Weighing in on an important issue affecting the enforceability of express class action waivers in consumer arbitration agreements, an en banc panel of the U.S. Court of Appeals for the Third Circuit has held that a court, not an arbitrator, should decide a plaintiff’s unconscionability challenge to the waiver.
In its opinion in Puleo v. Chase Bank USA, N.A., issued May 10, 2010, the Court found that parties can assign this issue to the arbitrator by including clear and unmistakable language in their arbitration agreement, but the Puleo arbitration agreement did not do so.
Interestingly, the Court did not note the pendency of Rent-A-Center, West v. Jackson, which the U.S. Supreme Court is expected to decide this term. The issue in Jackson is whether a court or an arbitrator should decide if an arbitration agreement is unconscionable when the parties specifically assigned that issue to the arbitrator. The U.S. Court of Appeals for the Ninth Circuit had ruled that a court can decide the issue notwithstanding the agreement language. 581 F.3d 912 (2009). (Click here to read an earlier Ballard Spahr legal alert on Puleo and Jackson.)
The Third Circuit joined a host of other circuit courts in ruling in Puleo that "an unconscionability challenge to the provisions of an arbitration agreement is a question of arbitrability that is presumptively for the court, not the arbitrator, to decide."
We have recommended for years that companies using arbitration provisions in their consumer contracts authorize only a court, never an arbitrator, to determine the validity of a class action waiver. That recommendation stems from the very limited grounds under the Federal Arbitration Act upon which courts will reverse decisions by arbitrators.