Arbitration Clauses Seek To Ban Class Action Arbitration

In the case of Green Tree Financial Corp. v. Bazzle, 123 S.Ct. 2402, (2003) the U.S. Supreme Court opened the doors to class action arbitrations. The Court held that if an arbitration clause is silent regarding class actions, it’s up to the arbitrator (applying state law) to decide whether class arbitration will proceed.
Banks, credit companies and employers which traditionally have favored mandatory arbitration clauses, have been adding waivers to arbitration contracts specifically exempting class actions from arbitration. Consumer lawyers have responded by challenging the waivers in both state and federal court.
Historically, consumer rights lawyers have opposed clauses in consumer and employment contracts that mandate arbitration to resolve disputes, claiming that the binding nature of arbitration violates plaintiffs’ due process rights. But given the choice between no class action and class action arbitration, consumer attorneys obviously favor the clauses.
According to Public Justice, a pro-consumer lawyers group, class action bans have been successfully challenged in several states:
The California Supreme Court held earlier this year held that a class action arbitration waiver might be contrary to public policy (Gentry v. Superior Court, 165 P.3d 556).
The Washington Supreme Court last year struck down Cingular Wireless’s class action arbitration ban as “unconscionable” under state law. (Scott v. Cingular Wireless LLC, 161 P.3d 1000).
The New Jersey Supreme Court held in 2006 that a provision in an arbitration agreement prohibiting class actions was unconscionable, but severable, so that the plaintiff may pursue class-wide arbitration. (Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88).
Public Justice also points out that arbitration clauses have been struck down as unconscionable by many courts, including the 9th Circuit; U.S. District Courts in Arizona, California, Florida, Massachusetts, Michigan, Missouri, and Washington; state high courts in Alabama, California, Illinois, New Jersey, Washington, and West Virginia; and state appellate courts in Florida, Missouri, Ohio, Oregon, Pennsylvania, and Wisconsin.
However, many other state courts have upheld arbitration ban clauses. These include Colorado, Delaware, Georgia, Hawaii, Louisiana, Maine, Maryland, Michigan, Mississippi, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Utah and the District of Columbia.
Both sides expect that either Congress or the U.S. Supreme Court will eventually have to step in to determine the legality of class action arbitration bans.