The Future of Class Actions: Fallout from Concepcion and American Express January 28, 2014 Association of Corporate Counsel James M.

The New Landscape Following AT&T Mobility v. Concepcion and American Express v. Italian Colors A devastating blow to consumer rights. Editorial, Gutting Class Actions, The New York Times (May 12, 2011) [T]he court s conservative majority could not have been clearer that it is favoring businesses over consumers. Chemerinsky, Supreme Court: Class (Action) Dismissed, LA Times (May 10, 2011) American Express v. Italian Colors is the worst Supreme Court arbitration decision ever. Bland, The Worst Supreme Court Arbitration Decision Ever, Public Justice (June 20, 2013) To a hammer, everything looks like a nail. And to a court bent on diminishing the usefulness of [FRCP] Rule 23, everything looks like a class action, ready to be dismantled. Justice Elena Kagan, American Express v. Italian Colors (2013) (dissent) 2

The Scope of the Holdings: Narrow and Broad Readings AT&T v. Concepcion (2011): The Federal Arbitration Act (FAA) preempts state laws that obstruct the enforceability of arbitration agreements on the basis that class action waivers run afoul of state public policy. California s Discover Bank rule invalidating class action waivers in adhesion contracts involving small individual damages in which the plaintiff alleges a scheme to cheat consumers is preempted. American Express v. Italian Colors (2013): FAA bars courts from invalidating class action waivers in arbitration agreements even where pursuing a federal antitrust claim on an individual basis would be prohibitively expensive. The antitrust laws do not guarantee an affordable procedural path to the vindication of every claim. 133 S. Ct. 2304. 3

Aftermath: Surge in Litigation Regarding Enforceability of Arbitration Agreements Concepcion v. AT&T cited in 915 separate decisions (distinguished in 56 cases). Bernall v. Burnett, 2011 U.S. Dist. LEXIS 59829 (D. Colo. 2011) ( There is no doubt that Concepcion was a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals. ) Littman v. Cellco Partnership, 2011 U.S. App. LEXIS 17649 (3d Cir. 2011) ( We understand the holding of Concepcion to be both broad and clear: a state law that seeks to impose class arbitration despite a contractual agreement for individualized arbitration is inconsistent with, and therefore preempted by, the FAA. ) Brooks v. UBS Financial Servs., 2011 U.S. Dist. LEXIS 116433 (ND Cal. 2011) (plaintiff contends that Gentry remains viable because it addresses arbitration agreements contained in employment agreements, while Concepcion pertains to consumer contracts. Concepcion cannot be read so narrowly. ) 4

Aftermath: Class Action Waivers Enforceable in Employment Contracts Extensive case law upholding class action waivers in arbitration agreements in employment contracts in the face of claims that the NLRA/FLSA contain a statutory command for concerted activities. D.R. Horton v. NLRB, 2013 WL 6231617 (5th Cir. 2013) Richards v. Ernst & Young, 2013 WL 4437601 (9th Cir. 2013) Sutherland v. Ernst & Young, 726 F. 3d 290 (2d Cir. 2013) Owen v. Bristol Care, 702 F.3d 1050 (8th Cir. 2013) 5

Aftermath: Class Action Waivers Are Enforceable in Face of Public Policy Challenges State law public policy challenges to enforceability of class action waivers have failed. Cruz v. Cingular Wireless (11th Cir. 2011) (rejecting argument that class action waiver violated Florida public policy relating to unfair trade laws) Boyer v. AT&T Mobility Servs. (S.D. Cal. 2011) (declining to find class action waiver unenforceable under California public policy grounds) Webster v. Freedom Debt Relief (N.D. Ohio 2011) ( In the wake of Concepcion, any public policy in favor of class actions for consumers in the [Ohio Consumer Sales Practices Act] is clearly superseded by the FAA ). Wolf v. Nissan Motor (DNJ 2011) ( the Court cannot find that any public interest articulated in this case, either in connection with the SCRA or New Jersey law, overrides the clear, unambiguous, and binding class action waiver. ) 6

Future Issues #1: Providing Meaningful Notice (Contract Formation) States are free to requir[e] class-action-waiver provisions in adhesive contracts to be highlighted. AT&T v. Concepcion, fn. 6. The requirement of meaningful notice and the doctrine of procedural unconscionability avoiding oppression and surprise survives. Application: Chavarria v. Ralphs Grocery Co., 733 F. 3d 916 (9th Cir. 2013) (mandatory arbitration agreement unconscionable because (among other reasons) employee was not provided terms of arbitration policy until after signing employment contract). AAA Consumer Due Process Protocols: Providers of goods or services should undertake reasonable measures to provide Consumers with full and accurate information [ ]. At the time the Consumer contracts for goods or services, such measures should include (1) clear and adequate notice regarding the ADR provisions, [ ] and (2) reasonable means by which Consumers may obtain additional information regarding the ADR Program. Limits on State s Authority: Any state law directed at class action waivers must apply to all contracts. States cannot require highlighting only for class waivers found in arbitration provisions. See Doctor s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687-88 (1996) (striking down state law requiring arbitration provision to be underlined and capitalized). 7

Future Issues #2: Arbitrability of Private Attorney General Act Claims Federal courts have concluded that State private attorney general act arbitration exemptions are preempted by the FAA in the wake of Concepcion. Ferguson v. Corinthian Colleges, 733 F.3d 928 (9 th Cir. 2013) (FAA preempts state law rule that claims for equitable relief under private attorney general act are inarbitrable). Cunningham v. Leslie s Poolmart, Inc., (C.D. Cal. 2013) (PAGA and UCL claims, including claim for injunctive relief, must be resolved in arbitration because states may not seek to have private plaintiffs vindicate public policies by mandating the availability of class proceedings ). Split authority in California state courts (employment context) To be resolved by pending California Supreme Court case, Iskanian v. CLS Transportation of Los Angeles. 8

Future Issues #3: Prohibitive Costs The effective vindication doctrine may be used to invalidate a clause where the filing and administrative fees attached to arbitration are so high as to make access to the forum impracticable. American Express v. Italian Colors Chavarria v. Ralph s Grocery Co., 733 F.3d 916 (9th Cir. 2013) (equal apportionment of arbitrator fees of $7,000 to $14,000 a day was unfair) American Arbitration Association. The Supreme Court has described the AAA s filing structure as a model[] for fair cost and fee allocation for consumers in small-claims arbitration ). Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 95 (2000) (Ginsburg, J., concurring in part and dissenting in part). The AAA provides waivers of administrative fees and pro bono arbitrators for individuals who might otherwise be unable to pursue his or her rights in the arbitral forum. 9

Future Issues #4: Consumer Financial Protection Bureau Arbitration Study Preliminary Results: Section 1028(a) Study Results To Date (December 12, 2013) 62% of the top 50 banks included arbitration clauses 9 out of 10 arbitration clauses barred class proceedings. Total class settlements recoveries: >$350 million for 13 million class members with an average recovery of $27 per class member (2007-2013). Consumer arbitration filings average amount in dispute: $13,418 CFPB is poised to conclude that class action procedure is necessary to prosecute claims that might otherwise slip through the legal system. Expectation: CFPB will initiate rulemaking that either bans or limits the use of arbitration clauses with class waivers in connection with financial products. 10