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Posts Tagged ‘federal arbitration act’

The Baker Hostetler Employment Class Action Blog is constantly putting out quality content, but they have two new recent posts that I would especially recommend to my readers.  They include:

  • This February 6 post from John Lewis discussing the impacts, both on employment cases and otherwise, of the Second Circuit’s recent Amex III decision.
  • This February 6 Post from Greg Mersol discussing a recent federal court decision holding that the pleading standards articulated in Iqbal and Twombly do not apply to affirmative defenses in class actions.
  • This January 20 post from John Lewis discussing the U.S. Supreme Court’s most recent pro-arbitration opinion in CompuCredit Corp v. Greenwood.

Even if you aren’t an employment lawyer, I would strongly suggest adding www.employmentclassactionreport.com to your list of favorites!

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Last week, following the Supreme Court’s decision in AT&T Mobility v. Concepcion, I commented that the decision does not answer the question whether a federal court has the power to declare a class arbitration waiver unconscionable.  Although not on this precise issue, the Court has granted cert on a related issue relating to the enforceability of arbitration agreements that preclude class actions.

The issue presented in CompuCredit Corp. v. Greenwood, No. 10-948 is “Whether claims arising under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq., are subject to arbitration pursuant to a valid arbitration agreement.”  This would-be class action involves a potential conflict between two competing federal laws, the Federal Arbitration Act and the Credit Repair Organizations Act (CROA).  The Ninth Circuit Court of Appeals held that a class arbitration waiver was void “because the CROA specifically prohibits provisions disallowing any waiver of a consumer’s right to sue in court for CROA violations.”  In reaching that conclusion, it held that the statute’s reference to a “right to sue” was an express statement of Congressional intention to preclude waivers of consumer’s rights to bring a lawsuit in court, thus falling within an exception to the otherwise liberal policy favoring arbitration.

The case has been added to the Court’s docket for the October 2011 term.

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Class arbitration waivers are contract provisions that require disputes be submitted to arbitration but also expressly preclude the arbitration from being conducted on a representative or class basis.  Class arbitration waivers have been a hot topic in class action litigation over the past few years, as some courts have found that in certain contexts that the are unenforceable in violation of public policy.

Yesterday, the Second Circuit Court of Appeals issued its decision on remand from the U.S. Supreme Court in In re American Express Merchants’ Litigation, No. 06-1871-cv.  This is the second decision by the Second Circuit in the case finding that the class arbitration waiver provision at issue was unenforceable.  The first decision, In re American Express Merchants’ Litigation, 554 F.3d 300 (2009), was issued by a panel that included future Supreme Court Justice Sonia Sotomayor.  (See this February 2009 CAB entry discussing the decision).  Last May, the Supreme Court granted certiorari, vacated the decision, and remanded for reconsideration in light of its recent decision in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010).

A 2-judge panel, sans now-Justice Sotomayor, issued the decision on reconsideration yesterday.  The court found that Stolt-Nielsen did not change its conclusion.  The rationale is best summarized in the following excerpt:

Stolt-Nielsen states that parties cannot be forced to engage in a class arbitration absent a contractual agreement to do so. It does not follow, as Amex urges, that a contractual clause barring class arbitration is per se enforceable. Indeed, our prior holding focused not on whether the plaintiffs’ contract provides for class arbitration, but on whether the class action waiver is enforceable when it would effectively strip plaintiffs of their ability to prosecute alleged antitrust violations.

Slip op. at 11.

The Court went on to hold that the arbitration provision at issue was not enforceable because, it found, the facts in the record established that having to pursue the antitrust claims at issue in the case would be prohibitively expensive without using the class action device.  Therefore, the court reasoned, the contract provision was void for public policy reasons, as a matter of law.  In rejecting the argument that Stolt-Nielsen prohibits the invalidation of arbitration provisions for public policy reasons, the court stated:

While Stolt-Nielsen plainly rejects using public policy as a means for divining the parties’ intent, nothing in Stolt-Nielsen bars a court from using public policy to find contractual language void. We agree with plaintiffs that “[t]o infer from Stolt-Nielsen’s narrow ruling on contractual construction that the Supreme Court meant to imply that an arbitration is valid and enforceable where, as a demonstrated factual matter, it prevents the effective vindication of federal rights would be to presume that the Stolt-Nielsen court meant to overrule or drastically limit its prior precedent.” (Plaintiffs’ Supp. Brief, p. 7) Following the Stolt-Nielsen decision, our court reached a similar conclusion in considering a different iteration of the issue: whether class action waivers are unconscionable as a matter of state law.

Id. at 21.

The long-term impact of the Second Circuit’s decision is unclear, especially since the Supreme Court’s decision in AT&T Mobility v. Concepcion is expected soon.  (See this November 17, 2010 CAB Entry recapping the oral arguments in AT&T Mobility).  However, AT&T Mobility involves issues of federal preemption and the power of the state courts to find class arbitration waivers unenforceable.  Therefore, even a decision favorable to the defendant in AT&T Mobility may not prevent future federal courts from applying the Second Circuit’s reasoning in invalidating class arbitration waivers.

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The U.S. Supreme Court will hear oral argument next week in a case involving one of the hottest issues in class action law these days, the enforceability of class arbitration waivers.  Class arbitration waivers are contract clauses that require arbitration, combined with an agreement to waive the right to pursue any dispute as a class action. 

AT&T Mobile LLC v. Concepcion, docket no. 09-893, is an appeal of the Ninth Circuit’s opinion in Laster v. AT&T Mobile LLC, No. 08-56394 (9th Cir. Oct. 27, 2009), which held that a class arbitration waiver in a mobile phone terms of service agreement was unconscionable as a matter of California law. 

The Ninth Circuit opinion was in line with a trend among state and federal courts in striking down class arbitration waivers in consumer contracts on unconscionability grounds.  However, the case involved what the Ninth Circuit called a “new wrinkle”.  The clause at issue had provided for a “premium” payment of $7,500 to a consumer who obtained an arbitrator’s award higher than the company’s last settlement offer.  This provision arguably provided the incentive to pursue an individual suit that courts had found to be lacking in previous cases involving class arbitration waivers.  Despite the wrinkle, the court found that the case was not distinguishable from an earlier case in which it had found a class arbitration waiver unconscionable, and it rejected the defendant’s argument that the Federal Arbitration Act preempted the application of state law in determining the enforceability of the waiver.

The supreme Court granted certioriari to consider:

Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures-here, class-wide arbitration-when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

SCOTUS Blog has this preview of the upcoming oral argument.

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The Supreme Court recently issued a decision addressing the issue of class arbitration.  In Stolt-Nielson S.A. v.  Animalfeeds International Corp., No. 08-1198 (April 27, 2010), an antitrust class action involving allegations of illegal price-fixing by international shipping companies, the Court held that an arbitration panel’s decision to force class arbitration was invalid because the arbitration agreement was silent about whether arbitration could proceed on a class basis.   

Beyond its impact in cases involving class arbitration and the interpretation of arbitration clauses in domestic disputes, the decision partially closes the door on arbitration as a possible global forum for litigating class actions.  The Second Circuit Court of Appeals had upheld the arbitration panel’s decision to compel class arbitration and certify a class of all purchasers worldwide of the defendants’ shipping services.  The Supreme Court’s decision leaves open the possibility of global class arbitration based on an arbitration agreement that expressly permits class arbitration, but class arbitration cannot be compelled simply because the agreement is silent on the issue.

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