In Klussman v. Cross Country Bank, we asserted a very broad based attack on subprime credit card issuer Cross Country Bank's business practices. This published opinion was issued in response to a writ sought by Cross Country Bank. In the opinion, the First Appellate District held that a class action waiver was unconscionable under California law, and that Cross Country Bank's effort to apply Delaware law violated California consumer protection policies and was therefore unenforceable.
Here are some important points for class action practitioners in the opinion:
To explain the significance of class action consumer litigation in California, the AOL court quoted from Justice Mosk’s opinion for a unanimous Supreme Court in Vasquez v. Superior Court (1971) 4 Cal.3d 800 as follows: “ ‘Protection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society.’ . . . ‘Frequently numerous consumers are exposed to the same dubious practice by the same seller so that proof of the prevalence of the practice as to one consumer would provide proof for all. Individual actions by each of the defrauded consumers [are] often impracticable because the amount of individual recovery would be insufficient to justify bringing a separate action; thus an unscrupulous seller retains the benefits of its wrongful conduct. A class action by consumers produces several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance to the judicial process of the burden of multiple litigation involving identical claims. The benefit to the parties and the courts would, in many circumstances, be substantial.’ ” (AOL, supra, 90 Cal.App.4th at p. 17.)
The foregoing California cases and the reasoning of the Discover Bank court leave no doubt that Delaware’s approval of class action waivers, especially in the context of a “take it or leave it” arbitration clause is contrary to fundamental public policy in California.
Although Delaware’s interest in uniform regulation of the business practices of banks incorporated under its laws is significant, when it is measured against California’s interest in providing effective protection for California customers of out-of-state banks when they are overcharged, defrauded, abused and harassed, Delaware’s interest does not outweigh that of California.
Hope this helps!
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