by Mike Quirk
This is a followup to a panel presentation given at NCLC's Class Action Symposium in Miami earlier this week. Over the past year, consumers have continued to make progress fighting back against companies that impose mandatory arbitration clauses banning arbitral awards of class-wide relief. Consumers prevailed on challenges to these clauses before the U.S. Court of Appeals for the First Circuit and the State Supreme Courts of Illinois and New Jersey. The carefully reasoned decisions of these three courts give consumers the chance to assert federal and state law claims that the class bans would have extinguished.
While these decisions represent important victories for consumers, none is an unqualified victory. For consumers and their advocates who continue to encounter these clauses, there are at least two important lessons to be taken from the recent appellate decisions. First, none of these courts holds that class arbitration bans in consumer contracts are per se unenforceable. Rather, the decisions invalidating the bans turn on particular characteristics of the claims that were before each court. Second, in assessing the validity of these class bans and whether it would be prohibitive for consumers to bring claims individually, each of the three courts was influenced by different factors. What follows is a short overview of these decisions to hopefully guide consumers and advocates who will need to rely on these cases as companies continue to hide behind these class arbitration bans.
The most important of the recent cases striking these bans is Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). Kristian is the first published federal circuit court opinion outside of the Ninth Circuit to invalidate a class arbitration ban. Kristian held that Comcast's class arbitration ban was unenforceable because it would prevent consumers from vindicating their federal and state antitrust law claims challenging the company's use of asset-swapping agreements to preserve local monopolies in the cable television market. The court was swayed in large part by the plaintiffs' submission of three expert affidavits from antitrust practitioners showing that it would cost consumers hundreds of thousands of dollars in up-front expert costs and perhaps millions more in attorney fees to carry their burden of proof on these claims. The class ban would have forced individual consumers to bear these exorbitant costs in order to vindicate claims worth no more than a few thousand dollars. Based in part on this evidence, the First Circuit distinguished cases by four other circuit courts that enforced class arbitration bans in consumer contracts.
In Kinkel v. Cingular Wireless, LLC, __N.E.2d__, 2006 WL 2828664 (Ill. Oct. 5, 2006)--which was previously discussed here in this prior post by Scott Nelson--the Illinois Supreme Court held that Cingular's class arbitration ban was unconscionable under state contract law as its application would prevent consumers from challenging the company's $150 early-termination fee as an unlawful penalty. The court relied primarily on two factors in invalidating the class ban. The first was the fact that consumers would have to pay an up-front filing fee of $125 to vindicate a claim worth barely any more than that. The second was that they would also have to find representation by an attorney to vindicate these small-value claims because the complexity of a legal challenge to an excessive liquidated damages clause would be beyond the grasp of most pro se litigants.
Finally, in Muhammad v. County Bank of Rehoboth Beach, Del., 2006 N.J. LEXIS 1154 (NJ Aug. 9, 2006) (in which this poster was counsel of record for Plaintiff-Appellant Jaliyah Muhammad), the New Jersey Supreme Court held that a class arbitration ban in an adhesive consumer contract for high-interest payday loans was unconscionable under state law. In Muhammad, the plaintiff challenged a "rent-a-bank" scheme where payday lenders sought to evade the state's usury limits by making payday loans in the name of a Delaware Bank (which is allowed under federal law to "export" Delaware's lack of an interest cap to any state where the bank does business). To prevail on her claims alleging usury by the local companies and state RICO violations by the bank for aiding and abetting usury, she would have to prove that the non-bank defendants were the actual lenders in these transactions, notwithstanding the loan documents naming the bank. Her actual damages were approximately $180. The New Jersey Supreme Court held that the class arbitration ban was unconscionable because it would prevent consumers from vindicating small-value claims under the state's consumer protection statutes. The court held that "[t]he public interest at stake in [Muhammad's] ability and the ability of her fellow consumers effectively to pursue their statutory rights under the State's consumer protection laws overrides the defendants' right to seek enforcement of the class-arbitration bar in their agreement."
Each of these cases represents a significant step forward for consumers. But each also raises questions about future cases. For example, would Muhammad's "public interest" analysis for consumers' statutory claims also apply to or provide a basis for distinguishing cases involving small-value common law claims? Would Kinkel's "complexity" analysis allow companies to enforce a class arbitration ban against customers challenging small-value double-billing practices that are identifiable on the face of a billing statement? Would Kristian's holding apply outside of the antitrust law context where a consumer's up-front costs might not rise into the millions of dollars, but still would exceed the value of their claims? This latter question is now before the First Circuit in the case of Anderson v. Comcast Corp., No. 06-2165/2203, which involves claims that Comcast illegally billed customers for unnecessary equipment rentals without obtaining their affirmative assent, as applicable law requires.
These and other questions will force consumers and their advocates to keep on struggling just to assert their claims for class-wide relief challenging recidivist corporate wrongdoing. Thus, while the Kristian, Kinkel, and Muhammad decisions mark substantial steps forward for consumers and their advocates, they are still only a steps towards the doorway and do not get us completely inside to where we have the right to assert our claims unimpeded by overreaching company contracts.