Is the End Near for Class Arbitration? Jillian Morphis I. Introduction There is always strength in numbers. The more individuals or organizations that you can rally to your cause, the better. Mark Shields 1 Those in favor of class actions share Mark Shields s view on strength in numbers. One purpose of class actions is to enable classes of similarly situated parties to collectively obtain relief that they might not have the means to obtain individually. 2 Class action arbitration ( class arbitration ) provides classes an alternative to litigation, where they resolve disputes through arbitration rather than in court. Initially, companies used arbitration as a method to avoid class action claims; courts held that unless an arbitration agreement expressly permitted class arbitration, the judge did not have the authority to approve it and parties would be subject to mandatory arbitration as individuals. 3 However, over time, parties and courts became more comfortable with the idea of class arbitration. New precedent was created in a 2003 United State Supreme Court decision, Green Tree Financial Corp. v. Bazzle, in which the Court held that an arbitration agreement requiring 1 BILAAL RAJAN, MAKING CHANGE: TIPS FROM AN UNDERAGE OVERACHIEVER 29 (2008). Mark Shields is a political columnist and commentator appearing regularly on CNN. About Mark Shields, CREATORS.COM, http://www.creators.com/opinion/mark-shields-about.html (last visited Apr. 10, 2013). 2 Smit, Hans, Class Actions and their Waiver in Arbitration, 15 Am. Rev. Int l Arb. 199, 203 (2004). Another purpose of class actions is to prevent repetitive cases with potentially conflicting results. Id. 3 Traub, Richard K., Class Arbitration, 2, http://www.thefederation.org/documents/4- ClassActionArbitration.pdf (last visited Apr. 10, 2013).
arbitration of all disputes does not preclude class arbitration, as many previously thought. 4 Such agreements instead mean that the issue of whether or not class arbitration is appropriate is one of the disputes that should be decided by an arbitrator. 5 This case essentially shifted the presumption from the prohibition of class arbitration to a presumption in favor of class arbitration. Class arbitration differs from class action litigation in various ways. In need of rules to govern class arbitration proceedings post-bazzle, 6 the American Arbitration Association ( AAA ) issued Supplementary Rules for Class Arbitrations ( Supplementary Rules ). 7 Whereas traditional class actions generally go to court to resolve all issues, the Supplementary Rules provide that, in class arbitration, even preliminary issues such as class certifications are primarily resolved outside of court. For example, under Supplementary Rule No. 3, [i]f the arbitrator is satisfied that the arbitration clause permits the arbitration to proceed as a class arbitration... the arbitrator shall determine whether the arbitration should proceed as a class 4 Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 456 (2003). 5 Id. 6 Bazzle paved the way for the increasing acceptance of arbitration as a viable method of resolving class actions that was not often used prior to the decision. 7 AAA Policy on Class Arbitrations, AMERICAN ARBITRATION ASSOCIATION (July 14, 2005), http://www.adr.org/aaa/showpdf?doc=adrstg_003840. Under Rule 1(a), these rules apply to any class action dispute arising out of an agreement subjecting the parties to arbitration pursuant to AAA rules. Supplementary Rules for Class Arbitrations, AMERICAN ARBITRATION ASSOCIATION, http://www.adr.org/aaa/showpdf;jsessionid=q38zrmzqvjfbzn295h3vwxwzdyxrnyqnmt2 dlynw2smlypclgrpl!644581746?url=/cs/groups/commercial/documents/document/dgdf/mda 0/~edisp/adrstg_004129.pdf (last visited Apr. 10, 2013). Other organizations, such as JAMS, have also created rules to govern class arbitration procedures, similar to the Supplementary Rules. See, e.g., JAMS Class Action Procedures, JAMS (May 1, 2009), http://www.jamsadr.com/rules-class-action-procedures/. The parties to a contract indicate in the arbitration agreement which rules should govern their disputes. 1
arbitration, taking into consideration criteria in the Supplementary Rules and any relevant law or agreement between the parties. 8 However, the rules do not require that the arbitrator decide all issues; there are times when the Supplementary Rules require court involvement. For example, when a party seeks to bring class arbitration under an agreement that expressly prohibits class actions, the AAA requires the parties to initially seek court guidance regarding whether or not class arbitration is appropriate under the agreement. 9 Because class arbitration s unique characteristics are favorable to some and objectionable to others, the marriage of arbitration and class-action has not by a long shot[] been universally favored. 10 II. Class Arbitration Waivers Class arbitration is specifically addressed in one of three ways: (1) there can be an express agreement to allow class arbitration; (2) there can be an express agreement to not allow class arbitration (waiver); or (3) the contract can be silent on the issue. 11 Once it is established that a contract permits arbitration generally, it must be determined which approach the class arbitration agreement falls under. Waivers are particularly contentious because of the differing tendencies to prefer class arbitration versus litigation. As some see it, often consumer plaintiffs, 8 Supplementary Rules for Class Arbitrations, supra note 7. Upon appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class (the Class Construction Award ). Id. at Rule 3. 9 Commentary to the American Arbitration Association s Policy on Class Arbitrations, AMERICAN ARBITRATION ASSOCIATION (Feb. 18, 2005), http://www.adr.org/aaa/showpdf?doc=adrstg_003840. Because the law on the enforceability of class action waivers was unsettled, it was the AAA s practice to not even begin administrating a case until the court decided the action was appropriate for arbitration. Id. The AAA s lack of involvement at this point, however, did not indicate its stance on the issue. Id. 10 Traub, Richard K., Class Arbitration: Introduction, 3, http://www.thefederation.org/documents/4-classactionarbitration.pdf (last visited Apr. 10, 2013). 11 Id. at 3-4. 2
class action waivers, and more specific class arbitration waivers, deprive members of a class the right to pursue remedies collectively. 12 Under the view that class actions, generally, are often necessary for individuals to obtain any remedy, being deprived of the right to pursue matters collectively effectively denies the parties the right to justice. Others, often business defendants, fear that arbitrators will impose enormous liability against them without the opportunity for judicial review. 13 As these fears of corporate defendants became amplified post-bazzle, companies commonly began to include class arbitration waivers in their arbitration agreements. 14 Class arbitration waivers deny consumer plaintiffs the right to arbitrate collectively, and it was inevitable that they would fight back to prevent these waivers from being enforced. The outcome of this battle has been inconsistent, with some believing that class arbitration waivers are unconscionable, and others encouraging the use of these waivers in support of traditional arbitration. The Federal Arbitration Act and Class Actions The Federal Arbitration Act ( FAA ) encourages traditional arbitration rather than class arbitration as long as it is consistent with the language of the agreement. The FAA was enacted in 1925 as Congress s exercise of its Commerce Clause powers, and is valid in both state and 12 Smit, Hans, Class Actions and their Waiver in Arbitration, 15 Am. Rev. Int l Arb. 199, 203 (2004). 13 Traub, supra note 10, at 4. Parties sharing this view believe that the benefits of arbitration, avoidance of costs and delay, are also what make class arbitration risky. Id. at 4-5. Regarding the standard of review for arbitration, the Federal Arbitration Act provides limited grounds for vacating an arbitrator s decision, requiring some form of fraud, corruption, partiality, or other similar misconduct. 9 U.S.C. 10 (2006). 14 The Bazzle decision essentially made class arbitration permissible in two of the three approaches, with an express waiver of class arbitration being the only method of avoiding class arbitration. 3
federal courts. 15 Its purpose was to make written arbitration provisions or agreements in commercial contracts or pursuant to maritime transactions valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 16 It principally encourages arbitration agreements to be enforced according to the terms agreed upon by the parties, unless there is a defense that would be available to all contracts. The Supreme Court interpreted the FAA as reflecting a strong federal policy favoring arbitration, and, as a result, courts must enforce arbitration agreements according to their terms. 17 The FAA is silent on the issue of class arbitration, thus leaving a gray area for the courts to clarify. Some feel that allowing class arbitration without an agreement to do so undermines the purpose of the FAA by altering the form of arbitration the parties agreed to; others feel that arbitration and class actions are compatible and can be permitted consistent with the FAA, unless the parties expressly agreed to waive class arbitration. 18 Class arbitration waivers are an area of debate, providing benefits primarily to corporate defendants. Because the FAA allows common contract defenses such as unconscionability, the parties in favor of class arbitration use unconscionability to invalidate class arbitration waivers a defense arguably contrary to the FAA s purpose of enforcing arbitration agreements based on their terms. 15 The Federal Arbitration Act, AMERICAN ARBITRATION ASSOCIATION UNIVERSITY, https://www.aaau.org/media/5045/federal%20arbitration%20act.pdf (last visited Apr. 10, 2013). [T]he underlying issue of arbitrability [is] a question of substantive federal law: Federal law in the terms of the Arbitration Act governs that issue in either state court or federal court. Southland Corp. v. Keating, 465 U.S. 1, 12 (1984). 16 Stolt-Nielsen S.A. v. AnimalFeeds Int l Corp., 130 S. Ct. 1758, 1773 (2010). 17 Jill Gross, AT&T Mobility, FAA Preemption and Class Arbitration, BLOOMBERG LAW (Sept. 15, 2011), http://www.scotusblog.com/2011/09/att-mobility-faa-preemption-and-classarbitration/. 18 Discover Bank v. Superior Court, 36 Cal. 4 th 148, 171 (2005). Amicus curiae United States Chamber of Commerce argues that the imposition of classwide arbitration undermines the purpose of the FAA by drastically altering the rules by which the parties agreed to arbitrate, transforming arbitration into a less efficient and less desirable mechanism of dispute resolution. Id. at 171-72. 4
III. Discover Bank v. Superior Court of Los Angeles Because the member of the class who agrees to forego the benefits of a class action waives significant rights, unconscionability appeared to be the obvious basis for attack on the waiver. 19 Under the view that class actions are necessary to resolve some disputes, class action waivers deprive society of an efficient pursuit of justice, and justice should not be displaced by private agreement. 20 However, under the view that arbitration agreements should be enforced according to their terms, it may be acceptable for consumers to waive their right to the justice provided by class actions. Several courts have struck down class arbitration waivers on the ground of unconscionability, including the California Supreme Court in Discover Bank v. Superior Court of Los Angeles. 21 In Discover Bank, the court held that a class arbitration waiver in a consumer contract of adhesion can be unconscionable in certain circumstances, and in such cases should not be enforceable. 22 The court created a three-part rule to determine whether class waivers are unconscionable: waivers are unconscionable when (1) the party with more bargaining power (2) deliberately cheated a class of consumers (3) out of small individual sums of money, effectively making the defendant exempt from responsibility. 23 The primary issue of concern here was whether California s prohibition of these waivers was preempted by FAA guidelines, which favor enforcing arbitration agreements based on the terms of the contract. With the FAA silent 19 Smit, supra note 12, at 202. 20 Id. at 204. 21 Discover Bank, 36 Cal. 4 th at 153. 22 Id. at 163. 23 Id. at 162-63. The court made it clear that, at least in California, not all class action waivers in consumer contracts of adhesion are unconscionable, only those that meet the elements of this test. Id. at 162. 5
regarding class arbitration, the answer to this question was unclear. 24 The California Supreme Court ultimately held that courts could look to state law rules to determine the validity of a class arbitration clause, thus finding the class arbitration waiver in the adhesion contract unconscionable and invalid without preemption by the FAA. 25 In response to Discover Bank, courts predominantly applied the decision only to cases that were not substantially distinguishable from Discover Bank. For example, in finding that a class arbitration waiver was not unconscionable in Watkins v. Wachovia Corp., the California Court of Appeal distinguished that case from Discover Bank on the grounds that it did not involve claims so small that they would only be worth arbitrating if certified as a class. 26 Since the Discover Bank case, disputants have seen a trend toward FAA preemption of state laws disfavoring traditional arbitration. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the United States Supreme Court held that [i]mposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the [FAA]. 27 Although state law generally governs the interpretation of an arbitration agreement, it is preempted by the FAA principle that arbitration is a matter of consent, not coercion. 28 The arbitration panel exceeded 24 Id. at 163. Discover Bank argued that in Bazzle, the Court supported the position that the FAA preempts state laws against class arbitration waivers. Id. at 169. This court disagreed, stating that the Court did not determine whether state law could, consistent with the FAA, find a class arbitration waiver unenforceable in a contract of adhesion due to unconscionability. Id. at 171. 25 Id. at 172. Some considerations of the court included that the FAA does not federalize the law of unconscionability, it does not preclude states from enforcing arbitration-neutral rules prohibiting class action waivers, and there is nothing indicating that class actions are incompatible with arbitration. Id. at 167, 168. The court held that the FAA does not preempt a state law governing the validity, revocability, and enforceability of contracts. Id. at 165. 26 Watkins v. Wachovia Corp., 172 Cal. App. 4 th 1576, 1587 n.12 (2009). The case in Watkins instead involved a state code prohibiting contracts with clauses releasing liability for past wrongdoing. Id. 27 Stolt-Nielsen S.A. v. AnimalFeeds Int l Corp., 130 S. Ct. 1758, 1764 (2010). 28 Id. at 1773 (quoting Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479). 6
its authority in Stolt-Nielsen when it permitted class arbitration based on policy considerations determining that because the disputed contract was silent on the issue, class arbitration should be allowed when it should have considered FAA rules, the parties intent in the agreement, and relevant state laws when making this decision. 29 It was well-established at this point that the FAA required enforcement of contracts according to their terms, not based on the arbitration panel s policy considerations. Because of the fact that the issue was before an arbitrator based on the parties arbitration agreement, the Court held that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. 30 The arbitration panel s failure to determine the intent of the parties when deciding whether class arbitration was appropriate was a clear violation of the FAA. As some see it, Stolt-Nielsen was a foreshadowing of the Court s holding in AT&T Mobility LLC v. Concepcion. 31 29 Stolt-Nielsen, 130 S. Ct. at 1768. Because the parties agreed their agreement was silent in the sense they had not reached any agreement on the issue of class arbitration, the arbitrators proper task was to identify the rule of law that governs in that situation. Id. Again quoting Volt Information Sciences, the Court held that arbitrators must give effect to the contractual rights and expectations of the parties, with the parties intentions controlling. Id. at 1774 (emphasis added). 30 Id. at 1775. 31 Attorney Mark Friel pointed out that Concepcion might even be viewed as clarifying last year s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int l Corp. Mark Friel, AT&T Mobility LLC v. Concepcion: By No Means the End, STOLL BERNE (May 6, 2011), http://www.stollberne.com/classactionsblog/2011/05/06/att-mobility-llc-v-concepcion-by-nomeans-the-end/. 7
IV. AT&T Mobility LLC v. Concepcion Decision in Concepcion Strength of numbers is the delight of the timid. The valiant in spirit glory in fighting alone. Mahatma Gandhi 32 The Supreme Court Justices joining in the AT&T Mobility LLC v. Concepcion decision 33 evidently shared a view similar to Gandhi s, as they essentially created a loophole allowing corporations to contract out of class arbitration, forcing many individuals to fight valiantly on their own. In this case, the Concepcions sued AT&T Mobility over a cell phone contract, which included an arbitration agreement requiring arbitration of all disputes arising between the parties, but only as individuals rather than as members of a class. 34 The mandatory arbitration clause combined with the class arbitration waiver, if enforceable, essentially precluded a class action in any form. The primary issue was whether the FAA preempted California s rule allowing courts to find some class arbitration waivers to be unconscionable. 35 As interpreted by the Court, the final phrase of Section 2 of the FAA (the Savings Clause ) upon such grounds as exist at law or in equity for the revocation of any contract permits arbitration agreements to be invalidated by general contract defenses such as fraud, 32 WISDOM FOR THE SOUL: FIVE MILLENNIA OF PRESCRIPTIONS FOR SPIRITUAL HEALING 634 (Larry Chang ed., 2006). 33 Justice Scalia delivered the opinion of the Court, joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). 34 Id. at 1744. The Concepcions claimed that AT&T Mobility engaged in false advertising by charging sales tax on free phones. Id. AT&T Mobility moved to compel individual arbitration, but the Concepcions opposed the motion on the grounds that the ban on class actions was unconscionable and unlawfully exculpatory. Id. at 1745. 35 Id. at 1744. The district and appellate courts held that the class action waiver was unconscionable, relying on the California Supreme Court s decision in Discover Bank. Id. at 1745. The appellate court also held that the Discover Bank rule was not preempted by the FAA because the rule was simply a refinement of the unconscionability analysis application 8
duress, or unconscionability, but not defenses specific only to arbitration. 36 However, when a general contract defense in this case unconscionability is applied in a way that strongly disfavors arbitration, the analysis is complex. While there are some benefits to class arbitration, these benefits do not allow states to require procedures inconsistent with the FAA. 37 According to the Court, there is nothing in the Savings Clause that suggests an intent to uphold state laws that are contrary to FAA objectives. 38 Therefore, a general contract rule that effectively invalidates all arbitration agreements is in direct conflict with and may be preempted by the FAA. Class arbitration can be undesirable for many reasons. According to the Court: it sacrifices the efficiency, simplicity and cost effectiveness of arbitration; the Supplementary Rules, mimicking the Federal Rules of Civil Procedure, require procedural formality better suited for a court than an arbitrator; and it increases the potential liability imposed on defendants to a level not appropriate for arbitration. 39 These aspects of class arbitration are particularly worrisome because of the lack of opportunity for defendants to move for judicial review. 40 While the FAA is not in favor of class arbitration, the fact that class arbitration is contrary to FAA goals does not alone make its use de facto impermissible. On the other hand, subjecting defendants to class arbitration without an express agreement to do so goes against the purpose of 36 Id. at 1746. An example of an arbitration-specific defense is [w]hen a state law prohibits outright the arbitration of a particular type of claim. Id. Such cases are straightforward, and these defenses are preempted by the FAA. Id. 37 Id. at 1753. 38 Id. at 1748. Because the purpose of the FAA is to ensure that arbitration agreements are enforced according to their terms, the Court held that parties may agree to limit the issue subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes. Id. (citations omitted). 39 Id. at 1751-52. 40 See 9 U.S.C. 10 (2006). Under the FAA, errors that can be submitted for judicial review include but are not limited to miscalculations, mistakes in describing people and property, and decisions on issues not submitted to arbitration. Traub, supra note 3, at 10. 9
the FAA. In making its decision, the Court also took into consideration the fact that because the arbitration agreement provided substantial procedural safeguards for consumers, the dispute would likely be resolved if subjected to traditional arbitration. 41 Finding that California s Discover Bank rule was contrary to FAA objectives, 42 and using its decision in Stolt-Nielsen as instructive, 43 the Court ultimately held that the Discover Bank rule is preempted by the FAA consequently allowing companies to use class arbitration waivers to force consumers to arbitrate individually. 44 On its face, this case appears simply to provide corporations with a tool to avoid class arbitration in the future, but it also encourages the avoidance of any class action through an agreement compelling arbitration on an individual basis. 41 Concepcion, 131 S. Ct. at 1753. The agreement provided that: In the event parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney s fees, and, in the event the customer receives an arbitration award greater than AT&T s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of claimant s attorney s fees. Id. at 1744. 42 Id. at 1750. The rule does not expressly require class arbitration, but it allows parties to demand it ex parte. Id. The Court found that the elements of the rule that appeared to have a limiting effect were toothless: the rule is limited to adhesion contracts, but nowadays all consumer contracts are adhesive; it is limited to predictably small damages, but courts were finding thousands of dollars to be sufficiently small; and it is limited to allegations of schemes to cheat consumers, but a requirement of only an allegation has no real limiting effect. Id. 43 When analyzing Stolt-Nielsen, the Court concluded that class arbitration, to the extent that is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA. Id. at 1750-51. 44 Id. at 1753. 10
Scope of Concepcion How the lower courts apply the decision greatly affects the scope of the Concepcion rule. Courts have been inconsistent in their application of the rule, making the scope, though questionable, less extensive than some initially thought. Just as courts construed Discover Bank narrowly, some courts have construed Concepcion narrowly, at times following the letter of the law but not necessarily the spirit of the law. Some courts have used conclusory statements lacking proper analysis in order to avoid the reach of Concepcion. For example, in Kanbar v. O Melveny & Myers, the United States District Court for the Northern District of California denied a claim that Concepcion precludes all unconscionability challenges to arbitration agreements. 45 The court went into great detail regarding the Court s rule in Concepcion, but its analysis for why it declined to apply the rule was insufficient. The court explained the benefits of finding the arbitration agreement in question unconscionable and invalid, but when addressing the requirements of Concepcion, it made the conclusory statement that [n]onenforcement would not compromise or otherwise interfere with the informality, expeditiousness, or inexpensiveness of arbitration. 46 This court and others employing similar strategies have thus far escaped the reach of Concepcion, subjecting the defendant companies to class action claims. On the other hand, some courts apply the rule broadly, finding state laws unenforceable simply if they require class arbitration despite class arbitration waivers. For example, in Litman v. Celico Partnership, the Third Circuit United States Court of Appeals held that a state law 45 Kanbar v. O Melveny & Myers, No. 849 F.Supp.2d 902, 909 (N.D. Cal. 2011). 46 Id. at 912. 11
requiring the availability of classwide arbitration was inconsistent with the FAA. 47 The court understood the Court s holding in Concepcion to be both broad and clear: a state law that seeks to impose class arbitration despite a contractual agreement for individual arbitration is inconsistent with, and therefore preempted by, the FAA, irrespective of whether class arbitration is desirable for unrelated reasons. 48 Because requiring the availability of class arbitration is inconsistent with the FAA, the court held that the state law declaring class arbitration waivers unconscionable is preempted by the FAA and unenforceable. 49 The court applied the Concepcion case directly, without considering whether the arbitration agreement was unconscionable in a way consistent with the FAA. Alternatively, some courts, when faced with cases similar to Concepcion, have declined to extend the Court s rule. While it may at first glance appear that Concepcion resolved all unconscionability claims, this simple of an application would be inconsistent with the Savings Clause of the FAA. In In re Checking Account Overdraft Litigation, the United States District Court for the Southern District of Florida found class arbitration waivers unconscionable despite the similarities of the waivers to that in Concepcion. 50 Banks clients signed deposit agreements, which included arbitration agreements requiring individual arbitration of any dispute relating to 47 Litman v. Celico Partnership, 655 F.3d 225, 227 (3d Cir. 2011). After its decision in Concepcion, the Supreme Court vacated the Court of Appeals prior decision and remanded the case for further consideration. Id. 48 Id. at 231. 49 Id. at 232. The court made this decision without taking into consideration the procedural protections afforded consumers in the Concepcion arbitration agreement. Holli L. Hartman, Class Arbitration Waiver Cases Since AT&T Mobility v. Concepcion: Not Quite All That and a Bag of Chips, BAKER LAW (Sept. 27, 2011), http://www.bakerlaw.com/alerts/class-arbitrationwaiver-cases-since-att-mobility-v-concepcion-9-27-2011/. 50 In re Checking Account Overdraft Litigation, No. 09-MD-02036-JLK, 2011 U.S. Dist. LEXIS 118462 (S.D. Fla. 2011). At the same time this case was on appeal, the U.S. Supreme Court decided the Concepcion case, causing the appellate court to remand the case to the District Court for further consideration. Id. at 36. 12
the accounts and fee shifting agreements permitting the banks to withdraw any debt owed to the banks from client accounts. 51 These agreements were similar to the AT&T Mobility agreement in that they contained class arbitration waivers; however they lacked the procedural protections for consumers that were present in the AT&T Mobility agreement, making the bank agreements more one-sided. This court did not interpret Concepcion in a way that precluded the consideration of all unconscionability claims; rather, it [interpreted it as] simply narrow[ing] the permissible factors for consideration in the unconscionability analysis. 52 It did not change the analysis for procedural unconscionability, but it did change the analysis for substantive unconscionability. In a sense, Concepcion changed everything and also changed nothing: it changed everything in that class action waivers can no longer be a factor considered in substantive unconscionability analyses, and changed nothing in that case-by-case unconscionability determinations are still required. 53 The court therefore took a middle of the road approach here, not agreeing with either party s extreme interpretation of Concepcion. Because the fee shifting provisions were so one-sided, the court found that the arbitration agreements were unconscionable a decision consistent with the idea in Concepcion that exposing one party to all of the risk is substantively unconscionable. 54 Just as it would have been unlawful to place all of the risk on defendant AT&T Mobility by imposing class arbitration, it is unlawful to place all of the risk on the bank client plaintiffs. 51 Id. at 37. 52 Id. at 46-47. The court based its holding partly on an Eleventh Circuit decision, Cruz v. Cingular Wireless, LLC, which was decided post-concepcion. Id. at 43. As did the Court in Concepcion, the court in Cruz rejected the policy argument that small-value claims would go unprosecuted unless brought as a class. Id. 53 Id. at 47-48. Findings of unconscionability require procedural and substantive unconscionability, but the Court in Concepcion did not expressly address the procedural requirement. 54 Id. at 72-73. 13
Because some courts have interpreted the Concepcion case narrowly, the actual scope of the rules derived from the case is not as all-encompassing as one might initially think. As evidenced by the lower courts application of the Concepcion rule, the effectiveness of class arbitration waivers depends on the language in the agreement and the relevant state law. The rule provides strong support for enforcing some potentially unconscionable agreements, but opportunities remain for plaintiffs to pursue class actions. 55 It appears that the best chance a corporation will have to get a guaranteed enforcement of its class arbitration waiver is to mirror the Concepcion waiver as closely as possible by including an express agreement to waive class arbitration in addition to providing procedural safeguards to protect consumers interests. V. Future Some feel that the Concepcion decision is a game-changer for businesses. 56 Under this theory, companies that were previously forced to subject themselves to a process ill-suited for arbitration, and to place themselves at risk for potentially devastating losses with no opportunity for review, are now only subjected to such processes if they expressly choose to do so in their arbitration agreements. Others feel that Concepcion will have minimal impact, and that class actions will live on in various circumstances. For example, manufacturers are still unable to include arbitration clauses in contracts for items sold in retail stores, and securities transactions currently have no 55 Hartman, supra note 49. 56 Adam Liptak, Supreme Court Allows Contracts that Prohibit Class-action Arbitration, NEW YORK TIMES (Apr. 27, 2011), http://www.nytimes.com/2011/04/28/business/28bizcourt.html?_r=1 (quoting Vanderbilt University law professor Brian T. Fitzpatrick, who feels that this decision is one of the most important and favorable cases for businesses in a very long time. ). 14
means for the parties to agree to a class action waiver. 57 If courts continue to apply the Concepcion decision narrowly, class actions are far from dead. While the Discover Bank decision may have unlawfully burdened arbitration agreements, the Concepcion decision may be too extreme in the other direction, unlawfully burdening consumers rights to justice. Consumer advocates may already have an opportunity to overrule the decision in Concepcion. Under Section 128 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress ordered the Consumer Financial Protection Bureau ( Bureau ) 58 to conduct a study analyzing arbitration agreements in an effort to ban anticonsumer provisions. 59 There is strong evidence to support the argument that the Concepcion decision is anti-consumer. The decision inevitably encouraged companies to include class arbitration waivers that are often anti-consumer, a result in itself causing tension between the Bureau and the FAA. Further, the Bureau s former Chair s views on the ability of consumers to understand complex financial agreements [makes it likely] the new agency won t think highly of 57 Daniel Fisher, Has Scalia Killed the Class Action?, FORBES (May 20, 2011), http://www.forbes.com/sites/danielfisher/2011/05/20/has-scalia-killed-the-class-action/, [hereinafter Has Scalia Killed the Class Action]. According to Fisher, class actions will likely be utilized for transactions subject to credit reporting laws, debt collection laws, as well as various federal laws, whereas class actions may be eliminated in agreements to transactions including auto loans, credit cards, and cell phone plans. Id. Deepak Gupta, an attorney who argued and lost the Concepcion case, even thinks it is possible that arbitration clauses will eventually be given to a consumer to sign at the point of sale for retail transactions. Id. 58 The Bureau was established by Congress to make markets for consumer financial products and services work for Americans whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products. Learn About the Bureau, CONSUMER FINANCIAL PROTECTION BUREAU, http://www.consumerfinance.gov/thebureau/ (last visited Apr. 10, 2013). In pursuit of this goal, the Bureau ensures that consumers are making informed decisions when entering into agreements. Id. 59 Dodd-Frank Wall Street Reform and Consumer Protection Act, THE UNITED STATES HOUSE OF REPRESENTATIVES, http://housedocs.house.gov/rules/finserv/111_hr4173_finsrvcr.pdf (last visited Apr. 10, 2013). 15
class-action waivers or binding arbitration agreements at all. 60 Thus there will likely be an effort to lobby Congress and the Bureau to resolve this tension, but the question remains as to how successful these efforts will be. Regardless of whether or not class actions, and in effect class arbitrations, will become virtually non-existent, Concepcion gave corporations more of an ability and a desire to prevent class actions. As one attorney put it, [w]hile it may not be failsafe protection from class actions, a well-drafted, reasonably limited class arbitration waiver, has an exponentially greater chance of being enforced than it did before the Concepcion decision was announced. 61 Because there is great potential for the impact of Concepcion to be strongly anti-consumer while congressional or Executive Branch action is pending, consumer advocates should look at additional ways to protect consumers. They may consider lobbying for exceptions in individual industries, similar to the exception prohibiting arbitration agreements altogether for loan transactions with military service members and for contracts between car dealers and manufacturers. 62 There is no guarantee that any one approach will be successful, but so as long as there is fear that class actions will become obsolete or at a minimum uncommon, consumer advocates should attempt a resolution aggressively from all angles. 60 Daniel Fisher, After Arbitration Rule, Watch Warren s Consumer Bureau, FORBES (Apr. 27, 2011), http://www.forbes.com/sites/danielfisher/2011/04/27/after-arbitration-ruling-watchwarrens-consumer-bureau/. 61 Paul Karlsgodt, Will AT&T Mobility v. Concepcion Really Kill the Consumer Class Action?, CLASS ACTION BLAWG (May 25, 2011), http://classactionblawg.com/2011/05/25/will-attmobility-v-concepcion-really-kill-the-consumer-class-action/. 62 Has Scalia Killed the Class Action, supra note 57. Fisher suggests that lobbyists encourage bans on arbitration agreements in nursing home and poultry farmer contracts. Id. 16