Class Action Defense Blog

Class Action Waiver in Arbitration Clause Unconscionable thereby Warranting Denial of Motion to Compel Plaintiff to Arbitrate Individual Claims rather than Pursue Labor Law Class Action Complaint California State Court Holds

Plaintiff, the general manager of an El Pollo Loco restaurant, filed a putative class action against El Pollo Loco alleging violations of California’s labor code; the class action complaint alleged inter alia that defendant misclassified its general managers as exempt when they “spent the majority of their time performing nonmanagerial tasks” and that it wrongfully denied its general managers overtime compensation and meal breaks. Olvera v. El Pollo Loco, Inc., 173 Cal.App.4th 447, 451 (Cal.App. 2009). As part of his employment, plaintiff received written materials that, in part, required that all work-related disputes be resolved through binding arbitration, governed by the Federal Arbitration Act (FAA). Id., 449-50. Class action litigation was prohibited, but the parties were permitted “to conduct discovery and bring motions in an arbitration as provided by the Federal Rules of Civil Procedure,” id., at 450. Defense attorneys moved to compel arbitration of the class action complaint as to plaintiff’s individual claims only, id., at 451. Plaintiff opposed the motion to compel arbitration, arguing that the arbitration clause was unconscionable; defense attorneys argued that the clause was not unconscionable because employees were not required to sign the acknowledgement form by which they were bound to the arbitration clause. Id., at 452. The trial court denied the motion to compel arbitration, concluding that the clause was both procedurally and substantively unconscionable. Id., at 453. Under California law, an order denying a motion t compel arbitration is an appealable order. Cal. Code Civ. Proc., § 1294. Defendant appealed, and the Court of Appeal affirmed.

After summarizing the relevant law regarding arbitration agreements, see Olvera, at 453-54, the appellate court turned first to the issue of procedural unconscionability. The Court of Appeal explained at page 454, “Procedural unconscionability focuses on oppression or unfair surprise, while substantive unconscionability focuses on overly harsh or one-sided terms.” (Citations omitted.) California courts view these two factors on a sliding scale: “The more procedural unconscionability is present, the less substantive unconscionability is required to justify a determination that a contract or clause is unenforceable. Conversely, the less procedural unconscionability is present, the more substantive unconscionability is required to justify such a determination.” Id., at 454 (citations omitted). The appellate court found that the arbitration clause was procedurally unconscionable because of (1) the unequal bargaining power between the employees and the employer, which “makes it likely that the employees felt at least some pressure to sign the acknowledgment and agree to the new dispute resolution policy” even if the company insists that they were not required to do so, and (2) agreement to the dispute resolution procedure was “not an informed decision” because the description of the dispute resolution policy “was totally inaccurate.” Id., at 455-56.

Continue reading "Class Action Defense Cases–Olvera v. El Pollo Loco: California Court Affirms Denial Of Motion To Compel Individual Arbitration Of Labor Law Class Action Holding Class Action Arbitration Waiver Unenforceable" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

FAA does not Enlarge Federal Court Jurisdiction but Simply Permits District Court to Entertain Petition to Compel Arbitration where Jurisdiction Exists but for Arbitration Clause, and while District Courts may “Look Through” Pleadings to Decide Petition under FAA Section 4, Counterclaims are not Removable if Complaint is not Subject to Federal Court Jurisdiction Supreme Court Holds

Discover Card filed a “garden-variety, state-law-based contract action” against a cardholder in Maryland state court to collect $10,610.74, plus interest and attorney fees; the cardholder agreement provided for arbitration of “any claim or dispute” between Discover and the cardholder, and included a class action waiver in that it prohibited “any claims as a representative or member of a class.” Vaden v. Discover Bank, 129 S.Ct. 1262, 1268-69 and n.2 (2009). The cardholder answered and filed a putative class action counterclaim that also asserted only state law claims, id., at 1268. According to the allegations underlying the class action counterclaim, “Discover's demands for finance charges, interest, and late fees violated Maryland's credit laws.” Id. Neither Discover nor the cardholder invoked the arbitration clause in the cardholder agreement. Id., at 1268-69. In response to the class action counterclaim, Discover petitioned the federal court for an order compelling arbitration under § 4 of the Federal Arbitration Act (FAA), id., at 1269 (9 U.S.C. § 4). Though the class action claims were brought under state law, Discover argued that the counterclaims were governed by § 27(a) of the Federal Deposit Insurance Act (FDIA), which “prescribes the interest rates state-chartered, federally insured banks like Discover can charge, ‘notwithstanding any State constitution or statute which is hereby preempted.’” Id. Discover’s argument was that the cardholder’s state law claims were preempted by the FDIA and, accordingly, the federal court had jurisdiction to rule on Discover’s petition under the FAA. Id. The district court granted Discover’s petition and ordered arbitration of the cardholder’s individual claims. Id. The cardholder appealed: the Fourth Circuit questioned whether the district court had federal question jurisdiction over Discover’s FAA petition; the Circuit Court remanded the case to the district court with instructions to “‘look through’ the § 4 petition to the substantive controversy between the parties” and to make “an express determination whether that controversy presented ‘a properly invoked federal question.’” Id. (citations omitted). On remand, the cardholder conceded that his state law claims were completely preempted by the FDIA because Discover was a federally insured bank; based on this concession, the district court held it had federal-question jurisdiction and again granted the petition compelling arbitration. Id. This time, the Fourth Circuit affirmed. Id. The Supreme Court reversed.

Under Section 4 of the FAA, a district court may consider a petition to compel arbitration “if the court would have jurisdiction, ‘save for [the arbitration] agreement,’ over ‘a suit arising out of the controversy between the parties.’” Vaden, at 1267-68. The petition for certiorari presented the Supreme Court with two questions “concerning a district court’s subject-matter jurisdiction over a § 4 petition”: First, “Should a district court, if asked to compel arbitration pursuant to § 4, ‘look through’ the petition and grant the requested relief if the court would have federal-question jurisdiction over the underlying controversy?” And second, “[I]f the answer to that question is yes, may a district court exercise jurisdiction over a § 4 petition when the petitioner's complaint rests on state law but an actual or potential counterclaim rests on federal law?” Id., at 1268. The High Court summarized its holding at page 1268 as follows, “A federal court may ‘look through’ a § 4 petition and order arbitration if, ‘save for [the arbitration] agreement,’ the court would have jurisdiction over ‘the [substantive] controversy between the parties.’” But the Supreme Court reversed the Fourth Circuit’s decision because it had “misidentified the dimensions of ‘the controversy between the parties’ by ignoring that the lawsuit originated with “Discover's claim for the balance due on Vaden's account” – “Given that entirely state-based plea and the established rule that federal-court jurisdiction cannot be invoked on the basis of a defense or counterclaim, the whole ‘controversy between the parties’ does not qualify for federal-court adjudication.” Id. Accordingly, the Supreme Court reversed.

Continue reading "Arbitration Class Action Defense Cases–Vaden v. Discover Bank: Supreme Court Reverses District Court Order Under Federal Arbitration Act (FAA) Compelling Arbitration Of Class Action Counterclaims On Individual Basis" »

Posted In: Arbitration, Removal & Remand, Class Action Court Decisions

Trial Court Order Denying Defense Motion to Dismiss Labor Law Class Action and Compel Arbitration of Individual Claim based on Class Action Waiver in Unsigned Arbitration Agreement Proper because Class Action Waiver Unenforceable as Contrary to Public Policy California State Court Holds

Plaintiff, a delivery driver for a Domino’s Pizza owned by Western Pizza, filed a putative class action Western Pizza alleging labor law violations; the class action complaint asserted inter alia that defendant failed to reimburse its drivers for business expenses, and failed to pay minimum wage or provide itemized wage statements. Sanchez v. Western Pizza Enterprises, Inc., 172 Cal.App.4th 154 (Cal.App. 2009) [Slip Opn., at 2, 5]. Defense attorneys moved to dismiss the class action and compel arbitration, id., at 6. The parties were subject to an undated arbitration agreement that contained a class action waiver provision, id., at 3-4; the arbitration agreement was “not a mandatory condition of employment,” but it was governed by the Federal Arbitration Act (FAA), id., at 3. Further, though Western Pizza would pay all arbitration fees, “Except as otherwise required by law, each party shall bear its own attorney fees and costs.” Id. The arbitration agreement further provided that the arbitrator “shall be responsible for resolving any disputes over the interpretation or application of this Arbitration Agreement.” Id. With respect to the class action waiver, the agreement provided, “[T]he Arbitrator shall not consolidate or combine the resolution of any claim or dispute between the two Parties to this ADR Agreement with the resolution of any claim by any other party or parties, including but not limited to any employee of the Company. Nor shall the Arbitrator have the authority to certify a class under Federal Rule of Civil Procedure Rule 23, analogous state rules, or Arbitrator’s rules pertaining to class arbitration, and the Arbitrator shall not decide claims on behalf of any other party or parties.” Id., at 4. Plaintiff’s counsel argued that the class action arbitration waiver was unenforceable and that plaintiff would not agree to arbitration unless the class action waiver was stricken. Id., at 5. Defense counsel countered that the enforceability of the arbitration agreement, including the class action waiver, must be determined by the arbitrator. Id., at 6. The trial court denied the motion to compel arbitration, id., at 6-7. The California Court of Appeal affirmed.

After stating that the FAA does not preempt California law because it does not conflict with California law, see Sanchez, at 7-8, the Court of Appeal concluded that the enforceability of the arbitration agreement, including the class action waiver, was properly determined by the trial court rather than the arbitrator, id., at 8-11. The appellate court then turned to the enforceability of the class action arbitration waiver, and held that it was unenforceable as contrary to public policy. See id., at 11-35. We do not discuss the opinion in detail, as it follows the ground set forth in articles summarizing similar opinions that rely on Gentry v. Superior Court, 42 Cal.4th 443 (Cal. 2007) and Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005). At bottom, the appellate court affirmed the trial court order denying the motion to dismiss the class action and compel arbitration. Id., at 36.

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

In Labor Law Class Action, Trial Court Erred in Granting Defense Petition to Compel Plaintiff to Arbitrate his Claims on an Individual Basis because Class Action Waiver in Arbitration Agreement Signed by Employee was Unconscionable California State Court Holds

Plaintiff, a trash truck driver, filed a putative class action against his former employer, Athens Disposal, alleging labor law violations; the class action complaint asserted that Athens denied its employees meal and rest periods. Franco v. Athens Disposal Co., Inc., 171 Cal.App.4th 1277 (Cal.App. 2009) [Slip Opn., at 2]. According to the allegations underlying the class action, Athens failed to pay its employees overtime, and failed to provide meal periods or to pay employees an additional hour of compensation for each workday that they missed a meal period. Id., at 3. Defense attorneys moved to dismiss the class action complaint and to compel arbitration based on the terms of the employment agreement with plaintiff, id., at 2. The employment agreement contained an arbitration clause as well as a provision waiving class action relief or the right to bring an action in “a private attorney general capacity.” Id. Plaintiff countered that the class action waiver was unconscionable, id. The trial court disagreed and granted Athens’ motion to compel plaintiff to proceed with arbitration on an individual basis. Id. The California Court of Appeal reversed, concluding that the class action arbitration wavier was unconscionable “given ‘the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.’” Id. (quoting Gentry v. Superior Court, 42 Cal.4th 443, 463 (Cal. 2007)). The appellate court further held that the arbitration clause was unconscionable in that it sought to prevent plaintiff from serving as a private attorney general, it conflict with California’s Private Attorneys General Act of 2004 (PAGA). Id.

In its petition to compel arbitration and to dismiss the class action, Athens argued that the arbitration agreement was governed by the Federal Arbitration Act (FAA). Franco, at 3-4. Indeed, the employment agreement expressly provided that it was governed by the FAA, and that any arbitration would be conducted under the employment arbitration rules of the American Arbitration Association (AAA). Id., at 4. The petition to compel arbitration was simplicity itself: “Under the FAA, arbitration was mandatory.” Id. Plaintiff argued that the class action waiver was invalid under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005), which defense counsel sought to distinguish. Id., at 4-5. The trial court agreed that Discover Bank did not cover employment cases and granted the motion to compel. Id., at 5. Plaintiff sought reconsideration based on Gentry, which the trial court denied based in part on its conclusion that plaintiff’s meal and rest period claims were not suitable for class action treatment because of the specific inquiries that would be required of the various claims. See id., at 5-7.

Continue reading "Class Action Defense Cases–Franco v. Athens Disposal: California State Court Reverses Order In Labor Law Class Action Compelling Plaintiff To Arbitrate Individual Claims Holding Class Action Waiver Unconscionable" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

District Court Erred in Dismissing Class Action Based on Arbitration Clause in Credit Card Agreement and Class Action Waiver in Arbitration Clause because New Jersey Law rather than Utah Law Applied and, under Facts Underlying Class Action Complaint, New Jersey would not Enforce Class Action Arbitration Waiver Third Circuit Holds

Plaintiff filed a class action against American Express and American Express Centurion Bank (collectively “Amex”) alleging violations of New Jersey’s Consumer Fraud Act; the class action complaint asserted that Amex misrepresented the terms of its “Blue Cash” credit card reward program, which allegedly promised customers up to 5% cash back on purchases made with the card. Homa v. American Express Co., ___ F.3d ___, 2009 WL 440912, *1 (3d Cir. February 24, 2009). According to the allegations underlying the class action, plaintiff (a New Jersey resident filing the putative class action on behalf of other New Jersey residents) was denied “failed to award him the promised amount of cash back in violation of the New Jersey Consumer Fraud Act.” Id. The credit card underlying the class action claims was subject to a cardholder agreement that required arbitration of any disputes and that included a class action waiver, requiring that any claim “be arbitrated on an individual basis ... [with] no right or authority for any Claims to be arbitrated [as] a class action.” Id. The Agreement included also a choice-of-law provision that stated Utah law governed any disputes, id. Defense attorneys moved to compel arbitration of the putative class action claims on individual basis; the defense argued in part that Utah law expressly permits class action arbitration waivers in consumer credit agreements. Id. Plaintiff opposed the motion on the ground New Jersey law would prohibit enforcement of the class action waiver and that application of Utah law to deny class action relief would violate New Jersey’s public policy. Id. The district court treated the motion as a motion to dismiss under Rule 12(b)(6) and granted the motion, dismissing the class action complaint with prejudice. Id. Plaintiff appealed and the Third Circuit reversed.

According to the Third Circuit, “This appeal raises important issues under state law. Nevertheless, we must first consider whether the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16, precludes this Court from applying state law unconscionability principles to void a class-arbitration waiver. We conclude that it does not.” Homa, at *1 (citing Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). As part of that analysis, the Circuit Court determined whether Utah law or New Jersey law governed the dispute. Id., at *2-*3. The Court concluded that “the Supreme Court of New Jersey might well find that the application of Utah law allowing class-arbitration waivers in the context of a low-value consumer credit suit violates a fundamental policy of New Jersey.” Id., at *3 (footnote omitted). But the Third Circuit found also that it must first address whether “the FAA and this Court's decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), preclude us from applying New Jersey unconscionability principles to a class-arbitration waiver.” Id. Based on its analysis of the FAA, id., at *3-*5, the Circuit Court held that its prior decision in Gay does not preclude the Court from relying on New Jersey law to invalidate the class action arbitration waiver, id., at *5. And the Court further concluded that if New Jersey law governed the dispute then the district court erred in granting the motion to dismiss the class action because “the class-arbitration waiver violates fundamental New Jersey public policy as applied to small-sum cases,” id., at *6. So the critical issue was whether Utah law or New Jersey law applied.

Continue reading "Amex Class Action Defense Cases–Homa v. American Express: Third Circuit Reverses Dismissal Of Consumer Fraud Class Action Holding Class Action Arbitration Waiver Unenforceable Under New Jersey Law" »

Posted In: Arbitration, Class Action Court Decisions

As Matter of First Impression, District Court Erred in Antitrust Class Action in Compelling Arbitration Pursuant to Mandatory Arbitration Clause in Commercial Contract and Enforcing Class Action Waiver because Absent Class Action Relief it was Unlikely Merchants would seek Redress for Alleged Wrong Second Circuit Holds

Several class action lawsuits were filed by various merchants against American Express alleging violations of federal antitrust laws in the form of a “tying arrangement” between its charge cards and credit cards; the first of these class actions was filed in August 2003 in the Northern District of California, but in December 2004 the district court granted a motion filed by defense attorneys to transfer the class actions, pursuant to 28 U.S.C. § 1404(a), to the Southern District of New York, where it was consolidated with several class actions against Amex pending in that district. In re American Express Merchants’ Litig., ___ F.3d ___, 2009 WL 214525, *2, *5-*6 (2d Cir. January 30, 2009). According to the allegations underlying the class action, Amex “is the leading issuer of general purpose and corporate charge cards to consumers and businesses in the United States and throughout the world. It is also the leading provider of charge card services to merchants.” Id., at *3. The class action plaintiffs are “(1) California and New York corporations which operate businesses which have contracted with Amex and (2) the National Supermarkets Association, Inc. (‘NSA’), ‘a voluntary membership-based trade association that represents the interests of independently owned supermarkets.’” Id. The Card Acceptance Agreement entered into by the merchants-plaintiffs provided, in pertinent part, that any dispute was subject to a broad and mandatory arbitration clause, which was governed by the Federal Arbitration Act (FAA) and which contained a class action waiver provision. See id., at *3-*5. Defense attorneys moved to compel arbitration and to enforce the class action waiver provision, id., at *6. The district court granted the motion, finding that the arbitration clause was broad enough to govern the dispute. Id. With respect to whether the matter could proceed as a class action, the district court suggested that enforcement of the class action waiver would not preclude individual merchants from enforcing their rights because the Section 4 of the Clayton Act allows for recovery of treble damages, costs of suit and attorney fees, but deferred the issue of enforceability of the class action waiver to the arbitrator. Id. The Second Circuit reversed.

The Circuit Court explained that it was “consider[ing] here only the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced,” In re American Express, at *3. The Court began by noting that it “frequently enforces mandatory arbitration clauses contained in commercial contracts,” but that this case presented a case of first impression in the Ninth Circuit as it dealt with the enforceability of a class action waiver in the context of a commercial contract with a mandatory arbitration clause. Id., at *1. And the court summarized the countervailing arguments surrounding the enforceability of class action waivers, see id., at *1-*2. Ultimately, the Ninth Circuit concluded that the class action waiver was unenforceable under the facts of this case “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” Id., at *2.

Continue reading "Amex Class Action Defense Cases–In re American Express: Second Circuit Reverses District Court Order Enforcing Class Action Waiver And Compelling Individual Arbitration In Antitrust Class Action" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver in Payday Loan Agreement Containing Mandatory Arbitration Clause was Unconscionable and Trial Court did not Err in Severing Class Action Waiver, Compelling Arbitration, and Allowing Arbitrator to Determine Whether Matter should Proceed as Class Action Missouri State Appellate Court Holds

Plaintiff filed a class action against QC Financial, a payday lender, from whom plaintiff had borrowed money several times; the class action complaint alleged that defendant violated various Missouri state laws governing payday lenders. Woods v. QC Financial Services, Inc. d/b/a Quik Cash., ___ S.W.2d ___ (Mo.App. December 23, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action and to compel plaintiff to arbitrate the dispute individually; the motion was premised on an arbitration clause with a class action waiver that was contained in the payday loan documents. Id., at 1-2. Each loan agreement contained a mandatory arbitration clause that provided in pertinent part that the borrower is (1) waiving their right to a jury trial, (2) waiving their right to any court proceeding (other than small claims), and (3) waving the right to “SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY, AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US AND/OR RELATED THIRD PARTIES.” Id., at 2. The arbitration clause further provided that “all disputes including any Representative Claims against us…shall be resolved by binding arbitration only on an individual basis with you” and precluded the arbitrator from allowing any dispute to proceed as a class action, id. Plaintiff moved for declaratory judgment, seeking to hold the class action waiver unconscionable; the trial court granted plaintiff’s motion and severed the provisions of the arbitration clause prohibiting class actions. Id. At the same time, the trial court denied the defense motion to compel plaintiff “to participate in individual arbitration,” but granted the defense motion to dismiss in part, in that the matter was ordered to arbitration for the arbitrator to decide whether the litigation could proceed as a class action. Id. Defendant appealed, and the Missouri Court of Appeal affirmed.

Defense attorneys raised several issues on appeal: (1) that plaintiff failed to prove procedural unconscionability; (2) that the arbitration clause was not procedurally unconscionable “because the font size used complies with statute and [plaintiff] signed the contract without any misrepresentations, hurry, or duress from [defendant]”; (3) that the arbitration clause was not substantively unconscionable, in part because the Federal Arbitration Act (FAA) “preempts the trial court's holding as Missouri law does not bar class action waivers in all consumer contracts”; (4) that the class action waiver was an “essential “ part of the loan agreement, which does not contain a severance clause, so the trial court erred in severing the class action waiver from the arbitration clause; and (5) that the trial court erred in granting plaintiff’s request for declaratory judgment because it was not properly presented. Woods, at 3-4. The appellate court began by addressing the fifth point, quickly rejecting the defense characterization of the trial court’s action as one of “granting summary judgment,” and holding that the court granted declaratory judgment only to the extent that the mandatory arbitration clause precluded class action relief and only after hearing argument and testimony. Id., at 4-5. The Court of Appeal concluded that there was nothing improper in this aspect of the court’s ruling, id., at 5.

Continue reading "Class Action Defense Cases–Woods v. QC Financial: Missouri State Appellate Court Affirms Trial Court Order Striking Class Action Waiver From Arbitration Clause And Then Compelling Arbitration Of Dispute" »

Posted In: Arbitration, Class Action Court Decisions

District Court Order in Unfair Competition Law (UCL) Class Action Dismissing Class Action Complaint and Compelling Arbitration of Plaintiff’s Individual Claims Reversed and Remanded for Further Consideration because District Court’s Analysis of Whether South Dakota Law or California Law Applied was Flawed Ninth Circuit Holds

Plaintiff filed a class action against Citibank in California state court alleging violations of the state’s Unfair Competition Law (UCL); specifically, the class action “alleged that Citibank increased the class members’ interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed.” Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078 (9th Cir. 2008) [Slip Opn., at 14492]. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint and to compel arbitration of plaintiff’s individual claims. Id., at 14893. The district court concluded that the choice of law provision was enforceable, that South Dakota law governed the agreement, and that under South Dakota law “the class arbitration waiver was not unconscionable and was enforceable.” Id. Accordingly, the district court granted the defense motion, dismissed the class action, and ordered plaintiff to arbitrate her claims “on an individual, non-class basis.” Id. The district court certified its order for immediate appeal, and the Ninth Circuit reversed.

We do not here summarize the history of the plaintiff’s credit card account or the changes to the written credit card agreement, including the addition of a binding arbitration clause. See Hoffman, at 14489-90. We note only that the arbitration agreements including a class-action waiver provision. See id., at 14489-92. In analyzing the district court’s order, the Ninth Circuit noted that it reviews orders compelling arbitration de novo, and that “[a]n arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable.” Id., at 14493 (citation omitted). It noted further the well-settled rule that “applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable.” Id. The Ninth Circuit also noted that it “agree[d] with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law and therefore is enforceable if South Dakota law controls.” Id., at 14495 n.2. However, the Circuit Court held that the trial court erred in determining that South Dakota law applied, because “[f]ederal courts sitting in diversity look to the law of the forum state when making choice of law determinations,” id., at 14494, and the district court failed to examine under California law whether South Dakota or California law applied, id., at 14494-95. Accordingly, it remanded the action to the district court so that it could reexamine the issue. Id., at 14495.

Continue reading "UCL Class Action Defense Cases–Hoffman v. Citibank: Ninth Circuit Reverses District Court Order Dismissing Class Action And Compelling Arbitration And Remands For Reanalysis Of Whether Class Action Waiver In Arbitration Agreement Was Enforceable" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Complaint Adequately Alleged Antitrust and Consumer Protection Law Violations Arising out of Marketing and Sale of iPhones, and Class Action Waiver in AT&T Arbitration Agreement was Unconscionable thereby Requiring Denial of Motion to Dismiss Class Action Claims and Compel Arbitration of Individual Claims, California Federal Court Holds

Plaintiffs filed a class action against Apple and AT&T Mobility (ATTM) alleging violations of federal antitrust laws and other consumer protection statutes arising out of the sale of iPhones; the class action complaint alleged that “consumers were offered iPhones only if they signed a two-year service agreement with AT&T Mobility” and that “unknown to consumers, the companies had agreed to technologically restrict voice and data service in the aftermarket for continued voice and data services, i.e., after the initial two-year service period expired.” In re Apple & AT&TM Antitrust Litig., ___ F.R.D. ___ (N.D. Cal. October 1, 2008) [Slip Opn., at 1]. According to plaintiffs’ class action, ATTM entered into a written agreement with Apple to serve as the exclusive provider of wire and data services to iPhone customers for a period of five years, i.e., through 2012. Id., at 2. Under this agreement, until 2012 “iPhone purchasers who want voice and data services must sign a two-year service contract with ATTM.” Id. The Revised Amended Consolidated Class Action Complaint alleged inter alia violations of Section 2 of the Sherman Antitrust Act and breach of warranty under the Magnuson-Moss Warranty Act, id.; an itemized list of the 10 claims for relief may be found at page 5 of the opinion. ATTM’s defense attorneys filed a motion to dismiss the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), and Apple’s defense attorneys filed a motion to dismiss the class action complaint. Id., at 5-6. The district court denied the motions.

By way of background, the district court explained at page 1: “In the cellular telephone market, it has become a common practice for an equipment manufacturer and a voice and data supply company to join together to introduce a new cellular telephone to the market. Often, to obtain a particular model of telephone at a given price from a given manufacturer, purchasers must sign a contract with the joined service provider for voice and data services of a stated period of time. This case concerns such an arrangement between Apple, Inc. and AT&T Mobility upon the introduction to the market of the iPhone.” But according to the class action complaint, purchasers were not told that iPhone use would be restricted to the AT&T network even after the two-year service period expired. In re Apple, at 1. The class action further alleged (1) Apple and ATTM share revenue arising from iPhone use, (2) iPhone purchasers must use ATTM as their provider for 5 years “despite initially being required to agree to only a two-year contract,” (3) Apple agreed to enforce ATTM’s exclusivity agreement by “locking” iPhones, (4) Apple controlled all modifications to and software for iPhones, (5) ATTM charges an early termination fee even though it does not subsidize iPhone purchases, (6) Apple and ATTM agreed to take prevent people from unlocking iPhones, and (7) Apple agreed to delay developing a CDMA version of the iPhone. Id., at 3. Finally, the class action alleged that, after it was learned that people had successfully unlocked iPhones, Apple issued an “upgrade” of the iPhone’s operating software that was intended to disable iPhones that had been unlocked or on which users had downloaded software that had not been approved by Apple, and that Apple thereafter denied warranty claims on disabled or damaged iPhones on the ground that customers “had breached their warranty agreements by unlocking their phones or by downloading unapproved TPAs.” Id., at 4. The district court was presented with the question of whether these allegations sufficiently alleged claims for relief for violations of the Sherman Act and Magnuson-Moss Warranty Act. Id. The federal court held that class action allegations survived defendants’ motion to dismiss.

Continue reading "iPhone Class Action Defense Cases–In re Apple & AT&TM: California Federal Court Denies Motions To Dismiss Antitrust Class Action And To Compel Individual Arbitration Of Class Action Claims" »

Posted In: Arbitration, Class Action Court Decisions

District Court Properly Dismissed Class Action and Granted Defense Motion to Compel Plaintiff to Arbitrate her Claims on an Individual Basis, Rather than as a Class Action, because Class Action Waiver in Arbitration Clause was not Substantively or Procedurally Unconscionable Eighth Circuit Holds

Plaintiff filed a putative class action against American Express Company and American Express Incentive Services (AEIS) alleging violations of the federal Truth in Lending Act (TILA); specifically, the class action complaint alleged that American Express violated TILA by “issuing pre-loaded, stored-value cards without making the disclosures required under the TILA.” Pleasants v. American Express Co., 541 F.3d 853, 855 (8th Cir. 2008). Defense attorneys moved to dismiss American Express Company on the ground that it was not a “creditor” within the meaning of TILA; plaintiff did not oppose the motion and the district court dismissed American Express Company from the putative class action. Id. Defense attorneys then moved to compel arbitration of plaintiff’s claims pursuant to an arbitration provision governed by the Federal Arbitration Act (FAA) that contained a class action waiver, id. The district court rejected plaintiff’s claim that the class action waiver was unconscionable, dismissed the class action and compelled plaintiff to arbitrate her individual claims against AEIS. Id. The Eighth Circuit affirmed.

Briefly, AEIS sent plaintiff three pre-paid cards, in the amounts of $25, $10, and $5, in return for her participation in online surveys; the cards could be used at any establishment that accepted American Express credit cards. Pleasants, at 855. Along with the cards, AEIS sent plaintiff the “Card Terms and Conditions,” which included a “Participant Agreement” that provided in part that any claims would be resolved by arbitration and that the parties “WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION,” id. A separate provision reiterated that all claims “shall be arbitrated on an individual basis” and that there “shall be no right” for any claims “to be arbitrated on a class action basis,” id., at 855-56. Plaintiff’s class action complaint alleged that at a time when the cards had a combined remaining balance of $25, she used the cards at a restaurant to pay for a $20 meal “but the restaurant processed one or more of the cards for $45 more than their stored value.” Id., at 856. AEIS demanded that plaintiff pay the $45 difference; when she failed to do so, AEIS sent her another letter requesting not only the $45 difference but, pursuant to the terms and conditions of the card usage agreement, a late fee of $10 and a transaction fee of $25. Id. Plaintiff disputed the charge and filed the class action when AEIS continued with collection efforts, id.

Continue reading "Arbitration Class Action Defense Cases–Pleasants v. American Express: Eighth Circuit Affirms Order Dismissing Class Action And Compelling Arbitration Of Individual Claim Holding Class Action Waiver In Arbitration Clause Enforceable Under FAA" »

Posted In: Arbitration, Class Action Court Decisions, RESPA/TILA Class Actions

Class Action Complaint Properly Kept in State Court Rather than Referred to Arbitration because Class Action Waiver Provision in Arbitration Clause Rendered Dispute Resolution Provision of Consumer Service Agreement Unenforceable as Unconscionable Washington State Court Holds

Plaintiff filed a class action against AT&T alleging that it wrongly charged him “city utility surcharges and usurious late fees”; specifically, the class action complaint alleged that plaintiff signed up with AT&T for long distance telephone service, and that his monthly bills “included a Wenatchee city utility tax surcharge, even though he lives outside the Wenatchee city limits.” McKee v. AT&T Corp., ___ P.3d ___ (Wash. August 28, 2008) [Slip Opn., at 1-2]. According to the class action, AT&T assessed taxes based on zip codes, and plaintiff’s zip code included not only people who lived in Wenatchee, but also people who lived outside the city limits. Plaintiff’s class action alleged that AT&T collects taxes from its customers “whether the customers owe the tax or not,” and imposes a late fee of 1.5% if the bill is not paid timely. Id., at 2. Defense attorneys removed the class action to federal court on the ground that it raised claims under federal law; plaintiff amended the class action complaint to omit any reference to federal law, and the district court remanded the class action back to state court. Id. Defense attorneys then moved to compel arbitration of the dispute pursuant to the dispute resolution provisions of their long distance service contract. Id., at 1. The dispute resolution provision required arbitration of all disputes and prohibited class actions; it also provides that claims must be brought within two years, and “limits a consumer’s right to collect punitive damages and attorney fees.” Id., at 4. The trial court denied the motion, finding the dispute resolution provision in AT&T’s Consumer Services Agreement to be unconscionable. Id., at 1. The Washington Supreme Court affirmed.

The Supreme Court explained that plaintiff “did not sign any agreement with AT&T” when he accepted AT&T as his long distance provider, and that he did not know whether he received a contract in the mail from AT&T. McKee, at 2-3. Defense attorneys submitted declarations that stated plaintiff received a “specific agreement” as part of his “fulfillment package,” and attached the agreement to their declarations, id., at 3. Plaintiff argued that the agreement was unconscionable: “He claimed he had no meaningful choice and the agreement was overly one-sided and harsh because it prohibited class actions, shortened the statute of limitations, prohibited punitive damages and attorney fees, required arbitration be kept secret, and required application of New York law.” Id., at 5. The trial court agreed with plaintiff: he ruled that the dispute resolution provision of the agreement was substantively unconscionable “because of the provisions prohibiting class actions, shortening the statute of limitations, limiting damages, requiring confidentiality, and” Id., at 5. A few months later, defense attorneys moved for reconsideration based on a new declaration that stated prior information provided under oath was in error because “AT&T had amended its agreement ‘in significant ways, including, for example, the removal of the two-year statute of limitations, the ability of the customer to determine whether the proceedings should be confidential, and specifically allowing consumers to obtain statutory relief—including damages and attorney’s fees—through the arbitration process.’” Id., at 6. The trial court denied the motion, and AT&T appealed. Id., at 7.

Continue reading "Arbitration Class Action Defense Cases–McKee v. AT&T: Washington State Court Holds Class Action Waiver Arbitration Clause Enforceable Affirming Trial Court Order Denying AT&T’s Motion To Compel Arbitration Of Class Action" »

Posted In: Arbitration, Class Action Court Decisions

Defense Motion to Compel Individual Arbitration of Class Action Claims under Wireless Service Contract Denied because Arbitration Agreement, which Included Class Action Waiver, was Unconscionable California Federal Court Holds

Plaintiff filed a putative class action against Cingular Wireless alleging violations of the California’s Business and Professions Code and Consumer Legal Remedies Act, and for breach of contract; specifically, the class action complaint alleged that plaintiff signed up for wireless service with Cingular, and renewed his service based “on advertising that identified Cingular as the wireless service with the fewest dropped calls,” but that this representation is untrue. Kaltwasser v. Cingular Wireless LLC, 543 F.Supp.2d 1124, 1126-27 (N.D. Cal. 2008). Defense attorneys moved to compel arbitration pursuant to the Federal Arbitration Act (FAA). Id. The arbitration clause in plaintiff’s wireless service contract provided that the parties “agree to arbitrate all disputes and claims arising out of or relating to this Agreement for Equipment or services between Cingular and you” and contained a class action waiver. Id., at 1127. Cingular modified the arbitration clause so as to state in part, “Cingular and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to: claims arising out of or relating to any aspect of the relationship between us ...; claims that arose before this or any prior Agreement (including, but not limited to, claims relating to advertising); claims that are currently the subject of purported class action litigation in which you are not a member of a certified class; and claims that may arise after the termination of this agreement.” Id. The district court denied the motion.

The district court began its analysis by observing that the FAA applies “to all written contracts involving interstate or foreign commerce” and was “enacted to overcome longstanding judicial reluctance to enforce agreements to arbitrate.” Kaltwasser, at 1127. On the other hand, the FAA does not “entirely displace[]” state law. Id., at 1128. The court recognized that the FAA governed the dispute, so the question is whether the contract was enforceable under state law. Id. The first question was one of choice of law. The contract defined the governing law as that of “the state of your billing address”; but plaintiff’s address was in California when he entered into the contract and in Virginia when he filed suit. Id., at 1128. The district court held that California law governed the contract. Id., at 1128-30.

Continue reading "FAA Class Action Defense Cases–Kaltwasser v. Cingular Wireless: California Federal Court Refuses To Enforce Class Action Arbitration Wavier Or Arbitration Clause In Wireless Service Agreement Holding It Unconscionable Under California Law" »

Posted In: Arbitration, Class Action Court Decisions

Trial Court Order in Unfair Business Practice Class Action Against Dell Granting Defense Motion to Stay Class Action and Compel Plaintiff to Arbitration his Individual Claim must be Reversed because New Mexico’s “Fundamental Public Policy” Requires use of Class Action Device in Small Claims Matters New Mexico Supreme Court Holds

Plaintiff filed a putative class action lawsuit in New Mexico state court against Dell Computer alleging inter alia violations of the state’s unfair business practices laws and false advertising; the class action alleged that Dell “systematically misrepresents the memory size of its computers.” Fiser v. Dell Computer Corp., ___ P.3d ___ (N.M. June 27, 2008) [Slip Opn., at 3]. The class action further alleged that the monetary damage suffered by each class member was only $10-$20, id. Defense attorneys moved the trial court to stay the class action and to compel arbitration under the Federal Arbitration Act (FAA) of the plaintiff’s individual claim; the defense motion was premised on the fact that plaintiff purchased his computer online and that the “terms and conditions” applicable to such Dell website purchases required purchasers to individually arbitration their claims and precluded them pursuing a class action. Id., at 3-4. The trial court granted the defense motion, ruling that plaintiff was bound by the arbitration clause and the class action waiver. Id., at 4. The Court of Appeals affirmed, and plaintiff petitioned the New Mexico Supreme Court for a writ of certiorari. Id. The Supreme Court reversed, holding that “the class action ban is contrary to fundamental New Mexico public policy,” id.

Preliminarily, the Supreme Court addressed the question of whether New Mexico or Texas law applied. Fiser, at 4. The Court explained at page 4, “The threshold question in determining the validity of the class action ban is which state’s law must be applied to this potentially multi-state class action that was filed in New Mexico by a New Mexico resident against a defendant that maintains its principal place of business in Texas for damages relating to a contract that contains a choice-of-law clause directing that Texas law be applied.” The resolution of this issue was crucial because “[a]pplication of Texas law to the instant matter would likely require enforcing the class action ban.” Id., at 5. New Mexico law would respect the choice-of-law clause, and apply Texas law, “[u]nless enforcement of the class action ban would run afoul of fundamental New Mexico public policy,” id. The Supreme Court held that “[t]he class action device is critical to enforcement of consumer rights in New Mexico.” Id., at 6. The Court recognized that the state’s Uniform Arbitration Act – which “declares that arbitration clauses that require consumers to decline participation in class actions are unenforceable and voidable,” id., at 6 – “may be preempted by the FAA,” id., at 7. However, it also explained that “the class action functions as a gatekeeper to relief when the cost of bringing a single claim is greater than the damages alleged.” Id., at 7-8. Thus, “a contractual provision that purports to ban class actions for small claims implicates not just the opportunity for a class action but the more fundamental right to a meaningful remedy for one’s claims.” Id., at 8. Under the circumstances of this putative class action, the New Mexico Supreme Court found that, because plaintiff’s actual damages were no more than $20, denying class action relief would “essentially foreclose[] the possibility that Plaintiff may obtain any relief.” Fiser, at 8. And because “New Mexico’s fundamental public policy requires that consumers with small claims have a mechanism for dispute resolution via the class action,” applying Texas law would run contrary to this public policy so New Mexico law governed the dispute. Id., at 9.

Continue reading "Dell Class Action Defense Cases–Fiser v. Dell: New Mexico Supreme Court Reverses Trial Court Order In Class Action Staying Class Action Lawsuit And Compelling Plaintiff To Arbitration His Individual Claim Holding Class Action Waiver Unenforceable" »

Posted In: Arbitration, Class Action Court Decisions

In an Unpublished Opinion, California Appellate Court Holds that Trial Court did not Abuse Discretion in Denying Petition to Compel Arbitration of Labor Law Class Action on Ground that Defense Attorneys Failed to Prove that Plaintiffs Signed Arbitration Agreement

Plaintiffs filed a class action lawsuit against their employer, BLH Construction alleging labor law wage and hour claims. Aguilar v. BLH Construction Co., 2007 WL 4418105, *1 (Cal.App. December 19, 2007). Defense attorneys moved to compel arbitration, but the court opinion is silent on the arbitration clause purported to bar class actions or whether the defense sought to enforce a class action arbitration waiver. Id. The trial court denied the motion, finding that plaintiffs had not signed the arbitration agreement, id. The defense appealed, arguing that the trial court abused its discretion “by not continuing the hearing to permit oral testimony and cross-examination of witnesses on the issue.” Id. The Court of Appeal affirmed.

BLH hired plaintiffs as construction workers in February 2005 and, on the day they were hired, provided each plaintiff with an employee handbook, a form entitled “Receipt of Handbook and Acknowledgement of At-Will Employment,” and a form entitled “Mutually Binding Arbitration Agreement.” Aguilar, at *1. “Each form had lines for the employee's signature and the date of signing.” Id. As part of the petition to compel arbitration, defense attorneys submitted signed copies of the “Mutually Binding Arbitration Agreement.” Id. Plaintiffs, however, insisted that they had not signed this document and by declaration claimed that their signatures had been forged, id. In response, defense attorneys submitted (1) the declaration of a supervisor stating that he had given plaintiffs the employee documents referenced above and that plaintiffs “signed and dated the two signature pages contained within the Employee Handbook,” (2) the declaration of BLH’s chief operations officer stating that plaintiffs had signed the mutually binding arbitration agreement, and (3) the declaration of BLH’s counsel stating that the signed documents had been obtained from the BLH custodian of records, “and that it was BLH's custom and practice to have each employee sign the arbitration agreement.” Id.

Continue reading "Arbitration Class Action Defense Cases-Aguilar v. BLH Construction: California Court Affirms Trial Court Order Denying Petition To Compel Arbitration Of Class Action Thereby Permitting Labor Law Class Action To Proceed In State Court" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Class Action Waiver Unconscionable Under Washington State Law and Federal Arbitration Act (FAA) so District Court Properly Denied Defense Motion to Dismiss Class Action Complaint and Order Individual Claims to Arbitration Ninth Circuit Holds

Plaintiffs filed a class action in Washington state court against their cellular telephone service provider, T-Mobile, “alleging that the service provider had improperly charged them for certain fees beyond the advertised price of service, charged them for calls during a billing period other than that in which the calls were made, and charged them for roaming and other services that should have been free.” Lowden v. T-Mobile USA, Inc., 512 F. 3d 1213, 1215 (9th Cir. 2008). The service agreements underlying the class action plaintiffs’ claims contained mandatory arbitration provisions that barred class action litigation, id. Defense attorneys removed the class action to federal court, and then moved the federal court to compel arbitration of the claims on an individual rather than class action basis. Id., at 1214. The district court denied the motion, concluding that the arbitration clauses were unenforceable because the class action waivers and the limitation on punitive damages rendered them substantively unconscionable, id., at 1217. Defense attorneys appealed and the Ninth Circuit affirmed.

The service agreements signed by the class action plaintiffs stated, directly above the signature line, that any disputes would be submitted to mandatory arbitration. Lowden, at 1215-16. The specific language in the two service agreements underlying the class action complaint differed slightly, but the differences did not impact the district court’s decision: each arbitration clause precluded class action litigation. Id. In ruling on T-Mobile’s motion to compel arbitration, the district court concluded that the arbitration provisions were not procedurally unconscionable, but “held that the prohibition on class relief and the limitation on punitive damages, found in both agreements, were each substantively unconscionable.” id., at 1217. The Ninth Circuit defined the issues on appeal as whether T-Mobile’s arbitration provisions “are enforceable under Washington state law and, if not, whether the state law is preempted by the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16.” Lowden, at 1214. It concluded that, in light of the Washington State’s Supreme Court opinion in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), “T-Mobile's arbitration provision is substantively unconscionable and unenforceable under Washington state law,” and that the FAA did not preempt Washington state law. Lowden, at 1214-15.

Continue reading "Arbitration Class Action Defense Cases-Lowden v. T-Mobile: Ninth Circuit Affirms District Court Denial Of Defense Motion To Compel Arbitration Of Class Action Finding Class Action Waiver In Arbitration Agreements Unconscionable And Unenforceable" »

Posted In: Arbitration, Class Action Court Decisions

Based on the Specific Facts Presented by this Class Action Case, the District Court Properly Compelled Arbitration of Plaintiffs’ Fair Labor Standards Act and State Law Equivalent Class Action Claims but Properly Found that the Class Action Waiver Clauses in the Employer’s Dispute Resolution Program were Unconscionable First Circuit Holds

Plaintiffs filed a class action lawsuit against their former employer, Dynamics Research, alleging violations of the federal Fair Labor Standards Act (FLSA) and the Massachusetts Minimum Fair Wage Law. Skirchak v. Dynamics Research Corp., ___ F. 3d ___, 2007 WL 4098823, *1 (1st Cir. November 19, 2007). The class action complaint followed a complaint by Skirchak with the U.S. Department of Labor that resulted in an agreement by the company to pay back $75,000 to employees and to change its practices, id. Plaintiffs’ class action alleged that Dynamics misclassified employees as exempt in order to avoid paying them overtime and improperly made partial-day deductions from employee paid leave balances, and sought damages beyond those recovered by the DOL. Id. Defense attorneys moved to dismiss the complaint and compel arbitration pursuant to the terms of a Dispute Resolution Program that required arbitration of all disputes and prohibited class action claims. Id., at *2. The district court granted the defense motion to compel arbitration, but held that class-wide relief could be pursued therein because the class action waiver was unconscionable under Massachusetts state law, id. Our prior article discussing the district court opinion may be found here. Both sides appealed: the defense challenged the striking of the class action waiver; plaintiffs challenged the order compelling arbitration. Id. Plaintiffs subsequently agreed to arbitration but insisted on the right to pursue a class action because the class action waiver was unenforceable, id. The First Circuit affirmed.

Preliminarily, it bears noting that the First Circuit “[did] not reach the argument that waivers of class actions themselves violate either the FLSA or public policy.” Skirchak, at *1. Further, whether plaintiffs will succeed in obtaining class action certification was left to the arbitrator, id. The Circuit Court addressed only (1) whether the arbitration clause was enforceable, and (2) whether the class action waiver was enforceable. The First Circuit began by summarizing the Dispute Resolution Program and the notice provided to employees of its terms. See id., at *2-*3. In pertinent part, the Circuit Court observed that if an employee “read only the e-mail, the descriptive memorandum and the fifteen-page Program description” concerning the Program, she “would not know of the class action waiver.” Id., at *3. The class action waiver clauses were contained only in the Appendices to the Program, id., but even if an employee found the class action waiver provisions he “would likely still be confused” because of apparent inconsistencies in the documentation, id., at *4. Finally, the First Circuit noted that the adopted and implemented by e-mail notification to employees sent shortly before a holiday that deemed employees to have consented to the class action waivers if they returned to work following the holiday. Id., at *5.

Continue reading "Arbitration Class Action Defense Cases-Skirchak v. Dynamics Research: First Circuit Holds Class Action Waiver In Arbitration Clause Unconscionable And Thus Unenforceable In FLSA Class Action" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

First Circuit Leaves Validity of Class Action Waiver in Arbitration Clause to Arbitrator, Holds Bar on Multiple Damages Invalid and Severs from Arbitration Agreement, Holds Bar on Recovery of Attorney Fees Invalid and Severs from Agreement, and Invalidates One-Year Limitations Period on Claims Against Comcast and Severs from Agreement

Plaintiff filed a putative class action lawsuit in Massachusetts state court against his telecommunications provider, Comcast, for violations of the state’s unfair business practices statute and other tort claims based on the allegation that it charged customers a monthly to lease a cable converter box and remote control for television service even if the customer already owned a cable-ready television. Anderson v. Comcast Corp., 500 F.3d 66, 68(1st Cir. 2007). Defense attorneys removed the class action to federal court based on diversity jurisdiction, and then moved to compel arbitration under an arbitration clause the prohibited class actions as well as “multiple or punitive damages,” id., at 69. Among the arbitration provisions central to the appeal were the following: (1) a class action waiver provision, (2) a requirement that any claims against Comcast be brought within one year, (3) a requirement that consumers pay their own costs of arbitration, including attorney's fees, (4) a bar on any award in arbitration of multiple or punitive damages, and (5) a severance clause. Id. The district court agreed with defense attorneys that plaintiff must arbitrate his claims but held that he could pursue a class action in arbitration, and while the district court granted the motion to compel arbitration and dismissed the class action complaint, id., at 69-70, it severed several other portions of the arbitration agreement, such as the requirement that each side bear its own costs - including attorney and expert fees, id., at 69 n.5. The First Circuit largely upheld the district court’s order, holding in part that the validity of the class action waiver provision must be addressed first by the arbitrator.

Plaintiff’s class action complaint alleged that Comcast violated the Massachusetts Consumer Protection Act and various common law torts. Anderson, at 68. The class action also sought treble damages, punitive damages and attorney fees, id., at 69. Defense attorneys moved to compel arbitration under provisions of its standard agreement with subscribers entitled, "Notice to Customers Regarding Policies, Complaint Procedures & Dispute Resolution." Id., at 68 n.1. The district court applied the First Circuit’s recent decision in Kristian v. Comcast, Corp., 446 F.3d 25 (1st Cir. 2006) - summarized<a href="http://classactiondefense.jmbm.com/2006/06/class_action_defense_cases_kri.html">here</a> - and granted the motion to compel, but “only after severing provisions in the arbitration agreement prohibiting attorney's fees, double or treble damages and a class action remedy in the arbitral forum.” Anderson, at 68. The district court also ruled that "the arbitrator will have the power to determine the validity and applicability of the agreement's one-year statute of limitations." Id. Both plaintiff and defense appealed the district court’s ruling.

The First Circuit began its analysis by observing that it considered the appeal “against the backdrop of a strong pro-arbitration policy expressed by Congress and repeatedly upheld by the courts.” Anderson, at 70. With respect to the class action bar, the Circuit Court held that there was no conflict between Massachusetts state law and the class action waiver provision, id., at 71. The First Circuit distinguished its holding in Kristian, which invalidated a Comcast class action wavier in an arbitration clause, because it found a conflict between such a waiver and the “nature and purposes of antitrust law”; here, by contrast, the class action bar, by its terms, applies “unless your state's laws provide otherwise,” and the consumer law statute in question expressly permits class action lawsuits be filed to enforce it. Id., at 72. The Court did not hold that the exception to class action litigation applied, however, concluding that the question of arbitrability must be addressed first by the arbitrator, id.

Continue reading "Comcast Class Action Defense Cases-Anderson v. Comcast: First Circuit Upholds Comcast Arbitration Clause But Severs Class Action Waiver and Holds Severability of Class Action Waiver Saves Arbitration Agreement from Unconscionability Claim" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver in Arbitration Provision Substantively Unconscionable “to the Extent it Prohibits the Subscribers from Bringing a Class Action Alleging State Law Claims” and Entire Arbitration Clause Fails Because Class Action Waiver “Cannot be Severed from the Agreement” Eleventh Circuit Holds

Plaintiffs filed a class action against their cable television service provider, Comcast, in Georgia state court alleging that it improperly passed through to customers franchise fees based on estimated revenue instead of the actual franchise fees paid local governments as allowed by the Cable Communications Policy Act of 1984, and that these estimates resulted in overcharges to subscribers. Dale v. Comcast Corp., 498 F.3d 1216, 1217-18 (11th Cir. 2007). Defense attorneys removed the class action to federal court, and then moved to compel arbitration and dismiss the class action complaint based on the mandatory arbitration clause (that included a class action waiver) contained in the subscriber agreements, id., at 1218. The “Mandatory & Binding Arbitration” provision permits either party to elect arbitration and “contains a class action waiver clause prohibiting subscribers from bringing claims on a class action or consolidated basis,” expressly providing that “[a]ll parties to the arbitration must be individually named” and that the parties shall have “no right or authority for any claims to be arbitrated or litigated on a class-action or consolidated basis.” Id. Plaintiffs’ lawyer argued that the class action waiver was unconscionable; the district court disagreed and granted the defense motion to compel arbitration and dismiss the class action complaint. Id. The Eleventh Circuit reversed.

It is well established that the enforceability of an arbitration clause is determined based on state law. Dale, at 1219 n.2. This is true because the Federal Arbitration Act (FAA) requires that federal court look to state law governing contracts generally (not arbitration agreements specifically) to determine the validity and enforceability of an arbitration agreement, id., at 1219 (citation omitted). Accordingly, the issue on appeal was “whether the Arbitration Provision’s class action waiver is unconscionable under Georgia law and thus unenforceable as a matter of law.” Id. Georgia law recognizes both procedural and substantive unconscionability, and the Circuit Court focused on substantive unconscionability of the class action waiver. Id.

Continue reading "Arbitration Class Action Defense Cases-Dale v. Comcast: Eleventh Circuit Holds Class Action Arbitration Waiver Unenforceable And Reinstates Class Action By Subscribers Against Comcast" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver Unconscionable and Contractual Provision Requiring Arbitrator to Determine Enforceability of Class Action Waiver and Arbitration Provision also Unconscionable California Court Holds

Plaintiff filed a class action lawsuit against his employer, a payday lending company, for violations of state labor laws alleging “failure to pay…overtime…, accurate itemized wage statements, adequate meal and rest periods, and wages upon termination.” Murphy v. Check ‘N Go of Cal., Inc., ___ Cal.App.4th ___, 67 Cal.Rptr.3d 120, 2007 WL 3016414, *1 (Cal.App. 2007). Defense attorneys moved to compel arbitration and dismiss the class action complaint on the grounds that plaintiff had signed a “Dispute Resolution Agreement” that included an arbitration provision and a class action waiver, id. The trial court refused to compel arbitration, concluding that the class action waiver rendered the arbitration agreement unconscionable, id. Defense attorneys appealed, contending that the class action waiver is not unconscionable and that whether the class action waiver was unconscionable should be decided by the arbitrator, not by the trial court. Id. The Court of Appeal rejected the defense arguments and affirmed the trial court order.

Plaintiff spent 7 years as a “salaried retail manager” for defendant; her class action complaint alleged that defendant misclassified salaried retail managers as exempt employees and thus failed to pay overtime, failed to provide accurate wage statements, failed to provide required meal and rest periods, and failed to provide wages due on termination. Murphy, at *1. The class action complaint alleged that every employee had to sign the arbitration agreement, which covered “all claims arising from or relating to plaintiff’s employment,” including any claim that the arbitration agreement was “substantively or procedurally unconscionable.” Id. As noted above, the arbitration agreement contained a class action waiver, requiring that any dispute be maintained as an individual action only, id. Defense attorneys moved to dismiss the class action complaint and compel arbitration, arguing in part that the agreement expressly vests in the arbitrator the power to decide whether the class action waiver is unconscionable. Id., at *2. The Court of Appeal summarized the trial court’s order at page *2 as follows: “the court determined that : (1) it had the power to rule on the unconscionability issues; (2) the parties’ agreement…was a contract of adhesion; (3) the agreement’s class action waiver was substantively unconscionable under Discover Bank v. Superior Court (2005) 36 Cal.4th 148…; (4) the agreement’s provisions for arbitration of unconscionability issues and pre-existing claims were also substantively unconscionable; and (5) the unconscionability terms would not be severed from the agreement.”

Continue reading "Class Action Defense Cases-Murphy v. Check ‘N Go: California Appellate Court Upholds Trial Court Order That Class Action Waiver Rendered Arbitration Clause Unenforceable" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Inherent Powers of Trial Court Include Power to Reconsider Interim Rulings Long After the Statutory Time Period for Motions for Reconsideration has Lapsed California Appellate Court Holds

Plaintiffs filed a putative class action against their employer, First Union Securities, and its successor, Wachovia Securities for alleged violations of state labor laws. Clark v. First Union Securities, Inc., ___ Cal.App.4th ___, 64 Cal.Rptr.3d 313, 315 (Cal.App. 2007). Defense attorneys moved to compel arbitration before the National Association of Securities Dealers (NASD) and to stay proceedings on the class action claims for injunctive or declaratory relief, which are not subject to arbitration, see Broughton v. Cigna Healthplans, 21 Cal.4th 1066, 1079-80 (Cal. 1999); the trial court granted the motion. Id. , at 314. After the arbitrators ruled that the class action claims were “not eligible for arbitration,” the trial court sua sponte reconsidered its ruling on the defense motion and ruled that the class action would proceed in state court. Id., at 314-15. Defense attorneys appealed, and the California court of appeal affirmed. The appellate court held that the trial court had the inherent authority to reconsider its ruling referring class action claims to arbitration, that the employment contract did not preclude state court jurisdiction over the putative class action complaint, and that the dismissal of the class action claims by the arbitrators did not constitute a class action waiver.

Plaintiff Clark was hired by First Union as an investment consultant candidate, which required that he hold a license from the NASD and to execute the SEC-approved Uniform Application for Securities Industry Registration or Transfer Form U-4 (Form U-4), which contains an arbitration clause that states "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." Clark, at 315. Plaintiff executed the form in October 1998 and began working for First Union in November 1998, id. The SEC promulgated several rules directly implicated by this case, including Rule 10301(d) which addresses investor class action lawsuits filed under FRCP Rule 23. Id., at 316. As the Court of Appeal noted at page 316, “The SEC issued a public notice in connection with the approval of Rule 10301(d). In this 1992 approval order, the SEC gave notice that under the new provision class actions were excluded from arbitration.”

The class action complaint alleged numerous labor law violations based on an array of alleged misconduct ranging “from misrepresentations regarding the sale of securities, to the failure to pay wages and to reimburse for business expenses.” Clark, at 317-18. Defense attorneys moved to compel arbitration of each cause of action in the class action complaint except the claims seeking injunctive and declaratory relief; the defense argued that “because all allegations arose out of Clark's employment or termination of employment, they must be resolved in arbitration pursuant to the arbitration provision in the Form U-4 and the NASD Code.” Id., at 318. The appellate court noted that defense attorneys did not cite Rule 10301(d) in support of the motion, id. Plaintiff countered that the NASD arbitration procedures were unconscionable - an issue the Court of Appeal found unnecessary to address - and that because the class action claim for unfair practices was asserted on behalf of all Wachovia employees it was not subject to arbitration. Id. Plaintiff’s lawyer argued, "The only forum for the unfair practice claims is a civil lawsuit. The NASD arbitration rules do not even permit putative or class claims to be arbitrated." Id.

Continue reading "Class Action Defense Cases-Clark v. First Union: California Appellate Court Affirms Trial Court Order Vacating Referral Of Certain Class Action Claims To Arbitration And Staying Other Class Action Claims" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Absence of Ability to Recover Attorney Fees Rendered Class Action Waiver and Arbitration Clause Unconscionable Because it would Effectively Insulate Company from Liability for Small-Value Claims Eleventh Circuit Holds

Plaintiffs filed a class action lawsuit in Georgia federal court against their cable television provider, Comcast, alleging violations of the federal Cable Communications Policy Act of 1984 (Cable Act), 47 U.S.C. § 521 et seq., by miscalculating the “pass-through” franchise fees charged customers. Dale v. Comcast Corp., 498 F.3d 1216, 2007 WL 2471222, *1 (11th Cir. 2007). Defense attorneys moved to dismiss the class the action and compel arbitration based on the arbitration clause contained in the subscriber agreements; the district court granted the motion and dismissed the class action. Id. The Eleventh Circuit reversed, concluding the arbitration agreement and class action waiver provision to be unenforceable.

Defense attorneys argued that the class action had to be dismissed because in 2004, either in the “welcome kit” given new subscribers or with the December invoice of existing subscribers, each customer received a “Policies and Procedures” notice that contained a mandatory arbitration clause. Dale, at *1. The arbitration clause contained a class action waiver provision, id., and “Comcast argued the subscribers accepted the Arbitration Provision, including the class action waiver, by their continued subscription to Comcast’s services after receiving the notices,” id., at *2. Plaintiffs argued that the damages suffered by the class in this case were $0.66 every three months, or a total of $10.56 over the four-year class period, and so the class action waiver was substantively unconscionable because “if Comcast’s class action waiver is held valid, they will effectively be denied any remedy.” Id., at *3. Plaintiffs also challenged the arbitration fee structure imposed under the subscriber agreement, which placed on subscribers the financial burden of attorney fees and all costs incurred in the arbitration other than the filing fee and arbitrator’s costs. Id. The district court rejected plaintiffs’ argument that the class action waiver was unconscionable, dismissed the class action, and compelled arbitration of the dispute. Id., at *2.

Continue reading "Arbitration Class Action Defense Cases-Dale v. Comcast: Eleventh Circuit Distinguishes Prior Cases Upholding Class Action Waivers And Holds Class Action Waiver And Arbitration Clause Unconscionable" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver Rendered Arbitration Clause Unconscionable “Notwithstanding the Availability of Market Alternatives” and Federal Arbitration Act (FAA) does not Preempt California State Court Holding that Class Action Waivers are Unconscionable under California Law

Plaintiffs filed a putative class action in California state court against T-Mobile alleging violations of the state’s unfair business practices statute arising out of the early termination fees charged cellular telephone service customers and the sale of “locked” cellular phones that customers cannot use if they switch to another carrier. Gatton v. T-Mobile USA, Inc., 152 Cal.App.4th 571, 61 Cal.Rptr.3d 344, 346 (Cal.App. 2007). The trial court denied a defense motion to compel arbitration pursuant to the service agreement’s arbitration clause, which included a class action waiver, id., at 346-47. The California Court of Appeal affirmed, holding that “the class action waiver rendered the arbitration provision unenforceable” and that the Federal Arbitration Act (FAA) did not “preempt[] any rule that class action waivers are unconscionable under California law.” Id., at 347. The appellate court therefore affirmed the trial court order, which permitted plaintiffs to prosecute the putative class action in state court. The appellate court’s discussion of the FAA’s impact on class action waivers is contained in a portion of the court’s opinion that, pursuant to California Rules of Court, is not published and therefore many not cited; accordingly, we summarize here only that part of the opinion holding that the class action waiver rendered the arbitration clause unenforceable.

Plaintiffs signed cellular telephone service agreements with T-Mobile, acknowledging that they had “received and reviewed the T-Mobile Terms and Conditions” and that “ All disputes are subject to mandatory arbitration in accordance with paragraph 3 of the Terms and Conditions." Gatton, at 347. The introductory paragraph of the Terms and Conditions advised people to “carefully read these Terms and Conditions” and to “NOT USE THIS SERVICE OR YOUR UNIT” if they are unwilling to agree to be bound by the provisions contained therein. Id. Section 3 of the Terms and Conditions, entitled “Mandatory Arbitration; Dispute Resolution,” precluded customers from seeking class action relief, id., and the appellate court summarized at pages 347 and 348 that “The terms and conditions incorporated into each of the plaintiff's agreements included a mandatory arbitration clause including a class action waiver.” The contract required each party to pay for their own attorney fees, and for customers to pay $25 toward the arbitrator’s fee (save for claims of less than $25, in which case T-Mobile would pay for the arbitrator’s fee). Id., at 348, n.3.

With respect to the early termination fees underlying the class action allegations of certain plaintiffs, the class action complaint alleged that customers who terminate service prior to the expiration of the service contract are required to pay approximately $200 per telephone, and that this fee is also charged if T-Mobile cancels the contract for nonpayment or other reasons. Gatton, at 348. According to the class action complaint, the early termination fee is the same “whether the contract has been in effect for several weeks or several months,” and this “flat-fee early termination penalty constitutes an unlawful penalty under Civil Code section 1671, subdivision (d), is unlawful under the unfair competition law [(UCL)] (Bus. & Prof. Code, § 17200 et seq.), and is unconscionable under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.).” Id., at 348-49 (footnote omitted). With respect to the class action’s claims concerning handset, the complaint charges that it is unlawful require prevent customers to purchase a new phone if they switch service providers. Id., at 349. The class action alleged that T-Mobile locked the SIM card so that the phone could not be programmed to operate on the service network of a competitor, and that the SIM can be unlocked simply by entering a numerical code, id. The class action complaint alleges that T-Mobile falsely represents that its phones “are not compatible with and will not work with other wireless networks” in violation of the UCL and the CLRA. Id. The complaint further alleges that locking the SIM “makes it impossible or impracticable for subscribers to switch cell phone service providers without purchasing a new handset.” Id.

Continue reading "Arbitration Class Action Defense Cases-Gatton v. T-Mobile: California Court Holds Class Action Waiver Renders Arbitration Clause Unconscionable And Unenforceable Despite Consumer Alternatives To Services From Defendant" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Lawsuits are More Effective in Redressing Employee Labor Law Claims thus Rendering Class Action Waiver in Arbitration Clause Unenforceable, and Arbitration Clause was Procedurally Unconscionable Despite 30-Day Window to Opt Out of Entirely Voluntary Dispute Resolution Program California Supreme Court Holds

Plaintiff filed a putative class action in California state court against Circuit City alleging violations of the state’s unfair and deceptive business practices statutes and labor code arising out of its misclassifying employees as exempt in order to deny them overtime pay. Gentry v. Superior Court, ___ Cal.4th ___, 64 Cal.Rptr.3d 773, Slip Opn., at 2-3 (Cal. August 30, 2007). Defense attorneys moved to dismiss the class action and compel arbitration pursuant to an arbitration clause with a class action waiver. The trial court found the arbitration clause and the class action waiver to be fully enforceable, and granted the defense motion. The Court of Appeal agreed with the trial court’s reasoning, but the California Supreme Court reversed.

At the time Circuit City hired plaintiff, he was provided with written materials that included the company’s “Dispute Resolution Rules and Procedures”; the program gave employees “various options, including arbitration, for resolving employment-related disputes” and provided that if the employee elected arbitration - a choice that was subject to a class action arbitration waiver - then the company could compel the employee to dismiss any civil action in favor of arbitration. Gentry, at 3. As the Supreme Court explained, “The packet included a form that gave the employee 30 days to opt out of the arbitration agreement. [Plaintiff] Gentry did not do so.” Id. Both the trial court and the appellate court were influenced by the fact that plaintiff failed to opt out of the arbitration program within the 30-day window, despite the fact that there would have been no adverse employment ramifications had he done so. Id., at 3-4. The Supreme Court, however, disagreed.

In a strangely vague and sharply split opinion, the Supreme Court held that class action arbitration waiver provisions in overtime cases “may be contrary to public policy,” Gentry, at 5 (italics added). But despite all of its hedging, the Court seems to be clear that anything short of an attorney-supervised waiver would not withstand scrutiny, explaining at page 12:

Continue reading "Circuit City Class Action Defense Case-Gentry v. Superior Court: California Supreme Court Invalidates Class Action Waiver In Arbitration Clause As Against Public Policy And Concludes Arbitration Clause Procedurally Unconscionable Despite Right To Opt Out" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Modification of Telephone Service Contract to Include Class Action Waiver and Arbitration Clause not Binding on Class Action Plaintiff Where Customer did not Receive Notice of Change in Contract Terms Ninth Circuit Holds, Reversing District Court Order Compelling Arbitration in Favor of Telephone Company in Class Action Challenging New, Undisclosed Charges

Plaintiff filed a putative class action in California federal court against Talk America, his long distance telephone service company, alleging violations of the Federal Communications Act, breach of contract, and violations of various California consumer protection laws based on its unilateral revision of the service contract, without notice, to add additional service charges. Douglas v. U.S. District Court, 495 F.3d 1062, Slip Opn., at 2 (9th Cir. 2007). Defense attorneys moved to compel arbitration based on another unilateral revision to the service contract that added, without notice to customers, an arbitration clause as well as a class action waiver. Id. The district court granted the motion, and plaintiff petitioned for a writ of mandate because the Federal Arbitration Act does not authorize interlocutory appeals. Id., at 2-3.

Talk America acquired AOL’s long distance telephone service, and then modified the terms of the service contract with former AOL customers to add four provisions: “(1) additional service charges; (2) a class action waiver; (3) an arbitration clause; and (4) a choice-of-law provision point to New York law.” Douglas, at 2. The class action complaint alleged that Talk America did not provide notice of these revisions to its customers, and that the revised contract was only available on Talk America’s website. Id., at 4. The class action alleged that a customer would only learn of the revisions to the service contract if he visited the website and compared the terms of the contract online with prior versions of the contract, id. The district court “seems to have assumed” plaintiff did this as it noted that the contract was available on “the web site on which Plaintiff paid his bills,” id.; but plaintiff argued that “he authorized AOL to charge his credit card automatically and Talk America continued this practice, so he had no occasion to visit Talk America’s website to pay his bills” and that in any event “he would have had no reason to look at the contract posted there” as he was not notified that the terms of the contract had been changed. Id.

Continue reading "Arbitration Class Action Defense Cases-Douglas v. U.S. District Court: Ninth Circuit Holds Class Action Plaintiff Cannot Be Compelled To Arbitrate Class Action Dispute Against Long Distance Telephone Service Carrier If Not Told Of Contract Modifications" »

Posted In: Arbitration, Class Action Court Decisions

Enforceability of Class Action Arbitration Waiver Clause is Governed by State Law and District Court Erred in Granting Defense Motion to Compel Arbitration and Dismiss Class Action Complaint because Class Action Arbitration Waiver in Consumer Contract was Unconscionable under California Law Ninth Circuit Holds

Last Friday, the Ninth Circuit held that a class action arbitration waiver in a cellular telephone service contract is unconscionable under California law, and that the Federal Arbitration Act (FAA) did not protect the class action waiver. Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, Slip Opn., at 9993 et seq. (9th Cir. 2007). Plaintiff filed a class action in California state court against New Cingular Wireless and AT&T alleging that cellular phone service “deteriorated significantly” following the merger of the two companies, id., at 9997-98. The class action complaint alleged in part various violations of California’s unfair competition law, id., at 9998, and defense attorneys removed the class action to federal court, id., at 10000. Defense attorneys then moved the district court to compel arbitration and dismiss the class action; arguing that the arbitration clause is enforceable under the FAA; the district court agreed and plaintiff appealed. Id., at 10000-01. The Ninth Circuit reversed.

The Ninth Circuit summarized the case as requiring it to consider “whether a class arbitration waiver in New Cingular Wireless Service Inc.’s standard contract for cellular phone services is unconscionable under California law, and whether the [FAA] preempts a holding that the waiver is unenforceable.” Shroyer, at 9997. The cellular service contract plaintiff signed with AT&T in 2000 and 2003 apparently did not contain class action waiver; but when he switched his account to Cingular in January 2005 – which he did via telephone – the contract he agreed to included a binding arbitration clause that included a class action waiver. Id., at 9998-10000. The Ninth Circuit held that, under the FAA, whether the class action arbitration clause was enforceable turned on state law, and that under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005), the class action arbitration provision in plaintiff’s service contract was “both procedurally and substantively unconscionable and, therefore, unenforceable.” Id., at 10002.

The Circuit Court summarized California and Ninth Circuit case law regarding unconscionability of class action arbitration waivers, culminating in the three-part test set forth in Discover Bank. Shroyer, at 10002-05. That test requires court determine (1) whether the consumer contract is one of adhesion, (2) whether the contract involves disputes of “predictably…small amounts of damages,” and (3) whether the alleged intent of the contract is to permit the company to “carr[y] out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” Id., at 10005 (quoting Discover Bank, at 162-63). The Ninth Circuit found each of these tests satisfied in this case, id. at 10006-08.

Continue reading "Arbitration Class Action Defense Cases--Shroyer v. New Cingular: Ninth Circuit Holds Class Action Arbitration Waiver Unconscionable Under California Law And Federal Arbitration Act Does Not Preempt Enforceability Of Class Action Waiver Provision" »

Posted In: Arbitration, Class Action Court Decisions

Misrepresentations by Defendant and Defense Counsel in Connection with Discovery and Court Proceedings Surrounding Proposed Settlement of Class Action Supported Trial Court Ruling that Defense Waived Right to Compel Arbitration California Court Holds

Plaintiffs filed a class action California state court against American Express Travel Related Services (Amex) alleging violations of the state’s unfair competition law arising out of the manner in which it charged for flight and baggage insurance. Aviation Data v. American Express Travel Related Services Co., Inc., ___ Cal.App.4th __, 62 Cal.Rptr.3d 396, Slip Opn., at 2 (Cal.App. 2007). A proposed settlement fell apart due to misrepresentations made by defense counsel, and Amex moved to compel arbitration. The Court of Appeal defined the issue as, “May a party lose its contractual right to compel arbitration if, when negotiating and seeking approval of a class action settlement, it misrepresents the benefits of the proposed settlement to the court, opposing counsel and others?” Id., at 1. The court summarized the trial court order and its holding at page 1 as follows: “Here the trial court refused to approve a class action settlement when it concluded that counsel for [Amex] misled plaintiffs in the course of negotiations by offering to make significant modifications to its travel insurance program that, unbeknownst to the plaintiffs, it had already made for reasons unrelated to the lawsuit. We hold the court did not err in ruling that due to its misleading conduct, Amex lost its right to compel arbitration.”

The class action complaint alleged that Amex offered cardholders flight and baggage insurance programs at a cost of $4-$14 per flight automatically charged to their American Express card. The class action alleged that cardholders believed Amex would charge them for this insurance only if they actually flew, and would receive refunds if flights were canceled or the airline tickets were not used. Instead, “Amex engaged in a scheme to cheat and defraud its cardholders by assessing premiums for trips it knew were never taken; intentionally designed its billing practices, procedures and computer programs to bill customers for services they did not receive or use and to double-bill for the same service; and intentionally failed to issue refunds or credits on cancelled flights or unused tickets.” Aviation, at 2.

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Posted In: Arbitration, Class Action Court Decisions

Defense Attempt to Compel Arbitration of Class Action Claims Based on Arbitration Clause in Employment Agreement Between Plaintiffs and Co-Defendant Warranted Only “Passing Attention” and was Rejected by Massachusetts Federal Court

Skycaps filed a class action lawsuit against American Airlines and against their direct employer, G2 Secure Staff, LLC, which employs skycaps for airlines, alleging that American Airlines violated the Massachusetts Tips Law by imposing a $2 per bag service charge for passenger luggage checked at curbside. DiFiore v. American Airlines, Inc., 483 F.Supp.2d 121, 123 (D. Mass. 2007). Defense attorneys for American Airlines moved to dismiss the class action complaint on the grounds that the Airline Deregulation Act of 1978 preempted the class action claims, and G2 moved to dismiss the class action on the grounds that the skycaps were required to arbitrate their claims against G2 pursuant to the terms of their employment agreement with G2. Id., at 123-24. Plaintiffs stipulated to arbitrate their claims against G2; and American argued that “at least some of the skycaps must arbitrate their claims” against American as well as G2, id., at 127. The district court denied American’s motion to dismiss, and rejected also defense arguments in favor of arbitration.

We do not here address the federal court’s discussion of the Airline Deregulation Act, or its conclusion that the class action claims were not expressly or implied preempted by the Act. See DiFiore, at 124-27. We discuss DiFiore only because of the increasing attention given to arbitration clauses in the context of class action litigation. As noted above, American sought to “piggyback” on the arbitration agreement contained in plaintiff’s employment contracts with G2. Id., at 127. The district court’s response was terse and to the point: “This Court need not give more than passing attention to this argument. The arbitration agreement, by its own terms, is limited in scope to claims arising between G2 and G2 employees…. For this reason alone, this Court rejects American's effort to compel arbitration.” Id.

Posted In: Arbitration, Class Action Court Decisions

Class Action Defense Effort to Compel Arbitration Based on Provision in Contract Executed by Plaintiff Rejected by District Court because Arbitration Clause Held to be Unconscionable

Plaintiffs filed a putative class action against Debt Relief of America (DRA) in Nebraska federal court alleging that DRA - a company that offers “to help consumers eliminate their debt by negotiating reduced payoffs in settlement of the debts” - engaged in acts of fraud and charged excessive and undisclosed fees in violation of Racketeer Influenced and Corrupt Organizations Act (RICO) and Nebraska’s Consumer Protection Act and Deceptive Trade Practices Act. Hollins v. Debt Relief of Am., 479 F.Supp.2d 1099, 1103 (D. Neb. 2007). Defense attorneys moved to compel arbitration under a Client Negotiation Agreement executed by plaintiff in Nebraska; the Agreement includes an arbitration clause and a Texas choice-of-law provision. Id. The district court denied the defense motion, holding that the arbitration clause was procedurally and substantively unconscionable.

Plaintiff responded to an advertisement by DRA to assist in reducing debt; he admits signing the Agreement but claims that he did not notice the arbitration clause, that it was “buried in the fine print of an illegible fax,” and that DRA did not point out the arbitration provision before he executed the Agreement. Hollins, at 1103. The class action complaint alleged that plaintiff paid DRA almost $5000 based on its “promise[] to manage his debts,” but that the company “never took any action to assist [him] or contact his creditors.” Id. The complaint further alleged DRA advised him to “ignore[] his creditors,” that his accounts were sent to collection, and that “he filed bankruptcy because of DRA's alleged misrepresentations.” Id. Plaintiff’s purported class action seeks to represent “all Nebraska residents who paid any amount for DRA's debt relief services,” id.

Continue reading "Class Action Defense Cases-Hollins v. Debt Relief: Nebraska Federal Court Denies Defense Motion To Compel Arbitration Of RICO Class Action Holding Arbitration Clause Unenforceable" »

Posted In: Arbitration, Class Action Court Decisions

Federal Arbitration Act (FAA) Provision Allowing Appeals from Orders Denying Petitions to Compel Arbitration Inapplicable Where District Court Granted Defense Motions Dismissing Class Action Allegations in Putative Class Action Complaint and then Granted Defense Motion Compelling Arbitration

Plaintiffs filed a putative class action in the District of Columbia federal court against their broker, National Financial Services and Fidelity Brokerage Services (both subsidiaries of Fidelity Investments), alleging violations of the federal Electronic Funds Transfer Act (EFTA) and various state laws arising out of Fidelity’s failure to pay customers interest on the “float” of their funds from date they requested electronic transfer of funds to the date the funds were in fact transferred. Berenson v. National Fin. Servs. LLC, 485 F.3d 35, 36 (1st Cir. 2007). The class action complaint alleged that plaintiffs opened an account with Fidelity in the 1980s, id. The Fidelity account agreement contained an arbitration clause requiring arbitration of “all controversies” but forbidding either party in a putative class action from seeking to compel arbitration unless (1) class action treatment is denied, (2) the class action is decertified, or (3) the court excludes the customer from participating in the class action, id., at 37-38. After the class action complaint was transferred to the Massachusetts federal court, id., at 37 n.3, defense attorneys filed a series of motions attacking the pleadings and the class action allegations but “reserved the right to compel arbitration if class certification is denied,” id., at 38. Ultimately defense attorneys succeeded in defeating the class action allegations and moved to compel arbitration of the plaintiffs’ non-class claims. After the district court compelled arbitration, Fidelity sought appellate review of the court’s order granting summary judgment; the First Circuit dismissed the interlocutory appeal for lack of jurisdiction.

Plaintiffs began using the company’s electronic bill payment service in the mid-1980s, but after a period of time Fidelity contracted out this service and in 2000 entered into an agreement with CheckFree to handle the bill payment service using the “good funds” method, which the First Circuit summarized at page 37 as follows:

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Posted In: Arbitration, Class Action Court Decisions

District Court must Resolve Issues Regarding Existence of Contract before Compelling Arbitration and Dismissing Class Action Allegations, but Class Action Complaint Against Co-Defendant Properly Dismissed Ninth Circuit Holds

Plaintiff filed a putative class action in federal court against MemberWorks and West Telemarketing alleging she was charged a membership fee for joining the “Essentials program” - a service that, for an annual fee, offers members a 20% discount at certain retailers - in violation of 39 U.S.C. § 3009 (prohibiting mailing unordered merchandise) and various state laws because she had not heard of, and did not join, the program. Sanford v. MemberWorks, 483 F.3d 956, 958-59 (9th Cir. 2007). Defense attorneys for MemberWorks moved to compel arbitration based on a clause in the membership agreement and to strike the class action allegations; defense attorneys for West joined in the motion to compel arbitration. Id., at 959. Plaintiff objected to the arbitration demand on the ground that she never enrolled in the Essentials program, id. The district court granted the motion to compel arbitration as to MemberWorks, holding that a determination as to the enforceability of the contract as a whole must be made by the arbitrator; but the court denied the motion as to West because it was not in privity with plaintiff, and instead dismissed the class action complaint as to West because West had not mailed plaintiff any merchandise that she had not ordered and because the court refused to exercise supplemental jurisdiction over the state law class action claims - namely, conversion, unjust enrichment and fraud - against West. Id. The Ninth Circuit affirmed the dismissal of the class action complaint as against West, but reversed the district court order compelling arbitration and reinstated the class action allegations as against MemberWorks.

Plaintiff purchased by telephone Tae-Bo fitness tapes through West Telemarketing. Sanford, at 958. Sales agents were instructed to read purchasers a script at the conclusion of the transaction stating that, with the purchaser’s consent, they would be sent a “risk-free 30-day membership” in the Essentials program, and that the $72 annual fee would be billed to their credit card if membership was not canceled within 30 days. Id. Plaintiff denied hearing the script or agreeing to the trial membership; MemberWorks’ records showed that plaintiff enrolled in the program and received a membership kit that included a membership agreement containing an arbitration clause. Id., at 958-59. Plaintiff did not cancel the membership so a $72 fee was charged to her card, and the next year a renewal fee of $84 was billed to her card. Id., at 959. Plaintiff disputed the renewal fee and MemberWorks reversed the charge, id. Plaintiff then filed her putative class action against MemberWorks and West.

Continue reading "Class Action Defense Cases-Sanford v. MemberWorks: Ninth Circuit Holds District Court Erred In Failing To Determine Existence of Membership Contract Prior To Compelling Arbitration But Correctly Dismissed Class Action Complaint Against Co-Defendants" »

Posted In: Arbitration, Class Action Court Decisions

California Appellate Court Holds that Class Action Plaintiff cannot be Compelled to Arbitrate Claims Simply Because Class Members Signed Arbitration Agreements, as that Fact is not Relevant Until Motion to Certify Class Action, and in any Event Injunctive Relief Claims were not Subject to Arbitration

Plaintiff filed a putative class action against Southern California University for Professional Studies (SCUPS) alleging violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) for failing to refund prepaid tuitions to its students. Lee v. Southern Cal. Univ. for Prof. Studies, 148 Cal.App.4th 782, 784 (Cal.App. 2007). Defense attorneys moved to compel arbitration, arguing that even though the class action representative was not directly subject to arbitration, 408 of the 519 putative class members had signed enrollment agreements with arbitration clauses and plaintiff, as their representative, was therefore bound to arbitrate her claims. Id., at 785. The trial court disagreed, denying the defense motion to compel arbitration of the putative class action. SCUPS appealed, and the appellate court affirmed.

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Posted In: Arbitration, Class Action Court Decisions

District Court Erred in Dismissing Employment Class Action and Compelling Arbitration Because “Take it or Leave it” Option was Procedurally Unconscionable Despite 3-Months’ Notice of Arbitration Clause and Limitations Period for Asserting Claims Against Employer was Substantively Unconscionable Ninth Circuit Holds

In February 2004, plaintiff, a paralegal at O’Melveny & Myers until July 2003, filed a class action against her former employer alleging violations of the federal Fair Labor Standards Act (FLSA) and California state laws for failing to pay overtime and failing to provide meal and rest periods. Davis v. O’Melveny & Myers, ___ F.3d ___ (9th Cir. May 14, 2007) [Slip Opn., at 5605-07]. The district court granted the defense motion to dismiss the class action and compel arbitration based on a Dispute Resolution Program that had been distributed to employees via interoffice mail and via the office intranet site. Id., at 5606. The class action alleged, in part, that the DRP was unconscionable and enforceable, id., at 5607. On appeal, the Ninth Circuit stated that whether the class action claims fell within the scope of the DRP was not in dispute; the issue, rather, was whether the arbitration provision was enforceable. Id., at 5608.

Preliminarily, the Ninth Circuit held that “the question of whether O’Melveny’s arbitration agreement is unconscionable is for a court to decide” rather than an arbitrator. Davis, at 5610 (citations omitted). It then addressed whether the arbitration clause was procedurally and substantively unconscionable, as required under California law, id., at 5611 (citations omitted). The Court of Appeals had little difficulty finding the provision procedurally unconscionable, holding that it was prepared by a “sophisticated employer - a national and international law firm, no less” and that, even though the arbitration clause was not hidden and employees were not taken by surprise, “in a very real sense the DRP was ‘take it or leave it.’” Id., at 5611-12. The only way for an employee to “opt out” of the arbitration provision was to leave the company, and California and Ninth Circuit decisional law disapproves of such provisions in employment agreements. Id., at 5612-13 (citations omitted).

Continue reading "Class Action Defense Cases-Davis v. O’Melveny & Myers: Ninth Circuit Reverses Order Dismissing Labor Law Class Action And Compelling Arbitration Holding Arbitration Clause Unconscionable" »

Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

In Putative Class Action Against Computer Manufacturer, California Federal Court Holds that Texas Choice of Law Provision in Computer Sales Agreement is Valid and Arbitration Clause Containing Class Action Waiver is Enforceable

Plaintiffs filed a class action against Dell alleging defects in its notebook computers. Omstead v. Dell, 473 F.Supp.2d 1018, 1021 (N.D. Cal. 2007). Defense attorneys moved to stay the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), id., at 1020. The arbitration clause contained a class action waiver, prohibiting customers from initiating or participating in class action litigation with Dell, id., at 1022. The district court granted the defense motion, holding that the class action waiver did not invalidate the arbitration clause.

Plaintiffs propose to litigate a class action on behalf of purchasers of Dell notebook computers alleging that they were “manufactured with three defects – inadequate cooling systems, a power supply that prematurely fails when used as intended, and motherboards that prematurely fail when used as intended.” Omstead, at 1021. The defense moved to stay the class action and compel arbitration based on the sales agreement provided to its computer purchasers; that agreement states that Texas law shall apply to any dispute arising out of the purchase of the computer and contains an arbitration clause governed by the FAA. Id. Further, all sales confirmations advised purchasers that the “Conditions and Terms of Sale” contain “a dispute resolution clause.” Id. Plaintiffs did not dispute receiving the sales agreement; rather, they argued that California law governed whether the arbitration clause therein was enforceable, not Texas law, and that under California law the class action waiver provision was unenforceable. Omstead, at 1022.

Continue reading "Class Action Defense Cases-Omstead v. Dell: California Federal Court Grants Defense Motion To Stay Class Action Litigation And Compel Arbitration Where Arbitration Clause Contains Class Action Waiver" »

Posted In: Arbitration, Class Action Court Decisions

Act of Extending Credit “Separate and Apart from any Sale or Lease of Goods or Services” Falls Outside the Scope of California’s Consumer Legal Remedies Act (CLRA) California Court Holds

Plaintiff filed a putative class action against various American Express entities seeking injunctive relief under California’s Consumer Legal Remedies Act (CLRA) in connection with arbitration clause contained in his American Express cardholder agreement. Berry v. American Express Publishing, Inc., 147 Cal.App.4th 224, 54 Cal.Rptr.3d 91, 92 (Cal.App. 2007). Defense attorneys demurred to the complaint, arguing that issuing a credit card does not fall within the scope of the CLRA. The trial court agreed with the defense arguments and sustained the demurrer to the class action complaint without leave to amend. The appellate court affirmed, concluding that “the extension of credit, such as issuing a credit card, separate and apart from the sale or lease of any specific goods or services, does not fall within the scope of the act.” Id.

After plaintiff began receiving an Amex publication called “Travel + Leisure” and noticed a $43 charge on his credit card statement for the magazine, he telephoned American Express Centurion Bank and American Express Publishing, the subscription was canceled, and the charge was reversed. Berry, at 93. Plaintiff then filed a putative class action against various American Express entities alleging that defendants charged customers for magazines that they never ordered. Id. Ultimately, the class action complaint was amended to contain but a single cause of action for declaratory relief “which alleged the arbitration clause and class action waiver in the cardholder agreement violated CLRA.” Id. Thus, the complaint sought solely to prohibit enforcement of the arbitration clause in the cardholder agreement. Defense attorneys demurred and the trial court sustained the demurrer without leave to amend, dismissing the class action complaint with prejudice. Id.

Continue reading "American Express Class Action Defense Case—Berry v. American Express: As Matter Of First Impression California Court Holds Issuance Of Credit Card Falls Outside Scope Of Consumer Legal Remedies Act (CLRA)" »

Posted In: Arbitration, Class Action Court Decisions

In Multifaceted Action Against Several Defendants, Illinois Court Grants Ernst & Young's Defense Motion to Dismiss, Grants Timmis Law Firm/Lawyers Defense Motion to Compel Arbitration, and Grants Deutsche Bank Defense Motion for Stay

Plaintiffs filed a putative class action in Illinois state court against various lawyers, accountants, and bankers with whom they had consulted in connection with minimizing tax liability arising from the sale of their respective companies because the IRS subsequently determined that the tax saving strategy recommended to plaintiffs was "illegal" and they "ended up losing hundreds of thousands of dollars in the transactions." Olson v. Jenkens & Gilchrist, 461 F.Supp.2d 710, 714 (N.D. Ill. 2006). Defense attorneys removed the action to federal court. Certain defendants then moved to dismiss the class action complaint, and other defendants moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA), and still other defendants moved for a stay of proceedings, id. The district court granted the defense motions.

The tax strategy recommended to plaintiffs involved digital option contracts, sometimes called Currency Options Bring Reward Alternatives (COBRA). Olson, at 714-15. We do not summarize here the convoluted and complicated fact pattern underlying the class action complaint. Suffice it to say that plaintiffs were persuaded by some of the law firm defendants to use digital options as a tax shelter in connection with the sale of their companies, the IRS subsequently determined such tax shelters to be illegal, and that plaintiffs suffered substantial damages as a result. The law firm defendants also allegedly advised plaintiffs not to participate in an IRS amnesty program and, even after the IRS determination, defendants failed to "retract, modify, or qualify their advice that the tax strategy was legal." Id., at 716.

Ernst & Young moved to dismiss the 10 claims against it, which included claims for fraud, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Illinois Consumer Fraud Act), conspiracy, declaratory relief, and breach of the duty of good faith and fair dealing. The district court granted the motion finding that the class action complaint alleged only that Ernst & Young was involved "in the initial creation of the COBRA tax strategy in 1999": plaintiffs "[did] not allege that [Ernst & Young] provided any professional services to Plaintiffs; received any fees from Plaintiffs directly or as a result of any transaction Plaintiffs engaged in; communicated with Plaintiffs in any way; or had any relationship with Plaintiffs whatsoever. While the Complaint does allege that [Ernst & Young] had a relationship with Jenkens and Deutsche Bank, Plaintiffs do not allege that relationship led to any damages to Plaintiffs." Olson, at 718. Accordingly, the district court dismissed the class action claims against Ernst & Young, but did so without prejudice. Id.

Continue reading "Jenkens & Gilchrist Class Action Defense Case-Olson v. Jenkens & Gilchrist: Illinois Federal Court Grants Defense Motion To Compel Arbitration Of Claims Against Law Firm/Lawyers Involved In Tax Shelter Ultimately Held Illegal By IRS" »

Posted In: Arbitration, Class Action Court Decisions

Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) Valid and Enforceable Georgia Federal Court Holds, Agreeing with Defense that Arbitration Agreement was not Unconscionable

Plaintiffs filed a putative class action in Georgia state court against their cable television company alleging that it overcharged them for cable television services in violation of the federal Cable Communications Policy Act, 47 U.S.C. § 522 et seq. Dale v. Comcast Corp., 453 F.Supp.2d 1367, 1370 (N.D. Ga. 2006). Defense attorneys removed the action to federal court and moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA) that arbitration clause required customers to bring claims only in an individual capacity, thereby precluding participation in class action lawsuits, id., at 1374. Specifically, the arbitration clause provided, " ALL PARTIES TO THE ARBITRATION MUST BE INDIVIDUALLY NAMED, THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED OR LITIGATED ON A CLASS ACTION OR CONSOLIDATED BASIS OR ON BASIS INVOLVING CLAIMS BROUGHT IN PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE GENERAL PUBLIC (SUCH AS A PRIVATE ATTORNEY GENERAL), OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED." Id. The district court granted the defense motion.

Comcast provides its customers with a "subscriber agreement" at the time it installs service, and "on an annual basis, [it] disseminates notices of its policies and practices to its subscribers by including them in the subscribers' monthly bills." Dale, at 1371. Notice of the arbitration clause was provided to customers in December 2004 via "a billing stuffer entitled 'Important Notices to Our Customers: Your Local Cable Company's Policies & Practices,'" id., and noted that this complied with federal law, id., at 1372 n.2. For new customers, Comcast provided notice of the arbitration agreement at the time service was installed, and new Comcast customers signed forms agreeing to be bound to the terms of the subscriber agreement. Id., at 1371. The district court found that "plaintiffs were given copies of the Subscriber Agreement containing the arbitration provisions at the time of installation of their service" and that "when defendant amended the Subscriber Agreement, it notified plaintiffs that the changes would not take effect for thirty days and that plaintiffs could cancel their service if they objected to the changes." Id., at 1377 n.4. Defense attorneys moved to compel arbitration and to dismiss the class action allegations.

In analyzing the defense motion, the federal court held that while it was obligated to determine the validity of the arbitration clause under state contract laws, Dale, at 1371-72, "as the FAA is 'preemptive of state laws hostile to arbitration,' the court should take into consideration the federal policy favoring arbitration," id., at 1372 (citing Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367-68 (11th Cir.2005)). The district court first rejected plaintiffs' claim that they never entered into an arbitration agreement with Comcast. Id. Comcast established that it sent the notices in the regular course of business, and that plaintiffs' paid their December 2004 bills evidencing that they received the billing statements. Based on the evidence presented, the federal court concluded "that plaintiffs' denials and/or conclusory declarations that they do not recall receiving copies of the arbitration provisions are insufficient to defeat defendant's motion to compel." Id.

Continue reading "Dale v. Comcast Class Action Defense Case: Georgia Federal Court Grants Defense Motion To Compel Arbitration Under Agreement Barring Class Action Lawsuits Holding Arbitration Clause Unconscionable And Dismisses Class Action Complaint" »

Posted In: Arbitration, Class Action Court Decisions

California Court Holds that Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) is Enforceable Because Not Substantively Unconscionable

Plaintiff filed a putative class action against his former employer in California state court for unfair business practices and violations of the state labor laws alleging that U-Haul misclassifies employees, fails to pay them overtime, and fails to provide meal and rest breaks. Konig v. U-Haul Co. of California, ___ Cal.App.4th ___, 52 Cal.Rptr.3d 244, 246 (Cal.App. December 19, 2006). Defense attorneys moved to compel arbitration and to dismiss the class action allegations based on an arbitration clause governed by the Federal Arbitration Act (FAA) under which employees "waive any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of a class or in a private attorney general capacity," id., at 247. (The arbitration policy and its class-action waiver provision are quoted in pertinent part in the Note below.) The trial court granted the defense motions, finding that the class action waiver was not substantively unconscionable because plaintiff had not demonstrated that the litigation governed by the arbitration clause involved "predictably . . . small amounts."

The procedural posture of the case is interesting. In November 2005, the defense moved to compel arbitration and to dismiss the class action claims. Konig, at 247. At oral argument, "the trial court requested supplemental briefing on class action waivers in the employment context," id., at 248. In January 2006, the Court of Appeal issued its opinion in Gentry v. Superior Court, 135 Cal.App.4th 944 (Cal.App. 2006), affirming a trial court order that enforced an arbitration clause containing a class action waiver. In March 2006, the trial court relied on Gentry in finding U-Haul's arbitration clause enforceable, unaware that the California Supreme Court would grant review of Gentry the following month, rendering the case noncitable under California law. Id. As the Court of Appeal explained at page 248, "the trial court ruled that plaintiff did not prove that there were predictably [small] amounts of damages plus a negative impact on his ability to pursue his statutory claims such that the arbitration agreement was substantively unconscionable." In so ruling, the trial court relied on the fact that plaintiff admitted his personal damage claim exceeded $25,000, id., at 246-47. The trial court dismissed the class action claims and compelled arbitration as to the balance of the complaint.

Continue reading "Konig v. U-Haul Class Action Defense Case: California Court Denies Defense Motion To Compel Arbitration Under Agreement Barring Class Action Lawsuits Holding Arbitration Clause Unconscionable" »

Posted In: Arbitration, Class Action Court Decisions

California Court Holds that Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) Unconscionable and that FAA does not Preempt State Law Against Class Action Waivers

Plaintiff filed a putative class action against his cellular telephone provider - for, inter alia, violations of the Federal Communications Act, and California’s unfair competition laws (UCL) and Consumers Legal Remedies Act (CLRA) - alleging that it charged his cell phone calls to himself (primarily to check his voicemail) against his “limited number of ‘anytime minutes’” instead of treating them as part of his “unlimited free ‘mobile to mobile’ calls,” contrary to promises made to him by Cingular representatives when he entered into the service contract. Winig v. Cingular Wireless LLC, ___ F.Supp.2d ___, 2006 WL 2766007, *1 (N.D. Cal. September 27, 2006). Defense attorneys moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA), id.; that arbitration clause required customers to bring claims only in an “individual capacity,” thereby precluding participation in class action lawsuits, id., at *3. The district court denied the motion.