In Feeney v. Dell, Inc., 465 Mass. 470 (Jun. 12, 2013) (“Feeney II”), plaintiffs filed a putative class action claiming the defendant computer retailer had violated Mass. Gen. L. ch. 93A (the Massachusetts unfair and deceptive practices statute) by collecting sales tax on class members’ purchases of service contracts when no such tax was legally due. Defendant, represented by Foley Hoag LLP, obtained an order compelling arbitration of the named plaintiff’s individual claims pursuant to sale terms that mandated arbitration of all claims on an individual basis. After the arbitrator ruled for defendant on the merits and the trial court dismissed the lawsuit, the Massachusetts Supreme Judicial Court (“SJC”) in Feeney v. Dell, Inc., 454 Mass. 192 (2009) (“Feeney I”) (see August 2009 Foley Hoag Product Liability Update), held the arbitration agreement violated Massachusetts public policy favoring classwide resolution of small-value consumer claims and therefore was unenforceable. The Court rejected the contention that such a rule was preempted by the Federal Arbitration Act (“FAA”), noting its section 2 savings clause provided an exception to the enforceability of arbitration agreements on “such grounds that exist at law or in equity for the revocation of any contract,” and holding that a public policy defense is such a ground.
Several years later, on remand to the trial court, defendant moved to reinstate the judgment of dismissal, arguing Feeney I had been overruled by the United States Supreme Court’s decision in Concepcion v. AT&T Mobility LLC, 131 S. Ct. 1744 (2011) (see July 2011 Foley Hoag Product Liability Update), which held the FAA preempts even generally applicable statelaw rules that are an obstacle to accomplishing the FAA’s objectives. The Court ruled that invalidating a class action waiver in an arbitration agreement frustrated the statute’s objectives of enforcing such agreements as written and permitting inexpensive and informal procedures to which class actions stood in contrast. After the trial court denied defendant’s motion, the Massachusetts Appeals Court granted interlocutory review and the SJC then granted direct appellate review.
The Court held the FAA does not preempt an arbitration agreement that effectively precludes a consumer from obtaining a remedy to which he is entitled, reasoning Congress had not intended to require enforcement of an agreement under such circumstances and therefore a state law rule rendering such an agreement unenforceable would not frustrate the statute’s objectives. The Court then ruled that the arbitration agreement at issue conferred on defendant “de facto immunity” from ch. 93A liability. The Court noted that the agreement lacked the consumer-friendly incentives that the agreement in Concepcion contained, which made arbitration a more attractive option than class litigation in that case. The Court also cited the complexity of plaintiffs’ sales tax claims, the small value of individual damages, the voluminous size of the record and the absence of mandatory fee-shifting (notwithstanding that ch. 93A does require fee-shifting in the event of a successful claim) as evidence that the plaintiffs could not practically vindicate their claims through individual arbitrations.
Shortly following the decision, defendant petitioned the SJC for rehearing in light of the United States Supreme Court’s opinion in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (Jun. 20, 2013), summarized above. The petition is currently pending.