In Feeney v. Dell, Inc., 454 Mass. 192 (2009), plaintiffs filed a putative class action claiming defendant computer manufacturer had violated Mass. Gen. L. ch. 93A, the Massachusetts unfair and deceptive practices statute, by collecting sales tax on plaintiffs’ purchase of service contracts when no such tax was actually due. Defendant, which was represented by Foley Hoag LLP, successfully moved to compel arbitration of the named plaintiff’s individual claims pursuant to a provision of the terms and conditions of sale mandating arbitration on an individual basis of any claim against defendant arising from the sale. After the arbitrator ruled for defendant on the merits, the trial court denied plaintiffs’ motion to vacate the arbitration award and to reconsider the initial order granting defendant’s motion to compel arbitration. Plaintiffs appealed and the Supreme Judicial Court granted their application for direct appellate review.
Plaintiffs first argued that the mandatory individual arbitration provision was unenforceable because it violated Massachusetts public policy. The court recited the legislative history of ch. 93A, particularly the 1969 amendments that first created a private remedy for unfair and deceptive acts and practices (previously, the attorney general had exclusive power to enforce the statute). The court reasoned that the amendments’ provisions for a statutory minimum damages amount, attorney’s fees, treble damages and class actions demonstrated a legislative purpose to provide a class-based remedy for small-value consumer claims that would be uneconomical to litigate on an individual basis. The court rejected defendant’s argument that the attorney’s fees and multiple damages provisions of ch. 93A were sufficient to vindicate a consumer’s right to seek relief for an individual small-value claim, reasoning that those provisions would not guarantee that the consumer would be able to attract counsel willing to prosecute the claim without the ability also to aggregate any relevant class of claims. The court added that the mandatory individual arbitration provision also violated public policy by undermining the public interest in preventing wrongdoing and negatively affecting not only the rights of the consumer who is compelled to arbitrate, but also those of the “unnamed class members” whose rights the consumer seeks to vindicate. The court made clear that it was the individualized nature of the mandatory arbitration, not the fact of mandatory arbitration itself, that violated public policy.
After determining that the arbitration provision violated Massachusetts public policy, the court next refused to enforce the terms and conditions’ choice-of-law provision requiring the application of Texas law, the law of the state where defendant was headquartered. The court noted that the mandatory individual arbitration provision would likely be upheld under Texas law, but held that Massachusetts’ interest in vindicating its “fundamental policy” favoring class actions for small-value consumer protection claims under ch. 93A was materially greater than Texas’ interest in minimizing corporations’ legal expenses, thus mandating application of Massachusetts law.
The court further concluded that its application of a public policy defense did not contravene the Federal Arbitration Act’s guarantee that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract,” because a public policy defense is a generally applicable tenet of contract law. Finally, in reaching the merits, the court concluded that defendant’s remitting the sales taxes it had collected on the service contracts to the Commonwealth of Massachusetts revealed that defendant’s collection of the taxes was motivated by a perceived legislative mandate and hence was not unfair or deceptive under ch. 93A, and accordingly ordered plaintiff’s complaint dismissed without prejudice.