Anti-Consumer Arbitration Decision: US Supreme Court

US Supreme Court Decision on Arbitration
Recently, the US Supreme Court decided a significant arbitration case. The issue is whether or not the Federal Arbitration Act permitted the waiver of class action claims in a consumer contract. At the state level under the state laws, the states were divided as to whether or not a consumer could waive the right to a class action. Specifically, under New Jersey Law, the Supreme Court had held that the waiver of class action claims under certain circumstances were unconscionable. Thus, even if a selling dealer or manufacturer had a class action provision in the contract prohibiting the plaintiff to participate in a class action, this “clause” was not enforceable as part of the contract. There are specifically two cases, which were entitled “Delta Funding” and “Mohammad.”

The US Supreme Court held, however, that the policy underlying the Federal Arbitration Act and the expeditious resolution of disputes took precedence over the public policy behind class actions. In addition, the Court held that class actions could not be appropriately handled in the arbitration contacts. As an example, if there was an arbitration clause but no waiver of class action, various attorneys could potentially or were within the right to file a class action in the arbitration forum. JAMS and AAA had their specific provisions for arbitrating class actions. The Supreme Court held that the risks of mistakes were too great and thus determined that class actions could not be arbitrated.

In essence, the class action in the context of a Consumer Agreement is a thing of the past unless there is contrary legislation. The Supreme Court in essence felt that the policy underlying arbitration was sufficient to warrant the waiver of class actions; however, it was not ready to say that the arbitration forums are ready to handle class action arbitration.