Friday, May 9, 2014

Nothing good comes from Calfornia

 I was taught that there is no federal common law, but there is. There is a federal common law of unconscionable contracts which preempts California state law on the subject.

About a hundred years ago, judges were hostile to the idea of arbitration. In 1925, Congress enacted the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq., which preempted any state laws that attempted to torpedo arbitration, per se. The FAA states that arbitration agreements "shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract." [emphasis added] 9 U.S.C. § 2.

A problem arises when the nature of a specific claim is amenable to class action certification. The is no provision for any group action in the FAA that is similar to a class action. Given a choice between a class action and arbitration, in a 5 / 4 decision authored by Justice Scalia the Supreme Court of the United States  held in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 563 US 4, 179 L. Ed. 2d 742 (2011) that the agreement to arbitrate prevails, especially when the agreement specifically waived, or prohibited, proceeding with a class action.

The general rule in California, it seems, is that agreements which prevent a party from proceeding with a class action, while not per se unconscionable, are at least suspect and subject to revocation. The California principles relating to unconscionable bars of class actions are stated thus:
"[Th]e doctrine has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided."

 Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005)
This California rule was not specifically aimed at arbitration agreements.

I have personally believed that having your cake and eating it too is a noble goal in life. Why not have it both ways? The court could certify the class, then stay further proceedings under 9 U.S.C. §3, await the results of arbitration for the class representative's claims and then apply the results of the arbitration to the class as a whole.

For what it's worth, there is a fascinating discussion about the common law history of group actions on Wikipedia.- Class actions.

Tom Fox, J. D.
Louisville, Kentucky

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This is not legal advice and I am not a lawyer.

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