Litigation: Two is not always a crowd

Recent decisions regarding class action waivers in arbitration provisions

In April 2011 the U.S. Supreme Court held in AT&T v. Concepcion that California's Discover Bank rule did not invalidate a class action waiver within an arbitration provision in the context of a consumer transaction. The Discover Bank rule provided generally that a class action waiver found in a consumer contract of adhesion, under which a dispute would inevitably involve a small amount of damages, was unconscionable under California law and therefore unenforceable because it exempted the party with superior bargaining power from responsibility for fraud or willful injury. In finding that the rule could not trump the Federal Arbitration Act (FAA), the high court found that "States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons. Moreover, the claim here was most unlikely to go unresolved."

Since AT&T was issued almost 18 months ago, courts have reached widely varying outcomes when faced with whether to enforce a class action waiver within an arbitration provision. Most recently, courts have followed the trend of finding a class action waiver unenforceable where enforcing the provision would deprive plaintiffs of the ability to pursue a federal statutory right. For example, the 2nd Circuit held in In re American Express Merchants’ Litigation a mandatory class action waiver to be unenforceable where the plaintiffs demonstrated that the practical effect of such enforcement would be to preclude their ability to bring a federal antitrust claim due to the financial impossibility of pursuing individual arbitration or litigation. (Also see In re D.R. Horton, Inc., in which the National Labor Relations Board invalidated a class action waiver where it unlawfully restricted an employee's substantive rights under National Labor Relations Act.)

Contributing Author

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Brigid Carpenter

Brigid M. Carpenter is a shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC (Nashville). Her practice focuses on products liability and other tort/personal injury...

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