Following the Court’s recent opinion in AT&T Mobility LLC v. Concepion, 131 S. Ct. 1740 (2011), some commentators proclaimed the end of consumer class action whenever an arbitration clause existed. While Concepion is a watershed opinion holding that the Federal Arbitration Act preempts many state law doctrines that would invalidate arbitration clause class action waivers, it is not the final word on the topic. In prior articles, I noted the existence of the Arbitration Fairness Act of 2011 (H.R. 1873), which would exempt consumer, civil rights, and employment disputes from the FAA as well as reverse Rent-A-Center West, Inc. v. Jackson, 120 S. Ct. 2772 (2010). Likewise, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. Law 111-203) calls on the bureau of Consumer Financial Protection and the SEC to consider administrative rules that could invalidate certain arbitration clauses in specified transactions. Developments since the Court published Conception demonstrate that lower courts are splitting on how to interpret that authority, including in novel ways to continue invalidating class action waivers.
Straightforward Applications of Concepcion to Enforce Class Action Waivers.
Not surprisingly, many lower courts apply Conception to enforce arbitration provisions with class action waivers. In Nelson v. AT&T Mobility LLC, 2011 U.S. Dist. LEXIS 92290 (N.D. Cal. Aug. 18, 2011), the court rejected arguments that a plaintiff seeking only “public” injunctive relief under California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”) was not bound by an arbitration clause with a class action waiver. That plaintiff argued that public injunctive relief addressed a public right, so allowing that plaintiff to proceed on a class basis would not conflict with the FAA. That court also rejected the plaintiff’s arguments, based on California state court decisions following Concepcion, that claims under California’s Private Attorney General Act (“PAGA”) were not subject to Concepcion. That plaintiff unsuccessfully analogized his UCL and CLRA claims to PAGA claims.
A few days after Nelson, the Third Circuit ruled that New Jersey common law imposing class arbitration despite an agreement’s prohibition of class/collective actions is inconsistent with, and preempted by, the FAA. Litman v. Cellco P’Ship, 2011 U.S. App. LEXIS 17649 (3d Cir. Aug. 24, 2011). The Third Circuit also noted that a New Jersey choice of law provision only applied to the agreement to the extent it was consistent with the FAA. This dispels arguments that, by choosing a particular state’s substantive law, the parties necessarily choose that law to govern all aspects of interpreting the arbitration clause’s enforceability, too. As a practice pointer, however, it probably is best to specify that the FAA governs interpretation of an arbitration provision in your agreement.
Most recently, the court in Kaltwasser v. AT&T Mobility LLC, No. C07-00411 (N.D. Cal. Sept. 20, 2011), rejected arguments that an arbitration clause with a class waiver prevented the plaintiff from vindicating statutory rights.
That plaintiff pursued claims based on California’s UCL, CLRA, and False Advertising Law (“FAL”) based on AT&T’s claim to have the fewest dropped calls. The plaintiff argued that the costs of expert witnesses in an individual arbitration would prevent him from vindicating rights under those California statues. The vindication of rights argument often is based on Green Tree Financial Corporation-Alabama v. Randolph, 531 U.S. 79 (2000). There, the Court indicated that “large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum.” Id. at 90. The Kaltwasser court, however, indicated that it is not clear that Green Tree applies to the vindication of state, rather than federal, statutory rights. Slip Op. at 8. Even if Green Tree applies to state law claims, the “notion that arbitration must never prevent a plaintiff from vindicating a claim is inconsistent with Concepion.” Id. If the Concepion majority intended that plaintiffs could avoid class waivers by offering evidence of their individual costs of arbitration versus their potential recovery, one would have expected the majority to address that proposition as the dissent raised it. Id. at 8-9. It would be impractical to make a fact-specific comparison of a plaintiff’s potential award to potential costs in order to evaluate the enforceability of a class action waiver. Id. at 9. Last, the Kaltwasser court rejected the plaintiff’s argument that Concepion left intact California case law that claims for injunctive relief under the UCL, CLRA, and FAL cannot be arbitrated because the purpose of such relief is to remedy a public wrong that arbitration would frustrate. Such a principle conflicts with the FAA because that amounts to a state law outright prohibiting arbitrating particular claims. Id. at 11.
Novel Methods to Limit Concepcion’s Reach.
While those opinions enforcing class action waivers in arbitration provisions are useful to defendants, other courts find ways around Concepcion. One of those opinions actually precedes Concepion but states a principle that other courts embrace. In re American Express Merchant’s Litigation, 634 F.3d 187 (2d Cir. 2011), concluded that the costs of an economic analysis in a Sherman Act tying arrangement claim made the class waiver unenforceable. Enforcing the arbitration clause would prevent individual plaintiffs from vindicating their federal statutory rights because no plaintiff would obtain an economic analysis that typically would be at least 10 times the size of its claimed damages. Notably, the Second Circuit sua sponte stayed that matter for reconsideration in light of Concepion on August 1, 2011.
Lower courts in the Second Circuit also have relied on the vindication of federal statutory rights doctrine. For example, Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011), the court ruled that a class waiver would prevent the plaintiff from effectively vindicating statutory rights under Title VII. Circuit law made clear that such a plaintiff could only bring a “pattern or practice” discrimination claim in a collective action, so an arbitration class action waiver would make it impossible to pursue such federally-created, statutory claims.
Moving beyond federal court, we also see state courts making considerable efforts to avoid Concepion. In NAACP of Camden County East v. Thomas, 2011 N.J. Super. LEXIS 151 (N.J. Super. Ct. App. Div. Aug. 2, 2011), the court severed arbitration provisions as unenforceable under a traditional contract law analysis. That litigation involved used automobile sales, and the plaintiff wanted to avoid an arbitration clause. The court concluded that multiple documents provided to individual customers contained different, confusing, and vague language regarding arbitration. Applying traditional legal doctrines regarding contract formation and interpretation, the court concluded that no mutual assent to the arbitration provisions existed because of those deficiencies. Id. at *33-34.
Similarly, the California Court of Appeal ruled that a PAGA claim for civil penalties relating to overtime pay deficiencies is a law enforcement action protecting the pubic. Because such an action is not one benefiting private parties, refusing to enforce the arbitration clause and its class action waiver does not frustrate the FAA. Brown v. Ralphs Grocery Co., 197 Cal. App. 4th. 49 (2011). It will not be surprising to see state courts be more creative in crafting principles limiting Concepcion.
Finally, an administrative action before the National Labor Relations Board reveals that the Department of Labor and Equal Employment Opportunity Commission believe that class/collective action waivers violate the National Labor Relations Act. Section 7 of that act guarantees employees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .” Section 8(a)(1) prohibits employers from interfering with that or any other right guaranteed in § 7 of the act. In D.R. Horton Inc. v. Cuda, NLRB No. 12-CA-25764 the Department of Labor and EEOC (as well as the NLRB’s acting general counsel and various amici) assert that such waivers interfere with that ability to pursue concerted actions for mutual benefit. The NLRB has not yet issued its decision, but this issue undoubtedly will work its way through the courts following the conclusion of administrative proceedings.