On August 2, 2012, General Electric Capital Corporation (“GE”) was sued in California Federal Court for allegedly violating the Telephone Consumer Protection Act (“TCPA”). Exactly one year later, on August 2, 2013, the court stayed the action and directed the plaintiff to participate in arbitration to resolve her individual TCPA claims against GE.
Background of the GE TCPA Case
The plaintiff, Karin O’Brien, opened a Lowe’s credit card account with GE. She defaulted on her credit card payments, after which GE placed at least fifty (50) telephone calls to Plaintiff’s mobile, or cellular, phone and a number of additional calls to Plaintiff’s landline and work phones. These calls were made by means of an automatic telephone dialing system, or autodialer. (It does not appear that the calls used an artificial or prerecorded voice based on the allegations set forth in the complaint.) Plaintiff claimed that because she never gave GE express consent to call her cell phone and verbally instructed GE and its agents to stop calling her, GE negligently and/or willfully violated the TCPA.
Plaintiff seeks to certify a class of persons nationwide who received a non-emergency telephone call from GE to a cellular telephone during a four year period through the use of an autodialer and/or an artificial or prerecorded voice and who did not provide prior express consent for such calls.
GE filed a motion to dismiss the class allegations in the complaint, stay the action and compel Plaintiff to proceed with binding arbitration pursuant to the parties’ credit card agreement.
The Contract and its Arbitration Requirement
When Plaintiff opened her credit card account with GE, she received a credit card agreement that provided that all claims relating in any way to Plaintiff’s credit card account (or Plaintiff’s relationship with GE) would be resolved by binding arbitration. Plaintiff had the option of opting out of the arbitration clause within sixty (60) days of opening her account. She was notified that if she did not opt out, the arbitration clause could limit her right to litigate in court and participate as a member or representative of a class action lawsuit. A later change in terms included a waiver of Plaintiff’s right to pursue class actions in arbitration, but added a provision that required GE to pay all arbitration fees (as long as Plaintiff acts in good faith) and Plaintiff’s legal fees and costs if Plaintiff prevails in arbitration. Plaintiff apparently never opted out of arbitration.
The California Court’s Decision
The Southern District of California effectively had two motions before it: (1) dismissal of the class allegations; and (2) stay of the action to compel Plaintiff to participate in arbitration of her individual claims. The court denied GE’s motion to dismiss without prejudice because it was premature. The court held that it would be inappropriate to resolve class claims so early in the litigation at the pleading stage.
However, the court was persuaded by GE’s motion to stay the action and compel arbitration. As a preliminary matter, the parties did not dispute that Plaintiff’s credit card agreement contained a binding arbitration provision. The dispute arose over the applicability of that provision to Plaintiff’s claims in the action. Plaintiff maintained that her claims did not arise from or relate to the credit card account because they were tort claims independent from the contract. In opposition, GE cited authority holding that TCPA claims are subject to a contractual agreement to arbitrate. The court agreed with GE, holding that the arbitration provision encompassed Plaintiff’s claims, and sent the case to binding arbitration.
The Foreseeable Future
While the California court denied dismissal of the class action claims and stayed the action so that arbitration could proceed as to the individual claims, this decision effectively will terminate the action if Plaintiff’s attorneys cannot locate a suitable replacement plaintiff. To explain, the binding arbitration ultimately will resolve all of Plaintiff’s individual claims against GE that were raised in the action. Therefore, Plaintiff will either win –the arbitrator will determine that GE violated the TCPA and will direct GE to pay Plaintiff a sum certain – or Plaintiff will lose and GE will be off the hook. In both scenarios, Plaintiff will no longer be able to serve as the representative of a class of individuals because her claims will have been adjudicated. Class counsel will have to amend its complaint and replace Plaintiff with a similarly-situated individual who can serve as representative of the class that counsel seeks to certify against GE. Since counsel maintains that this class is so numerous (and therefore appropriate to proceed as a class action), it should not be a difficult challenge. In our experience, however, such cases often fizzle out. This especially may be the case here because GE likely has the same arbitration provision in every similarly-situated consumer’s credit card agreement. Thus, who can serve as a class representative against GE if this court will send his or her individual claims to binding arbitration?