The Lawletter Vol 36 No 9
The Supreme Court takes so few cases on writs of certiorari that it is remarkable that the Court in consecutive Terms has accepted and decided two cases involving arbitration of consumer disputes. Last Term, the Court decided AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act, 9 U.S.C. § 2, preempts California's judicial rule regarding the unconscionability of class arbitration waivers in consumer contracts. This Term, the Court again took up arbitration, also in the context of consumer contracts, in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012).
There, a group of consumers filed a class-action complaint in the U.S. District Court for the Northern District of California against the defendant credit card issuers, alleging, inter alia, violations of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. §§ 1679–1679j. The claims largely involved the defendants' allegedly misleading representation that the issuers' credit card could be used to rebuild poor credit and their assessment of multiple fees upon opening the accounts, which greatly reduced the advertised credit limit. The defendants moved to compel arbitration in accordance with a provision in the consumers' contracts. The district court denied the motion, and the Ninth Circuit affirmed. Greenwood v. CompuCredit Corp., 615 F.3d 1204 (9th Cir. 2010). The Supreme Court reversed and remanded.
CROA sets out a statement that credit repair organizations must provide to consumers before any contract is executed. 15 U.S.C. § 1679c(a). One sentence of the required statement reads, "'You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.'" Id. CROA's nonwaiver provision states, "Any waiver by any consumer of any protection provided by or any right of the consumer under this subchapter—(1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person." Id. § 1679f(a). The Ninth Circuit reasoned that the disclosure provision gives consumers the "right to sue," which "clearly involves the right to bring an action in a court of law." Greenwood, 615 F.3d at 1208. Because the nonwaiver provision prohibits the waiver of "any right of the consumer under this subchapter," the arbitration agreement—which waived the right to bring an action in a court of law—could not be enforced.
The Supreme Court rejected the premise that the disclosure provision affords consumers a right to bring an action in a court of law. The Court concluded that the defendants were required only to provide consumers with the mandated statement, which referred to rights afforded elsewhere in the statute. The statute provides for procedures that must be utilized if and when the case finds its way into court, but that does not mean that Congress intended to supplant the availability of arbitration under the Federal Arbitration Act ("FAA"). If Congress had intended to do so, it would have done so explicitly as it has done elsewhere, particularly inasmuch as arbitration is a favored means of resolving disputes.
More broadly, the Court made clear that the policy favoring arbitration applies even if the right being sought to be vindicated is created by a federal statute. The Court concluded that 9 U.S.C. § 2 establishes a liberal federal policy favoring arbitration agreements. It requires courts to enforce agreements to arbitrate according to their terms. That is the case even when the claims at issue are federal statutory claims, unless the FAA's mandate has been overridden by a contrary congressional command. 132 S. Ct. at 669. It has always been difficult to avoid arbitration in federal court, but Concepcion and Greenwood, taken together, only reinforce how strongly arbitration is favored when the FAA requires arbitration. If the contract containing the arbitration provision implicates interstate commerce, then the FAA applies, even to cases in state court. Goodwin v. Elkins & Co., 730 F.2d 99, 108 (3d Cir.) ("[I]f the Arbitration Act is deemed applicable, federal law applies in construing and enforcing an arbitration clause, even in those cases in which jurisdiction is based on diversity. Indeed, it applies to proceedings in state courts as well as federal courts." (citations omitted)), cert. denied, 469 U.S. 831 (1984).