The Debate Over Class Action Waivers

Following a landmark U.S. Supreme Court ruling on the subject last year, the debate over the enforceability of class action waivers contained in arbitration clauses continues.

In April of 2010, the Court decided the matter of AT&T Mobility LCC v. Concepcionand held that Section 2 of the Federal Arbitration Act (“FAA”) preempted a California appeals court ruling that classified most class action waivers in arbitration agreements as unconscionable and unenforceable. In addition to the fact that the Concepcion matter was fought with little evidence about the impact of the relevant class action waiver, the opinion by Justice Scalia is being heavily scrutinized by an increasing number of organizations that favor arbitration as a way to resolve disputes, especially when those who sign arbitration provisions also agree to give up their right to pursue class relief. Additionally, Justice Scalia’s opinion makes it clear that states cannot require procedures that are inconsistent with the FAA.

Concepcion does not directly address the relationship between the FAA and rights under other federal statutes. Some are of the belief that the U.S. Supreme Court (and other courts) will have varying perceptions of cases where there exists evidence that actually proves that class waivers frustrate the rights of consumers and others. In Concepcion, the only argument that was made was that the arbitration clause was unenforceable because it was extremely expensive.

The Supreme Court is unlikely to disregard the issue of whether Concepcion applies when evidence shows that parties would not otherwise be able to effectively vindicate their rights. The battle regarding the enforceability of class action waivers in arbitration clauses appears far from over.

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Richard B. Newman is an Internet Law Attorney at Hinch Newman LLP  (New York & California)
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