In Korea Week , Inc. v. Got Capital, LLC, the Eastern District of Pennsylvania (Kearney, J.) held that a freestanding class action waiver—that is, a waiver that was “independent and outside of an arbitration agreement”—was enforceable and that it rendered the plaintiffs inadequate class representatives. The plaintiffs, a group of Asian-American small businesses who entered into merchant cash advance (“MCA”) financing arrangements with the defendants, alleged that the defendants were engaged in loan sharking, predatory lending, and money laundering. Those small business owners asserted civil RICO claims on behalf of a putative class of small businesses that obtained similar financing arrangements. Each of the named plaintiffs’ MCA agreements included a clause stating that the plaintiff “waives any right to assert any claims against [the defendant] as a representative or member in any class or representative action.” The court held that this language precluded the plaintiffs from serving as adequate class representatives. In so doing, the court rejected the plaintiffs’ argument that a class action waiver is substantively unconscionable when executed outside the context of an arbitration clause. The court rejected the argument that the Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant was “limited to arbitration agreements with class action waivers,” as opposed to freestanding waivers executed outside the context of an arbitration agreement. Instead, it determined that such a waiver is enforceable so long as (1) the waiver is not “unconscionable under the applicable state law” and (2) there is no evidence of “legislative intent or policy reasons weighing against enforcement of such a waiver.” Applying this test, the court held that the waiver was enforceable. It held that there was no evidence that the waiver was either procedurally or substantively unconscionable, nor “any reason to interpret RICO as encouraging class actions.” Accordingly, because “each of the named plaintiffs agreed not to file a class action,” the court concluded that “they cannot now be the named plaintiffs charged with representing unnamed merchants” and denied class certification.

Korea Week Inc. v. Got Capital, LLC, No. 15-6351, 2016 WL 3049490 (E.D. Pa. May 27, 2016).