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NOT BE TELEVISED
Benjamin Sachs-Michaels*
INTRODUCTION
As evidenced by two recent Cardozo Journal of Conflict Resolution articles, class action waivers in arbitration clauses are currently a hot topic in the field of conflict resolution.1 With
increasing frequency, arbitrators and courts are presented with
class action waivers in compulsory arbitration agreements prohibiting the aggregation of claims.2 This Note argues that some courts
have reversed course in their treatment of class action waivers contained in arbitration clauses. There is a new movement to find
class waivers, and the arbitration clauses that harbor them, unenforceable.3 This Note further argues that while plaintiffs uniformly
oppose class action waivers, defendants widely oppose class arbitration, preferring instead to defend class actions in court. Finally,
this Note contends that these recent decisions present a serious
problem for arbitration as a forum because they represent a widening judicial recognition that arbitration clauses in adhesive consumer contracts are being used in an unjust manner.
The majority of court decisions finding class waivers unenforceable have relied on unconscionability theory.4 However,
some state courts have also based their decisions on public policy
favoring the right to aggregate claims.5 By finding more class waivers unenforceable, the courts have provided a remedy for plaintiffs
when arbitrators either could not or would not do the same.6
* J.D. Candidate, Benjamin N. Cardozo School of Law, Yeshiva University, 2011; B.A.,
Pitzer College, Claremont, California 2005.
1 F. Paul Bland, Jr. & Claire Prestel, Challenging Class Action Bans in Mandatory Arbitration Clauses, 10 CARDOZO J. CONFLICT RESOL. 369 (2009); William H. Baker, Class Action Arbitration, 10 CARDOZO J. CONFLICT RESOL. 335 (2009).
2 Bland & Prestel, supra note 1, at 370.
3 See discussion infra Part III.A.
4 Id.
5 See discussion infra Part III.B.
6 Plaintiffs have had success in recent years in challenging arbitration clauses that purport to insulate corporate defendants from class proceedings against them; a growing
number of courts have held that class action bans are unconscionable, void as against
public policy, or otherwise unenforceable when they effectively exculpate corporate
defendants from any meaningful liability for their alleged misconduct.
665
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While decisions finding class action waivers unenforceable on unconscionability grounds have been rendered as early as 2000, the
number of decisions finding class waivers unconscionable or
against public policy has increased tremendously since 2006.7 This
Note argues that this trend evidences that courts are now becoming
less willing to trust arbitration to provide just and consistent resolutions in high stakes class litigation.8
Two significant and interesting cases to find a class waiver unenforceable were decided in 2009: Feeney v. Dell Inc.9 and In re
American Express Merchants’ Litigation.10 This Note will parse the
language of both opinions, and discuss the implications of the reasoning employed by each court in reaching its decision. The two
opinions take different routes to the same conclusion: that class
action waivers are substantively unfair and bad for the public. The
Feeney court arrived at its decision relying on state public policy
grounds,11 while the Second Circuit used unconscionability.12 Both
cases represent mile markers in the evolution of jurisprudence on
class waivers. Feeney13 could be construed to offer many state
courts, and possibly federal courts,14 an easier route to finding the
waivers unenforceable. In In re American Express,15 by adopting
an unconscionability rule in the Second Circuit similar to that in
place for a number of years in the Ninth Circuit,16 the court greatly
expanded the number of cases brought annually in jurisdictions
with strong law against class waivers. Further, Feeney and In re
American Express are especially noteworthy for the strong language they employ in expressing the courts’ unwillingness to trust
arbitration to adjudicate litigation by consumers involving entire
classes of plaintiffs.17
Bland & Prestel, supra note 1, at 370. See also Coneff v. AT&T Corp., 620 F. Supp. 2d 1248,
1259–60 (W.D. Wash. 2009).
7 See discussion infra Part III.A.
8 Interestingly, law firms are also using arbitration less, perhaps for the same reasons that
the courts have lost confidence in the device. See, e.g., Fullbright & Jaworski, LLP, Fulbright’s
6th Annual Litigation Trends Survey Report, Oct. 15, 2009.
9 Feeney v. Dell Inc., 908 N.E.2d 753, 757 (Mass. 2009).
10 In re Am. Express Merchs.’ Litig., 554 F.3d 300 (2d Cir. 2009).
11 See Feeney, 908 N.E.2d 753.
12 In re Am. Express, 554 F.3d 300.
13 See Feeney, 908 N.E.2d 753.
14 See discussion infra Part II.B.
15 In re Am. Express, 554 F.3d 300.
16 Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1219 (9th Cir. 2008); Shroyer v. New
Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir. 2007).
17 See Freestone v. Cowan, 68 F.3d 1141, 1159 (9th Cir. 1995) (dissent) (Judge Kleinfeld
defined impact litigation as litigation “designed to change social policy, not to get something for
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In 2009, a vast array of consumer contracts were governed by
mandatory arbitration clauses usually including a class action
waiver: movie tickets, cell phone agreements, gym memberships,
and software agreements. The frustration evidenced by the trend
and voiced in the wording of Feeney and In re American Express
may represent a canary in the mineshaft for the arbitration industry, seeming to add to increasing discomfort with the results of arbitration in the commercial context that is shared by defendants
and plaintiffs, as well as the courts.18 The commercial arbitration
community should conduct a deep inquiry into the place of compulsory arbitration clauses in adhesive consumer contracts, as
courts seem to increasingly acknowledge the clauses can be a device for depriving citizens of their remedy against corporate wrongdoing.19
In Section I, this Note will discuss the social and historical
background that gave rise to the current prevalence of compulsory
arbitration clauses and class waivers in consumer contracts. In Section II, this Note explores major Supreme Court cases that paved
the way for the current dynamic between the courts, arbitrators
and the law in cases implicating class waivers. The argument section, Section III, will contend that: (1) there is a trend in some jurisdictions of courts finding class waivers unenforceable; (2) Feeney
and In re American Express have expanded on this trend in important ways; (3) this trend is evidence that the failure of arbitration to
act as an instrument of justice in connection with consumer class
action waivers may be creating a judicial backlash; and (4) in light
of the foregoing, the ability of arbitration to justly and fairly resolve major disputes is in question.
a client.”). Accord Snake River Farmers’ Assn., Inc. v. Dep’t of Labor, 9 F.3d 792, 798 (9th Cir.
1993). Arguably, any large, consumer class action would be considered impact litigation because
of the relatively small benefit for individual plaintiffs in comparison to the large change in social
policy affected by such litigation.
18 Real Estate Panel Remarks at Cardozo Journal of Conflict Resolution 11th Annual Symposium (Nov. 5, 2009). Real estate attorneys representing both defendants and plaintiffs expressed frustration with inconsistent results in arbitration.
19 See In re Am. Express Merchs.’ Litig., 554 F.3d 300, 304 (2d Cir. 2009) (citing Brief of Trial
Lawyers for Public Justice at 27) (“It is . . . crucial to understand that any ban on class arbitration
is essentially a ban on class treatment altogether, as arbitration clauses in standardized corporate
contracts are made broader and broader, to encompass all conceivable types of disputes. . . .
Under a regime where such prohibitions are enforced, such clauses are tantamount to a clause
banning all claims against a corporation, unless they are so large that they justify the outlay of
the extraordinary expense involved.”).
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I.
BACKGROUND: THE POWER OF THE BIG CORPORATION,
THE OMNIPRESENT ARBITRATION CLAUSE, AND THE
FUNDAMENTAL RIGHT TO AGGREGATE CLAIMS
A.
The Power
Since World War II, when economic growth in the United
States exploded, corporate institutions have correspondingly become more powerful, more accepted, and more ingrained in the
daily lives of Americans.20 There can be no doubt that the existence of strong corporations has tremendous benefits. The rise of
large corporations has created jobs and provided low-cost goods,
benefiting the standard of living of all Americans. Nevertheless, as
corporations have become larger and more powerful,21 it has become more difficult, almost to the point of absurdity,22 for the individual to stand up for his rights in the face of corporate neglect or
wrongdoing.23
Adhesion clauses compelling arbitration are now commonplace when corporations sell goods or services. For example, Kristian v. Comcast dealt with compulsory arbitration clauses that
defendant cable company, Comcast, placed in all of its individual
service agreements with its consumers.24 Scott v. Cingular Wireless
confronted an over-charging issue similar to Comcast, as well as
the same type of arbitration clause, but in the context of cell phone
20 “[T]he big corporation was something Americans had come to exult in, to identify with, to
credit with victories over wicked foes in two World Wars, and to praise for the spread of affluence to ever broader sectors of the American society.” Richard M. Abrams, Legal Change and
the Legitimacy of the Corporation in America, 24 STAN. L. REV. 765, 767 (1972) (citing Richard
Hofstadter, What Happened to the Antitrust Movement?, in THE BUSINESS ESTABLISHMENT 113,
131, 133 (Earl F. Cheit ed., 1964)).
21 There are more than 1.2 million business corporations in the United States but a
mere 600 of them account for more than half of total corporate income and employ
more than a quarter of the nation’s workforce. As of 1968, the 200 largest manufacturing corporations accounted for 61 percent of manufacturing assets in the United
States and about a third of the industrial capacity of the world.
Id. at 765.
22 “It is a war. On one side, you have what the American people want, deserve, and need.
On the other side, you have the big HMOs and insurance companies. Big corporations will fight
with all their resources to make sure they keep their power.” John Edwards, Making the Law
Work for Ordinary People, 37-JUL TRIAL 82, 82 (2001).
23 “Over the past century, courts have been unable to resolve the tensions inherent in situations in which the prosecution of corporate wrongdoing may infringe on individual rights.”
Shauna J. Sullivan, Fifth Amendment Protection and the Production of Corporate Documents,
135 U. PA. L. REV. 747, 749 (1987).
24 Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).
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service agreements.25 While these cases are only two examples of
the myriad industries employing adhesive compulsory arbitration
clauses, these two cases demonstrate the manner in which similar
clauses penetrate the daily life of all Americans.
B.
The Omnipresence
It is a reasonable assumption that if Cingular and Comcast,
both major players in highly consolidated industries, use this type
of arbitration clause, then similar clauses are prevalent with most,
if not all, of their competitors in their respective markets.26 According to an industry group, as of June 2010, there were 292.8 million individual cell phone subscribers in the United States.27
Likewise, as of September 2010, there were 60.4 million households subscribing to basic cable in the United States.28 On February 27, 2011, the U.S. Census Bureau estimated the population of
the United States to be approximately 311 million.29 Accordingly,
it can be inferred that nearly every adult in the United States is
subject to an adhesive arbitration clause due to use of some product or service.
Once it became clear that these adhesive arbitration clauses
would be treated as binding,30 corporations widely added clauses
prohibiting the aggregation of claims.31 If given force, such class
action waivers effectively force consumers to enter individual arbitration with corporations to resolve disputes, even when thousands,
if not millions of claims by similarly situated customers replicate
the individual claim. Some courts have viewed mandatory arbitra25
Scott v. Cingular Wireless, 135 P.3d 478 (Wash. 2005).
See, e.g., Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009) (finding a class action
waiver contained in a compulsory arbitration clause in a cell phone service agreement to be
unconscionable because it would have prevented a class of AT&T mobile customers from aggregating claims).
27 CTIA, Wireless: Quick Facts, http://www.ctia.org/media/industry_info/index.cfm/AID/10
323 (last visited Feb. 27, 2011).
28 National Cable & Telecommunications Association, Industry Data, http://www.ncta.com/
StatsGroup/OperatingMetric.aspx (last visited Feb. 25, 2011).
29 U.S. Census Bureau, U.S. and World Population Clock, http://www.census.gov/main/www/
popclock.html (last visited Feb. 27, 2011).
30 See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003).
31 In fact, “[t]he outright banning of class action in mandatory arbitration clauses has become a standard policy for many corporations that transact with consumers.” Bryan Allen Rice,
Comment, Enforceable or Not?: Class Action Waivers in Mandatory Arbitration Clauses and the
Need for a Judicial Standard, 45 HOUS. L. REV. 215, 224 (2008).
26
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tion clauses with class action waivers as making corporations liability-proof in certain areas.32 For example, the facts of Laster v.
AT&T Mobility LLC are instructive in demonstrating the obvious
logic of this argument.33 In Laster, AT&T advertised a promotion
involving a free telephone to certain new subscribers.34 However,
the company charged each purchaser of a “free phone” 7.75% sales
tax, or approximately $30.22 per subscriber.35 Plaintiffs sued for
fraud.36 The Ninth Circuit found the arbitration clause unconscionable,37 but clearly, if the clause had been enforced, the small
amount of each claim and high burden of arbitrating for $30.22
would have caused many plaintiffs to drop their claims and would
have had the effect of insulating the defendant from any real
liability.
C.
The Fundamental Right
In light of the imbalance between corporate power and individual power, it is no surprise that plaintiffs seek to aggregate
claims. The utility of the class action,38 as well as the right to aggregate claims, has been recognized by courts on public policy and
conscionability grounds.39 The Supreme Court engaged in a comprehensive historical examination of Federal Rule of Civil Procedure 23, which covers class actions,40 in Ortiz v. Fibreboard Corp.41
This history, as relayed by Justice Souter in an eloquent opinion for
32 “[T]he class action waiver allows the company to insulate itself from liability for its wrongdoing and the policy behind class actions is thwarted.” Laster v. AT&T Mobility LLC, 584 F.3d
849, 854 (9th Cir. 2009).
33 Id.
34 Id. at 852.
35 Id.
36 Id.
37 Id.
38 In re Am. Express Merchs.’ Litig., 554 F.3d 300, 312 (2d Cir. 2009) (“Nevertheless, the
Supreme Court has repeatedly recognized the utility of the class action as a vehicle for vindicating statutory rights. This is especially true with respect to the Court’s recognition that the class
action device is the only economically rational alternative when a large group of individuals or
entities has suffered an alleged wrong, but the damages due to any single individual or entity are
too small to justify bringing an individual action.”).
39 We begin by recognizing that insofar as a plaintiff may be said to possess a “right” to
litigate an action in federal court as a class action under Rule 23 of the Federal Rules of Civil
Procedure, the right “is a procedural right only, ancillary to the litigation of substantive claims.”
Deposit Guar. Nat’l Bank of Jackson v. Roper, 445 U.S. 326, 332 (1980).
40 Federal Rule of Civil Procedure 23 covers class actions. See FED. R. CIV. P. 23.
41 Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).
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the majority, began with a rule change in 1966 that gave rise to the
modern class action.42 In Ortiz, both the majority and dissenting
opinions acknowledged that the Advisory Committee on Civil
Rules amended the rules to permit more class actions in order to
provide a tool for group redress in light of “those recurrent life
patterns which call for mass litigation through representative parties.”43 Locating the need for class action litigation in “recurrent
life patterns” is akin to recognizing a basic natural phenomenon.
The gravity of this language should not be underestimated. The
Advisory Committee on Civil Rules consciously viewed the class
action as a basic need in a society of individual rights.
Although there has been extensive academic debate over class
action lawsuits for many years,44 even detractors of the device
would admit that it can be used successfully to level the playing
field between aggrieved individuals and powerful corporations.45
The class action provides an important incentive for corporations
to consider the possibility of massive liability in their cost-benefit
analyses.46 In a world where large companies make tremendous
profits by selling huge quantities of goods for relatively low profit
per unit, it stands to reason that a litigation tactic recognizing this
economic reality and using it to its advantage would not only be
successful, but necessary.
Large corporations serving thousands of customers, sometimes
millions, populate the modern American economy.47 When a service provider or product marketer engages in such a high volume
of business, a small wrong against each customer where the customer forgoes suit can add up to millions of dollars saved for the
business.48
42
Id.
Id. at 882.
44 See, e.g., Gary A. Rubin, Collective Litigation in Europe: Policy Considerations from the
U.S. Class Action Experience, LEGAL BACKGROUNDER (Jan. 2008) (discussing the “efficiency
argument” in favor of class actions).
45 Katie Melnick, In Defense of the Class Action Lawsuit: An Examination of the Implicit
Advantages and a Response to Common Criticisms, 22 ST. JOHN’S J. LEGAL COMMENT. 755,
787–88 (2008).
46 Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1370 (S.D. Fla., 2009) (“Thus,
the clause [banning aggregation of claims] may serve to keep Chase’s costs down, but only because it precludes the company from having to defend against allegations of wrongful conduct.”).
47 “One of the salient characteristics of the history of industry is the transition from family
firms to large factory-style corporations. Large corporations dominate modern economies. In
1989 corporations made up 18.5 percent of all nonfarm businesses but generated 90 percent of all
nonfarm business receipts.” Douglas W. Allen & Dean Lueck, The Nature of the Farm, 41 J.L.
& ECON. 343 (Fall 1998).
48 See, e.g., Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006).
43
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The policy at the very core of the class action mechanism is to
overcome the problem that small recoveries do not provide the
incentive for any individual to bring a solo action prosecuting
his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something
worth someone’s (usually an attorney’s) labor.49
Likewise, “[t]he right to a class action in a consumer protection case is of particular importance where, as here, aggregation of
small claims is likely the only realistic option for pursuing a
claim.”50 This Note, therefore, argues that the ability of litigants to
aggregate claims is basic, important, and judicially protected. It is
against the backdrop of the current economic crisis,51 and mindful
of the importance of the class action as both a right and a device
for redressing harms, that some courts have begun to attack arbitration agreements that contain clauses prohibiting the aggregation
of claims.
II.
CASE LAW: THE BUILDING BLOCKS
WAIVER LITIGATION
A.
OF
CLASS
Policy Concerns
As discussed by the Feeney Court,52 there is a presumption
that arbitration is a “fair and adequate mechanism for enforcing
statutory rights.”53 However, in the eyes of the First Circuit, class
action prohibitions undermine this presumption to such a degree as
to defeat it entirely.54 This is because prohibitions on the aggregation of claims effectively bar the distribution of litigation costs
49 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, at 617 (1997) (quoting Mace v. Van Ru
Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)); see also Shady Grove Orthopedic Assocs., P.A.
v. Allstate Ins. Co., 549 F.3d 137, 144 (2d Cir. 2008); Carnegie v. Household Int’l, Inc., 376 F.3d
656, 661 (7th Cir. 2004).
50 Feeney v. Dell Inc., 908 N.E.2d 753, 763 (Mass. 2009).
51 The current economic crisis has forced its way into the courtroom not only through bankruptcy proceedings, but through an incredible number of class actions on topics ranging from
Securities Fraud to ERISA. See, e.g., In re First Am. Corp. ERISA Litig., No. 07-cv-1357 (C.D.
Cal. filed Nov. 16, 2007); In re Citigroup ERISA Litig., 2009 U.S. Dist. LEXIS 78055 (S.D.N.Y.
2009).
52 Feeney, 908 N.E.2d at 763.
53 Rosenberg v. Merrill Lynch, 170 F.3d 1, 14 (1st Cir. 1999).
54 Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2001).
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across many plaintiffs.55 This prohibition essentially relieves corporations from any kind of real liability in arbitration situations.56
Because the dollar amount of harm against the individual is relatively small, the cost of such lawsuits is much greater than is sustainable by a single plaintiff or an attorney representing a single
plaintiff.57 It is in this way that class action prohibitions are so restrictive; they deter even the bringing of claims by individuals.58
“The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues
for $30.”59
B.
Unforeseen Circumstances: The Evolution of Law on the
Reviewability of Arbitration Decisions
In 2002, the Supreme Court in Howsam v. Dean Witter Reynolds, Inc.60 made an important move that opened the door for the
modern battle of class action waivers.61 Notably, the general rule is
that decisions by arbitrators are not reviewable.62 Howsam established that certain legal questions, even after a case has been submitted to arbitration, could be reviewable by the courts.63
Howsam has been cited by the Second Circuit,64 and the Feeney
court,65 among others,66 for the proposition that the decision of an
55 Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 MICH. L. REV. 373, 407 (2005).
56 Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009) (holding that “the
class-action waiver serves to protect Defendants from legal liability for any wrong where the cost
of pursuit outweighs the potential amount of recovery”) (quotations omitted).
57 Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1369 (S.D. Fla. 2009) (“[T]he
unavailability of the right of consumers to participate in a class action allows a large corporation
to obtain virtual blanket immunity from small claims.”).
58 See Coneff, 620 F. Supp. 2d at 1257; See also In re Cotton Yarn Antitrust Litig., 505 F.3d
274, 285 (4th Cir. 2007) (“[I]f a party could demonstrate that the prohibition on class actions
likely would make arbitration prohibitively expensive, such a showing could invalidate an
agreement.”).
59 Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004)
60 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002).
61 See Megan E. Byrnett, Recent Developments: Howsam v. Dean Witter Reynolds, Inc., 19
OHIO ST. J. ON DISP. RESOL. 739, 743 (2004).
62 Id.
63 See Howsam, 537 U.S. 79.
64 In re Am. Express Merchs.’ Litig., 554 F.3d 300 (2d Cir. 2009).
65 Feeney v. Dell Inc., 908 N.E.2d 753 (Mass. 2009).
66 See, e.g., Anderson v. Comcast Corp., 500 F.3d 66, 70 (1st Cir. 2007); Vaughn v. Leeds,
Morelli & Brown, P.C., 315 Fed. Appx. 327, 329 (2d Cir. 2009); Certain Underwriters at Lloyd’s
London v. Westchester Fire Ins. Co., 489 F.3d 580, 585 (3d Cir. 2007).
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arbitrator may be reviewable when the plaintiff challenges arbitrability itself.67 When this is the case, the decision of the arbitrator is reviewable because the plaintiffs have presented a “gateway
dispute about whether the parties are bound by a given arbitration
clause.”68
Green Tree Financial Corp. v. Bazzle69 is a 2003 case that
played a basic role in class action waiver jurisprudence by holding
that if an arbitration agreement is silent as to whether class action
arbitration is permitted, the arbitrator has the authority to determine arbitrability.70 Bazzle, in combination with the Federal Arbitration Act,71 laid the groundwork for the previous trend of courts
holding that a question of whether a class action waiver was unconscionable was a question for the arbitrator, not the courts.72
C.
Joined at the Hip: Severability and the Modern
View on Reviewability
It would be understandable if post-Bazzle, many observers
and corporations authoring arbitration clauses believed Bazzle to
establish a rule that class action waivers are not reviewable by the
courts once the arbitrator has rendered a decision. However, in
time it has become clear that this was not the implication of the
Bazzle decision.73 In fact, the Supreme Court and certain circuit
courts have side-stepped the 2003 holding in Bazzle by returning to
Howsam.74 The courts’ reasoning can be summarized as follows:
Bazzle held that when a contract was ambiguous as to whether it
banned aggregation of claims, the arbitrator’s decision was not reviewable because the question was one of contract interpretation,
and thus reserved for the arbitrator. However, by using the distinc67
See Howsam, 537 U.S. 79.
Id. at 84; accord Kristian v. Comcast Corp., 446 F.3d 25, 55 (1st Cir. 2006); Jenkins v. First
Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877 (11th Cir. 2005).
69 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003).
70 See Lawrence J. Bracken II and Caroline H. Dixon, AAA Releases Rules on the Administration of Class Actions, 3 FRANCHISE L.J. 215, 216 (Spring 2004) (discussing the implications of
Bazzle).
71 9 USCS §§ 1–14 (2009).
72 Bazzle, 539 U.S. 444.
73 In re Am. Express Merchs.’ Litig., 554 F.3d 300, 310–11 n.10 (2d Cir. 2009).
74 See Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir. 2007); Kristian v. Comcast
Corp., 446 F.3d 25 (1st Cir. 2006); Vaughn v. Leeds, Morelli & Brown, P.C., 315 Fed. Appx. 327
(2d Cir. 2009); Certain Underwriters at Lloyd’s London v. Westchester Fire Ins. Co., 489 F.3d
580 (3d Cir. 2007).
68
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tion enunciated in Howsam between an appeal of the decision to
compel arbitration and an appeal of an arbitrator’s interpretation
of the contract (the former being reviewable, the latter not),75 Bazzle held that class action waivers could be reviewable if the question was whether the arbitration clause was no longer conscionable
due to the waiver.76 The upshot of this theoretical ballet is that
plaintiffs may successfully challenge an arbitrator’s contract interpretation by questioning the validity of the contract itself.
This interpretation, enunciated by the Supreme Court in
Buckeye Check Cashing, Inc. v. Cardegna,77 possibly represents the
first hint of movement against class action waivers.78 This development has been noted in various opinions and scholarly articles.79
Although it is intuitive that plaintiffs would support this trend, note
that at times, even the defense bar supports unseverability.80 Perhaps in response to Buckeye, some arbitration clauses now go so
far as to expressly state that if the class action ban is found unenforceable,81 so too must the arbitration clause.82 It is clear that in
75 “The validity of the class action waiver is a question for the court, and not for the arbitrator.” Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1366 (S.D. Fla 2009).
76 See, e.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006); In re Am. Express, 554 F.3d at 311 n.10.
77 Buckeye, 546 U.S. 440.
78 See Wigginton v. Dell, Inc., 890 N.E. 2d 541 (Ill. App. 2008); Fiser v. Dell Computer Corp.,
188 P.3d 1215 (N.M. 2008); Pamela MacLean, Class Action Waivers Hit a Wall, 29 NAT’L L.J. 52,
Aug. 27, 2007, at 5.
79 Chalk v. T-Mobile USA, Inc., 560 F.3d 1087 (9th Cir. 2009) (class action waiver was unenforceable and not severable); Homa v. Am. Express Co., 558 F.3d 225 (3d Cir. 2009) (class action
waiver invalid); In re American Express, 554 F.3d 300 (class action waiver unenforceable); Pleasants v. Am. Express Co., 541 F.3d 853 (8th Cir. 2008) (class action waiver enforceable); Dale v.
Comcast, 498 F.3d 1216 (11th Cir. 2007) (ban on class arbitration is unenforceable); Scott v.
Cingular Wireless, 135 P.3d 478 (Wash. 2005) (ban on class action arbitration unenforceable);
Kinkel v. Cingular Wireless, 857 N.E.2d 250 (Ill. App. 5th 2006) (class action ban is unconscionable); Yvette Ostolaza, Overview of Arbitration Clauses in Consumer Financial Services Contracts,
40 TEX. TECH L. REV. 37, 56 (2007) (although some courts continue to uphold such clauses and
prohibit class action arbitrations, the recent trend appears to be to invalidate limits on class
action arbitrations); Richard M. Alderman, Why We Really Need the Arbitration Fairness Act, 12
J. CONSUMER & COM. L. 151, 157 (2009) (citing Gay v. Credit Inform, 511 F.3d 369 (3d Cir.
2007)) (class action ban enforceable).
80 Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1219 (9th Cir. 2008) (“T-Mobile has expressly stated that it does not consent to class action arbitration and that, as a result, if we deem
the class action waiver clause unconscionable under Washington law, the entire arbitration provision should be rendered unenforceable. Having determined that the (nonseverable) class action waiver is invalid under Washington law, we hold that T-Mobile’s arbitration agreement is
unenforceable under Washington law.”).
81 See Harris v. DirecTV Group, Inc., No. 07 C 3650, 2008 WL 342973, at *2 (N.D.I.L. Feb. 5,
2008) (arbitration agreement at issue stating, “Neither you nor we shall be entitled to join or
consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim
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many circumstances, both defense and plaintiffs’ bars prefer to
avoid class action arbitration.83 While the Court’s reasoning in
Buckeye certainly relied upon the reasoning in Bazzle and Howsam, it turned in an unexpected direction by deciding against class
action arbitration. This was one of the most important moves by
any court in rolling back the effectiveness of bans on the aggregation of claims because it provided a direct avenue back into the
courts after arbitration has been compelled.
It is important to note that due to the structure of the Court’s
reasoning in Howsam in connection with severability and reviewability,84 the reasoning of Buckeye necessarily supposes that the
class action waiver is unseverable from the arbitration clause as a
whole, and as a result, any attack on the class action waiver is also
an attack on the arbitration clause. As will be more fully discussed
later, there are different reasons for a finding of unseverability:
sometimes the authors of the contract have specifically stated that
the class waiver is unseverable from the arbitration clause,85 while
other times the courts find the two to be unseverable.
III.
ARGUMENT: NO COUNTRY
A.
FOR
CLASS WAIVERS
A Judicial Trend Toward Finding Class
Waivers Unconscionable
Between 2003 and 2007, the general feeling of scholarship on
this topic was that the courts were trending toward permitting bans
on aggregation of claims and that this could be the death knell of
as a representative member of a class or in a private attorney general capacity. . . . If, however,
the law of your state would find this agreement to dispense with class action arbitration procedures unenforceable, then this entire Section 9 is unenforceable.”).
82 Ramona L. Lampley, Is Arbitration Under Attack?: Exploring the Recent Judicial Skepticism of the Class Arbitration Waiver and Innovative Solutions to the Unsettled Legal Landscape,
18 CORNELL J.L. & PUB. POL’Y 477, 518 n.51 (2009) (noting that T-Mobile and Dell use the same
type of language).
83 See W. Mark C. Weidemaier, Arbitration and the Individuation Critique, 49 ARIZ. L. REV.
69, 100 (2007) (noting a “comment attributed to attorney Alan Kaplinsky—who can fairly be
described as a proponent of predispute arbitration agreements—that he advises clients to include terms declaring the entire arbitration agreement void if a court or arbitrator finds the class
action prohibition to be unenforceable.”) (quoting Russ Bleemer, The Current State of Class
Action Arbitration, 22 ALTERNATIVES TO HIGH COST LITIG. 63, 67–68 (2004)).
84 See discussion supra Parts II.B–C.
85 See Lampley, supra note 82.
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the class action litigation as a useful tool for plaintiffs.86 The plaintiff’s bar should be overjoyed to note that this has not occurred.87
Some courts have begun to take a stand in support of what they
have termed a fundamental right88: the right to aggregate claims.89
In taking this stand some state courts, notably the Feeney court,90
as well as the New Mexico Supreme Court,91 affirmed part of what
this Note argues: 1) class actions are an indispensible tool for enforcing individual rights against corporate wrongdoing; and 2) the
corporate use of arbitration to exclude claims from adjudication
runs counter to the purpose of ADR and arbitration generally.92
By 2010, a noticeable trend against class action waivers
emerged in courts all over the country.93 The trend has been noticed and remarked upon in both scholarly articles and judicial
opinions.94 Particularly, this trend has been manifested through a
line of decisions finding such clauses unconscionable. As will be
discussed below,95 it is this line of cases that culminates in In re
American Express. In one such case, Cooper v. QC Financial Services, decided in 2006 in the District of Arizona, plaintiff submitted
a brief containing an exhaustive summary of cases in which courts
86
See Gilles, supra note 55, at 388.
87
The Plaintiffs Bar is opposed to the use of the device of class action arbitration to restrict
class action liability. See, e.g., Thomas M. Byrne, Arbitration: The Plaintiffs’ Bar Strikes Back, 57
CONSUMER FIN. L.Q. REP. 191, 191 (2003) (describing Bazzle as a “blow” to the use of arbitration as a class action preventative).
88 See Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1366 n.3 (S.D. Fla., 2009)
(“[A] class action waiver that effectively releases a corporation from liability to future small-sum
common-law claims would potentially violate the fundamental right of access to the courts guaranteed by the Florida Constitution.”).
89
Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980).
90
Feeney v. Dell Inc., 908 N.E.2d 753, 757 (Mass. 2009).
91
Fiser v. Dell Computer Corp., 188 P.3d 1215, 1222 (N.M. 2008).
92
See id. (“Here, the class action ban is part of the arbitration provision and is central to the
mechanism for resolving the dispute between the parties; therefore, it cannot be severed. We
decline to enforce the arbitration provision.”).
93 Cooper v. QC Fin. Servs., 503 F. Supp. 2d 1266, 1282 n.16 (D. Ariz. 2006) (citing “Plaintiff’s Opposition”, pp. 10–13) (collecting cases in which courts had found class action waivers
unconscionable). Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1259–60 (W.D. Wash., 2009)
(citations omitted) (“[T]he Court recognizes that recent jurisprudence views class-action waivers
unfavorably. Dating back to the beginning of 2008, there have been at least seven different
courts in five different jurisdictions that have refused to enforce class-action waivers.”).
94 See Ostolaza, supra note 79, at 56 (noting a “growing trend” in finding class action waivers
unenforceable); see also Alderman, supra note 79, at 157 (“Although some courts continue to
uphold such clauses and prohibit class action arbitrations, the recent trend appears to be to
invalidate limits on class action arbitrations.”).
95
See discussion infra Part III.B.
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had found class action waivers unconscionable.96 Some of the following information was supplied by that brief.
Class action waivers have been found unconscionable in the
First,97 Second,98 Third,99 Ninth,100 and Eleventh Circuits.101 Class
waivers have been found unconscionable by district courts in, inter
alia, the Northern and Southern Districts of California,102 the
Western District of Washington,103 the Western District of Michigan,104 the Northern District of Georgia,105 and the Southern District of Florida.106 Additionally, the unconscionability of class
action waivers has been widely recognized in state courts. Examples include the highest courts in Oregon,107 California,108 Wisconsin,109 New Jersey,110 Alabama,111 West Virginia,112 Washington,113
96
Cooper, 503 F. Supp. 2d at 1282 n.16 (citing “Plaintiff’s Opposition”, pp. 10–13).
See Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir. 2007).
98 In re Am. Express Merchs.’ Litig., 554 F.3d 300 (2d Cir. 2009).
99 Homa v. Am. Express Co., 558 F.3d 225 (3d Cir. 2009).
100 Hoffman v. Citibank, 546 F.3d 1078 (9th Cir. 2008).
101 Dale v. Comcast, 498 F.3d 1216 (11th Cir. 2007).
102 Laster v. T-Mobile USA, Inc., 407 F. Supp. 2d 1181, 1191–92 (S.D. Cal. 2005) (the case
“involve[d] an alleged scheme to cheat consumers out of small sums of money,” precisely the
type of harm that cannot be redressed on an individual basis); Acorn v. Household Int’l, Inc., 211
F. Supp. 2d 1160, 1174 (N.D. Cal. 2002) (considering an arbitration clause with class waiver to be
“one-sided” and substantively unconscionable); In re Apple & AT&TM Antitrust Litig., 596 F.
Supp. 2d 1288 (N.D. Cal. 2008).
103 Luna v. Household Fin. Corp., III, 236 F. Supp. 2d 1166, 1178–83 (W.D. Wash. 2002)
(stating prohibition on class action was “used as a sword to strike down access to justice instead
of as a shield against prohibitive costs. . . .”); Coneff v. AT&T Corp., 620 F. Supp. 2d 1248,
1259–60 (W.D. Wash., 2009).
104 Lozada v. Dale Baker Oldsmobile, Inc., 91 F. Supp. 2d 1087 (W.D. Mich. 2000).
105 Jones v. DIRECTV, Inc., 2009 U.S. Dist. LEXIS 108386 (D. Ga. 2009).
106 Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1370 (S.D. Fla., 2009).
107 Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940, 949–51 (Or. Ct. App. 2007).
108 Discover Bank v. Super. Ct. of L.A., 113 P.3d 1100 (Cal. 2005).
109 Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155 (Wis. 2006) (where arbitration
provision was silent as to class actions and parties assumed claims must be pursued individually,
court found arbitration provision was unconscionable because it limited the relief available to a
putative class given that injunctive relief was not available in the arbitral forum but was available
through courts because defendant was not limited to arbitration, and arbitration fee was assessed
without regard for plaintiff’s indigence).
110 Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 21 (N.J. 2006) (class-action
waiver in payday loan agreement was substantively unconscionable because such waivers “can
functionally exculpate wrongful conduct by reducing the possibility of attracting competent
counsel to advance the cause of action” and can “prevent an aggregate recovery that can serve as
a source of contingency fees for potential attorneys” given that in light of the small dollar
amount at issue, “[t]he availability of attorney’s fees is illusory . . . .”).
111 Leonard v. Terminix Int’l Co., 854 So.2d 529, 539 (Ala. 2002) (finding arbitration agreement substantively “unconscionable because it is a contract of adhesion that restricts the [plaintiffs] to a forum where the expense of pursuing their claim far exceeds the amount in controversy
97
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New Mexico,114 Pennsylvania,115 and intermediate appellate courts
in Illinois,116 Missouri,117 Ohio,118 and Florida.119
Notably, the law on class waivers remains unsettled. Illustrating this point, the Third Circuit decided three cases dealing with
the conscionability of class waivers in 2009; in two cases the waiver
was enforceable,120 and in one case the waiver was unenforceable.121 Many courts persist in finding class waivers enforceable on
a regular basis. Nevertheless, the frequency of decisions finding
the waivers unenforceable on unconscionability grounds has increased steadily, and was most noticeable in 2009.
B.
Expanding the Reach of Anti-Class Waiver Law: Feeney and
In re American Express Merchants’ Litigation
A recent example of an increasingly common approach to severability can be seen in the Second Circuit’s opinion in In re American Express Merchants’ Litigation.122 This case, decided on
January 30, 2009, held that when plaintiffs challenge the enforceability of a class action waiver in a binding arbitration clause, they
“plainly” attack “the validity of the parties’ agreement to arbitrate” and a court is the appropriate forum for such a challenge.123
Apparently, this was not a case in which the author of the contract
had expressly stated that the class action waiver was unseverable.
Nevertheless, after holding the clauses unseverable, the court
found the class action waiver unenforceable.124 The circuit court
expressly noted that its decision in no way rested on the size of the
. . . by foreclosing the [plaintiffs] from an attempt to seek practical redress through a class action
and restricting them to a disproportionately expensive individual arbitration.”).
112 Dunlap v. Berger, 567 S.E.2d 265 (W. Va. 2002).
113 McKee v. AT&T Corp., 191 P.3d 845 (Wash. 2008).
114 Fiser v. Dell Computer Corp., 188 P.3d 1215 (N.M. 2008).
115 Thibodeau v. Comcast Corp., 912 A.2d 874, 886 (Pa. Super. Ct. 2006).
116 Kinkel v. Cingular Wireless, LLC, 828 N.E.2d 812 (Ill. App. 5th Dist. 2005), review
granted, 216 Ill. 2d 690, 839 N.E.2d 1025, 298 Ill. Dec. 378 (Ill. 2005).
117 Whitney v. Alltel Commc’ns, Inc., 173 S.W.3d 300 (Mo. App. 2005).
118 Eagle v. Fred Martin Motor Co., 809 N.E.2d 1161 (Ohio App. 2004).
119 Powertel, Inc., v. Bexley, 743 So.2d 570, 575–76 (Fla. App. 1999).
120 See Kaneff v. Del. Title Loans, Inc., 587 F.3d 616 (3d Cir. 2009).
121 Homa v. Am. Express Co., 558 F.3d 225, 226 (3d Cir. 2009).
122 In re Am. Express Merchs.’ Litig., 554 F.3d 300, 311 (2d Cir. 2009).
123 Id. (“The plaintiffs are plainly challenging the Card Acceptance Agreement’s arbitration
clause insofar as they dispute the enforceability of its class action waiver and, by extension, the
validity of the parties’ agreement to arbitrate.”).
124 Id. at 320.
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plaintiff businesses.125 This is an important development because,
as the court noted, much of the past jurisprudence finding class
action waivers unconscionable rested on specific facts tending to
demonstrate an unequal balance of power between the adverse
parties.126 The court went on to state that the holding of unconscionability rested on an interpretation of arbitrability under federal law and noted, “we have found that plaintiffs have
demonstrated the necessity of some class mechanism” independent
of size.127
The notion that attacking the class action waiver is “plainly”
an attack on the agreement to arbitrate as a whole is not completely unique to the Second Circuit, as it was employed in California as early as 2007 by the California Court of Appeal.128
However, it is worth noting that two years passed between the California decision and In re American Express. There is some evidence that the Second Circuit’s characterization of the class action
waiver and the arbitration clause as “deeply connected” will gain
some traction now that the idea has spread to nearly every jurisdiction.129 Perhaps more importantly, in moving from the Ninth Circuit to the Second Circuit, this reasoning has arguably moved from
the progressive judicial activism of the Ninth Circuit to the economic nerve center of the United States in the Second Circuit, and
in so doing, stepped into the mainstream.
This is an important development for a number of reasons.
Not only does it take the discussion of unseverability into the mainstream of American jurisprudence, it also enunciates a much
broader understanding of the need for the class action and the
scope of unconscionability imposed by class action waivers. The
Second Circuit concluded in its decision in In re American Express
that it was not holding all class action waivers per se unconscionable.130 Nevertheless, this case significantly expanded the likelihood
125
Id.
Id. (citing Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, at 1219 (9th Cir. 2008), and
Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir. 2007)).
127 Id.
128 Gatton v. T-Mobile USA, Inc., 152 Cal. App. 4th 571 (Cal. Ct. App. 2007) (holding that
because the class action waiver was procedurally and substantively unconscionable, so too was
the arbitration clause itself).
129 See Anglin v. Tower Loan of Miss., Inc., 635 F. Supp. 2d 523, 528 (S.D. Miss. 2009)
(“[Plaintiff] contends that since the arbitration agreement, if enforced, would ban him and the
putative class members from pursuing their claims as a class action, then the arbitration agreement acts as a practical bar to pursuit of their claims because the potential recovery does not
justify the cost of pursuit of individual actions.”).
130 In re Am. Express, 554 F.3d at 321.
126
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of a court finding class action waivers unconscionable because of
the wide array of cases to which the previously mentioned reasoning can be applied. Further, the influence of the Second Circuit
and the precedential force of the decision on the shear number of
similar cases brought within the court’s jurisdiction will likely lead
to a more widespread acceptance of the analysis from In re American Express.
Only six months after the Second Circuit’s decision in In re
American Express, a similar issue was presented in a vastly different forum in a case with much different facts. On July 2, 2009, the
Massachusetts Supreme Judicial Court decided Feeney v. Dell
Inc.131 The Feeney court approached the issue from a public policy
perspective.132 In this case, Dell, the computer manufacturer, attempted to compel arbitration and ban aggregation of claims by
consumers who had purchased its product.133 The two lower courts
held the arbitration clause binding and the arbitrator, interpreting
the contract, found that the clause banning aggregation of claims
was valid.134 In reversing both lower courts and the arbitrator, the
Massachusetts Supreme Judicial Court held in relevant part that: 1)
clauses in contracts compelling arbitration that ban aggregation of
claims violated Massachusetts public policy favoring class actions;135 2) the Federal Arbitration Act (FAA) did not prevent a
state court from holding that a clause banning the aggregation of
claims was unenforceable due to an overriding state public policy
consideration;136 and 3) the clause banning aggregation of claims
was central to the dispute resolution mechanism contained in the
arbitration clause and therefore was not severable from the remainder of the arbitration agreement.137
131
Feeney v. Dell Inc., 908 N.E.2d 753 (Mass. 2009).
Id. at 764.
133 Id. at 757.
134 Id.
135 Id. Note this approach was used in California as early as 2006. See Discover Bank v.
Super. Ct. of L.A,, 113 P.3d 1100, 1108 (Cal. 2005) (class action prohibitions function “effectively
as exculpatory contract clauses that are contrary to public policy. . . . All contracts which have for
their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or
willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’ ”) (quoting CAL. CIV. CODE § 1668 (2011)).
136 Id. Further on the FAA issue: “We also rejected Cingular’s suggestions that the FAA
implicitly exalted individual arbitration but disfavored class arbitration, and that class arbitration
would reduce arbitration’s alleged general efficiency.” Lowden v. T-Mobile USA, Inc., 512 F.3d
1213, 1221 (9th Cir. 2008) (holding that a prohibition of class actions was unconscionable and
that the FAA does not preempt such a holding) (internal citations omitted).
137 See Fiser v. Dell, Inc., 188 P.3d 1215, 1222 (N.M. 2008) (“Here, the class action ban is part
of the arbitration provision and is central to the mechanism for resolving the dispute between
132
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Feeney thus represents much more than an additional, if forcefully written, example of the current trend.138 It is a different approach to finding class action waivers unenforceable through a
unique interpretation of the FAA. By holding that the FAA does
not prevent a state court from invalidating an arbitration clause
that is contrary to state policy, the Feeney court provides states
with an important enforcement mechanism in litigation that often
involves parties on both sides from all over the country.139
The Feeney court viewed class action litigation as a mechanism
for pursuing justice. Specifically, the Feeney court adopted reasoning from a prior decision stating: “‘Public policy’ in this context
refers to a court’s conviction, grounded in legislation and precedent, that denying enforcement of a contractual term is necessary
to protect some aspect of the public welfare.”140 The opinion later
refers to the ability to aggregate claims as a “pressing need” and
notes that contracts should not be read so as to exclude those
needs because doing so would preclude “substantial justice.”141
This direct confrontation of the unfairness of class action waivers is
unique among judicial opinions on the subject.
the parties; therefore, it cannot be severed. We decline to enforce the arbitration provision.”);
see also Kristian v. Comcast Corp., 446 F.3d 25, 62–63 (1st Cir. 2006) (“The class arbitration bar
comprises the second full paragraph of the section in the Policies & Practices describing the
terms of the mandatory, binding arbitration regime. It establishes an arbitration regime that
handles individual claims only. Typically, courts prefer declaring an arbitration agreement unenforceable rather than using severance as a remedy when fundamental elements of the arbitration
regime are at issue. . . . However, here, the arbitration agreements do anticipate specifically the
severance of the class arbitration bar. Therefore, Comcast cannot claim that it did not foresee
the possibility that, despite its strong preference for individual arbitration, it would have to arbitrate on a class basis because the contractual bar on class arbitration might, in its application to
particular claims, run afoul of controlling law.”).
138 For example, clearly announcing the right of consumers to pursue class action lawsuits
unrestricted by class action arbitration waivers: “ ‘Public policy’ in this context refers to a court’s
conviction, grounded in legislation and precedent, that denying enforcement of a contractual
term is necessary to protect some aspect of the public welfare.” Feeney v. Dell Inc., 908 N.E.2d
753, 762 (Mass. 2009) (referring to the ability to pursue class actions as a “pressing need” and
noting that contracts should not be read so as to exclude them because doing so would preclude
“substantial justice.”).
139 As of January 30, 2010, six months since the Feeney decision, the case had only been cited
once in this respect: Dixon v. Perry & Slesnick, P.C., 914 N.E.2d 97, 99 (Mass. App. Ct. 2009).
However, this lack of citing references can in part be explained by the fact the since the Class
Action Fairness Act (28 U.S.C. Sections 1332(d), 1453, and 1711–15) state court jurisdiction over
class actions is severely limited. To apply this aspect of the Feeney court’s reasoning, a court
would need to be a state court.
140 Feeney, 908 N.E.2d at 762 (citing Beacon Hill Civic Ass’n v. Ristorante Toscano, Inc., 662
N.E.2d 1015, 1017 (Mass. 1996)).
141 Id.
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Feeney also presents another example of a case which holds
that the ban on aggregation of claims is too central to the meaning
of the arbitration agreement to be severable. While it is treacherous to try to divine the motivations behind a court’s decision, Feeney takes a strong stance on this subject as well.142 For example, in
overriding the arbitrator’s interpretation of the contract as containing a binding class action waiver, the court stated: “It is ‘universally
accepted’ that public policy sometimes outweighs the interest in
freedom of contract, and in such cases the contract will not be enforced.”143 This statement directly attacks the premise on which
class action waivers are based, which is that freedom to contract is
an interest that trumps notions of fair play and justice. The court
proceeded to point out that although most decisions finding class
action waivers unenforceable are rooted in unconscionability theory or an analysis of the FAA, those analyses and this public policy
analysis share commonalities in that “both analyses emphasize
‘frustration of the right to pursue claims granted by statute.’”144
The thinly veiled sentiment behind the opinion could be read to
reflect a growing understanding on the part of the courts that arbitration agreements are being used by corporations to prevent consumers from pursuing judicial remedies.
As previously mentioned, Feeney is unique for basing its decision wholly on public policy grounds,145 rather than on the more
common theory of unconscionability.146 Many states’ public poli142 See, e.g., id. at 763 (“The right to a class action in a consumer protection case is of particular importance where, as here, aggregation of small claims is likely the only realistic option for
pursuing a claim.). See also id. (“Permitting Dell to prohibit class actions against it through its
contracts with its customers would be counter to our public policy for two additional reasons.
First, it undermines the public interest in deterring wrongdoing. Second, the loss of an individual
consumer’s right to bring a class action negatively affects the rights of those unnamed class members on whose behalf the class action would proceed. In this sense, the right to participate in a
class action under G. L. c. 93A is a public—not merely a private—right: it protects the rights of
consumers as a whole.”) (citations omitted).
143 Id. at 761–62.
144 Id. at 762 n.26.
145 As the Feeney court noted:
Other courts that have rejected class action prohibitions in consumer contracts as
unenforceable have tended to base their decisions on grounds of unconscionability or
on the Federal substantive law of arbitrability rather than on public policy grounds.
However, the reasoning of those courts have often overlapped and incorporated public policy rationales.
Id.
146 See, e.g., Kristian v. Comcast Corp., 446 F.3d 25, at 60, n.22 (1st Cir. 2006) (declining to
enforce class action bar under Federal arbitration law; similar decisions based on State law unconscionability grounds “contain reasoning that mirrors our own”; both analyses emphasize
“frustration of the right to pursue claims granted by statute.”).
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cies support the right to aggregate claims.147 During its discussion
of the public policy rationale for the decision, the court cites settled
Massachusetts public policy favoring class actions, discussed
above.148 Indeed, there is significant public policy interest in support of class actions. This support is based on class actions’ ability
to deter wrongdoing,149 compensate victims,150 enforce antitrust
laws,151 and provide an effective tool to enforce liability for a pattern of small value claims.152 It is this combination of compelling
public policy interests behind both the general right to aggregate
claims and the need to deter wrongdoing that the Feeney court
found so compelling.153
147 Ting v. AT&T, 319 F.3d 1126, 1130, 1152 (9th Cir. 2003) (affirming conclusion that provision banning class actions was unconscionable, noting that District Court had concluded that
provision was unconscionable and against California public policy); Fiser v. Dell Computer
Corp., 188 P.3d 1215, 1220 (N.M. 2008) (Dell’s class action prohibition substantively unconscionable because it violates New Mexico public policy).
148 “Permitting Dell to prohibit class actions against it through its contracts with its customers
would be counter to our public policy for two additional reasons. First, it undermines the public
interest in deterring wrongdoing.” Feeney, 908 N.E.2d at 764 (citing Salvas v. Wal-Mart Stores,
Inc., 893 N.E.2d 1187 (Mass. 2008)); Conte & H.B. Newberg, Class Actions § 4.36, at 314 (4th ed.
2002) (“Class actions were designed not only to compensate victimized group members, but also
to deter violations of the law, especially when small individual claims are involved”); In re Am.
Express Merchs.’ Litig., 554 F.3d 300, 320 (2d Cir. 2009) (allowing enforcement of class action
waiver in credit card acceptance agreement would grant corporation “de facto immunity from
antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery”); Dale
v. Comcast, 498 F.3d 1216, 1224 (11th Cir. 2007) (“Corporations should not be permitted to use
class action waivers as a means to exculpate themselves from liability for small-value claims”).
Second, the loss of an individual consumer’s right to bring a class action negatively affects the
rights of those unnamed class members on whose behalf the class action would proceed. In this
sense, the right to participate in a class action under G.L. c. 93A is a public—not merely a
private—right: it protects the rights of consumers as a whole. See Muhammad v. County Bank,
912 A.2d 88 (N.J. 2006) (“without the availability of a class-action mechanism, many consumerfraud victims may never realize that they may have been wronged.”).
149 See Feeney, 908 N.E.2d at 764.
150 See Conte & Newberg, supra note 148, at 314 (“Class actions were designed not only to
compensate victimized group members, but also to deter violations of the law, especially when
small individual claims are involved.”).
151 In re Am. Express, 554 F.3d at 320 (allowing enforcement of class action waiver in credit
card acceptance agreement would grant corporation “de facto immunity from antitrust liability
by removing the plaintiffs’ only reasonably feasible means of recovery.”).
152 Dale, 498 F.3d at 1224 (“Corporations should not be permitted to use class action waivers
as a means to exculpate themselves from liability for small-value claims.”).
153 “The loss of an individual consumer’s right to bring a class action negatively affects the
rights of those unnamed class members on whose behalf the class action would proceed. In this
sense, the right to participate in a class action under G.L. c. 93A is a public—not merely a
private—right: it protects the rights of consumers as a whole.” Feeney, 908 N.E.2d at 764 (citing
Muhammad v. County Bank, 912 A.2d 88 (N.J. 2006)) (“without the availability of a class-action
mechanism, many consumer-fraud victims may never realize that they may have been
wronged.”).
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However, the decision undercuts the arbitration process. The
decision also negatively affects corporations that rely on arbitration as a forum for consumer disputes. The Feeney holding could
simply be paraphrased as: play nice or not at all. As mandatory
arbitration becomes the rule across the country, it is only a matter
of time before the mistrust and anxiety expressed in the class action arbitration context spreads to other situations. Although it
may take a massive class action to make a large corporate entity
like Dell have second thoughts about an unreviewable process, the
stakes for a single dispute could be just as large a portion of livelihood for an individual.
The Feeney court went out of its way to note that class action
arbitration would have been an acceptable substitute for class action litigation in terms of state public policy, stating:
The defendants’ argument that a class action prohibition is not
contrary to “any Massachusetts policy” because such a prohibition is “inherent” in an agreement to arbitrate is misplaced.
First, the argument’s premise, that arbitration and class actions
are incompatible, is undermined by the reality—which defendants acknowledge—that class arbitrations do in fact occur.154
The Feeney court then noted “a majority of the Justices of the
United States Supreme Court has, at least implicitly, endorsed class
arbitrations as consistent with the FAA.”155 However, the Feeney
defendants made clear that they did not want to be subjected to
class arbitration because it would be “problematic.”156 The court
concluded:
[O]ur decision is not based on any judgment about the merits of
a particular forum for class action adjudication—arbitration or
litigation—but rather on a determination that in the circumstances of a case such as this (small value claims sought under
our consumer protection statute, G.L. c. 93A), a clause effec154 Id. at 765 (citing In re Am. Express, 554 F.3d at 310 n.7 (quoting David S. Clancy and
Matthew M. K. Stein, An Uninvited Guest: Class Arbitration and the Federal Arbitration Act’s
Legislative History, 63 BUS. LAW. 55, 56 (2007) (“It is apparent that ‘[c]lass arbitration is a swiftly
growing phenomenon.”))); McKee v. AT&T Corp., 191 P.3d 845 (Wash. 2008) (“Class actions
are often arbitrated.”).
155 Feeney, 908 N.E.2d at 765 (citing Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d
976, 992 (9th Cir. 2007), interpreting Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003)).
156 Id. (citing Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996), Discover Bank v.
Super. Ct. of L.A., 113 P.3d 1100 (Cal. 2005) (quoting Armendariz v. Foundation Health Psychcare Servs., Inc., 6 P.3d 669 (2000)) (stating that the lower court’s “conclusion regarding the
unsuitability of arbitration to class actions reflects . . . ‘the very mistrust of arbitration that has
been repudiated by the United States Supreme Court’ ”).
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tively prohibiting class proceedings in any forum violates the
public policy of the Commonwealth.157
In light of this express support of class action arbitration, the
court’s major concern appears to be fairness. As a result, the
meaning of the holding in practical terms is that if corporations do
not write their arbitration clauses in a way that is more fundamentally fair, and if arbitrators continue to find unfair portions of
clauses enforceable, the court, if asked by plaintiffs, will step in and
take the ball out of the court of arbitration. This stance has the
effect of asserting the important role of the courts in this field. Indeed, although arbitration generally, and class arbitration specifically, are acceptable devices for the resolution of disputes,
arbitrators themselves are sometimes insufficiently independent
from the corporations that give them business to take a stand similar to that taken by the Feeney court. The Feeney court appropriately stepped in as a referee when the arbitration process became
oppressive, and conveyed that corporations must use arbitration
fairly or they will not be permitted to use it at all.
C.
The Initially Positive View of Arbitration Held by Courts
Has Given Way to Suspicion
Professor Seth Lipner has argued that arbitration was invented to facilitate the efficient and quick resolution of disputes.158
Of course, the relationship between the courts and arbitration has
evolved over time. In the late 1980s and the 1990s, district court
opinions seemed to show a positive view of arbitration,159 reflecting
societal attitudes as well as the Supreme Court’s perceived support
of the forum.160 At that time, the courts appeared to rely on arbitrators to protect the right to aggregate claims,161 and the FAA was
157
Id. at 765–66.
“[T]he inventors [of arbitration] believed arbitration helps little guys fight big corporations through its efficient and expeditious nature.” Seth Lipner, Prof Lipner’s I Love NY (Law)
Column: Some Thoughts on Arbitration, Arbitration Practice and PIABA, 11 PIABA B.J. 3, 3
(2004).
159 Williams v. Katten Muchin & Zavis, 837 F. Supp. 1430, 1435–36 (N.D. Ill. 1993) (noting
that as of 1993, confidence in arbitration had grown).
160 Sacks v. Richardson Greenshield Sec., Inc., 781 F. Supp. 1475, 1483 (E.D. Cal. 1991) (commenting on the Supreme Court’s “increasing confidence in arbitration as a fair and competent
alternative dispute resolution mechanism.”).
161 Carroll E. Neesemann & Maren E. Nelson, The Law of Securities Arbitration, 852 PLI/
CORP 135, 245–46 (1994) (citing Coastal Shipping Ltd. v. S. Petroleum Tankers Ltd., 812 F. Supp.
158
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interpreted restrictively as barring the courts from aggregating arbitration claims.162
In this permissive atmosphere, there seemed to be a willingness to trust arbitration to resolve disputes. A 1989 Southern District of Florida Case, Back v. Shearson Lehman Hutton, Inc., is a
good example of this trust in arbitration.163 In Shearson, the Court
suggested that an arbitration panel might be able to certify a class
even where a court has no authority to do so, concluding that
“[s]ince there is no provision for consolidation or class-wide arbitration in the arbitration clause at issue, this Court must defer consideration of the appropriate form of arbitration to the arbitration
panel.”164 Thus, the Shearson court was willing to provide arbitrators with a very broad grant of authority.
Whether this relationship between the courts and arbitration
was good or bad is beyond the scope of this Note, but it cannot be
disputed that this relationship of trust had seriously deteriorated by
2010, leaving the law in class action waivers unsettled federally,165
in courts from the Atlantic to the Pacific.166 Perhaps this case law
reflects the courts’ confusion as to how much power arbitrators
should be given, and how much power should be reserved for the
courts.167
396, 402 (S.D.N.Y. 1993)) (“[F]inding that, absent an agreement to consolidate disputes, federal
courts are powerless to compel consolidation of arbitration.”).
162 Id. at 245 (citing Baesler v. Cont’l Grain Co., 900 F.2d 1193, 1195 (8th Cir. 1990) for “the
majority view that the Federal Arbitration Act precludes federal courts from ordering consolidation of arbitration proceedings.”).
163
No. 89-534-CIV-DAVIS, slip op. at 3 (S.D. Fla. Dec. 15, 1989).
See Neeseman & Nelson, supra note 161, at 246.
165 Tyler M. Paetkau, Drafting Employment-Related Agreements, 762 PLI/LIT 255, 299 (2007)
(“[T]he law regarding the validity of class action waivers remains unsettled and varies depending
upon the jurisdiction.”).
166 See, e.g., Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361, 1365 (S.D. Fla., 2009)
(noting that the law on class action waivers is unsettled in both Florida and Delaware); Riensche
v. Cingular Wireless, LLC, 2006 U.S. Dist. LEXIS 93747 at 11–12 (W.D. Wash. 2006) (commenting that the law on class action waivers is unsettled in Washington); Pendergast v. Sprint Nextel
Corp., 592 F.3d 1119 (11th Cir. 2010) (certifying question of whether a class waiver was substantively unconscionable under Florida law to the Florida Supreme Court because the Circuit was
“unclear” what a Florida court would rule).
167 See, e.g., Protective Life Ins. Corp. v. Lincoln Nat’l Life Ins. Corp., 873 F.2d 281, 282 (11th
Cir. 1989); Coastal Shipping Ltd. v. S. Petroleum Tankers Ltd., 812 F. Supp. 396, 402 (S.D.N.Y.
1993) (both holding that unless the parties had agreed to aggregate arbitration claims, the court
could not do so sua sponte). Compare Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d
1056, 1063–64 (9th Cir. 1991) (the Court permitted arbitrator to award punitive damages and
reject a challenge to that award); Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 121–22
(2d Cir. 1991) (holding that arbitrator could not award punitive damages).
164
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The change in the relationship between courts and arbitrators
may also show that the courts started out trusting that participants
in arbitration, especially in situations where there is an imbalance
of power between the parties, could be expected to obtain a fair
outcome. However, over time, it surely has not escaped judicial
notice that with one notable exception,168 arbitrators appear to
have given force to class waivers.169 In other words, arbitrators appear to be presiding over something that seems intrinsically unfair,170 and the courts are becoming less trustful of arbitration’s
ability to handle the issue.
D.
Arbitration in Crisis? Flying Too Close to the Sun: JAMS,
Repeat Player and the Stunningly Consistent Enforcement
of Class Action Waivers by Arbitrators
Theoretically, arbitrators are expected to apply the same law
as the court of proper venue for the same matter.171 In theory, the
same outcome should be reached in arbitration as in a court applying the same law.172 While many scholars have questioned if the
forum actually works this way in practice, this question implicitly
recognizes that arbitration should provide the same outcome as the
analogous court.173 Arbitrators have even argued that in some sit168
See discussion infra Part III.D.
See, e.g., Caban, 606 F. Supp. 2d 1361; Coneff v. AT&T Corp., 620 F. Supp. 2d 1248, 1257
(W.D. Wash. 2009); In re Cotton Yarn Antitrust Litig., 505 F.3d 274 (4th Cir. 2007).
170 “In an accompanying press release, JAMS unequivocally criticized class action waivers as
unfair to consumers.” Alan S. Kaplinsky & Mark J. Levin, Is JAMS in a Jam Over Its Policy
Regarding Class Action Waivers in Consumer Arbitration Agreements?, 61 BUS. LAW. 923, 925
n.7 (2006) (citing Press Release, JAMS Takes Steps to Ensure Fairness in Consumer Arbitrations
(Nov. 12, 2004)).
171 This is not a controversial statement. But see Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614, 637 (1985) (in an action brought under the Federal Arbitration
Act, “Mitsubishi conceded that American law applied to the antitrust claims and represented
that the claims had been submitted to the arbitration panel in Japan on that basis.”); Southland
Corp. v. Keating, 465 U.S. 1 (1984) (question of whether California law applied); Donaldson Co.,
Inc. v. Burroughs Diesel, Inc., 581 F.3d 726 (8th Cir. 2009); Homa v. Am. Express Co., 558 F.3d
225, 227 (3d Cir. 2009).
172 Roger Haydock, Setting the Record Straight About Contractual Arbitration, W. VA. LAW.,
Nov.–Dec. 2006, at 12, 13 (The availability of expert independent arbitrators, fair and efficient
procedures, and reasonable fees ensure that FORUM arbitrations provide all parties with the
same outcomes they would have received in court, but more quickly and less expensively. And
judges can review arbitrations and awards to make sure they are fair).
173 “There are . . . reasons to question whether arbitration offers employees the same outcomes that they could expect from a court.” Michael H. LeRoy, Crowning the New King: The
Statutory Arbitrator and the Demise of Judicial Review, 2009 J. DISP. RESOL. 1, 10 (2009);
169
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uations their ability to reach an equitable outcome is superior to
that of the courts.174 Accordingly, in an area of law where the
courts are split, arbitration decisions should roughly reflect that
split.
It is against the backdrop of this ideal that arbitrators may be
dismayed to notice that trust of arbitration to handle class action
waivers has led to distrust. The initial laissez-faire approach to arbitration generally, and the class action waiver specifically, has
given way in some jurisdictions to a more suspicious view and generally a more restrictive interpretation of the FAA.175 Certainly, in
this regard Buckeye looms large.176 As a result of Buckeye and the
other cases discussed previously,177 the contention voiced often in
the last three years that the trend in courts is to support arbitration
may not be entirely correct.178 One need only look to the wording
and meaning of Feeney, In re American Express, and the resulting
jurisprudence for confirmation that an increasing number of judges
view arbitration as a threat to the public.179 One reason for this
view, and the trend it represents, could be the reticence shown by
arbitrators in finding class action waivers unenforceable, against
public policy, or unconscionable. Very few scholarly articles or
published opinions mention arbitrators finding class action waivers
Michael H. LeRoy, Getting Nothing for Something: When Women Prevail in Employment Arbitration Awards, 16 STAN. L. & POL’Y REV. 573, 575 (2005).
174 The Supreme Court
concluded that, under Bazzle, the contract interpretation issue is for the arbitrator,
not the court, to decide; however, the enforceability issue is a ‘gateway’ issue for the
court (not the arbitrator) to decide. Thus, the court rejected JAMS’ contention that
Bazzle confers on arbitrators the right—superior to the right of the courts—to determine the validity of class action waivers.
Alan S. Kaplinsky, Arbitration and Class Actions: A Contradiction in Terms, 1590 PLI/CORP 427,
468 (2007).
175 See discussion supra Parts III.A–B.
176 “[A]lthough the Supreme Court’s 2006 Buckeye decision provides for the arbitrator to
hear challenges to the legality of the underlying contract, the Court’s opinion, written by Justice
Antonin Scalia, preserves court review where the challenge is to the arbitration clause itself,
rather than the contract as a whole.” Jay W. Waks & Jordan B. Schwartz, Litigation and Arbitration of Employment Class Actions: An Update, 776 PLI/LIT 169, 193 (2008) (citing Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006)).
177 See discussion supra Parts III.A–B.
178 See LeRoy, supra note 173, at 3–4 (arguing “courts do not perceive arbitration as an institutional threat. They create demand for private ‘judges’ in decisions that foster arbitration.”).
179 See, e.g., Caban v. J.P. Morgan Chase & Co., 606 F. Supp. 2d 1361 (S.D. Fla. 2009); Coneff
v. AT&T Corp., 620 F. Supp. 2d 1248, 1257 (W.D. Wash. 2009); In re Cotton Yarn Antitrust
Litig., 505 F.3d 274 (4th Cir. 2007).
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unenforceable.180 This is surprising because considering the cases
previously discussed, it would stand to reason that there would be a
substantial number of cases in which arbitrators find class waivers
unenforceable.181
In attempting to understand this unexpected result, Labor
Ready Northwest, Inc. v. Crawford proves instructive.182 In Labor
Ready, the arbitrator found the class action ban in a 2005 employment contract unconscionable under Oregon law.183 Assuming
that arbitration should provide a forum with the same rules as the
courts, it follows that arbitrators should be applying the public policy of the state whose laws they are using, especially when, as in
Feeney, the public policy is codified by statute. In Labor Ready,
the arbitrator ostensibly applied Oregon law on unconscionability.
His decision was in keeping with the Oregon courts’ policy determination that the inequality of bargaining power presented by class
action waivers was so significant that the waivers should not be
enforced.184 Therefore, in this case the arbitrator reached the
proper outcome. However, examining another case, Gipson v.
Cross Country Bank,185 sheds some light on why this outcome is
not so common.
Gipson is the unfortunate story of JAMS’ initial foray into the
world of class action waivers. JAMS is one of the largest dispute
resolution service providers in the world. Among other things,
JAMS provides arbitrators and arbitration forums.186 In Gipson, a
180
Indeed, a Westlaw search of JLR and ALLFEDS databases on Oct. 27, 2009 using the
search phrase, “ ‘ARBITRATOR FOUND’ /S UNENFORCEABLE /S ‘CLASS ACTION’ ”
turned up only two results; and no further results when the word “found” was switched with
“held,” “decided,” or “ruled.”
181 See AAA, Supplementary Rules for Class Arbitrations, http://www.adr.org/sp.asp?id=
21936 (last visited Mar. 6, 2011). The AAA website provides:
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 “Clause
Construction Award”). The arbitrator shall stay all proceedings following the issuance of the Clause Construction Award for a period of at least 30 days to permit any
party to move a court of competent jurisdiction to confirm or to vacate the Clause
Construction Award.
Id. Nevertheless, there is no evidence that class action waivers are commonly found unenforceable by arbitrators.
182 No. 07-1060-HA, 2008 WL 1840749 (D. Or. Apr. 21, 2008).
183 Id. at *3–4.
184 Id. at *2–3.
185 Gipson v. Cross Country Bank, 354 F. Supp. 2d 1278, 1279 (M.D. Ala. 2005).
186 JAMS, JAMS Clause Workbook, http://www.jamsadr.com/clauses/ (last visited Mar. 29,
2011) (“JAMS is the largest private alternative dispute resolution (ADR) provider in the world.
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JAMS arbitrator found a class action ban unenforceable.187 On appeal, the trial court compelled JAMS to enforce the ban.188 However, there was much more at work in the story of Gipson than is
revealed by a simple recitation of the case. Prior to the court’s
decision in Gipson, JAMS had pronounced an institution-wide policy against enforcing class action waivers. The press release in
which JAMS announced this policy even expressly conceded that
such waivers are inherently unfair to consumers.189 Gipson subsequently led JAMS to change its policy.190 The events leading up to
and after Gipson demonstrate one aspect of the uncertainty behind
the conflicting holdings on class action waivers: the power struggle
between the courts and arbitrators.191 When JAMS stood up
against “inherent unfairness,”192 it was roundly rebuked by the
court. As a result, JAMS’ industrial clients questioned whether
they should continue to patronize the institution.193
The story of Gipson hints at a reality of class action waivers
that is rarely exposed: the system unfairly favors repeat players.
This is a fact implicitly referenced by Alan S. Kaplinsky and Mark
J. Levin in their article.194 When an entire industry begins naming
certain arbitration organizations in its compulsory arbitration
clauses, that industry suddenly has a very large stake in that arbitration organization’s policies. Additionally, the arbitration organization has an incredible incentive to avoid policies that the
industry would not like—even when the court in that jurisdiction
would likely have applied those same policies.195 Kaplinsky and
With its prestigious panel of neutrals, JAMS specializes in mediating and arbitrating complex,
multi-party, business/commercial cases—those in which the choice of neutral is crucial.”).
187 Gipson, 354 F. Supp. at 1279.
188 Fred Hagans & Jennifer B. Rustay, Class Actions in Arbitration, 25 REV. LITIG. 293, 305
n.52 (2006).
189 See supra quotation accompanying note 171.
190 Hagans & Rustay, supra note 188, at 308 (citing Jud. Arb. & Mediation Servs., JAMS
Reaffirms Commitment to Neutrality Through Withdrawal of Class Action Arbitration Waiver
Policy (Mar. 10, 2005), http://www.jamsadr.com/Images/PDF/2005-03-10-ClassActionPrecPolicy
WD.doc).
191 After an arbitrator dismissed a ruling by the court as ‘“of no moment’ . . . [o]n January 28,
2005, the [Gipson] court emphatically rejected JAMS’ (and its arbitrator’s) usurpation of its
authority, granting the Bank’s injunction motion in a case of first impression.” Kaplinsky &
Levin, supra note 170, at 926–27.
192 See JAMS Reaffirms Commitment to Neutrality Through Withdrawal of Class Action Arbitration Waiver Policy, supra note 190.
193 See Kaplinsky & Levin, supra note 170, at 928–29.
194 Id. at 923.
195 JAMS’ adoption of its anti-class action waiver policy created substantial confusion
and consternation in the consumer financial services industry. Many members of
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Levin use the word “perplexed” to describe the financial services
industry’s reaction to JAMS’ declaration that class action waivers
were unfair and would not be enforced. “Perplexed” is an interesting word in this context, perhaps meaning, “why would you do this
to us after we have sent so much business your way?” Kaplinsky
and Levin wrote their article in 2006, and certainly, the state of the
law and the attitude of courts toward arbitration has changed since
that time.196 Nevertheless, when Kaplinsky and Levin contend that
JAMS’ anti-class action waiver policy “contravened the terms of
the arbitration agreements as well as prevailing law under the
FAA,” their representation of “prevailing law” is debatable at best
and flatly wrong at worst.197
Due to the prevalence of arbitration clauses in modern consumer contracts, certain industries or businesses are tremendous
sources of arbitrable claims.198 This creates a dynamic in which the
author of the contract does not directly pay the arbitrator, but pays
the arbitration organization, which reaps tremendous rewards by
maintaining its status as the chosen arbitrator of the author of the
contract.199 Although, admittedly, this contention is far from an
objective fact,200 even Congress has recognized that there is some
that industry had drafted arbitration agreements naming JAMS as an arbitration administrator, and they were perplexed by its adoption of a policy that contravened the
terms of the arbitration agreements as well as prevailing law under the FAA. JAMS’
rescission of its policy has done much to restore the industry’s faith in JAMS as a
neutral arbitration administrator, but only time will tell whether JAMS is implementing its new policy in a fair and rational manner. In the meantime, JAMS has adopted
Class Action Procedures for use in arbitrations that are administered as class actions.
Id. at 928–29.
196 See discussion infra Conclusion.
197 Kaplinsky & Levin, supra note 170, at 928–29.
198 See, e.g., Hart v. Canadian Imperial Bank of Commerce, 43 F. Supp. 2d 395, 401 (S.D.N.Y.
1999) (noting the prevalence of arbitration agreements in the securities industry); see also
Michael J. Brady, The Arbitration Train That Cannot Be Stopped, METROPOLITAN CORPORATE
COUNSEL (June 2003) (“Arbitration agreements are now common in employment contracts, installment sales contracts for goods and services, credit card relationships, securities/stock transactions, and health care admission documents, to name just a few.”).
199 [A]rbitrators, unlike bureaucrats or judges, often are nominated by parties to resolve
a dispute, and, critically, their compensation is tied to their service. In theory, this
nomination process gives the arbitrators a financial incentive to decide a case in favor
of the player most likely to give the arbitrator repeated business, thereby skewing the
result in favor of the more powerful party.
Peter B. Rutledge, Arbitration and Article III, 61 VAND. L. REV. 1189, 1220 (2008).
200 See Peter B. Rutledge, Who Can Be Against Fairness? The Case Against the Arbitration
Fairness Act, 9 CARDOZO J. CONFLICT RESOL. 267, 274 (2008) (“The empirical record on repeat
player effects is decidedly mixed: some studies have found evidence of a repeat player phenomenon while others have found no demonstrable effect. Furthermore, even where the repeat
player effect exists, the cause is not clear. Most research suggests that the repeat player effect—
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truth to it.201 Nevertheless, studies and scholarly debates are not
necessary to recognize a simple fact: without heavy corporate use
of arbitration clauses in consumer contracts, the arbitration industry’s business volume would decrease tremendously.
It has been argued that the certification of more classes would
benefit arbitrators more than a strict enforcement of class action
waivers.202 However, this argument is belied by an afterthought in
Kaplinsky and Levin’s article: “The [Gipson] case helped put
JAMS back on track.”203 It was the jettisoning of JAMS’ anti-class
action waiver policy that brought JAMS back respectability. Perhaps the authors only meant that JAMS needed to follow the law.
However, in view of many recent court decisions, JAMS’ initial interpretation was a reasonable interpretation of the law. Apparently, when class action waivers became ubiquitous, it was clear to
JAMS almost immediately that these clauses were causing serious
problems for individuals in their quest to redress their legal rights.
Yet, as time has passed, the law has come full circle to demonstrate
that in fact, although JAMS’ blanket decision not to enforce class
action waivers was premature, its analysis of the problem was
correct.
Beyond Kaplinsky and Levin, the “‘repeat provider’ problem”
is a connected issue.204 Any clear-eyed analysis of the discrepancy
between the courts’ and the arbitrators’ willingness to find class
action waivers unenforceable must not ignore the financial forces
that drive the arbitration industry. Arbitration represents a private
forum for the resolution of disputes. In the national discourse on
health care, financial regulation and other industries, it is common
knowledge that financial exigencies are a major motivating factor
in the behavior and policies of private firms. Because of the perif it exists—is not due to the arbitrator’s financial incentives but, instead, to the ‘learning effects’
from the repeat player’s experiences.”).
201 Arbitration Fairness Act, S.1782/H.R. 3010, 110th Cong. at § 2(4) (2007) (“Private arbitration companies are sometimes under great pressure to devise systems that favor the corporate
repeat players who decide whether those companies will receive their lucrative business.”).
202 “Arbitrators may have a financial incentive to certify a class because the longer the arbitrator spends on the case the more money the arbitrator receives.” Thomas Burch, Necessity
Never Made a Good Bargain: When Consumer Arbitration Agreements Prohibit Class Relief, 31
FLA. ST. U. L. REV. 1005, 1031, 1034 (2004).
203 Kaplinsky & Levin, supra note 170, at 929.
204 “The ‘repeat provider’ problem describes arbitrators as having a financial incentive to
ensure that the institution is pleased with the results of the arbitration so that the institution will
appoint the same individual in the future.” Zahed Amin, Exposing Dead Air: Challenging the
Constitutional Sufficiency of Uninsured Motorist Arbitration Procedures, 22 OHIO ST. J. ON DISP.
RESOL. 527, 548 (2007).
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ceived inconsistency of arbitration awards, it is no surprise that
large industries and law firms are attempting to use arbitration less
often.
Times have changed since the 1980s. The international law
firm, Fullbright & Jaworski, performs an annual study of litigation
trends.205 One of the trends surveyed is the number of arbitrated
matters at large firms.206 According to the study, in the United
States, the number of arbitrations with more than $20 million in
controversy declined from 2007 to 2008 and again from 2008 to
2009.207 Further, the number of arbitrations initiated by respondents likewise declined each year from 2007 through 2009.208
These statistics are further explained by a different question posed
by the study: “[i]n disputes that are not international in nature, and
when given a choice, does your company choose litigation or arbitration?”209 Out of the U.S. firms who responded to the question,
55% preferred litigation, 32% preferred arbitration and 13% had
no preference.210 The study makes clear that firms, specifically respondents, are intentionally using arbitration less. Litigants prefer
traditional litigation.
Perhaps the problems for arbitrators have been what courts do
after finding a class waiver unenforceable. Rather than severing
the offending clause and returning the dispute to the ostensibly
mutually agreed upon arbitration forum, the courts generally find
the entire arbitration clause unenforceable.211 Once the class action waiver is found unenforceable, often both plaintiffs and defendants prefer the dispute be returned to the courts as opposed to
arbitration.212 The message to attorneys and arbitrators could not
205
See Fullbright & Jaworski, LLP, supra note 8.
Id. at 17.
207 Id.
208 Id. at 18.
209 Id. at 21.
210 Id.
211 See, e.g., In re Am. Express Merchs.’ Litig., 554 F.3d 300 (2d Cir. 2009); Feeney v. Dell
Inc., 908 N.E.2d 753, 757 (Mass. 2009).
212 Kristian v. Comcast Corp., 446 F.3d 25, at 62–63 (1st Cir. 2006) (“The class arbitration bar
comprises the second full paragraph of the section in the Policies & Practices describing the
terms of the mandatory, binding arbitration regime. It establishes an arbitration regime that
handles individual claims only. Typically, courts prefer declaring an arbitration agreement unenforceable rather than using severance as a remedy when fundamental elements of the arbitration
regime are at issue. . . . However, here, the arbitration agreements do anticipate specifically the
severance of the class arbitration bar. Therefore, Comcast cannot claim that it did not foresee
the possibility that, despite its strong preference for individual arbitration, it would have to arbitrate on a class basis because the contractual bar on class arbitration might, in its application to
particular claims, run afoul of controlling law.”).
206
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be clearer213: if arbitration is not administered in a fair and just
manner, the courts will not permit it to be used at all.214 This is a
potentially devastating implicit criticism of arbitration215: when billions of dollars are in controversy and billions more may ride on
precedent, neither side wants their case to be in arbitration.216
CONCLUSION
The trend of courts finding class action waivers unenforceable
continues to manifest itself through a long string of cases finding
waivers unconscionable and through the less common, but equally
potent, public policy theory. The Feeney court’s examination of
the FAA and the Massachusetts public policy favoring class actions
will probably become a template for state courts in states with such
a policy, and as a result, open a new frontier in class arbitration
jurisprudence.217 In re American Express built on and expanded
213 See Cooper v. QC Fin. Servs., 503 F. Supp. 2d 1266, 1282 n.16 (D. Ariz. 2006) (citing
“Plaintiff’s Opposition,” pp. 10–13).
214 See Riensche v. Cingular Wireless LLC, 2006 U.S. Dist. LEXIS 93747, at 36 (W.D. Wash.
2006). Characterizing the outcome of Luna v. Household Fin. Corp. III, Judge Lasnik held that
an arbitration clause prohibiting class actions was substantively unconscionable because it was
being “used as a sword to strike down access to justice instead of a shield against prohibitive
costs.” (citing Luna v. Household Fin. Corp., III, 236 F. Supp. 2d 1166, 1179 (W.D. Wash.
2002)).
215 See Weidemaier, supra note 83, at 112 (noting a “comment attributed to attorney Alan
Kaplinsky—who can fairly be described as a proponent of predispute arbitration agreements—
[in] that he advises clients to include terms declaring the entire arbitration agreement void if a
court or arbitrator finds the class action prohibition to be unenforceable.”) (quoting Russ
Bleemer, The Current State of Class Action Arbitration, 22 ALTERNATIVES TO HIGH COST LITIG.
63, 68–69 (2004)).
216 Accord Celeste M. Hammond, A Real Estate Focus: The (Pre) (As) Sumed ‘Consent’ of
Commercial Binding Arbitration Contracts: An Empirical Study of Attitudes and Expectations of
Transactional Lawyers, 36 J. MARSHALL L. REV. 589, 626–27 (2003) (“The secrecy surrounding
arbitration and the usual lack of reasoned awards contributes to the lack of transparency. Typically, third parties are excluded from hearings, there is no transcript of the arbitration hearing,
arbitrators will not be required to testify regarding their activities and parties impose strict confidentiality requirements on each other. Critics believe that the non-public nature of arbitration
proceedings and awards undermines society’s role in setting the terms of justice. The non-publicity also may make it less likely that disputes will settle before the arbitration process begins
because of the uncertainty of the outcome of arbitration. In his economic analysis of arbitration
agreements, Keith Hylton argues that arbitration contributes to ‘erosion of the publicly accessible stock of common-law rules’ and hinders ‘the development of new rules.’ In areas where the
law is not yet developed, the opportunity to apply a rule of law and to develop a consistent set of
rules is lost.”) (footnotes omitted).
217 See discussion supra Part III.B.
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the already present unconscionability analysis.218 This movement,
currently represented by Feeney and In re American Express, is evidence that the positive view of arbitration once maintained by
some courts may be giving way to suspicion. The continued viability of arbitration for large consumer disputes is in question219 in
light of this suspicion, the inherent unfairness of class waivers, and
the shocking unwillingness of arbitrators to stand up for basic fairness and a fundamental procedural right by finding these waivers
unenforceable.
The arbitration industry and the alternative dispute resolution
community would do well to examine the trend discussed in this
Note and consider its meaning. As asserted previously, there are
not many domestic arbitration disputes that involve greater
amounts in controversy than the massive class actions at issue in
cases like Comcast,220 Shroyer v. Cingular,221 In re American. Express Merchants’ Litigation,222 and AT&T Mobility.223 The manner
in which litigants behave in these litigations serves as a realistic
indicator of their beliefs about arbitration, expressed more honestly when companies have their backs against the wall.
Regardless of the influences exerting pressure on them, arbitrators need to step in more forcefully to properly apply the law
and to find class waivers unenforceable. If they do not, they may
risk losing even more business as courts declare more and more
arbitration clauses to be unenforceable. Whether or not this apparent lack of fairness is evidence of a conflict of interest, arbitrators should consider the words of a great litigator:
It is a war. On one side, you have what the American people
want, deserve, and need. On the other side, you have the big
HMOs and insurance companies. Big corporations will fight
with all their resources to make sure they keep their power.224
218
Id.
See Megregian & Babbitz, The Use of Mandatory Arbitration to Defeat Antitrust Class
Actions, 13 ANTITRUST ABA 63, 64 (1999) (“[A] basic criticism of arbitration that one would
expect in class action cases is the conflict between public policy goals. Requiring arbitration
would frustrate the ability of the class action to (a) promote judicial economy and (b) enable
small purchasers to have their day in court. While these arguments have not yet been fully
explored in antitrust cases, they have been rejected in analogous statutory contexts. Arbitration
agreements have led to the denial of class certification in cases involving violations of the Commodity Exchange Act, RICO, and the Truth-In-Lending Act.”).
220 Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).
221 Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 984 (9th Cir. 2007).
222 In re Am. Express Merchs.’ Litig., 554 F.3d 300 (2d Cir. 2009).
223 Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009).
224 Edwards, supra note 22, at 82.
219