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Posts Tagged ‘AT&T Mobility v. Concepcion’

United States Law Week Quotes Philip J. Loree Jr. Comments on Fensterstock

August 4th, 2010 Arbitration Practice and Procedure, Class Action Arbitration, Class Action Waivers, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on United States Law Week Quotes Philip J. Loree Jr. Comments on Fensterstock

Last week I was interviewed by Tom P. Taylor, a reporter for The United States Law Week, about the Fensterstock v. Education Finance Partners, No. 09-1562-cv, slip op. (2d Cir. July 12, 2010), class-action waiver case (blogged here).  Yesterday, Tom’s excellent article on Fensterstock was published in 79 U.S.L.W. 1111 (Aug. 3, 2010) (BNA), and he quoted some of my comments in it. 

U.S. Law Week is a subscription only publication, but I received permission from the Bureau of National Affairs (“BNA”) to post a copy of the article on my LinkedIn profile.  So, if you are a member of Linkedin, you can access a copy of the article here (it does not appear in my “public” LinkedIn profile).

We would like to take this opportunity to thank Tom P. Taylor for conducting a very professional interview and following up with a very professional article.  We would also like to thank Bernard J. Pazanowski, who co-authored the article with Tom.

What to Make of the Second Circuit Voiding a Class Action Waiver Under California’s Discover Bank Rule?

July 23rd, 2010 Arbitration Practice and Procedure, California State Courts, Class Action Arbitration, Class Action Waivers, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on What to Make of the Second Circuit Voiding a Class Action Waiver Under California’s Discover Bank Rule?

After deciding Stolt-Nielsen, S.A. v. AnimalFeeds, Inc. and Rent-A-Center West v. Jackson, the United States Supreme Court left federal arbitration law at a crossroads.  In both cases the Court adhered quite faithfully to its prior Federal Arbitration Act jurisprudence, under which it enforces arbitration agreements according to their terms, without regard to other considerations.  In Rent-A-Center the Court implicitly reaffirmed that these pro-enforcement rules apply equally to contracts of adhesion. 

We will find out whether the Court intends to continue down the same path when it decides AT&T Mobility v. Concepcion next term, a case that raises the question whether California’s Discover Bank  unconscionability rule is pre-empted by the Federal Arbitration Act.  That rule deems unconscionable under California law class-action or class-arbitration waivers where:  (a) “the waiver is found in a consumer contract of adhesion in a setting in which the disputes between the contracting parties predictably involve small amounts of damages”; and (b) “it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.  .  .  .”  Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-63 (2005) (citing Cal. Civ. Code § 1668). 

The Discover Bank rule is grounded in a California-law principle – embodied in Cal. Civ. Code § 1668 – that “contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud.  .  .  are against the policy of the law.”   See Cal. Civ. Code § 1668.  If a company is allegedly engaging in fraudulent acts designed to cheat numerous consumers out of small amounts of money, a class action or class arbitration waiver may, if enforced, effectively act as an exculpatory provision that insulates the company from the consequences of its small scale, but widespread fraud, because the individual, allegedly defrauded consumers have little incentive to pursue separate actions or arbitrations to recoup trivial amounts of damages.  See Discover Bank, 36 Cal. 4th at 162-63.  Any contract that had that effect – whether it is a class action waiver in an arbitration clause, an exculpatory agreement or a contract that simply forbids class actions  — would be unconscionable under the rule.  

In Fensterstock v. Education Finance Partners, No. 09-1562-cv, slip op. (2d Cir. July 12, 2010), the United States Court of Appeals for the Second Circuit suggested one path that the United States Supreme Court might take on Discover Bank preemption.  In an interesting opinion, Senior Circuit Judge Amalya Lyle Kearse, joined by Circuit Judges José A. Cabranes and Chester J. Straub, held that the Discover Bank rule was not preempted by the Federal Arbitration Act.  According to the Second Circuit, California’s  Discover Bank rule “’places arbitration agreements on the exact same footing as contracts that bar class action litigation outside the context of arbitration,’” and for that reason the rule is not preempted by the Act.  Slip op. at 16-17 (quoting Shroyer v. New Cingular Wireless Serv., Inc., 498 F.3d 976, 990 (9th Cir. 2007) (emphasis in original)). 

On first blush the Second Circuit’s decision seems reasonable.  But there are some important issues lurking beneath the surface that the Supreme Court will need to address when it decides AT&T MobilityContinue Reading »

The United States Supreme Court Adopts Severability Analysis in Rent-A-Center v. Jackson

June 21st, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Practice and Procedure, Unconscionability, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on The United States Supreme Court Adopts Severability Analysis in Rent-A-Center v. Jackson

Yesterday the United States Supreme Court decided Rent-A-Center West v. Jackson, ___ U.S. ___, slip op. (June 21, 2010).  Rent-A-Center raised the question whether “a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.”  The United States Court of Appeals for the Ninth Circuit had said “yes,” but the Supreme Court said “no.”

In a 5-4 opinion by Associate Justice Antonin Scalia, joined in by Chief Justice John G. Roberts, Jr. and Associate Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito, Jr , the Court held that the employee had to arbitrate its claim that certain provisions of an arbitration agreement were allegedly unconscionable because the parties clearly and unmistakably agreed to arbitrate arbitrability questions, and the employee did not specifically claim that that agreement was unconscionable.  The Court said that the parties’ clear and unmistakable agreement to arbitrate arbitrability was, as a matter of federal law, severable from the other provisions of the arbitration agreement, including the ones the employee said were unconscionable.  

Prior to the decision we had advocated in the Forum (here and here), and in our cover story published in the March 2010 issue of Alternatives to the High Cost of  Litigation (blogged here), that the Court should resolve the case in favor of Rent-A-Center using a severability analysis of sorts derived from Buckeye Check Cashing v. Cardegna, 546 U.S. ___ (2006) and Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).   And that’s exactly what happened, even though neither side advocated or addressed the severability argument before the Court, a point made by Associate Justice Stevens’ dissenting opinion, which was  joined in by Associate Justices Ruth Bader Ginsburg, Stephen G. Breyer and Sonia Sotomayor.  See Dissenting Op. at 1.  (The district court’s analysis, however, which was reversed by the Ninth Circuit, was, according to the Court, consistent with the Buckeye Check Cashing and Prima Paint severability principle.  See Slip op. at 9.)  Continue Reading »