Consumer arbitration has been an important tool for controlling class action exposure, at least until the states began to fiddle and find waivers of class action clauses unconscionable. The U.S. Supreme Court has turned its focus on class action waivers and may be primed to rule that the Federal Arbitration Act preempts state laws that preclude the enforceability of class action waivers. On April 27, 2010, in a 5-3 decision, the U.S. Supreme Court held that the Federal Arbitration Act does not allow class arbitrations absent an agreement between the parties in their arbitration clauses. Stolt- Nielsen S.A. v. AnimalFeeds Int’l Corp., No. 08-1198 (U.S. Apr. 27, 2010). The Court held that parties must individually arbitrate a dispute when an arbitration agreement is silent on the issue: “[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”
On May 3, 2010, the Court vacated and remanded for further consideration in light of Stolt-Nielsen, a decision by the Second Circuit that held that a class action waiver was unenforceable. American Express Co. v. Italian Colors Rest., No. 08-1473, 2010 U.S. Lexis 3744 (U.S. May 3, 2010). In American Express, the Second Circuit considered evidence demonstrating that the size of the recovery received by any individual plaintiff would be too small to justify the expenses of bringing an individual action, and held that enforcing the class action waiver would thus grant American Express de facto immunity from liability. On remand, the Second Circuit is tasked with considering Stolt-Nielsen’s ruling that express consent is required before class arbitration can be imposed. Given that the American Express arbitration agreement expressly excludes class arbitration, it is certainly possible that the Second Circuit will find that no class arbitration can be imposed.
On May 24, 2010, the Supreme Court granted cert in AT&T Mobility, LLC v. Conception, No. 09-893, in which it will consider whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of class-wide arbitration when class-wide arbitration is not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. Feeling hopeful about the future enforceability of class action waivers? Stay tuned.