Massachusetts Supreme Judicial Court Revisits Class Action Waiver Provisions in Arbitration Clauses
On June 12, 2013, the Supreme Judicial Court of Massachusetts decided two cases addressing the enforceability of class action waiver provisions in arbitration clauses, and, in a reversal of prior Massachusetts law, determined that such waivers are no longer invalid in Massachusetts as a matter of public policy. Nonetheless, such waivers may still be held invalid if the plaintiff can demonstrate that enforcement of the waiver would render the claim nonremediable. The Supreme Judicial Court had held, in Feeney v. Dell Inc., 454 Mass. 192 (2009) (Feeney I), that such waivers were contrary to the fundamental Massachusetts public policy of favoring consumer class actions under the Consumer Protection Statute, Chapter 93A. Subsequently, the United States Supreme Court, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), held that the Federal Arbitration Act (FAA) preempted a California rule that classified most collective-arbitration waivers in consumer contracts as unconscionable. In light of Concepcion, the Supreme Judicial Court revisited, in two companion cases, the enforceability of class action waivers.
In Feeney v. Dell Inc. (Feeney II), N.E.2d, 465 Mass. 470 (2013), the Supreme Judicial Court revisited the same waiver provision that it had addressed in Feeney I. In this case, the plaintiffs had commenced a class action in 2003, claiming that Dell unlawfully had charged a supposed sales tax on its service contracts with Massachusetts residents, even though no such tax had been imposed by the Massachusetts taxing authority. The loss to the named plaintiff was $13.65. Dell successfully moved to compel arbitration, and the arbitrator found for Dell on the merits. The propriety of the arbitration, and the enforceability of the class action waiver provision, came before the Supreme Judicial Court the first time in 2009, resulting in Feeney I, which held that the waiver was not enforceable as a matter of Massachusetts public policy. The court remanded the case for trial. While on remand, Concepcion was handed down, casting doubt on the validity of Feeney I.
The defendants in Feeney filed a renewed motion to confirm its arbitration award in light of Concepcion. The trial court denied that motion. The Supreme Judicial Court granted direct appellate review. It ruled, on June 12, 2013, that that Concepcion does not foreclose the invalidation of class action waivers in arbitration provisions. Arbitration, the court held, is not compelled where a plaintiff can demonstrate that he or she lacks the ability to pursue a claim against the defendant in individual arbitration according to the terms of the agreement, or, put differently, where the class waiver provision has conferred on the defendant de facto immunity from private civil liability for violations of state law. Where a court determines, following an individualized factual inquiry, that class proceedings are the only viable way for a consumer plaintiff to bring a claim against a defendant – as may be the case where the claims are complex, the damages are demonstrably small and the arbitration agreement does not feature the safeguards found in the Concepcion agreement – a court may still invalidate a class waiver pursuant to the savings clause of the FAA.
In Machado v. System4 LLC, N.E.2d, 465 Mass. 508 (2013), which was paired for argument with Feeney II, the courtelaborated on its Feeney II ruling and addressed how the ruling applies in the employment law context. Before Concepcion, the logic of the Massachusetts rule had been rooted in the public policy behind the consumer protection statute. In Machado, the plaintiffs sought to bring a class action under the Massachusetts Wage Act, alleging that they had been misclassified as independent contractors. The court held that its decision in Feeney II was not limited to the context of consumer claims. The plaintiffs here were unable to demonstrate, as required by Feeney II, that they lacked practical means to pursue their claims on an individual basis, and therefore the court reversed the order invalidating their arbitration clause.
In addition to the class waiver question, the court also addressed the validity of the waiver of multiple damages that was included in the arbitration clause. The court concluded that multiple damages, unlike class action proceedings, do not impinge on any fundamental characteristic of arbitration, nor frustrate the purpose of the arbitral forum. As a result, the court held that the Massachusetts rule that such waivers of multiple damages are unenforceable is not preempted by the FAA and that a waiver of multiple damages is unenforceable with respect to Wage Act claims.
For additional information regarding this alert, please contact Rachel J. Eisenhaure (email@example.com, 617.748.5221).