Court Reinforces Validity of Class Action Waivers and Arbitration Agreements

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The California Court of Appeals’ October 16, 2012 decision in Sherf v. Rusnak/Westlake, et al. invalidates a California law prohibiting class action waivers in consumer contracts. Under this ruling, marketers, including online marketers, may use arbitration waivers to compel arbitration and avoid class actions. However, such waivers cannot be hidden within the contract or contain provisions that are overly harsh, one-sided, or oppressive. Therefore, marketers should continue to include fair, clear and conspicuous class action waivers.

AT&T Mobility LLC v. Concepcion -

In Concepcion, the cellular telephone contract between the parties provided for arbitration of all disputes, but prohibited classwide arbitration. When the cell phone purchasers brought a putative class action alleging false advertising and fraud, the carrier moved to compel arbitration pursuant to the contract. The federal district court and the Court of Appeals for the Ninth Circuit each held that the arbitration provision in the parties’ agreement was unconscionable under California law because it disallowed classwide proceedings.

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