Class Actions - Thomas M. Byrne

• Jurisdiction: United States,Federal
• Publication year: 2006
• Citation: Vol. 57 No. 4

Class Actions

Thomas M. Byrne^*

After an eventful 2004, in which the Eleventh Circuit Court of Appeals explored in depth¹ the class certification requirements of Rule 23 of the Federal Rules of Civil Procedure,² the court's 2005 docket presented more threshold questions concerning whether or not putative class actions could proceed past the pleading stage. The court's most important class action decisions during the year addressed the efficacy of contract provisions designed to preclude class actions in favor of individual arbitration proceedings. This issue is among the most controversial in class action law, as many businesses have turned to using standard arbitration provisions to curtail class action and other litigation exposure, and courts are divided on the outcomes.³

In Jenkins v. First American Cash Advance of Georgia, LLC,⁴ the court considered an appeal from a district court's determination that arbitration agreements signed by a borrower of a so-called "payday" lender were unconscionable.⁵ The plaintiff alleged violations of Georgia's usury statutes⁶ and the Georgia RICO Act⁷ and brought a putative class action against the bank and the servicer in Georgia state court.⁸ After removal, the defendants sought to enforce arbitration agreements signed by the plaintiff.⁹ The arbitration agreements included a class action waiver that provided: "THE ARBITRATOR SHALL NOT CONDUCT CLASS ARBITRATION; THAT IS, THE ARBITRATOR SHALL NOT ALLOW YOU TO SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY FOR OTHERS IN THE ARBITRATION."¹⁰ The district court found that this provision, coupled with a lack of "mutuality of obligation,"¹¹ made the agreements unconscionable under Georgia law and thus unenforceable.¹²

After determining that it had jurisdiction to consider the appeal,¹³ the Eleventh Circuit dealt with an important threshold question concerning whether the unconscionability issue was for the court or for an arbitrator to decide.¹⁴ The court concluded that it should apply the doctrine of Prima Paint Corp. v. Flood & Conklin Manufacturing Co.¹⁵ to resolve this issue.¹⁶ The court explained that Prima Paint "distinguished between claims that challenge the contract generally and claims that challenge the arbitration provision itself."¹⁷ In Prima Paint, which concerned a claim that a contract was fraudulently induced, the Supreme Court concluded that the fraud claim related to the contract generally and not to the arbitration provision specifically; therefore, the unconscionability issue was for the arbitrator to resolve.¹⁸ Applying Prima Paint in Jenkins, the Eleventh Circuit held that the arbitrator would have to resolve any claim of procedural unconscionability directed to whether or not the underlying contracts were adhesion agreements.¹⁹ The court concluded that the class action waiver that was included in each of the arbitration agreements at issue concerned the arbitration agreements themselves rather than the underlying loans and, thus, should be considered by the court.²⁰ But the court rejected the argument that the arbitration agreements were unenforceable.²¹ The court noted that it had previously held that a contractual provision to arbitrate was enforceable even if its effect would be to preclude the plaintiff from bringing a class action.²² The court also characterized as "unfounded" the district court's conclusion that consumers would be unlikely to obtain legal representation without the availability of the class action vehicle.²³ The court pointed out that the Georgia RICO statute allowed a prevailing party to recover attorney fees and costs.²⁴ The court concluded that "precluding class action relief will not have the practical effect of immunizing [the defendants]."²⁵

Also significant in Jenkins was the court's rejection of the plaintiff's argument that there was nothing to arbitrate because the underlying loan contracts were illegal and void under Georgia law.²⁶ The court noted that the Prima Paint rule would also apply to allegations of illegality as to the underlying loans. Therefore, the arbitrator would need to consider and determine that issue.²⁷ In so holding, the court correctly anticipated the Supreme Court's recent decision in Buckeye Check Cashing, Inc. v. Cardegna,²⁸ where the Court held that the arbitrator should decide the illegality issue.²⁹

In Caley v. Gulfstream Aerospace Corp.,³⁰ the Eleventh Circuit enforced another class action waiver, this time in an employment context.³¹ In Caley employees of Gulfstream brought two related class actions against the company under the Fair Labor Standards Act,³² the Age Discrimination in Employment Act,³³ and the Employee Retirement Income Security Act,³⁴ among other claims.³⁵ In response to the complaints, the defendants moved to compel arbitration pursuant to a "dispute resolution policy" (the "DRP") that Gulfstream had adopted during the plaintiffs' employment. The company mailed the DRP to its employees and distributed the DRP electronically on the company's intranet and by e-mail. The employees were informed that, after its effective date, agreement to the DRP would be a condition of continued employment. The DRP provided that continuation of employment would be deemed an acceptance of the policy, with no requirement of signature by any employee. The DRP defined its "covered claims" as employment-related claims including involuntary terminations, tort claims, and contract claims, but it excluded certain other claims.³⁶ A subsequent amendment to the DRP provided that the employee agreed that no covered claim could be brought as a class or collective action.³⁷

The district court entered an order granting the defendants' motions to compel arbitration and dismissed the plaintiffs' cases. On appeal, the plaintiffs made numerous arguments concerning the enforceability of the DRP under the Federal Arbitration Act.³⁸ First, the plaintiffs argued that a signature was required by both parties to constitute an "agreement in writing" under the FAA.³⁹ The court's response was to "readily conclude that no...