of anarbitration agreement where the legislature concludes thatarbitration inherently conflicts with a statutory right orremedy. In Circuit City, the high court construed theFAA to apply to "all contracts of employment" exceptthose of "transportation workers." ( Circuit City, supra,532 U.S. at p. 109.) Opposing this conclusion, "[v]ariousamici, 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

"effect[ively] pre-empt[ing] . . . state employment laws[that] restrict or limit the ability of employees andemployers to enter into arbitration agreements." ( Id. atpp. 121-122.) Amici curiae contended "that States shouldbe permitted, pursuant to their traditional role inregulating employment relationships, to prohibitemployees . . . from contracting away their right topursue state-law discrimination claims in court." ( Id. atp. 122.) The high court responded that under Gilmer,arbitration agreements in employment contracts "can beenforced under the [***78] FAA without contraveningthe policies of congressional enactments givingemployees specific protection against discriminationprohibited by federal law." ( Circuit City, supra, 532 U.S.at p. 123 , [*328] italics added.) As for the policies ofstate laws, the court found them irrelevant underSouthland'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; seealso id. at p. 112 [Southland held that the FAA is"pre-emptive of state laws hostile to arbitration"].) Thecourt also declared that courts may "not chip away atSouthland by indirection." ( Circuit City, supra, 532 U.S.at p. 122.) Thus, Circuit City holds that we may not, asBroughton did, chip away at Southland by applyingGilmer's exemption analysis, including the "inherentconflict" exception, based on the intent or policies of astate legislature. Under Circuit City, only "the policies ofcongressional enactments" are relevant to this analysis;state policies are simply irrelevant unless, as the FAAprovides, they establish grounds as exist at law or inequity for the revocation of any contract. ( Circuit City,supra, 532 U.S. at p. 123, italics added.)

Circuit City also undermines Broughton's analysisand conclusion in another important respect. As I haveexplained, amici curiae in Circuit City argued for aconstruction of the FAA that would leave states free toprohibit employees from contracting away their right to ajudicial forum for resolving discrimination claims understate law. ( Circuit City, supra, 532 U.S. at pp. 121-122.)In rejecting this argument, the high court reasoned in partthat amici curiae's construction would enable states todeprive parties of the "real benefits to the enforcement ofarbitration provisions." ( Id. at pp. 122-123.)"Arbitration," the court explained, "allow[s] parties toavoid the costs of litigation . . . . These litigation costs . . .would be compounded by the difficult choice-of-lawquestions that are often presented in disputes arising fromthe employment relationship [citation], and the necessity

Page 1630 Cal. 4th 303, *326; 66 P.3d 1157, **1172;


of bifurcation of proceedings in those cases where statelaw precludes arbitration of certain types of employmentclaims but not others." ( Id. at p. 123.) The court alsoexplained that amici curiae's construction would produce"considerable complexity and uncertainty" regarding "theenforceability of arbitration agreements in employmentcontracts," which "would call into doubt the efficacy ofalternative dispute resolution procedures adopted bymany of the Nation's employers, in the processundermining [**1174] the FAA's proarbitration purposesand 'breeding litigation from a statute that seeks to avoidit.' [Citation.]" (Ibid.) As both Broughton and the casenow before us amply demonstrate, Broughton's holdingproduces precisely these effects; it deprives parties of thebenefits of arbitration, necessitates bifurcatedproceedings and compounds litigation costs, and createsboth complexity and uncertainty regarding theenforceability of arbitration agreements, thereby placingin doubt arbitration's efficacy as an alternative disputeresolution [*329] procedure, "undermining the FAA'sproarbitration purposes and 'breeding litigation from astatute that seeks to avoid it.' [Citation.]" ( Circuit City,supra, 532 U.S. at p. 123.)

The majority here errs in asserting that becauseCircuit City "was principally concerned with" theconstruction of section 1 of the FAA, whereas Broughtoninvolved "the preemptive scope of section 2," CircuitCity has "little if any bearing on" Broughton. (Maj. opn.,ante, at p. 314.) First [***79] and foremost, as I haveexplained, Circuit City expressly relied on "thepreemptive scope of section 2" (maj. opn., ante, at p. 314)in rejecting the argument that the high court shouldconstrue the FAA so as to leave states free to implementtheir own "policies" regarding the nonarbitrability ofdiscrimination claims under state law. ( Circuit City,supra, 532 U.S. at pp. 121-122.) Again, the high courtfound the argument foreclosed by Southland'sholding--reaffirmed in Allied-Bruce--that section 2 of theFAA "pre-empt[s] state antiarbitration laws." ( CircuitCity, supra, 532 U.S. at p. 122.) Second, the high courtbased its construction of section 1 on the language andjudicial construction of section 2. Regarding the former,the court contrasted the expansive language of section 2with the narrower language of section 1. ( Circuit City,supra, 532 U.S. at pp. 115, 117-118.) Regarding thelatter, the court explained that the plaintiff's broadreading of section 1 was inconsistent with the court's"expansive reading of § 2." ( Circuit City, supra, 532U.S. at p. 119.) The court reasoned that the plaintiff's

construction of section 1 would deprive parties of thearbitration benefits that section 2 confers and, by creating"considerable complexity and uncertainty" regarding "theenforceability of arbitration agreements," would"undermin[e]" section 2's "proarbitration purposes." (Circuit City, supra, 532 U.S. at p. 123.) The court alsoexplained that "it would be incongruous to adopt" areading of section 1 that would "undo" the broad"coverage in § 2" that "implement[s] proarbitrationpolicies." ( Circuit City, supra, 532 U.S. at p. 122.) Third,the plaintiff's argument in Circuit City regarding section1 was premised on the high court's "construction of § 2'scoverage provision." ( Circuit City, supra, 532 U.S. at p.114.) Fourth, and finally, before even discussing thescope of section 1, the high court considered, andrejected, the plaintiff's argument regarding the"construction of § 2," i.e., that section 2 of the FAA didnot apply because "an employment contract is not a'contract evidencing a transaction involving interstatecommerce' " within the meaning of section 2. ( CircuitCity, supra, 532 U.S. at p. 113.) Thus, the majority errs inasserting that section 2 of the FAA-and specifically its"preemptive scope" (maj. opn., ante, at p. 314)--were notcritical components of the high court's opinion in CircuitCity.

[*330] The majority also errs in asserting thatCircuit City does not "shed any further light on the'inherently incompatible' exception to arbitrability." (Maj.opn., ante, at p. 314.) In Circuit City, the attorneysgeneral essentially argued that arbitration is inherentlyincompatible with state statutes that "prohibit employees .. . from contracting away their right to pursue state-lawdiscrimination claims in court," and that requiringarbitration of these claims would "intrude[] upon thepolicies of the separate States" reflected in these statutes.( Circuit City, supra, 532 U.S. at pp. 121-122.) As I haveexplained, in rejecting this argument, the court held thatwhereas Gilmer--which sets forth the inherent conflictanalysis Broughton adopted--"involved a federal statute"and thus governs enforcement of agreements to arbitrateclaims under federal law ( Circuit City, supra, 532 U.S.at pp. 123-124), enforcement of agreements to arbitrateclaims under state law is both governed and required bySouthland's holding that the FAA "pre-empt[s] stateantiarbitration laws." [***80] ( Id. at p. 122, 121 S. Ct.1302.) Thus, Circuit City establishes that an exception tothe FAA may not be based on a state's view thatarbitration is inherently incompatible with some statepolicy.

Page 1730 Cal. 4th 303, *328; 66 P.3d 1157, **1173;


In this regard, Circuit City is consistent with anotherhigh court decision that [**1175] Broughton completelyignored: Mastrobuono. There, the high court held that theFAA preempts a New York rule prohibiting an arbitratorfrom awarding punitive damages even where anarbitration agreement authorizes the award. (Mastrobuono, supra, 514 U.S. at pp. 53-58.) New Yorkestablished this rule based on its view that punitivedamages are exemplary social remedies intended topunish and deter, not to compensate, and that as a matterof strong public policy, only the state--and not privatearbitrators--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, 83 A.L.R.3d 1024] (Garrity).)According to the state's highest court, New York's publicpolicy requires " 'rather close judicial supervision' " in theadministration of this public penal sanction and, contraryto this public policy, " 'there [is] no effective judicialsupervision over punitive awards in arbitration.' " ( Id. atp. 834.) In finding that the FAA preempts the New Yorkrule, the high court explained that under its priordecisions, "if contracting parties agree to include claimsfor punitive damages within the issues to be arbitrated,the FAA ensures that their agreement will be enforcedaccording to its terms even if a rule of state law wouldotherwise exclude such claims from arbitration." (Mastrobuono, supra, 514 U.S. at p. 58, italics added.)Therefore, "in the absence of contractual intent to thecontrary, 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.) According to the[*331] high court, the question thus came "down to whatthe contract"--not New York law--"ha[d] to say about thearbitrability of [the] claim for punitive damages." ( Id. atp. 58, italics added.) The court found that "[a]t most," onecontractual provision "introduce[d] an ambiguity into anarbitration agreement that would otherwise allow punitivedamages awards." ( Id. at p. 62.) Explaining that the FAArequires resolution of such ambiguities in favor ofarbitration, the court read the arbitration agreement topermit arbitration of a punitive damages claim and itordered enforcement of the arbitrator's award of punitivedamages notwithstanding New York's law precludingsuch an award. ( Mastrobuono, supra, 514 U.S. at pp.62-64.)

Mastrobuono, which Broughton did not consider oreven cite, undermines Broughton's analysis andconclusion in several critical respects. First, it directlycontradicts Broughton's statement that the high court

"ha[d] never directly decided whether a legislature mayrestrict a private arbitration agreement when it inherentlyconflicts with a public statutory purpose that transcendsprivate interests." ( Broughton, supra, 21 Cal.4th at p.1083.) Second, it directly refutes Broughton's view thatarbitration of CLRA injunction requests is impermissiblebecause of the need for continuing judicial supervision ofCLRA injunctions. ( Broughton, supra, 21 Cal.4th at p.1081.) Finally, and perhaps most importantly,Mastrobuono directly refutes the fundamental premise ofBroughton's analysis: that the high court cases leavestates free to prohibit arbitration of a state remedy if "theprimary purpose and effect of" that remedy is to protectthe public, "not to compensate for an individual wrong."[***81] ( Broughton, supra, 21 Cal.4th at p. 1077 [90Cal. Rptr. 2d 334, 988 P.2d 67].) In the high court's view,"by definition," the purpose of punitive damages is "not .. . to compensate the injured party, but rather to punishthe tortfeasor" ( Newport v. Fact Concerts, Inc. (1981)453 U.S. 247, 266 [69 L. Ed. 2d 616, 101 S. Ct. 2748] )and to " 'protect[] the public by [deterring] the defendantand others from doing such wrong in the future.'[Citation.]" ( Pacific Mutual Life Insurance Co. v. Haslip(1991) 499 U.S. 1, 19 [113 L. Ed. 2d 1, 111 S. Ct. 1032].)Given the court's view that the purpose of punitivedamages is to protect the public and not to compensatethe victim in any sense, Mastrobuono's invalidation ofNew York's rule against arbitration of punitive damagesclearly established that the FAA preempts state lawsprohibiting arbitration of such public, noncompensatoryremedies.

The majority errs in suggesting that Broughton canbe reconciled with Mastrobuono because punitivedamages are different from public injunctions in somerelevant [**1176] sense. (Maj. opn., ante, at 312, fn. 1.)Consistent with the high court's view, we have explainedthat the "purpose" of a punitive damages award "is apurely public one"--"to punish wrongdoing and [*332]thereby to protect [the public] from future misconduct,either by the same defendant or other potentialwrongdoers. [Citation.]" ( Adams v. Murakami (1991) 54Cal.3d 105, 110 [284 Cal. Rptr. 318, 813 P.2d 1348], fn.omitted (Adams).) Thus, under existing California law,punitive damages have the same "primary purpose andeffect" that, according to Broughton, public injunctionshave: "not to compensate for an individual wrong but toprohibit and enjoin conduct injurious to the generalpublic." ( Broughton, supra, 21 Cal.4th at p. 1077.) Asthe preceding quote demonstrates, Broughton held that

Page 1830 Cal. 4th 303, *330; 66 P.3d 1157, **1174;


arbitrability depends not, as the majority suggests, onwhether a remedy "confer[s] a direct benefit on theplaintiff[]" (maj. opn., ante, at p. 313, fn. 1), but onwhether "the primary purpose and effect of" the remedyis "to compensate for an individual wrong" or "to prohibitand enjoin conduct injurious to the general public." (Broughton, supra, 21 Cal.4th at p. 1077.) Applying thistest, Broughton held that CLRA requests for publicinjunctions are inarbitrable because such relief is"designed for the protection of the general public." (Broughton, supra, 21 Cal.4th at p. 1083.) Broughton'sanalysis and conclusion are clearly irreconcilable withMastrobuono, which held that requests for punitivedamages are arbitrable even though their sole purpose isto protect the public and not to compensate the victim inany sense. Thus, that this case involves a request forinjunctive relief rather than punitive damages is not avalid basis for distinguishing Mastrobuono. Indeed, as Ilater explain in more detail, the high court rejected thisvery distinction in its post-Broughton decision in WaffleHouse. 3

3 The majority also errs in asserting that punitivedamages "are in principle little different from . . .treble damages antitrust awards." (Maj. opn., ante,at p. 313, fn. 1.) According to the high court, theantitrust treble damages provision "is in essence aremedial provision." ( Brunswick Corp. v. PuebloBowl-O-Mat, Inc. (1977) 429 U.S. 477, 485 [50 L.Ed. 2d 701, 97 S. Ct. 690], italics added.)Congress "created" it "primarily as a remedy forthe victims of antitrust violations." ( AmericanSoc. of M. E.'s v. Hydrolevel Corp. (1982) 456U.S. 556, 575 [72 L. Ed. 2d 330, 102 S. Ct. 1935],italics added.) Treble damages " 'make the remedymeaningful by counter-balancing "the difficulty ofmaintaining a private suit" ' under the antitrustlaws. [Citation.]" (Ibid., italics added.) Based onthe fact that antitrust treble damages, unlikepunitive damages, "serve as a means . . . ofcompensating victims," the high court has heldthat limitations on recovery of punitive damagesdo not apply to recovery of antitrust trebledamages. ( Id. at pp. 575-576, italics added.)Thus, the high court has rejected the majority'sview that punitive damages and antitrust trebledamages are the same "in principle." (Maj. opn.,ante, at p. 313, fn. 1.) Our prior decisions alsoreject the majority's view; they distinguishbetween punitive damages, which serve a "purely

public" function ( Adams, supra, 54 Cal.3d at p.110), and antitrust treble damages, whichprincipally provide "private compensation" andonly "incidental[ly]" confer a "public benefit." (Broughton, supra, 21 Cal.4th at p. 1080, fn.omitted, italics added.) New York decisions drawa similar distinction. ( Garrity, supra, 386N.Y.S.2d at p. 833.)

[***82] The majority's attempt to distinguishMastrobuono fails for an additional reason. The majoritysuggests that regarding " 'judicial supervision' " in [*333]arbitration, the New York rule at issue in Mastrobuonowas premised on the inadequacy of "judicial andappellate review," whereas Broughton was premised onthe "monitoring, enforcement, and modification that isrequired of public injunctions." (Maj. opn., ante, at p.313, fn. 1.) However, Broughton's discussion of thissubject stressed the fact that "[a]rbitrators" are"unconstrained by judicial review" and "are notnecessarily bound by earlier decisions of other arbitratorsin the same case." ( Broughton, supra, 21 Cal.4th at p.1081.) Thus, for several reasons, the majority's attempt todistinguish Mastrobuono is unpersuasive.

In Circuit City and Mastrobuono, the high courtsimply applied the general constitutional [**1177] ruleregarding the supremacy of federal law specifically in thearbitration context. The supremacy clause of the UnitedStates Constitution (U.S. Const., art. VI, cl. 2)"invalidates all state laws that conflict or interfere with anAct of Congress. [Citations.]" ( Rose v. Arkansas StatePolice (1986) 479 U.S. 1, 3 [93 L. Ed. 2d 183, 107 S. Ct.334], italics added.) According to the high court, this ruleapplies regardless of the magnitude or nature of thepublic policy the state law seeks to implement. "Therelative importance to the State of its own law is notmaterial when there is a conflict with a valid federal law,for the Framers of our [federal] Constitution provided [inthe supremacy clause] that the federal law must prevail.[Citation.]" ( Free v. Bland (1962) 369 U.S. 663, 666 [8L. Ed. 2d 180, 82 S. Ct. 1089].) Thus, the proper"inquiry" is "whether there is a conflict" between the statelaw and federal law, not the significance of the statepublic policy at issue. (Ibid.; see also Fidelity FederalSav. & Loan Assn. v. De La Cuesta (1982) 458 U.S. 141,153 [73 L. Ed. 2d 664, 102 S. Ct. 3014] [federalpreemption under the supremacy clause applies eventhough "real property law is a matter of special concernto the States"].) Broughton's reliance on the importance

Page 1930 Cal. 4th 303, *332; 66 P.3d 1157, **1176;


of the public interest at stake when a plaintiff seeks aCLRA injunction is inconsistent with these binding highcourt precedents and pronouncements. Regardless of thestate's interest, a "state statute [that] authorizes theprecise conduct that Congress sought to prohibit . . . isrepugnant to the [s]upremacy [c]lause." ( Rose v.Arkansas State Police, supra, 479 U.S. at p. 4.) Thus,under Broughton, the CLRA is repugnant to thesupremacy clause--and is therefore invalid--insofar as itauthorizes California courts to do precisely what the FAAprohibits: invalidate FAA-governed agreements toarbitrate requests for CLRA injunctions on grounds otherthan those that [***83] exist at law or in equity for therevocation of any contract. In short, Mastrobuono and thehigh court's post-Broughton decision in Circuit City,consistent with and following the high court's supremacyclause jurisprudence, refute a foundational assumption ofBroughton's analysis: that states may create FAAexceptions for public policy reasons.

[*334] Indeed, Mastrobuono takes on increasedimportance with respect to this issue in light of the highcourt's second relevant post-Broughton decision in WaffleHouse , which held that under the FAA, there is nodifference in terms of arbitrability between requests forpublic injunctive relief and requests for compensatory orpunitive damages. In Waffle House, the EqualEmployment Opportunity Commission (EEOC) filed adiscrimination action under the Americans WithDisabilities Act "both in the public interest and on behalfof" the specific victim of the discrimination, who hadsigned an arbitration agreement with the defendant. (Waffle House, supra, 534 U.S. at p. 284.) The complaintrequested "injunctive relief to 'eradicate the effects of [thedefendant's] past and present unlawful employmentpractices' " and "specific relief designed to make [thevictim] whole, including backpay, . . . compensatorydamages, and . . . punitive damages . . . ." ( Id. at pp.283-284.) The court of appeals held that the victim'sarbitration agreement "precluded [the EEOC] fromseeking victim-specific relief in court," but not fromseeking " 'large-scale injunctive relief.' " ( Id. at p. 284.)In so "distinguish[ing] between injunctive andvictim-specific relief," the court of appeals concludedthat "the EEOC is barred from obtaining the latterbecause any public interest served when the EEOCpursues 'make whole' relief is outweighed by the policygoals favoring arbitration." ( Id. at p. 290.) However, thecourt of appeals reasoned, "when the EEOC seeks broadinjunctive relief, . . . the public interest overcome[s] the

goals underpinning the FAA." (Ibid., fn. omitted.)

The high court in Waffle House held that under theFAA, a distinction in terms of arbitrability betweenrequests for broad, large-scale injunctive relief to protectthe public and requests for monetary relief, includingpunitive damages, is invalid. ( Waffle House, supra, 534U.S. at pp. 294-296.) The court explained that thisdistinction does not serve "its avowed purpose [**1178]of preserving the EEOC's public function while favoringarbitration. For that purpose, the category ofvictim-specific relief is both overinclusive andunderinclusive. For example, it is overinclusive because .. . punitive damages . . . serve an obvious public functionin deterring future violations. [Citations.] Punitivedamages may often have a greater impact on the behaviorof other employers than the threat of an injunction, yetthe EEOC is precluded from seeking this form of reliefunder the Court of Appeals' compromise scheme. And, itis underinclusive because injunctive relief, althoughseemingly not 'victim-specific,' can be seen as moreclosely tied to the employees' injury than to any publicinterest." ( Id. at pp. 294-295.) " 'While injunctive reliefmay appear more "broad based," it nonetheless is redressfor individuals.' " ( Id. at p. 295.) Thus, the court held, "ifthe [FAA's] policy [*335] favoring arbitration trumpsthe plain language of Title VII and the contract, theEEOC should be barred from pursuing any claim outsidethe arbitral forum. If not, then the statutory language isclear; the EEOC has the authority to pursuevictim-specific relief regardless of the forum that theemployer and employee have chosen to resolve theirdisputes." (Ibid.) [***84] The high court ultimately heldthat because the EEOC was not a party to the arbitrationagreement, it could pursue an action in court for bothinjunctive relief and victim-specific, monetary relief. ( Id.at p. 296.)

The high court's post-Broughton decision in WaffleHouse requires that we overrule Broughton as beinginconsistent with binding high court precedent. As I haveexplained, Broughton held that CLRA requests forinjunctive relief are not arbitrable because the "purpose"of such relief is "to remedy a public wrong" and toprotect "the general public," not to "compensat[e]" theplaintiff who pursues the CLRA claim. ( Broughton,supra, 21 Cal.4th at p. 1080.) In Waffle House, the highcourt rejected this analysis, explaining that evenlarge-scale requests for public "injunctive relief . . . canbe seen as more closely tied to the [victim's] injury than

Page 2030 Cal. 4th 303, *333; 66 P.3d 1157, **1177;


to any public interest" and " 'is redress for individuals.' " (Waffle House, supra, 534 U.S. at p. 295.) The high courtalso 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 aninjunction . . . ." (Ibid.) This statement, in light ofMastrobuono's holding that the FAA requiresenforcement of agreements to arbitrate requests forpunitive damages notwithstanding a state law precludingsuch arbitration ( Mastrobuono, supra, 514 U.S. at pp.53-58), contradicts Broughton's conclusion that we maybase an FAA exception for CLRA injunctive relief on thepublic nature of such relief. As I have also explained,Broughton held that although the FAA requiresenforcement of agreements to arbitrate requests formonetary relief, it does not require enforcement ofagreements to arbitrate requests for injunctive reliefdesigned to protect the public. The high court in WaffleHouse rejected this approach as well, holding that theprecise distinction Broughton drew--between large-scalerequests for injunctive relief to protect the public andrequests for victim-specific, monetary relief--is invalidunder the FAA, and that as a matter of federal law, theFAA requires courts to enforce an agreement to arbitraterequests for injunctive relief, even if that relief isdesigned principally to protect the public. ( WaffleHouse, supra, 534 U.S. at pp. 294-296.) Thus, WaffleHouse requires that we overrule Broughton and hold thatfederal law requires enforcement of agreements toarbitrate CLRA requests for injunctive relief.

The majority's discussion of Waffle Housecompletely misses the point of that decision. In WaffleHouse, the high court did not, as the majority [*336]suggests, base its decision on the extent to which theEEOC "act[s] . . . on behalf of the public." (Maj. opn.,ante, at p. 320, fn. 6.) In fact, the high court found thatthe lower federal court had erred in focusing on preciselythis factor. ( Waffle House, supra, 534 U.S. at pp.290-296.) Instead, the high court held that because theFAA " 'does not require parties to arbitrate when theyhave not agreed to do so,' " the determinative issue issimply whether the EEOC "is a party to the contract"containing [**1179] the arbitration provision. ( WaffleHouse, supra, 534 U.S. at pp. 293-294.) If not, then theEEOC has statutory authority to seek in court bothlarge-scale injunctive relief to protect the public anddamages. ( Id. at p. 294.) However, if the EEOC hasagreed to arbitration, then it must arbitrate all of itsclaims--including any request for large-scale, public

injunctive relief--and is "barred from pursuing any claimoutside the arbitral forum." ( Id. at p. 295, italics added.)[***85] In the latter situation, in terms of arbitrability,no "line [may be] drawn . . . between injunctive andvictim-specific relief." ( Id. at p. 294.) Thus, WaffleHouse establishes that contrary to Broughton, consumers,like Cruz, who have agreed to arbitration must arbitrateall of their claims, including requests for so-called publicinjunctions.

While the high court's post-Broughton decisions inCircuit City and Waffle House undermine one ofBroughton's fundamental premises--that states maydecide that injunctive relief is somehow different frommonetary damages for purposes of applying the FAA--thehigh court's third relevant post-Broughton decision inGreen Tree undermines Broughton's other fundamentalpremise: its assumption that "private arbitration" hasseveral "institutional shortcomings" that render itinherently unsuitable for resolving requests for "publicinjunctions." ( Broughton, supra, 21 Cal.4th at p. 1081.)In Green Tree, the plaintiff argued that the arbitrationagreement she signed left her "unable to vindicate herstatutory rights in arbitration"--and was thereforeunenforceable--because its "silence with respect to[payment of] costs and fees create[d] a 'risk' that she[would] be required to bear prohibitive arbitration costs ifshe pursue[d] her claims in an arbitral forum." ( GreenTree, supra, 531 U.S. at p. 90.) The high court disagreed,finding that the agreement's mere "silence on the subject"of fees was "alone . . . insufficient to render itunenforceable." ( Id. at p. 91.) Instead, the court held, "aparty seek[ing] to invalidate an arbitration agreement onthe ground that arbitration would be prohibitivelyexpensive . . . bears the burden of showing the likelihoodof incurring such costs." ( Id. at p. 92.) In reaching thisconclusion, the court acknowledged that "the existence oflarge arbitration costs could preclude a litigant . . . fromeffectively vindicating her federal statutory [*337]rights in the arbitral forum." ( Id. at p. 90.) However, thecourt held, absent evidence in "[t]he record" on thisquestion, "[t]he 'risk' that [a plaintiff] will be saddled withprohibitive costs is too speculative to justify theinvalidation of an arbitration agreement." ( Id. at p. 91.)"To invalidate the agreement on that [speculative] basis,"the court explained, "would undermine the 'liberal federalpolicy favoring arbitration agreements,' [citation]" andwould "conflict with" the court's "prior holdings that theparty resisting arbitration bears the burden of proving thatthe claims at issue are unsuitable for arbitration." (Ibid.)

Page 2130 Cal. 4th 303, *335; 66 P.3d 1157, **1178;


Thus, the court held, courts may not justify invalidatingarbitration agreements with "generalized attacks onarbitration that rest," not on evidence in the record, but"on 'suspicion of arbitration as a method of weakeningthe protections afforded in the substantive law towould-be complainants.' [Citation.]" ( Id. at pp. 89-90.)

Broughton's analysis is fundamentally inconsistentwith the high court's subsequent decision in Green Tree.As I have explained, in invalidating agreements toarbitrate CLRA requests for injunctive relief, Broughtonasserted that several "institutional shortcomings" ofarbitration render it inherently unsuitable for resolvingrequests for "public injunctions." ( Broughton, supra, 21Cal.4th at p. 1081.) However, Broughton cited noevidence--in the record or otherwise--or judiciallynoticeable facts to establish, or even support, thisassertion. Nor does the majority here cite any suchevidence. Nor did the plaintiff in Broughton or Cruz inthis case offer any evidence on this question; underGreen Tree, it was their burden, as the parties [***86]seeking to invalidate the arbitration agreements, to offersuch evidence. Thus, "[t]he 'risk' " that arbitration'sso-called institutional shortcomings render it lesseffective than court proceedings for dealing with publicinjunctions is [**1180] completely "speculative" andinsufficient "to justify the invalidation of an arbitrationagreement" requiring arbitration of CLRA requests forinjunctive relief. ( Green Tree, supra, 531 U.S. at p. 91.)Indeed, the very existence of those shortcomings iscompletely speculative. In short, Broughton's holdingregarding arbitration of CLRA injunction requests restson the very "generalized" and unproven " 'suspicion ofarbitration' " that Green Tree holds may not be a basis forinvalidating an arbitration agreement. ( Green Tree,supra, 531 U.S. at p. 89.) As the high court stated inGreen Tree, "[t]o invalidate [arbitration] agreement[s] on[such a speculative] basis . . . undermine[s] the 'liberalfederal policy favoring arbitration agreements.'[Citation.]" ( Green Tree, supra, 531 U.S. at p. 91.) Thus,Green Tree and the high court's other relevantpost-Broughton decisions require that we overruleBroughton insofar as it invalidates agreements to arbitrateCLRA injunction requests, and that we hold that all ofCruz's claims are arbitrable.

[*338] IV. EXTENDING BROUGHTON TO UCLCLAIMS EVISCERATES THE STRONG PUBLICPOLICY FAVORING ENFORCEMENT OFARBITRATION AGREEMENTS.

As Broughton recognized, the FAA is a "federalstatutory mandate" that establishes a "strong publicpolicy in favor of enforcing arbitration agreements." (Broughton, supra, 21 Cal.4th at p. 1073.) "Section 2 [ofthe FAA] is a congressional declaration of a liberalfederal policy favoring arbitration agreements . . . ." (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983)460 U.S. 1, 24 [74 L. Ed. 2d 765, 103 S. Ct. 927].) It"create[s] a body of federal substantive law ofarbitrability, applicable to any arbitration agreementwithin the coverage of the [FAA]." (Ibid.) "[Q]uestions ofarbitrability must be addressed with a healthy regard for[this] federal policy favoring arbitration. . . . The [FAA]establishes that, as a matter of federal law, any doubtsconcerning the scope of arbitrable issues should beresolved in favor of arbitration," whatever the question athand. ( Id. at pp. 24-25.)

As Broughton also recognized, "California has asimilar statute [citation] and a similar policy in favor ofarbitration. [Citation.]" ( Broughton, supra, 21 Cal.4th atp. 1074.) Code of Civil Procedure section 1281 providesthat written arbitration agreements are "valid, enforceableand irrevocable, save upon such grounds as exist for therevocation of any contract." This section establishes the"fundamental policy" of California's arbitration scheme:"that arbitration agreements will be enforced inaccordance with their terms." ( Vandenberg v. SuperiorCourt (1999) 21 Cal.4th 815, 836, fn. 10 [88 Cal. Rptr.2d 366, 982 P.2d 229].) Through the statute's enactment,"the Legislature . . . expressed a 'strong public policy infavor of arbitration as a speedy and relatively inexpensivemeans of dispute resolution.' [Citations.]" ( Moncharsh v.Heily & Blase (1992) 3 Cal.4th 1, 9 [10 Cal. Rptr. 2d183, 832 P.2d 899].) As we explained more than 85 yearsago, "[t]he policy of the law in recognizing arbitrationagreements and in providing by statute for theirenforcement is to encourage persons who wish to avoiddelays incident to a civil action to obtain an adjustment oftheir differences by a tribunal of their own choosing." ([***87] Utah Const. Co. v. Western Pac. Ry. Co.(1916) 174 Cal. 156, 159 [162 P. 631].) Thus, Californialaw, like federal law, establishes "a presumption in favorof arbitrability." ( Engalla v. Permanente Medical Group,Inc. (1997) 15 Cal.4th 951, 971 [64 Cal. Rptr. 2d 843,938 P.2d 903].)

In extending Broughton to hold that UCL claims forinjunctive relief are not arbitrable, the majority guts thestrong federal and state public policy favoring

Page 2230 Cal. 4th 303, *337; 66 P.3d 1157, **1179;


enforcement of arbitration agreements. As we haveexplained, the UCL's "scope is broad" and "[i]ts coverageis 'sweeping, embracing " 'anything that can properly becalled a business practice and that at the same time[*339] is forbidden by law.' " ' [Citations.]" ( Cel-TechCommunications, Inc. v. Los Angeles Cellular TelephoneCo. (1999) 20 Cal.4th 163, 180 [83 Cal. Rptr. 2d 548,973 P.2d 527].) In proscribing "any unlawful . . .business act or practice," Business and Professions Codesection 17200 " ' "borrows" violations of other laws andtreats these violations, when committed pursuant to abusiness activity, as [**1181] unlawful practicesindependently actionable under [the UCL] and subject tothe distinct remedies provided thereunder.' " ( FarmersIns. Exchange v. Superior Court (1992) 2 Cal.4th 377,383 [6 Cal. Rptr. 2d 487, 826 P.2d 730], italics added.)In other words, "[a]n unlawful act in the business contextis, by definition, an action of unfair competition" thatmay support a UCL action. ( Stop Youth Addiction, Inc.v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 579 [71 Cal.Rptr. 2d 731, 950 P.2d 1086] (conc. opn. of Baxter, J.),italics added.) Of course, because arbitration clauses arecontractual, every arbitrable dispute will, by definition,involve business activity and acts in the business context.Thus, under the majority's holding, in every case wherethe parties have signed an arbitration agreement, theplaintiff can frustrate the defendant's contractual right tothe benefits of an arbitral, rather than a judicial,forum--which both the high court and this court haverecognized--simply by alleging a claim under the UCLand requesting injunctive relief. Thus, the majority'sstatutory construction guts the strong public policyfavoring enforcement of arbitration agreements that boththe California Legislature and the United States Congresshave established by statute. It also does precisely whatthe high court has held states may not do: "whollyeviscerate congressional intent [in passing the FAA] toplace arbitration agreements 'upon the same footing asother contracts,' [citation], simply by passing statutes"that make certain arbitration agreements void as a matterof state public policy. ( Southland, supra, 465 U.S. at p.16, fn. 11.)

More specifically, because a UCL action may bebased on a violation of other laws, the majority's holdingwill enable plaintiffs--through artful pleading--to obtainjudicial determination of claims that they agreed toarbitrate and that the United States Supreme Court hasexpressly held to be arbitrable. In Southland, the highcourt held that where the FAA applies, claims under the

California Franchise Investment Law are arbitrablenotwithstanding a California statute prohibitingarbitration of such claims. ( Southland, supra, 465 U.S. atp. 16.) Similarly, in Perry, the high court held that wherethe FAA applies, claims under California law for unpaidwages are arbitrable notwithstanding a California statuteprohibiting arbitration of such claims. ( Perry, supra, 482U.S. at pp. 489-491.) Of course, a plaintiff may easilyplead a violation of either our Franchise Investment Lawor our wage payment statutes as a violation of the UCL.Under the majority's conclusion, [*340] by doing so, aplaintiff can frustrate the defendant's contractual right toan arbitral, rather than [***88] judicial, forum for claimsunder the Franchise Investment Law and our wagepayment statutes, despite the high court's binding andexpress holdings in Southland and Perry that the FAArequires enforcement of agreements to arbitrate theseclaims. 4 Indeed, the majority's conclusion vitiatesnumerous other high court holdings in precisely the samemanner. The high court has held that the FAA requiresenforcement of agreements to arbitrate claims under thefederal Age Discrimination in Employment Act of 1967,the Sherman Act, [**1182] the Securities Exchange Actof 1934 , the Racketeer Influenced and CorruptOrganizations Act, and the Securities Act of 1933. (Gilmer, supra, 500 U.S. at pp. 27-28.) However, contraryto these binding holdings, because a violation of any ofthese federal statutes is also a violation of the UCL, themajority's conclusion enables a plaintiff to frustrate thedefendant's contractual right to the benefits of an arbitral,rather than judicial, forum for these arbitrable federalclaims simply by alleging them as violations of the UCLand requesting injunctive relief. 5

4 In reaching its conclusion in Southland, thehigh court expressly rejected the argument thatthe FAA allows states, in addition to Congress, toenact "public policy" limits on enforcingarbitration agreements subject to the FAA and tooverride agreements to arbitrate state-law disputesthat " 'a state legislature . . . has decided should beleft to judicial enforcement.' " ( Southland, supra,465 U.S. at p. 21 (dis. opn. of Stevens, J.).)Similarly, in reaching its conclusion in Perry, thehigh court expressly rejected the argument thatthe FAA allows "state legislatures," likeCongress, "to limit or preclude waiver of ajudicial forum" for reasons of " 'public policy.' " (Perry, supra, 482 U.S. at p. 495 (dis. opn. ofO'Connor, J.).) In rejecting these arguments, the

Page 2330 Cal. 4th 303, *338; 66 P.3d 1157, **1180;


high court in both cases held that there are "onlytwo limitations on the enforceability of arbitrationprovisions governed by the [FAA]: they must bepart of a written maritime contract or a contract'evidencing a transaction involving commerce'and such clauses may be revoked upon 'groundsas exist at law or in equity for the revocation ofany contract.' " ( Southland, supra, 465 U.S. at pp.10-11, fn. omitted, italics added; see also Perry,supra, 482 U.S. at p. 489.) According to the court," 'nothing in the [FAA] indicat[es] that the broadprinciple of enforceability is subject to anyadditional limitations under state law.' " ( Id. atpp. 489-490, italics added; see also Southland,supra, 465 U.S. at p 11.)5 The majority's statement that "a stay isgenerally in order" when a plaintiff pleads botharbitrable and inarbitrable claims (maj. opn., ante,at p. 320) offers little solace. Instead, it simplyhighlights the fact that the majority's holdingdeprives defendants of their contractual right tothe benefits of an arbitral, rather than a judicial,forum. Under the majority's holding, defendantsmay have to proceed in both fora.

Finally, given the extremely broad standingprovisions applicable to claims under the UCL andBusiness and Professions Code section 17500, themajority vitiates these binding high court precedents andsacrifices the strong public policy favoring enforcementof arbitration agreements without justification. As themajority acknowledges (maj. opn., ante, at p. 315),Business and Professions Code section 17204 provides in

part that UCL [*341] actions for injunctive relief "shallbe prosecuted" by the Attorney General of California,"any district attorney," specified "county counsel," "cityprosecutor[s]" and "city attorney[s]," "or . . . any personacting for the interests of . . . the general public." (Bus.& Prof. Code, § 17204, italics added.) Under our priorconstruction of this provision, "members of the public"other than a specific victim "also have standing to pursueunfair competition claims," so "the policy underlying theunfair competition statute [***89] can be vindicated [incourt] by multiple parties" even if the specific victim hassigned an arbitration agreement and is required to honorthat agreement. ( Rubin v. Green (1993) 4 Cal.4th 1187,1204 [17 Cal. Rptr. 2d 828, 847 P.2d 1044].) A similarstanding provision applies to actions for injunctive reliefunder Business and Professions Code section 17500.(Bus. & Prof. Code, § 17535.) Given these broadstanding provisions, and given that a violation of theCLRA also constitutes a violation of the UCL, we neednot eviscerate the public policy strongly favoringenforcement of arbitration agreements in order to protectthe public or to vindicate the public interest inenforcement of these statutes. Here, we need not let Cruzout of his arbitration agreement so he can proceed incourt as a private attorney general, when the AttorneyGeneral himself, and any member of the general publicwho has not signed an arbitration agreement, can playthat role. Accordingly, I dissent from the majority'sconclusion that Cruz's requests for injunctive relief arenot arbitrable.

Baxter, J., and Brown, J., concurred.

Page 2430 Cal. 4th 303, *340; 66 P.3d 1157, **1182;


Documents

Impact Litigation Journal · 2021. 2. 10. · Cruz v. PacifiCare Health Systems, Inc., 91 Cal. App. 4th 1179, 2001 Cal. App. LEXIS 680, 111 Cal. Rptr. 2d 395 (Cal. App. 1st Dist.,