Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—MassSupJudCt: Class Waiver Invalidated Based on Complexity and Amount of Damages at Issue, (Jun 12, 2013)

By Jody Coultas, J.D.

An arbitration agreement between computer purchasers and Dell Inc. was invalidated by the Massachusetts Supreme Judicial Court because the purchasers would not be able to pursue their Massachusetts Consumer Protection Act (CPA) claim under the individual claim arbitration process required by the arbitration agreement (Feeney v. Dell Inc., June 12, 2013, Cordy, R.).

The court distinguished this case from AT&T Mobility LLC v. Concepcion, 131 S.Ct.1740 (2011), in which the Supreme Court held that the Federal Arbitration Act (FAA) preempts state laws that stand in the way of accomplishing the FAA’s objectives.

Computer purchasers alleged that Dell mischaracterized charges as lawful sales taxes on purchases of optional service contracts for computers in violation of the CPA. The purchasing contract contained a clause requiring that all claims be resolved by arbitration and prohibiting class claims. Although an arbitrator compelled arbitration, the court reversed the order and invalidated the clause. The court held that the arbitration clause contravened Massachusetts public policy. While on remand, Concepcion was handed down, and Dell renewed a motion to confirm an arbitration award of dismissal with prejudice.

Concepcion overturned a California rule that most collective-arbitration waivers in consumer contracts were unconscionable, noting that the rule impermissibly interfered with the purpose of the FAA. The Supreme Court also held that the FAA did not envision class arbitration and class arbitration may not be required by state law. Although small-value claims may slip through the cracks in the absence of class proceedings, the Court noted that states cannot require procedures that are inconsistent with the FAA based on such policy concerns.

A number of cases following Concepcion have noted that the savings clause was not invalidated by the decision, and that there were circumstances where an agreement containing a class waiver may be voided. Section 2 of the FAA, the savings clause, permits invalidation of arbitration agreements by applicable contract defenses, but not defenses that apply only to arbitration. The issue in these cases is whether a state court’s invalidation of an arbitration agreement that precludes consumers from obtaining a remedy to which they are entitled stands as an obstacle to the accomplishment of the FAA.

The court noted that there was not an irreconcilable conflict between the FAA’s interest in ensuring the enforceability of arbitration agreements and a state’s interest in voiding contracts that create de facto immunity for violations of state law merely because that immunity was procured through the arbitration clause.

Dell’s renewed motion to confirm the arbitration award of dismissal of the claims was denied by the court, based on its holding that Concepcion did not completely preclude the invalidation of a class waiver provision in arbitration clauses in consumer contracts. The court noted that there was a difference between class claims that may slip through the cracks because a party chooses not to prosecute and those claims that a party chooses to bring but cannot. In Concepcion, the arbitration clause ensured that the Concepcion could bring claims on an individual basis. A class waiver may be invalidated pursuant to the FAA’s savings clause because it violates the public policy against agreements that immunize businesses from private civil liabilities for consumer injuries, rather than a public policy that favors class actions.

In this case, the court concluded that the arbitration agreement and class waiver rendered their claims “nonremediable.” The purchasers met their burden of showing that the complex nature of the claims and small damages precluded them from bringing CPA claims on an individual basis as required by the arbitration clause.

The case is No. SJC-11133.

Attorneys: Edward D. Rapacki (Ellis & Rapacki LLP) for John A. Feeney. John A. Shope (Foley Hoag LLP) for Dell Inc.

Companies: Dell Inc.

Cases: StateUnfairTradePractices MassachusettsNews