My recent SCOTUSblog post on the October 2010 Supreme Court Term class action decisions does not address an important decision from the Third Circuit Court of Appeals, which was issued last week. In Litman v. Cellco Partnership, the Third Circuit held that New Jersey decision holding class arbitration waivers unconscionable was preempted by the Federal Arbitration Act. To that extent, the court’s analysis is a relatively straightforward application of the federal preemption analysis in Concepcion. But what is important about the Litman decision is that the court’s analysis makes no mention of whether the arbitration clause at issue contained the sorts of consumer-friendly procedural protections contained in the AT&T Mobility arbitration clause at issue in Concepcion. Based on the quoted portions of the agreement discussed in Litman, it appears that it did not. As a result even in cases outside the Third Circuit, Litman provides a defendant with strong authority for arguing that class arbitration waivers cannot be held unconscionable under state law principles regardless of the presence of any special consumer protections ensuring that arbitration provides a meaningful mechanism for redress.
However, potential defendants should still be cautious about going too far with arbitration provisions that mandate a waiver of all avenues for class relief if they don’t also contain some provision for incentivizing the pursuit of individual arbitration of a meritorious claim. There are a variety of other arguments, including arguments based on the federal common law of arbitrability, that may still be persuasive to many courts when the particular arbitration agreement at issue appears to foreclose any possibility of litigation at all. Moreover, the decision of only one of the federal circuits will not likely be enough to prevent attempts by plaintiffs’ lawyers to attack broadly-worded arbitration agreements in consumer contracts in the short-term. So, although Litman is a good decision for defendants, prudent corporations will not treat it as an invitation to adopt draconian class arbitration waivers that have the effect of precluding nearly all consumer litigation.