It will soon be safe for companies using pre-dispute arbitration provisions in their consumer contracts to once again include JAMS as an administrator, along with the AAA and the NAF.

Effective May 1, 2009, JAMS will not administer a demand for classwide arbitration until a court invalidates a class action waiver and orders classwide arbitration. Ballard Spahr for several years has urged its clients not to designate JAMS as an administrator in consumer arbitration agreements while urging this ADR provider to change its classwide arbitration policy.

In November 2004, JAMS announced out of the blue that class action waivers were anti-consumer, that it would not enforce them in connection with a demand filed with JAMS for classwide relief, and they would be severed from the rest of the arbitration provision. JAMS also said that it would then administer the case as a putative class arbitration.

In a case in which Ballard was involved, a JAMS arbitrator actually ignored a Federal District Court order that upheld the validity of a class action waiver and compelled individual arbitration.  It was not until the same court issued another order instructing the plaintiff not to pursue classwide relief that the JAMS arbitrator acceded. (Gipson v. Cross Country Bank, 354 F. Supp. 2d 1278 (M.D. Ala. 2005); Kaplinsky & Levin, "Is JAMS in a Jam Over its Policy Regarding Class Action Waivers in Consumer Arbitration Agreements," 61 Bus. Law. 923, 923-24 n. 1 (Feb. 2006)).

The resulting hue and cry drove JAMS to withdraw that policy and substitute another policy,  which, although not as troubling, was still problematic. That policy instructed JAMS arbitrators to follow "applicable law" in determining the validity of class action waivers. Under this policy, JAMS arbitrators would certainly follow any court order. However, absent such an order, an arbitrator was instructed to determine, on his or her own, whether to honor the class action waiver, whether to sever it, and whether to entertain classwide arbitration. The policy left too much discretion to a JAMS arbitrator to resolve matters that are gateway issues for the court.

The new policy, which takes effect next month, addresses concerns over the previous two policies. It states: "JAMS will not administer a demand for class action arbitration when the underlying agreement contains a class preclusion clause, or its equivalent, unless a court orders the matter or claim to arbitration as a class action." As a result, Ballard is now advising clients to consider adding JAMS as an additional administrator in their consumer arbitration agreements.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs); its guidance in structuring and documentation of new consumer financial services products; and its experience with the full range of federal and state consumer credit laws throughout the country. For further information, please contact Alan S. Kaplinsky, Chair of the Group, 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, Vice Chair of the Group, 215.864.8505 or rosenblum@ballardspahr.com; or Mark J. Levin, 215.864.8235 or levinm@ballardspahr.com.


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