ARBITRATION AND CLASS ACTION WAIVERS
Michael DommermuthMcGloin, Davenport, Severson and Snow, P.C.1600 Stout Street, Suite 1600Denver, CO [email protected]
Shawn MercerBass Sox Mercer9104 Falls of Neuse Road, Suite 200Raleigh, NC [email protected]
Christian ScaliArent Fox LLP555 West Fifth Street, 48th FloorLos Angeles, CA [email protected]
Presenters
• Federal Arbitration Act– Courts reluctant to enforce for many years– Supreme Court embraces FAA
STATUTORY HISTORY
• Under FAA class arbitration requires express contractual agreement
STOLT-NEILSEN v. ANIMALFEEDS
• Reversed Discover Bank
• Broadly applied preemption analysis– State laws that prohibit arbitration– State laws applied in a fashion that
disfavors arbitration– State public policy
concerns are
irrelevant
AT&T MOBILITY v. CONCEPCION
• Upheld use of a class waiver– “Switch to class arbitration makes process
slower, more costly and more likely to generate procedural morass.”
– Class arbitration requires procedural formality– Class arbitration increases risk to defendants –
no review forces “in terrorem” settlement– Arbitration is poorly suited to high stakes class
litigation
AT&T MOBILITY v. CONCEPCION
• Supreme Court will decide– Kentucky Supreme Court struck down
under Kentucky law a no class action arbitration clause
– The plaintiffs in that case are arguing that Concepcion does not apply in state court
APPLICATION IN STATE COURT?
• Judicial hostility toward arbitration, generally, and toward class action waivers specifically.
• Tests for enforcement of class action waivers:– Unconscionability
– Unwaivable statutory rights
• Federal courts favored arbitration
• To arbitrate injunctive relief claims brought under the CLRA and UCL
• To suggest (without holding) that Gentry Rule is also preempted by the FAA
• To preempt California’s CLRA anti-waiver provision
CA FEDERAL COURT RESPONSE
• Mixed bag
• Applying Gentry Rule without holding whether Gentry Rule is preempted
• Declining to extend AT&T Mobility to preempt all California law regarding unconscionability, yet enforcing arbitration agreement
CA STATE COURT RESPONSE
• Confusing and vague agreements will still be invalidated (PA, NJ)
• New Jersey case authority holding that class action waivers are unconscionable is preempted(NJ)
• Any unconscionability defense against a class action waiver is preempted (FL)
RESPONSE IN OTHER STATES
• But federal court held AT&T Mobility does not preclude all unconscionability defenses; it only narrows permissible factors to consider (FL)
• Adhesion contracts not per se unconscionable. Individual claims substantial enough to be pursued under state deceptive practices act because of fee shifting provision (CO)
RESPONSE IN OTHER STATES (con’t)
• Arbitration a top priority for certain consumer groups
• Arbitration Fairness Act of 2011
• CFPB to study arbitration agreements– § 1028 Dodd-Frank Act– Requires Bureau to report to Congress– CFPB, by regulation, may prohibit or impose
conditions or limitations on use of arbitration in agreements for consumer financial products or services
SHORT-LIVED VICTORY?
SHORT-LIVED VICTORY?
• Direct impact on BHPH operators• Indirect impact for other dealers• May depend on future face of CFPB• Multi-member Commission pushed by
industry and supported by Republicans• May not restrict a consumer from entering
into voluntary arbitration after dispute arises• Much like dealer exemption from FAA
SHORT-LIVED VICTORY?
• Enhanced FTC rule-making authority• FTC likely to wait for CFPB study/action• Could impact R/O arbitration agreements, etc.
• Jury trial waivers
• Class Action Fairness Act (CAFA)
CLASS ACTION WAIVERS
Pros Cons
Deterrence
Less expensive than
lawsuits
Faster and more efficient
Class waiver
Less formal – less
adversarial
Can be done pro se
Limited appeal rights
Split baby (Rule 43 – fair
and equitable)
Arbitrator expense
No rules of evidence in play
ARBITRATION GENERALLY
• Stand-alone?
• Stand alone class action waiver?
• Arbitrators – specialized
• How many arbitrators
• Forum
• Division of costs?
DRAFTING CONSIDERATIONS
• What types of disputes
• Procedural rules
• Rules of Evidence?
• Appeal rights
• Consistency with other documents
• Whether to sell if customer refuses to sign
• Severability
DRAFTING CONSIDERATIONS
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