A recent Florida appellate court opinion invalidating a class action waiver in an arbitration agreement underscores the need for companies to ensure that their consumer arbitration agreements include consumer-friendly features that will enable consumers to retain competent counsel to represent them in individual arbitrations.

In McKenzie v. Betts, the Florida Fourth District Court of Appeal affirmed the trial court denial of a motion by McKenzie Check Advance to compel arbitration of the named plaintiffs’ claims asserted under various Florida statutes. The Court concluded in a decision issued February 2, 2011, that the class action waiver in McKenzie’s arbitration agreement was against public policy, noting that (1) “[t]he record below supports the trial court’s conclusion that consumers would not be able to obtain competent counsel in their actions against McKenzie for allegedly usurious rates on its payday loans if the claims could not be brought as a class action”; and (2) it “would ban the borrower from being a member of a class action suit, even one initiated by an ‘enforcing authority’ contemplated by statute. This result would prevent a consumer from vindicating the rights that consumer protection statutes are designed to create and nurture.”

Because its opinion is contrary to other Florida Courts of Appeal opinions enforcing class action waivers (See Fonte v. AT&T Wireless Services, Inc., 903 So. 2d 1019 (2005) and Reeves v. ACE Cash Express, Inc., 937 So. 2d 1136 (2006)), the McKenzie Court asked the Florida Supreme Court to decide the issue and resolve the contrary holdings of the Florida Courts of Appeal. That is the step taken by the U.S. Court of Appeals for the 11th Circuit last year in Pendergast v. Sprint Nextel Corp., 592 F.3d 1119 (2010), a case that has been briefed and argued and awaits a decision by the Florida Supreme Court.

The Court in McKenzie did not address whether the Federal Arbitration Act (FAA) preempts its conclusion under Florida law that the class action waiver violates public policy, presumably because the defendants did not raise the issue. The U.S. Supreme Court will soon issue its decision in AT&T Mobility v. Concepcion, which will decide if and the extent to which the FAA preempts state law invalidating a class action waiver, so readers should stay tuned. (Click here to read an earlier legal alert on that case.)

Although the Florida statutes implicated in McKenzie contained fee-shifting language requiring the award of reasonable attorney fees to a prevailing consumer, consumers were not afforded the right to opt out of the arbitration provision. Also, the arbitration provision did not contain the consumer-friendly “bump-up” feature contained in AT&T’s arbitration provision, which provides that if the arbitrator issues an award in the customer’s favor that is greater than the value of AT&T’s last written settlement offer made before an arbitrator was selected, then AT&T will pay the amount of the award or $7,500, whichever is greater. In such a case, the AT&T arbitration agreement also specifies that AT&T will pay double attorney fees.

The outcome of McKenzie may have been different if McKenzie’s arbitration provision had contained both opt-out and “bump-up” features, so companies using arbitration agreements in Florida should consider revising them to include those features. Also, companies may want to revise the class action waiver language to ensure that it will not be construed by a court as precluding a government enforcement agency from obtaining class relief.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its skill in defending banks and other consumer financial services providers in class actions filed in state and federal courts throughout the country and in litigation avoidance (including pioneering work in pre-dispute arbitration programs). For further information, please contact Group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; or Mark J. Levin, 215.864.8235 or levinmj@ballardspahr.com.

Copyright © 2011 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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