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Supreme Court Enforces Class Action Waiver; California law invalid

On April 27, 2011, the U.S. Supreme Court ruled that the Federal Arbitration Act (the “FAA”) preempts the California law striking as unconscionable any consumer contract provision that waives the right to bring a class action lawsuit. According to the legal press, AT&T Mobility LLC v. Concepcion, et ux. has caused an “earthquake” that has severely shaken the foundation of consumer class action bar.1 Plaintiffs’ lawyer Elizabeth Cabraser described the Concepcion case as the Supreme Court’s endorsement of “small-print tactics used by banks, credit card companies and service providers to prevent their customers from fighting back when products fail, hidden charges are imposed and services are not as advertised.”2 Defense lawyers predict a shift from large class action lawsuits and class-wide arbitrations to more individual arbitrations and expansion of class waivers beyond consumer contracts for telephone, internet, and financial services. Some plaintiffs’ class action attorneys are already focusing on new ways to persuade courts to invalidate arbitration clauses on grounds other than unconscionability. Defense lawyers expect class action lawsuits to continue unabated as plaintiffs’ lawyers adjust their strategies and tactics in light of Concepcion.

On the same day, April 27, the Supreme Court also issued Stolt-Nielsen S.A. et al. v. AnimalFeeds Int’l Corp. In Stolte-Nielsen, the Circuit court required the class plaintiffs to arbitrate their price-fixing claims against “charter parties” – the shippers of small-quantity lots of commercial products – in a class-wide arbitration. The Supreme Court reversed, holding that courts may not compel class arbitration in charter-party contracts that include arbitration of dispute provisions, but make no mention of how class-wide disputes are to be resolved.

The blogosphere and legal press are each abuzz with hyperbolic commentary about the Concepcion/Stolte-Nielsen decisions. When the dust settles, the Concepcion/Stolte-Nielsen decisions will likely:

  • All but eliminate class-wide arbitrations of consumer disputes relating to contracts for communications and media services, financial services, and securities.
  • Encourage defense lawyers to bring motions to compel arbitration, which will cause some .pending consumer class action lawsuits to be stayed pending arbitration.
  • Give rise to Congressional efforts to amend the FAA or otherwise overturn the Concepcion and Stolt-Nielsen cases.
  • Encourage corporations to incorporate arbitration provisions and class action waivers into employment contracts and into a broader range of consumer service and product contracts.
  • Increase the number of individual arbitrations involving consumer claims arising from contracts for communications and media services, financial services, and securities.
  • Provide corporations that serve consumers and employers a brief respite from class action lawsuits while the plaintiffs’ bar regroups and adjusts their tactics to a post-Concepcion class action environment.

Companies that want to take advantage of the Concepcion/Stolte-Nielsen holding should consider having an attorney review the current forms of employment, consumer and business contracts to determine whether the addition of an arbitration provision and class-action waiver may be advantageous as a proactive, low-cost way to reduce litigation exposure.

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Jeffrey M. Judd, the managing partner of Judd Law Group, is a 20-year veteran and former partner of O’Melveny & Myers LLP. Mr. Judd has successfully defended major corporate clients – which include Merck & Co., Inc., Ford Motor Co., and Johnson & Johnson, among others – in class action and mass tort cases throughout the country. In addition, Judd has represented numerous clients in dozens of arbitrations and mediations. Judd was recently inducted as a Member in the Chartered Institute of Arbitrators, which certifies a depth of knowledge and expertise in arbitration and mediation.  Judd Law Group aimsto be the go-to firm for companies at every stage of growth that require the experience, judgment, and quality of a big-firm, but want the service, affordability, and personal attention of a boutique.

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