{"id":36521,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/consumer-arbitration-agreements-prohibiting-class-actions-may-be.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"consumer-arbitration-agreements-prohibiting-class-actions-may-be","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/litigation-disputes\/consumer-arbitration-agreements-prohibiting-class-actions-may-be.html","title":{"rendered":"Consumer Arbitration Agreements Prohibiting Class Actions May Be Unenforceable in California"},"content":{"rendered":"
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This California Supreme Court decision handed down on Monday in Discover Bank v. Superior Court<\/i> (Boehr) will have significant impact on the enforcement of consumer arbitration agreements involving California residents. The Court holds that consumer arbitration agreements purporting to preclude classwide arbitrations may be unconscionable and unenforceable in circumstances where (1) the contract is one of adhesion, (2) the consumer complains that the defendant purposefully cheated large numbers of individuals out of individually small sums of money and (3) the obligation at issue is governed by California law. The first two conditions are likely to be met in many, if not most, cases involving consumer contracts such as credit card agreements (at issue in the Discover Bank case), cell phone service agreements, internet service provider agreements, etc.<\/p>

The Court first decided that the Federal Arbitration Act (FAA) does not preclude this result, reasoning that California's proscription against unconscionable class action waivers does not single out arbitration agreements, but applies to all contracts with California residents generally. It is possible that Discover Bank will seek review of this issue in the U.S. Supreme Court.<\/p>

The Court then remanded the case to the court of appeal to decide whether California law should govern the obligation (condition (3) above). The Discover Bank agreement provided for the application of Delaware, not California law. Because the court of appeal had decided that the FAA preempted any class waiver in an arbitration agreement, it did not reach the choice of law issue. The California Supreme Court remanded with instructions on how the court of appeal should approach that issue. If California law applies, the class waiver language will be unenforceable. If Delaware law applies, presumably the class waiver will stand. This will be an important decision to many banks and consumer businesses that will be looking to establish precedent that even if California law precludes these waivers, California law need not be applied just because California consumers are involved.<\/p>

This article is published as a service to our clients and friends. It should be viewed only as an overview of the law, and not as a substitute for legal consultation.<\/i><\/p><\/div>","protected":false},"excerpt":{"rendered":"

This California Supreme Court decision handed down on Monday in Discover Bank v. Superior Court (Boehr) will have significant impact on the enforcement of consumer arbitration agreements involving California residents. The Court holds that consumer …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6521,6520],"class_list":["post-36521","corporate","type-corporate","status-publish","hentry","corporate_categories-litigation-disputes__adr","corporate_categories-litigation-disputes"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/36521","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=36521"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=36521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}