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Lower Courts Probe the Line Drawn by Concepcion: Class Arbitration Waivers and Vindication of Rights
Lower Courts Probe the Line Drawn by Concepcion: Class Arbitration Waivers and Vindication of Rights

Hypothetical Question: a contract contains an arbitration clause that requires the arbitration of all disputes and also prohibits the parties from arbitrating any claims as part of a class or representative action.  Is the class/representative arbitration waiver enforceable under AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011)?

We discussed that there is a significant possibility that Concepcion will not preclude all class actions.  See here.  Lower courts, both federal and state, are in the process of testing exactly where the line will be drawn.  Several lower courts have taken the position that Concepcion did not create a blanket rule which validates all class arbitration waivers.  In their resulting “case-by-case analyses,” some of these lower courts have answered the question in the negative, relying on the view that a waiver interferes with the plaintiff’s vindication of a claim or of a particular right.

In one of the more interesting cases, the Massachusetts State Superior Court invalidated a class arbitration waiver and anchored its ruling on the small value of the individual claims at issue.  Why is this so interesting?  The Massachusetts court ruled in this manner despite the following statement by the U.S. Supreme Court in Concepcion which seems to reject this argument:  “[t]he dissent claims that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system. But States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” Concepcion, 131 S.Ct. at 1753 (citation omitted).   The Massachusetts Court declined to accept what it referred to as the “defendants’ invitation to magnify one sentence in Concepcion, into a broad rule preempting all state law unconscionability rules that prohibit use of Dell-like arbitration clauses,” and it held that the class arbitration procedure was necessary for plaintiffs to vindicate their rights because, absent a class procedure, there was no incentive for a plaintiff to pursue an individual claim. See Feeney v. Dell, Civil Action No. MICV 2003-01158, (slip opinion)(Mass. Sup. Ct. September 30, 2011).

The “vindication of rights” argument has been addressed by other lower courts with a focus on substantive statutory rights rather than procedure.  In these cases, the analysis has been directed at whether a class arbitration waiver would require the plaintiff to waive all opportunities to vindicate a substantive statutory right.  At issue in Chen-Oster v. Goldman, Sachs & Co:  the statutory right to be free from pattern and practice discrimination under Title VII and the corresponding prohibition from pursuing such claims on an individual basis.  Chen-Oster v. Goldman, Sachs & Co, No. 10 Civ. 6950, 2011 WL 2671813, *1, 3 (slip opinion) (S.D.N.Y. July 7, 2011).  The District Court for the Southern District of New York refused to compel arbitration of a plaintiff’s discrimination claims under Title VII where the employment agreement at issue contained a class arbitration waiver.  The court reasoned that because pattern and practice discrimination claims are prohibited by law from being brought as an individual claim, compelling arbitration in the face of the class waiver would require the plaintiff to forfeit the ability to enforce the right to be free from pattern and practice discrimination.  Id. at *3-4.  Not only did the court refuse to compel arbitration, but the court even dismissed Concepcion as a non-controlling decision since it did not address how the Federal Arbitration Act (“FAA”) affects arbitration with respect to federal statutory rights.  Id. at *5.

Within our own Fourth Circuit, the District Court for the District of Maryland recently looked to the Eleventh Circuit to support its proclamation that Concepcion did not create a bright line rule validating all class arbitration waivers.  See AT & T Mobility LLC v. Fisher, No. Civ. A. DKC 11-2245, 2011 WL 5169349, *6 (D.Md. Oct 28, 2011).  At issue in Fisher:  whether to issue a preliminary injunction preventing the compulsion of arbitration on the basis that an antitrust action under the Clayton Act is a representative action (although not a class action) and the parties did not agree to arbitrate representative actions.  AT&T Mobility argued that the class/representative arbitration waiver at issue prevented the plaintiff not only from arbitrating a representative Clayton Act antitrust action, but also from pursuing such an action in court.  The court granted the preliminary injunction preventing compulsion of arbitration, but declined to address whether the class/representative arbitration waiver at issue would be valid if taken to the extreme that AT&T Mobility advocated.  The court noted that “in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.” Id. at *5-6.

Arbitration and the vindication of statutory rights is not a new issue, as the Circuit Courts and U.S. Supreme Court have established that agreements to arbitrate statutory claims may be unenforceable if the terms of the agreement prevent the plaintiff from effectively vindicating his statutory rights.   See e.g., Fisher, 2011 WL 5169349 at *5-6 (discussing Fourth Circuit and Supreme Court jurisprudence).  I highlight these federal cases to illustrate the courts’ analyses regarding limitations on the reach of Concepcion and to illuminate which substantive areas of the law may be subject to such limitations.  These limitations should be taken into account in assessing the enforceability of such a waiver prior to drafting an arbitration agreement and during the course of litigation.  The Massachusetts court’s decision, however, seems to be more at odds with the principles set forth in Concepcion.  Concepcion seems to make it clear that the preference for the availability of a class procedure over individual arbitration is not grounds enough to warrant obstruction of the FAA’s objectives.  I would expect to see challenges to state court rulings like this one.

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Companies are operating in an increasingly globalized and regulated business environment, facing ever-changing and complicated litigation and regulatory challenges. We provide cutting-edge information regarding developments in federal, North Carolina State, and international litigation, as well as in arbitration, regulatory enforcement, and related business practices.

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