In a 2007 decision, Gay v. CreditInform, the Third Circuit Court of Appeals concluded that the Federal Arbitration Act (FAA) preempts the Pennsylvania Superior Court’s ruling in Thibodeau v. Comcast Corp. that class action waivers in consumer arbitration agreements are unconscionable. Although subsequent Third Circuit decisions suggested that Gay’s analysis was dictum, the Third Circuit has now confirmed, in a precedential opinion, that Pennsylvania law is preempted by the FAA.

In Quilloin v. Tenet HealthSystem Philadelphia, Inc., decided March 14, 2012, the Third Circuit reversed the district court for denying the employer’s motion to compel arbitration of an employee’s Fair Labor Standards Act collective action claim. The employer had adopted a program requiring employment claims to be arbitrated. The district court, ruling prior to the U.S. Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion, had found that the inability to pursue class claims could be substantively unconscionable under Thibodeau.

Finding Concepcion’s holding to be “both broad and clear,” the Third Circuit held in Quilloin that “Pennsylvania law prohibiting class action waivers is surely preempted by the FAA” because it is not substantively different from the California law held to be preempted in Concepcion. Like that California law, Thibodeau was “clearly preempted” because it presented an obstacle to the fulfillment of the FAA’s purposes and singled out arbitration agreements for special treatment.

In Litman v. Cellco Partnership, decided shortly after Concepcion, the Third Circuit held that the FAA preempts New Jersey law prohibiting class action waivers. Thibodeau, the Quilloin court emphasized, “is even more egregious than the New Jersey law because it “prohibited class action waivers based on their arbitration-specific context” and thus is “exactly the type of law” that is preempted by the FAA under Concepcion.

The Third Circuit noted that several recent district court cases had reached the same conclusion.  (Ballard Spahr represented the defendants in several of those cases.)

Quilloin shuts the door on an argument—frequently made by lawyers representing consumers and employees—that class action waivers are substantively unconscionable because the high cost of arbitration compared with the minimal value of the plaintiff’s claims denies the plaintiff an effective remedy. The same argument, the Third Circuit observed, was rejected in Concepcion, where the Supreme Court held that state prohibitions on class action waivers are preempted even if “small-dollar claims .. might otherwise slip through the legal system” and even if the state finds class procedures “desirable for unrelated reasons.”

Attorneys in Ballard Spahr's Consumer Financial Services and Labor and Employment Groups regularly advise on consumer and employment arbitration agreements and programs, including their use of class action waivers. The Ballard Spahr team is widely recognized for its skill in litigation defense and avoidance, its guidance in structuring and documenting employment policies and consumer financial services products, and its experience with the full range of federal and state workplace and consumer credit laws. For further information, please contact Alan S. Kaplinsky  at 215.864.8544 or kaplinsky@ballardspahr.com; David S. Fryman at 215.864.8105 or fryman@ballardspahr.com; Mark J. Levin at 215.864.8235 or levinm@ballardspahr.com; or Steven W. Suflas at 856.761.3466 or suflas@ballardspahr.com.


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