Massachusetts Supreme Judicial Court Invalidates Class Action Waiver in Arbitration Provision


Addressing an important issue that the U.S. Supreme Court will decide in the next few weeks, the Supreme Judicial Court of Massachusetts has held that a court may invalidate an arbitration agreement that contains a class action waiver where a plaintiff can demonstrate that his or her statutory rights cannot be vindicated in an individual arbitration.

The ruling conflicts with the decisions of most other courts—including the Third Circuit in Homa v. American Express, the Ninth Circuit in Coneff v. AT & T Corp., and the Eleventh Circuit in Cruz v. Cingular Wireless—that under AT&T Mobility LLC v. Concepcion, there is no "vindication of rights" exception to the Federal Arbitration Act.

The Massachusetts court yesterday issued two opinions that had been joined for argument. In Feeney v. Dell, Inc., a consumer law case, the court invalidated the entire arbitration agreement because the claims involved were complex and the company's arbitration agreement provided no consumer incentives, "in stark contrast to the AT&T agreement in Concepcion, which had so many pro-consumer incentives that an individual might be better off in arbitration than in class litigation."

The second opinion, Machado v. System4 LLC, extended Feeney's holding to employment claims, but enforced the arbitration agreement because the plaintiffs had not demonstrated that they lacked the practical means to pursue their claims in an individual arbitration.

Under review by the U.S. Supreme Court in Italian Colors Restaurant v. American Express Travel Related Services Co. is the Second Circuit’s ruling that the class action waiver in an arbitration agreement entered into by merchants who accept American Express cards could not be enforced because it would effectively preclude them from asserting federal antitrust claims against American Express. The Court heard argument on February 27, 2013, and will issue its opinion by the end of June.

We disagree with the legal conclusion reached by the Massachusetts court, but the real lesson to be learned is that the language used in an arbitration agreement can be critical to its enforceability.  We regularly counsel clients on how to address the issues raised in Feeney and Machado through careful drafting and enforcement of arbitration agreements.

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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