Concepcion Mandates Individual Arbitration Even When Statutory Rights Cannot Be Vindicated, Third Circuit Holds


The U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), obligates courts to compel individual arbitration even where the plaintiff has proven that doing so would make it impossible to vindicate statutory rights, according to a non-precedential opinion issued August 22 by the U.S. Court of Appeals for the Third Circuit in Homa v. American Express Co.

The case is significant because it rejects the "vindication of rights" theory that consumer advocates argue is a limitation on the scope of Concepcion's holding. Homa instituted a class action against American Express alleging violations of New Jersey’s Consumer Fraud Act. The New Jersey District Court dismissed Homa’s action and compelled him to submit his claims to individual arbitration.

Homa appealed and the Third Circuit reversed because the District Court had not made any findings of fact “as to the potential value of the New Jersey Consumer Fraud Act claims….”. The Third Circuit then remanded the matter to the District Court to determine whether the class arbitration waiver was unconscionable because “the claims at issue are of such low value as effectively to preclude relief if decided individually.”

Homa submitted to the court an extensive factual record, including Homa’s deposition, attorneys’ certifications, and a certification of a vice president of American Express, in an attempt to demonstrate that compelling individual arbitration would make it very difficult for Homa to effectively vindicate his statutory rights.

Thereafter, the Third Circuit issued a precedential opinion in Litman v. Cellco Partnership on August 24, 2011, holding that the Federal Arbitration Act (FAA) preempts New Jersey law refusing to enforce class action waivers in small dollar cases. The unanimous Litman decision held that the Third Circuit’s prior decision in Homa was abrogated by Concepcion because the New Jersey law on which Homa relied was preempted by the FAA. On August 30, 2011, based on the Third Circuit’s decision in Litman and notwithstanding Homa’s factual record, the District Court reinstated its order compelling individual arbitration of Homa’s claims.

On appeal, the Third Circuit affirmed the District Court’s Order. Acknowledging Homa’s factual record, the Third Circuit held that “[e]ven if Homa cannot effectively prosecute his claim in individual arbitration, that procedure is his only remedy, illusory or not… Though some persons might regard our result as unfair, 9 U.S.C. § 2 requires that we reach it. In this regard, we point out that when Congress makes a law the court must enforce the law as Congress has written it regardless of the court’s view of the law.” Homa, No. 11-3600 at 10.

The Third Circuit's ruling conflicts with the Second Circuit's decision in American Express Merchant’s Litigation, which held that a class action waiver in an arbitration agreement is unenforceable if it precludes the plaintiff from vindicating statutory rights in an individual arbitration. American Express filed a petition for certiorari with the U.S. Supreme Court on July 30, 2012. The Supreme Court will have an opportunity to resolve this conflict when it begins its new term in October. Several other petitions for certiorari currently pending before the Supreme Court also raise the vindication of rights issue, including Buffington v. SunTrust Banks, Inc., Hough v. Regions Financial Corp., and Missouri Title Loans, Inc. v. Brewer, which is scheduled for conference on September 24, 2012 (Ballard Spahr is counsel for Missouri Title Loans).

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 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). The CFS Group also produces CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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