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Class Action Defense Cases–Kristian v. Comcast: Class Action Waiver In Arbitration Clause Unenforceable

Arbitration Agreements Retroactive and Enforceable But Class Actions And Attorney Fees Waiver Unenforceable First Circuit Holds

Circuit Courts of Appeal continue to struggle with whether class action waivers in arbitration agreements are enforceable. On April 20, 2006, the First Circuit addressed that issue, and several others, in Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). Subscribers filed putative class actions against cable TV giant Comcast alleging violations of state and federal antitrust laws. Comcast moved to compel arbitration based on an arbitration clause first added to the subscription service agreements in 2001. This motion was critical to Comcast’s defense of the class action for several reasons, chief among them that the arbitration agreements barred class action arbitration and barred recovery of attorney fees and costs. The district court concluded that the arbitration provisions did not apply retroactively and refused to compel arbitration. Id., at 29-30. The First Circuit Court of Appeals reversed, but severed the class action waiver provision, as well as the provision barring recovery of attorney fees and costs, holding that those provisions “prevent the vindication of statutory rights under state and federal law.” Id., at 29. Kristian spans 40 pages in the Official Reports and so cannot be explored in detail here. It will be discussed at length in a separate article concerning the enforceability of class action waivers in arbitration agreements. We provide here but a brief overview of the highlights of Kristian.

* Comcast provided adequate notice of the arbitration agreements and the provision waiving class actions, provided as a “billing stuffer” with the subscribers’ November 2001 invoices, Kristian, at 30, 36-37. The arbitration provision – including the waiver of class action claims – was set forth in bold face and capital letters, id., at 31-32.

* While none of the plaintiffs’ initial service agreements contained arbitration clauses or the class action waivers, the arbitration agreements nonetheless applied retroactively. Id., at 30, 31-36.

* The fact the arbitration agreements provided for limited discovery is unavailing as “the Supreme Court has already foreclosed limited discovery as a ground for opposing the enforcement of an arbitration clause.” Id., at 42 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991).

* The fact the arbitration agreements shortened the statute of limitations period “does not arise a question of arbitrability,” id., 44, and so is a question first for the arbitrator to address, id., at 64.

* The fact the arbitration agreements barred recovery of treble damages “directly conflicts” with federal law, 15 U.S.C. § 15(a). Kristian, at 45. Kristian held “[an] award of treble damages under federal antitrust statutes cannot be waived” and severed that restriction under the savings clause in the arbitration agreements because “the arbitrator must award treble damages for a federal antitrust violation,” id., at 48 (italics added).

* The provisions in the arbitration agreements that explicitly bars recovery of attorney fees and costs, see Kristian, at 52, “would burden Plaintiffs here with prohibitive arbitration costs, preventing Plaintiffs from vindicating their statutory rights in arbitration,” id., at 52-53. Accordingly, that provision must be severed from the arbitration agreements so that “the arbitral forum remains viable,” id., at 53.

* The fact the arbitration agreements prohibited use of class action mechanisms “threatens the premise that arbitration can be ‘a fair and adequate mechanism for enforcing statutory rights.'” Kristian, at 54 (citation omitted). The First Circuit concluded that “Plaintiffs have provided uncontested and unopposed expert affidavits demonstrating that without some form of class [action] mechanism – be it class action or class arbitration – a consumer antitrust plaintiff will not sue at all.” Id., at 58. The Circuit Court therefore severed this restriction over Comcast’s objection so that the arbitration could proceed. Id., at 61-62.

NOTE: Importantly, Kristian held that “the strong federal policy of resolving any doubts concerning arbitrability in favor of arbitration” trumped “the state contract principle requiring contracts of adhesion to be construed strictly against the drafter.” Kristian¸ at 35.

Download PDF file of Kristian v. Comcast