Arbitration Clauses as a Means to Banning Class Actions


Many corporations add to their


arbitration clauses terms that ban indi- viduals from bringing or participating in class action cases, either in court or in arbitration. These provisions are legal in Maryland, as both the Maryland Court of Appeals and the U.S. Court of Appeals have refused to protect consumers from such provisions. See Walther v. Sovereign Bank, 386 Md. 412, 872 A.2d 735 (2005); Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002). From the perspective of this author,


these class action bans mean that in Maryland (and other states where they are enforced) large segments of the business community are able to insulate themselves from meaningful legal ac- countability for many things that they may do. The well recognized reality is that many Americans cannot feasibly pursue certain types of claims, particu- larly cases where individual claims are too small and complex to be litigated by a private attorney. Class action suits allow consumers to pool their individual resources, which is crucial when going up against well-funded corporations. Barring some legislative change,


lenders, car dealers, computer manu- facturers, cell phone companies and a variety of other businesses have broad leeway to break consumer protection laws or their contracts in Maryland, so long as they only cheat consumers out of relatively small sums of money, cheat consumers out of money in ways that most consumers would not notice, or cheat consumers out of money in ways that would be very expensive for an individual to prove. Maryland law on this topic is unfor- tunate, because many other courts have


10


Scott v. Cingular Wireless, 2007 WL 2003404 (Wash. July 12, 2007); Discover Bank v. Superior Court (Boehr), 36 Cal. 4th 148, 113 P.3d 1100, Cal. Rptr. 3d 76 (2005); Ting v. AT&T, 319 F. 3d 1126 (9th Cir. 2003).


Fall 2007


The well recognized reality is that many Americans cannot feasibly pursue certain types of claims, particularly cases where individual claims are too small and complex to be litigated by a private attorney.


struck down these class action bans. The author has successfully argued cases in the California and Washington State Supreme Courts and the Ninth Circuit striking down such class action bans,10 and his firm has been co-counsel in cases in the New Jersey Supreme Court and the West Virginia Supreme Court of Appeals reaching the same result.11 In Walther, the Maryland Court of Ap- peals noted that it was following the “majority rule,” but since Walther has been decided the weight of authority


11


See Muhammad v. Cnty. Bank of Rehobeth Beach, 912 A.2d 88, 96 (N.J. 2006), cert. denied,.--- S.Ct. ----, 2007 WL 120665 (2007); and West Virginia ex rel. Dunlap v. Berger, 567 S.E.2d 265 (W. Va. 2002).


12


See Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006); Rollins, Inc., Garrett, 176 Fed.Appx. 968, 968-69 (11th Cir. 2006) (not striking a class action ban, but af- firming an arbitrator’s decision to permit an arbitration to proceed on a class action basis, and stating that “Under Florida law, a consumer contract that prohibits class arbitration is unconscionable because it preclude[s] the possibility that a group of its customers might join together to seek relief that would be impractical for any of them to obtain alone.”), citing Powertel, Inc. v. Bexley, 743 So.2d 570, 574 (Fla. App.1 Dist. 1999); Cooper v. QC Finan- cial Services, Inc., 2007 WL 974100 (D. Ariz. Mar. 30, 2007); Riensche v. Cingular Wireless LLC, 2006 WL 3827477 (W.D. Wash. Dec. 27, 2006); Doerhoff v. General Growth Properties, Inc., 2006 WL 3210502 (W.D. Mo. Nov. 6, 2006); Wong v. T-Mobile U.S.A., 2006 WL 2042512 (E.D. Mich. July 20, 2006) Kinkel v. Cingular Wireless L.L.C., 857 N.E.2d 250 (Ill. 2006); Witney v. Alltel Communic., Inc., 173 S.W.3d 300, 309 (Mo. Ct. App. 2005); Schwartz v. Alltel Corp., 2006 WL 2243649 at*6 (Ohio Ct. App. 2006); Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940, 948 (Or. Ct. App. 2007); Thibodeau v. Comcast Corp., 912 A.2d 874, 2006 PA Super 346 (Pa. Super. Ct. 2006); and Coady v. Cross Country Bank, Inc., -- - N.W.2d ---, 2007 WL 188993 (Wis.App. 2007).


Trial Reporter


has shifted substantially. Since that time, there has been a rush of new jurisdic- tions striking down (or recognizing the unenforceability of) class action bans, including the U.S. Court of Appeals for the First Circuit and the Eleventh Cir- cuit, a number of U.S. district courts, the Supreme Courts of Illinois, New Jersey and Washington State, and state appel- late courts in Missouri, Ohio, Oregon, Pennsylvania, and Wisconsin.12


The Abuse of Mandatory Arbitration by Debt Collectors


Most of the litigation surrounding


mandatory arbitration to date has re- lated to corporations using arbitration clauses as a shield against consumer law- suits. However, a new wave of litigation is arising out of a different phenomenon. A rapidly growing number of debts are being collected through arbitration – nearly all with the NAF – rather than through the court system. While it is hard to determine the exact magnitude of this secretive organization’s debt col- lection activity, some sources (such as discovery documents that have emerged in litigation, and reports from consumer lawyers about skyrocketing numbers of cases filed to confirm arbitration awards for creditors) indicate that the NAF is resolving literally hundreds of thousands of debt collection cases each year. This is a troubling trend for consumer


advocates. The NAF is a notoriously lender-friendly organization who openly advertises its services as being favorable to and more profitable for lenders and debt collectors than other arbitration companies. A very large body of an- ecdotal data indicates that the NAF’s arbitrators nearly always rule for lenders in the full amount that they demand.


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