Availability of class actions in arbitration.

• Author: Spero, Donald J.
• Position: Part 2

Part one of this article introduced the issues, analyzed the policies favoring class proceedings versus the policies favoring arbitration, and found that arbitration agreements are generally enforceable where a class claim can be brought. Part one also summarized rulings that hold that class proceedings may be held in arbitration, and that waivers of rights to proceed as class arbitration agreements are generally enforceable. However, the particular issue of cases involving de minimus recoveries has given the courts pause, and many courts have refused to send a case to arbitration, or have stricken a class proceeding waiver, where the de minimus nature of the individual recoveries makes arbitration unfeasible.

Part two will examine some additional cases and circumstances in which waivers have been enforced; analyze how courts determine the availability of class proceedings where not specifically addressed in the agreement; and provide some practice pointers regarding class issues in arbitration agreements generally.

Cases in Which Class Action Waivers Were Enforced

The cases enforcing class action waivers in arbitration agreements have largely rejected the various arguments relied on by the courts denying enforcement. The Seventh Circuit found an arbitration agreement enforceable in the plaintiff's action alleging violation of The Truth in Lending Act (TILA),(1) in Livingston v. Johnson, 339 F.3d 553, 559 (7th Cir. 2003). It disagreed with the plaintiff's contention that they would not get the full relief afforded by TILA. Upholding the bar against class actions, the court stated that "[t]he arbitration agreement here explicitly precludes the Livingstons from bringing class claims or pursuing 'class action arbitration,' so we are therefore 'obliged to enforce the type of arbitration to which these parties agreed which does not include arbitration on a class basis.'" (2)

In Fonte v. AT&T Wireless Services, Inc., 903 So. 2d 1019 (Fla. 4th DCA 2005), Florida's Fourth District Court of Appeal differed with the First District Court of Appeal's ruling in Powertell, Inc. v. Bexley, 743 So. 2d 570 (Fla. 1st DCA 1999), on the enforcement of a class action waiver in a FDUTPA action. In the view of the Fourth District, the unavailability of class actions "does not defeat any of the remedial purposes of FDUTPA." (3)

The Fonte court found nothing in the language or history of FDUTPA demonstrating that the act was conceived to confer a right to a class action that could not be waived. (4) There was no diminishment of the plaintiff's rights or remedies. They remained the same as they would be in a class action. Additionally, some claims may be brought in small claims court. Summarizing that an agreement is unenforceable as unconscionable only if it is both procedurally and substantively unconscionable, the court found the arbitration clause enforceable as it was not procedurally unconscionable. (5) The facts showed that the plaintiff was a sophisticated consumer who had shopped alternative providers before selecting AT&T. It distinguished Powertell factually because, in that case, the consumer was notified of the arbitration clause by a slip in a mailing containing the monthly bill. In the Fonte case the customer was given obvious notice at the inception of the contractual relationship and repeated notification thereafter. (6)

The Fourth Circuit found in Snowden v. Check Point Check Cashing, 290 F.3d 631 (4th Cir. 2002), that a clause in an arbitration contract barring class arbitration was not unconscionable. Snowden was an action under TILA and RICO (7) challenging a charge made by a check cashing service. The service paid the customer the amount of the check less a charge for holding it a given time before submitting the check for clearance. The court found that the waiver was not unconscionable as the statutory action allowed for the recovery of attorneys' fees by the plaintiff. (8)

The 11th Circuit has considered class action waivers in several cases. Randolph v. Green Tree Financial Corp., 244 F.3d 814 (11th Cir. 2001), held that a TILA arbitration could not proceed as a class action in the absence of a provision in the arbitration agreement allowing for class arbitration. The court...