3rd Circuit Rules on ‘Who Decides Validity of Class Action Waiver’ as Supreme Court Waits in Wings
Weighing in on an important issue affecting the enforceability of express class action waivers in consumer arbitration agreements, an en banc panel of the U.S. Court of Appeals for the Third Circuit has held that a court, not an arbitrator, should decide a plaintiff’s unconscionability challenge to the waiver.
In its opinion in Puleo v. Chase Bank USA, N.A., issued May 10, 2010, the Court found that parties can assign this issue to the arbitrator by including clear and unmistakable language in their arbitration agreement, but the Puleo arbitration agreement did not do so.
Interestingly, the Court did not note the pendency of Rent-A-Center, West v. Jackson, which the U.S. Supreme Court is expected to decide this term. The issue in Jackson is whether a court or an arbitrator should decide if an arbitration agreement is unconscionable when the parties specifically assigned that issue to the arbitrator. The U.S. Court of Appeals for the Ninth Circuit had ruled that a court can decide the issue notwithstanding the agreement language. 581 F.3d 912 (2009). (Click here to read an earlier Ballard Spahr legal alert on Puleo and Jackson.)
The Third Circuit joined a host of other circuit courts in ruling in Puleo that "an unconscionability challenge to the provisions of an arbitration agreement is a question of arbitrability that is presumptively for the court, not the arbitrator, to decide."
We have recommended for years that companies using arbitration provisions in their consumer contracts authorize only a court, never an arbitrator, to determine the validity of a class action waiver. That recommendation stems from the very limited grounds under the Federal Arbitration Act upon which courts will reverse decisions by arbitrators.
Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact Alan S. Kaplinsky, group Chair, 215.864.8544 or firstname.lastname@example.org; or Mark J. Levin, 215.864.8235 or email@example.com.
Copyright © 2010 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.