Attorneys are moving into position for the next battles over class waivers in arbitration clauses, even as the dust is still settling from a major U.S. Supreme Court ruling on that subject in the spring. In a 5-4 ruling April 27, the justices decided AT&T Mobility LCC v. Concepcion (No. 09-893), holding Section 2 of the Federal Arbitration Act (FAA) preempted a California appeals court ruling that classified most class action waivers in arbitration accords as unconscionable and unenforceable.
The opinion by Associate Justice Antonin Scalia is being closely scrutinized by a growing number of organizations that favor arbitration as a way to resolve disputes, especially when consumers or others who sign arbitration clauses also agree to give up their right to pursue class relief.
Financial services firms—especially credit card companies—embraced arbitration clauses and class waivers early on. However, health maintenance organizations, auto dealers, insurers, investment firms, and growing number of other sectors now make those clauses a standard feature of many contracts. That has only increased in the wake of Concepcion, especially for companies that see the decision as the final word—or close to it—on class action waivers.
However, F. Paul Bland, Jr., senior attorney at the Public Justice law firm, told lawyers at the American Bar Association’s annual convention that battles over class waivers are far from over. The Concepcion case was fought largely in the abstract, with little or no evidence about the impact of the class waiver at issue, he told a meeting of the Business Law Section’s consumer financial services committee. He said the U.S. Supreme Court, and other courts as well, will look differently at cases where hard evidence proves that class waivers frustrate the rights of consumers and others. Evidence will be the key, he said.
“In this case, the plaintiffs didn’t prove anything. They just made abstract arguments as a matter of principle that the arbitration clause was unenforceable because it might be too expensive. There was no evidence of that,” Bland said. In the wake of the ruling, according to Bland, many organizations see class waivers as a bulletproof solution, and are convinced that they will always prevail in court challenges. But Bland said that reading of the case is too broad. In a series of cases, according to Bland, the Supreme Court has allowed arbitration only so long as parties were able to effectively vindicate their rights.
The justices are not likely to ignore that precedent if asked whether Concepcion applies when evidence shows that parties would not be able to effectively vindicate their rights, he said.
Attorney Alan S. Kaplinsky disagreed, saying the “vindication of rights” theory probably will not succeed. Kaplinsky, who heads the consumer financial services practice at Ballard Spahr, said Concepcion seems clearly to rule out the need for discovery.
Moreover, Scalia’s opinion makes it clear that states cannot require procedures that are inconsistent with the FAA, according to Kaplinsky, who prepared a friend of the court brief for financial services groups in the Concepcion case. However, there is more to come, he said. According to Kaplinsky, Concepcion does not directly address the relationship between the FAA and rights under other federal statutes.
He said that probably will be the basis for the next case the court takes in this area. “There’s fertile ground for litigation there, probably for many years to come,” Kaplinsky said. 08-10-2011. Bureau of National Affairs.