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Faculty of Law
Academic Year 2016-2017
Exam Session [1]
The Enforceability of Class Arbitration/Action Waivers and Access
to Justice in Consumer Contracts
LL.M. Paper
by Shengzhe Wang
Student number : 01506987
Promoter: Prof. Dr. Maud Piers
i
ACKNOWLEDGEMENTS
Firstly, I would like to express my sincere thanks to my promotor Professor Doctor Maud Piers
for providing me with the opportunity to work on this interesting topic and to work at Ghent
University. Thank you for your patience in guidance, discussion, support and assistance during
my study in Ghent. Moreover, I want to express my gratitude to my dear friend Maryam
Salehijam, who provides me extra challenges and guidance in research. I want to thank her for
her time and advices.
My gratitude also goes to my colleagues and friends at Ghent University who collaborated with
me in projects and participated in many daily discussion not limited only to research topics.
Last but not the least, I wish to express my gratitude to my dear parents for their unconditional
support. I also owe my thanks to my boyfriend, Yulong Pei, for his encouragement throughout
my LL.M. studies.
ii
ABBREVIATIONS
AAA: American Arbitration Association
AFA: Arbitration Fairness Act
CFSP: Consumer Financial Protection Bureau
CIETAC: China International Economic and Trade Arbitration Commission
CPA: Washington's Consumer Protection Act
CROA: The Credit Repair Organizations Act
EU: European Union
FAA: Federal Arbitration Act 1925
JAMS: Judicial Arbitration and Mediation Service
PICC Guangzhou Branch: China People's Property Insurance Co., Ltd. Guangzhou Branch
TILA: Truth in Lending Act
iii
TABLE OF CONTENTS
1. Introduction ......................................................................................................... 1
2. State and Federal Courts’ Approaches to Waivers in Consumer Contracts 3
2.1 Waivers and the U.S. Supreme Court ........................................................................... 3
2.2 The Split on the Enforceability of Waivers in Lower Courts ..................................... 7
2.2.1 Courts Uphold Waivers in Consumer Contracts .................................................... 7
2.2.2 Courts Invalidate Waivers in Consumer Contracts ................................................ 9
3. Analysis of the Opposing Approaches ............................................................ 15
3.1 General Background - Section 2 of the FAA .............................................................. 15
3.2 Upholding Waivers in Consumer Contracts .............................................................. 17
3.2.1 Arguments on the Nature of Arbitration .............................................................. 17
3.2.2 Arguments on the Preemption of the FAA .......................................................... 21
3.3 Challenges to Waivers in Consumer Contracts ......................................................... 24
3.3.1 Arguments on Unconscionability Doctrine ......................................................... 24
3.3.2 Arguments on Effective Vindication of Statutory Rights .................................... 33
4. Waivers and Access to Justice Test in Consumer Contracts ........................ 38
4.1 The Abuse of Waiver Clauses in Consumer Contracts ............................................. 38
4.2 Access to Justice Test in Consumer Contracts ........................................................... 41
4.2.1 Consumer-Friendly Clauses, Small Claims Courts and the AFA ........................ 42
4.2.2 Challenges on Public Policy Grounds .................................................................. 45
iv
4.2.3 Challenges to Mutual Consent ............................................................................. 46
5. Current Practice in China and Suggestions ................................................... 54
5.1 “Waiver Clauses” in Consumer Arbitrations in China ............................................ 54
5.1.1 The Split on the Enforceability ............................................................................ 56
5.1.2 Existing Problems in Current Practice ................................................................. 58
5.2 Suggestions .................................................................................................................... 62
6. Conclusion ......................................................................................................... 63
Bibliographies ........................................................................................................ 65
1
1. Introduction
A “class arbitration/action waiver” refers to a waiver of procedural rights to bring suits or
arbitrations on a class basis in the U.S. In practice, the term is not used uniformly,1 thus, to avoid
ambiguity, in this article, a “class arbitration waiver” refers to a provision in the arbitral clause
prohibiting parties from bringing arbitrations on a class basis. In particular, a “class action
waiver” means that parties agree that they will not bring lawsuits to courts on a class basis while
a “class arbitration/action waiver” means that the parties have waved the right to bring either
lawsuits or arbitrations on a class basis.2 For the sake of efficiency, when referring to “class
arbitration/action waiver” this paper will use the term “waiver”.
In consumer contracts,3 pre-dispute mandatory arbitration clauses were developed as a tool for
businesses to curtail the use of class actions in the U.S.4 The introduction thereof resulted in a
heavy decline of class actions since the 1980s.5 As a response, class arbitrations appeared as
alternative mechanisms for pursuing class reliefs6 while merchants invented new ways to avoid
class responsibilities, such as inserting waiver clauses that required the other party to waive the
right to arbitrate and sue on a class basis. The debate and split practice on the enforceability of
such clauses has been ongoing for years. Opponents to the enforcement of such waiver clauses
include California,7 Missouri,8 Washington,9 New Jersey,10 the First Circuit,11 and the Ninth
1 For example, sometimes courts use “class action waivers” referring to clauses requiring parties to proceed arbitration only
on an individual basis, see Lowden v. T-MOBILE USA, INC., 512 F.3d 1213, 1219 (9th Cir. 2008) (quoting Drahozal R. Christopher & Quentin R. Wittrock, Franchising, Arbitration, and the Future of the Class Action, 3(2), Entrepreneurial Bus. LJ, 280 (2008)).
2 See id. Drahozal R. Christopher, at 279 –280. 3 In this article, a consumer refers to “an individual or an agent, trustee, or representative acting on behalf of an individual”.
See 12 U.S. Code § 5481 (4), available at https://www.law.cornell.edu/uscode/text/12/5481, visited on 6 May 2017. 4 See Jean R. Sternlight, 57, Creeping Mandatory Arbitration: Is It Just?, Stanford Law Review, 1634 (2005). 5 See supra note 1, at 275. 6 It began in Keating v. Superior Court, 645 P.2d 1192, 31 Cal. 3d 584, 183 Cal. Rptr. 360 (1982) and was largely developed
after Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S. Ct. 2402, 156 L. Ed. 2d 414 (2003). See Stacie I. Strong, Class, Mass, and Collective Arbitration in National and International Law, 8-10 (Oxford University Press, 2013).
7 See generally Discover Bank v. Superior Court, 113 P.3d 1100, 30 Cal. Rptr. 3d 76, 36 Cal. 4th 148 (2005); Cohen v. DirecTV, Inc., 48 Cal. Rptr. 3d 813, 142 Cal. App. 4th 1442 (Ct. App. 2006); Imburgia v. DirecTV, Inc., 225 Cal. App. 4th 338, 170 Cal. Rptr. 3d 190 (Ct. App. 2014).
8 See generally Whitney v. Alltel Communications, Inc., 173 S.W.3d 300 (Mo. Ct. App. 2005); Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012), and Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. 2012).
2
Circuit. 12 Accordingly, it is inconsistent with state public policy to have such clauses in
consumer contracts, as arbitration/action waivers effectively barred consumers from vindicating
their rights. Advocates for such clauses include the Fourth, Fifth,13 and Eleventh Circuits,14 who
argue that arbitration is a matter of contract, and therefore, arbitration clauses should be enforced
as written. In the cases of AT&T Mobility LLC v. Concepcion and American Exp. v. Italian
Colors Restaurant (Conception and American Express), the U.S. Supreme Court’s decisions
dramatically changed this situation. In the delivered opinions, Justice Scalia held that class
arbitration was contrary to the nature of arbitration and found the state law was preempted by the
FAA.15 Willingly or reluctantly, many courts followed the U.S. Supreme Court’s decisions in
Conception and American Express and enforced waivers in consumer contracts. Nevertheless,
courts in California,16 Missouri,17 and Washington18 developed new ways to invalidate such
waiver clauses in consumer arbitrations. Either by interpreting choice of law provisions in
arbitration clauses, or by interpreting Conception, they applied state laws to invalided waiver
clauses and held that they were not preempted by the FAA.
This paper supports the approach of the courts that find waiver clauses invalid in consumer
contracts. As the U.S. heavily relies on a private enforcement of laws, consumers have to pursue
claims themselves. However, consumer disputes usually involve large small amounts and thus
linking of several small disputes in a class action or a class arbitration is an effective way for
9 See generally Scott v. Cingular Wireless, 161 P.3d 1000, 160 Wash. 2d 843, 160 Wash. 843 (2007). 10 See generally Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88, 189 N.J. 1 (2006). 11 See generally Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). 12 See generally Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d
976 (9th Cir. 2007). 13See generally Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002), Iberia Credit Bureau, Inc. v. Cingular
Wireless, 379 F.3d 159 (5th Cir. 2004) (quoting J. Maria. Glover, Beyond Unconscionability: Class Action Waivers and Mandatory Arbitration Agreements, 59(5), Vand. L. Rev, 1751-1752 (2006)).
14 See generally Randolph v. Green Tree Financial Corp., 244 F.3d 814 (11th Cir. 2001), Jenkins v. First American Cash Advance of Georgia, 400 F.3d 868 (11th Cir. 2005).
15 See generally AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 563 U.S. 333, 179 L. Ed. 2d 742 (2011) and American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 570 U.S. 333, 186 L. Ed. 2d 417 (2013).
16 See generally Imburgia v. DirecTV, Inc., 225 Cal. App. 4th 338, 347 (2014). 17 See generally Brewer v. Missouri Title Loans, 364 S.W.3d 486, 493-496(Mo. 2012), and Robinson v. Title Lenders, Inc.,
364 S.W.3d 505, 508 (Mo. 2012). 18 See generally Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197, 1198 (2013).
3
consumers to collectively vindicate their rights. Evidently, clauses requiring them to waive rights
to recourse to such proceedings would affect their substantive rights. In order to further support
this argument, this article focuses on the enforceability of waivers in consumer contracts in the
current practice. In particular, attention is paid to how such clauses adversely affect the
consumers’ access to justice. Moreover, this article reflects on the growing trend that questions
mutual consent in such clauses as well as the validity of adhesive arbitration clauses. The
findings in this paper are not only meant for U.S. legislator and courts, but are also meant to
inspire China in its pursuit of regulating arbitration.
In arguing against the enforcement of waivers in consumer contracts, this paper is structured as
follows. The second chapter presents an overview of the practice in the enforcement of waiver
clauses in the U.S., in which both attitudes of the U.S. Supreme Court and divergent practice in
the lower courts are introduced. The third chapter provides a critical analysis of the arguments
and reasoning for and against enforcement of such waiver clauses to uncover. The fourth chapter
reveals the direct consequences by focusing on the abuse of waiver clauses. The fifth chapter
switches jurisdictional focus, by focusing on how China can learn from the history of waiver
clauses in the U.S. The choice to provide lessons for China was based on fact that China is the
worlds fasted growing economy and thus to maintain its momentum, it is of the essence to ensure
a certain level of consumer protection.
2. State and Federal Courts’ Approaches to Waivers in Consumer Contracts
This Chapter provides a general overview of the splitting practice towards waivers in consumer
contracts in the U.S.
2.1 Waivers and the U.S. Supreme Court
The U.S. Supreme Court has a strong tradition favoring arbitration. It uses the Federal
Arbitration Act 1925 (FAA) as a powerful tool to enforce arbitration agreements. Beginning with
Concepcion, the U.S. Supreme Court affirmed that a class arbitration waiver is enforceable in a
consumer contract.
4
In Concepcion, the plaintiffs accused AT&T Mobility for false advertisement on the purchase of
mobile phone service with a free phone included. However, it turned out the plaintiff had to pay
an extra amount of $30.22 in sales tax for the phone.19 The complaints were consolidated as a
class action while AT&T Mobility moved to compel individual arbitration relying on the
arbitration clause including a waiver.20 The provision required that claims should be brought in
the parties’ “individual capacity, and not in any purported class or representative proceeding.”21
The Ninth Circuit followed the Discover Bank Rule, 22 holding that the waiver clause was
unconscionable and further upholding the class action claimed by Conceptions.23 However, it
was reversed by the U.S Supreme Court. In a five to four decision, the U.S. Supreme Court
upheld the enforcement of the waiver clause by reasoning that the state law was preempted by
FAA.24 Justice Scalia delivered the opinion. He stated that class arbitration made the whole
process slower and costlier, and further reasoned that requiring class wide arbitration was
interfered with the fundamental spirits of the FAA and thus was inconsistent with the FAA.25
This was the first time the U.S. Supreme court held that a state law was preempted by the FAA
on this issue.
In line with Concepcion, the U.S. Supreme Court has confirmed that waivers were enforceable in
consumer contracts in CompuCredit Corp. v. Greenwood (CompuCredit Corp), 26 American
Express and DirecTV, Inc. v. Imburgia (DirecTV). 27 In CompuCredit Corp., the petitioner,
CompuCredit Corp., provided subprime credit cards named Aspire Visa to consumers to improve
their credit ratings with an amount of $300 credit available in the card. Nevertheless, a fee of
19 AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744 (2011). 20 See id., at 1744-1745. 21 See id., at 1744. 22 Discover Bank Rule is a California case law establishing a method of determining whether a waiver clause is
unconscionable. See infra Chapter 2.2.2 of this article. 23 AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744-1746 (2011). 24 See id., at 1748-1753. 25 See id., at 1748-1751. 26 CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 565 U.S. 95, 181 L. Ed. 2d 586 (2012). 27 DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 577 U.S., 193 L. Ed. 2d 365 (2015).
5
over $180 was charged by the issuing bank for each card.28 The dispute resolution clause
provided that any disputes arising from or relating to the consumers’ account shall “be resolved
by binding arbitration.”29 Therefore, litigation on a class basis was unavailable under such a
clause. However, the District Court rejected CompuCredit’s motion to compel individual
arbitrations and reasoned that suing in courts was non-waivable rights granted by the Credit
Repair Organizations Act (the CROA).30 The Ninth Circuit affirmed the District Court’s decision
by reasoning that the CROA gave consumers the right to sue.31 However, the U.S. Supreme
Court reversed and Justice Scalia delivered the opinion. In considering the issue of “whether the
CROA… precludes enforcement of an arbitration agreement in a lawsuit alleging violations of
that Act”, he affirmed that consumers had rights to sue under the CROA, however, he further
held that it was not contradict to follow an arbitration proceeding because “the CROA is silent on
whether claims under the Act can proceed in an arbitration forum”.32
American Express concerned an action for violation of anti-trust rules. The respondents, Italian
Colors Restaurant, together with other merchants, brought a class action against the petitioner,
American Express, for the breach of anti-trust rules. In this case, the monopoly power in forcing
them to accept ccredit cards issued by American Express which charged higher fees than
competitors was accused.33 The arbitration agreement contained a waiver clause, providing that
“there shall be no right or authority for any claims to be arbitrated on a class action basis”.34 The
District Court granted American Express’s motion to compel individual arbitrations while the
Court of Appeal reversed. 35 The issue presented to the Supreme Court was “whether a
contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the
plaintiff's cost of individually arbitrating a federal statutory claim exceeds the potential
28 Facts of CompuCredit Corp. is available at https://www.law.cornell.edu/supct/cert/10-948, visited on 13 March 2017. 29 CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 668 (2012) 30 See id., at 668. 31 See id., at 668, 670. 32 See id., at 668, 672 and 673. 33 See American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2308 (2013). 34 Id. 33, at 2308. 35 See id., at 2308.
6
recovery.”36 The U.S. Supreme Court reaffirmed the enforceability of class arbitration waivers
and Justice Scalia delivered the opinion of the majority. In the opinion, regardless of evidences
provided by the respondents proving prohibitive costs they would incur, the Court held that
“antitrust rules do not guarantee an affordable procedural path to the vindication of every
claim.”37 Moreover, “arbitration is a matter of contract”, and therefore, arbitration provisions
needed to be enforced “rigorously” according to its terms.38
In the case of DirecTV., the petitioner, Directive, Inc., entered into a service agreement with its
customers. The arbitration clause in the service agreement had a class arbitration waiver
included.39 Besides, a non-severable clause as “if the ‘law of your state’ makes the waiver of
class arbitration unenforceable, then the entire arbitration provision is unenforceable” was
added.40 After arising of the disputes, two respondents sued DirecTV in Court while DirecTV
moved to compel individual arbitrations. 41 The California Court of Appeal interpreted the
contractual phrase “law of your state” as the law of California. As a result, the waiver clause was
unenforceable under the Discover Bank Rule.42 However, the U.S. Supreme Court overturned
and Justice Breyer delivered the opinion of the Majority. In his opinion, “the interpretation of a
contract is a matter of state law”, and therefore, it was whether the state law was consistent with
the FAA instead of whether the interpretation was correct in California law needed to be decided.
Furthermore, the California law (Discover Bank Rule) failed to treat arbitration clauses on an
equal footing with other contracts. 43 Consequently, the U.S. Supreme Court enforced the
arbitration provision as written.
36 Id., at 2307. 37 Id., at 2309-2311. For more discussions on the Court’s reasoning on the vindication of statutory rights principle, see infra
Chapter 3.3.2 of this Article. 38 Id., at 2309. 39 DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 466 (2015). 40 Id., at 466. 41 See id., at 466. 42 See id., at 466-467. 43 See id., at 468 and 471.
7
The practice of the U.S. Supreme Court shows that growing weight is placed on the idea that
arbitration agreement is a matter of consent and needs to be enforced strictly according to the
written agreement. This is also the case in the consumer context. Especially after DirecTV, it
seems to be a settled rule that waiver clauses are enforceable in consumer contracts.44
2.2 The Split on the Enforceability of Waivers in Lower Courts
Despite a hostile attitude towards class proceedings of the U.S. Supreme Court, lower courts’
decisions are not in conformity regarding the enforceability of waiver clauses. The split exists in
both the States’ Courts and the Circuits. Even after the Conception, the split is still ongoing.
2.2.1 Courts Uphold Waivers in Consumer Contracts
Some Circuits such as the Fourth, Fifth, and Eleventh Circuits and States like Utah45 upheld the
validity of class action/arbitration waivers in consumer contracts in very beginning.
The Fourth Circuit upheld a class action waiver in Snowden v. CheckPoint Check Cashing
(Snowden). Snowden concerned disputes between some borrowers and the CheckPoint, a deposit
check cashing lender. The petitioners claimed that CheckPoint charged them excessive fees and
such behaviours violated the Truth in Lending Act.46 A mandatory arbitration provision was
included in the contract, requiring all disputes or controversies to be submitted to arbitration and
providing no authority shall preside over the arbitration proceedings on a class action basis.47
The petitioners argued that attorneys’ fees were only recoverable to prevailing parties and
44 Justice Breyer and Justice Kagan who dissented in Concepcion joined the Majority this time. See Class Action Update:
Supreme Court Reaffirms Enforcement of Class Arbitration Waivers, 15 December 2015, available at https://www.davispolk.com/publications/class-action-update-supreme-court-reaffirms-enforcement-class-arbitration-waivers/, visited on 14 March 2017.
45 Utah published state legislation in which provided that it would allow waiver clauses if they are understandable and noticeable to consumers. The specific requirement was waivers need to be in “bold type or all capital letters”. See Bryon A. Rice, Enforceable or Not: Class Action Waivers in Mandatory Arbitration Clauses and the Need for a Judicial Standards, 45 (1) Hous. L. Rev., 245(2008).
46 Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 634 (4th Cir. 2002). 47 See id., at 634.
8
consumers like them shall not be forced into arbitration under public policy.48 The Court rejected
these arguments without giving a convictive reasoning. It simply reasoned that the FAA was
enacted to shake off judicial hostilities to arbitration agreements, and Snowden failed to prove
the FAA was inconsistent with public policy relating to consumer protection. 49 Thus,
CheckPoint’s motion to compel individual arbitrations was granted.
In the case of Iberia Credit Bureau, Inc. v. Cingular Wireless (Iberia Credit Bureau), the Fifth
Circuit also upheld a waive clause. Iberia Credit Bureau concerned disputes between a group of
cell phone customers and their service providers, Cingular Wireless LLC, Sprint Spectrum
Company LP and Centennial Beauregard Cellular LLC.50 The appellees, the customers, alleged
the service providers had engaged in deceptive trade practices and sued in court. 51 The
arbitration agreement of each company differed from each other. Nevertheless, all the arbitral
provisions required consumers to waive rights to arbitrate on a class or consolidated basis.52
Besides, all the three companies reserved rights of revising parties’ agreement at any time.53
Consumers argued the arbitration clause was unconscionable. In upholding the companies’
motion to compel arbitrations, the Fifth Circuit reasoned that the general contractual law
defenses only applied when arbitral agreements were treated equally with all other contracts.
Thereby, special scrutiny to adhesive arbitral provisions claimed by the customers could not be
allowed.54 Thus, the unconscionability arguments raised by the customers were rejected.
The Eleventh Circuit upheld the enforcement of waiver clauses in both Randolph v. Green Tree
Financial Corp. (Randolph) and Jenkins v. First American Cash Advance of Georgia (Jenkins).
In Randolph, the plaintiff, Randolph, sued against Green Tree for violations in TILA. The
48 See id., at 638 and 639. 49 See id., at 639. 50 See Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 159, 161 (5th Cir. 2004). 51 See id., at 161. 52 See id., at 163, 164. 53 See id., at 164. 54 See id., at 167.
9
arbitration clause had a class action waiver included.55 In the initial opinion, the Eleventh Circuit
held that the arbitration agreement was unenforceable due to potential prohibitive costs Randolph
would incur. However, the U.S. Supreme Court reversed and remanded it back to the Eleventh
Circuit.56 Consequently, the Eleventh Circuit reversed its original opinion and held that the class
action wavier was enforceable by quoting Gilmer v. Interstate/Johnson Lane Corp. The Court
reasoned that “having made the bargain to arbitrate, the party should be held to it unless
Congress itself has evinced an intention to preclude a waiver of judicial remedies for the
statutory rights at issue”.57 Furthermore, Randolph failed to prove that the Congress had the
intention to make rights on pursuing class-wide actions as non-waivable according to the TILA.
Thus, the arbitration agreement (including the waiver clause) was enforceable even though it
may bar the access to purse statutory right under TILA through class actions.58
The Eleventh Circuit delivered a similar opinion in Jenkins a few years later.59 The Jenkins
Court held that Randolph had made it clear that a waiver clause was enforceable,60 and further
rejected Georgia State Courts’ decision by reasoning that holding a whole contract as
unnegotiable was impermissible under the FAA.61
2.2.2 Courts Invalidate Waivers in Consumer Contracts
Several State Courts such as California, Missouri, Washington, New Jersey and Circuits like the
First Circuit and the Ninth Circuit have invalidated waiver clauses. This practice continues
despite the ruling of the U.S. Supreme Court held in Conception. Therefore, this paper divides
the discussion of case law into the pre-Conception period and post-Conception period.
55 See Randolph v. Green Tree Financial Corp., 244 F.3d 814, 815 (11th Cir. 2001). 56 Green Tree Financial Corp. - Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). 57 See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (quoting id., at 816,
817. 58 See id., at 818. 59 See Jenkins v. First American Cash Advance of Georgia, 400 F.3d 868, 871 and 872 (11th Cir. 2005). 60 See id., at 878. 61 See the U.S. Supreme Court decision in Prima Paint Corp., 388 U.S. at 403-04, 87 S.Ct. at 1806 (quoting id., at 877).
10
(1) Pre-Conception Period
Discover Bank v. Superior Court (Discover Bank) was a benchmarking case in California.62 In
the case, the appellee, Boehr, a cardholder who resided in California, sued Discover Bank for
deceptive practice. Discover Bank successfully moved to compel arbitrations based on the
agreed arbitration agreement, in which a waiver clause was included. 63 Subsequently, Boehr
tried to pursue class-wide arbitration which was granted by the trial Court but later reversed by
the Court of Appeals.64 However, the Supreme Court of California reversed again and held that,
although waiver clauses in consumer contracts were not necessarily unconscionable, the wavier
clause at issue was indeed unconscionable. The Discover Bank Court supported its decision by
quoting the U.S. Supreme Court’s reasoning in Amchem Products, Inc. v. Windsor,65 in which
the important role of class action mechanisms in California law was addressed.66 Moreover, the
Court developed a three-part test defining successful constructions of unconscionability defenses
to refuse the enforcement of such wavier clauses in consumer contracts, which was widely
known as the Discover Bank Rule.67
Missouri court also invalidated the waiver clause in Whitney v. Alltel Communications, Inc.
(Whitney). In the case, Whitney, a wireless telephone customer, sued Alltel Communications,
Inc., for a deceptive fee of $0.88 per month.68 Alltel moved to compel individual arbitrations
based on the arbitration provision which provided that “no consolidation or class treatment of
62 Discover Bank v. Superior Court, 30 Cal. Rptr. 3d 76 (2005). 63 See id., at 79. 64 See id., at 78, 79. 65 The U.S. Supreme Court delivered its opinion in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S. Ct. 2231, 138
L. Ed. 2d 689 (1997) that “class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights” (quoting Id. 63, at 82). In addition, the California Supreme Court did not agree with the argument stating small claims litigation, government prosecution and other forms of ADR would be qualified substitutes for class action in recovering small claims. See id. 63,at 87.
66 See id., at 82, 83. 67 The Discover Bank Rule was widely known and applied. More discussions on the Discover Bank Rule are in Chapter
3.3.1 of this article, see infra notes 165-171 and the accompanying texts. 68 Whitney v. Alltel Communications, Inc., 173 S.W.3d 300, 304 (Mo. Ct. App. 2005).
11
any claims” was allowed.69 The trial court held that the waiver clause made the arbitration
agreement unconscionable and unenforceable and was upheld by the Missouri Court of Appeals.
In the delivered opinion, the Whitney Court held that generally contract law defenses against
arbitral provisions were available without contravening the FAA.70 In addition, the unbalanced
bargain power, the fine print of the arbitration clause and the economically unfeasible relief on
an amount of 88 cents per month through individual arbitrations71 made the arbitration provision
both procedurally and substantively unconscionable.72 Therefore, the arbitral agreement at issue
was unenforceable.
In the case of Scott v. Cingular Wireless (Scott), the waiver clause was invalidated by the
Washington court. In the case, the petitioners, a group of consumers, sued Cingular Wireless on
a class basis for deceptive charging between 1-45 dollars monthly.73 The arbitration clause
contained a waiver clause.74 The Supreme Court of Washington took a direct review and held
that the class action waiver was unconscionable and unenforceable. The Court reasoned that the
waiver clause effectively denied millions of consumers’ opportunities to seek relief under the
Washington’s Consumer Protection Act. Furthermore, it also enabled Cingular to exempt itself
from liabilities for “a whole class of wrongful conduct”.75
The Supreme Court of New Jersey also invalidated such waiver clause in Muhammad v. County
Bank of Rehoboth Beach (Muhammad). In Muhammad, the appellant, Jaliyah Muhammad,
applied successfully a short-time loan of $200 from the defendant, County Bank. The annual
percentage rate turned out to be 608.33% and Muhammad had to pay a total amount of $180
69 See id., at 304. 70 See id., at 308. 71 The Court held that the cost would be extremely high for consumers to seek relief for a total amount of $24.64, and thus,
Alltel would be entitled to retain millions and millions of dollars from alleged deceptive charges”, see id., at 314. 72 See id., at 309. 73 Scott v. Cingular Wireless, 161 P.3d 1000, 1002-1003(2007) 74 In the arbitration clause, the Cingular also retained the rights to unilaterally revise the agreement. See id., at 1003. 75 See id., at 1003. For more discussions on the Court’s reasoning on unconscionability, see infra notes 193-195 and the
accompanying texts.
12
finance charges due to her loan extension.76 The arbitration agreement contained a class action
waiver.77 In determining the issue of whether a waiver clause included in an adhesive arbitration
contract constituted unconscionability, the Court reasoned that a formation in adhesion was the
beginning in the establishment of procedural unconscionability.78 Moreover, the Court further
emphasized the value of class-action to public interest,79 and held that a waiver clause would
block the access to class action and may also lead to a situation in which “consumer-fraud
victims may never realize their rights had been infringed.”80 In the end, the waiver clause was
held unconscionable and unenforceable.81
The First Circuit and the Ninth Circuit also held that a waiver was unconscionable and
unenforceable.82 In Kristian v. Comcast Corp. (Kristian), the plaintiffs, a group of consumers,
sued Comcast, a cable television provider, for violations of state and federal antitrust laws.83 The
arbitration provision was inserted as a billing stuffer in subscriber’s invoice,84 and provided that
no authority shall be entitled to arbitrate on a class or a consolidated basis.85 The district court
granted the motion to compel individual arbitrations while the First Circuit disagreed. In
upholding consumers’ arguments on limitation to their vindication of statutory rights,86 the First
Circuit held that “the core of class action mechanism is to overcome the problem of small
recoveries do not have incentives to pursue their rights on individual actions.”87
76 See Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88, 91(2006). 77 See id., at 93. 78 See id., at 97. 79 See id., at 98. 80 Id., at 98-99. 81 See id. 80, at 101. 82 See Jaimee Conley, Suing for Small Potatoes: Consumer Class Action Waivers in Arbitration Agreements Distinguished
by the Ninth Circuit, 2008(1), J. Disp. Resol, 313 (2008). 83 See Kristian v. Comcast Corp., 446 F.3d 25, 29 (1st Cir. 2006). 84 See id., at 30. 85 See id., at 31-32. 86 Consumers specially listed out five kinds of limitations to their rights, and they are “(1) provide for limited discovery; (2)
establish a shortened statute of limitations period; (3) bar recovery of treble damages; (4) prevent recovery of attorney's fees; and (5) prohibit class arbitration”, id., at 37.
87 Id., at 54. For more reasoning, see infra notes 210-211 and the accompanying texts.
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In Ting v. AT&T (Ting), the Ninth Circuit held a similar opinion. In the case, the plaintiff,
Darcy Ting, sued against AT&T on behalf of a group of consumers for violations of California’s
Consumer Legal Remedies Act and the state’s Unfair Practice Act, claiming that pursing against
AT&T on a class-wide basis was barred.88 The Ting Court found the waiver clause satisfied
requirements on unconscionability doctrine under the California law. Therefore, the waiver
clause could not be enforced.89
(2) Post-Conception Period
Not surprisingly, courts in California continued seeking other ways to invalidate waiver clause
after Conception. In Imburgia v. DirecTV, Inc (Imburgia), with regard to the wording of the
arbitration clause as “if ... the law of your state would find this agreement to dispense with class
arbitration procedures unenforceable, then this entire Section 9 is unenforceable”,90 the Court of
Appeals of California held that California law should apply in the current case. The Court
reasoned that according to a basic principle of common-law interpretation, construing ambiguous
language against the interest of the party that drafted the contract,91 the arbitral clause at issue
should be interpreted as “the law of your state without considering the preemptive effect of the
FAA”.92 Under the California law, a waiver clause was both unconscionable and unenforceable.
Hence, the whole agreement was unenforceable due to the unseverable clause.93
Missouri “both supported the Conception decision and evaded it by finding one arbitration clause
with a class waiver unconscionable” in post-Conception Period.94 Brewer v. Missouri Title Loans
(Brewer) was on a loan contract dispute between Brewer and Title. In the case, the plaintiff,
Brewer, filed class action against Title for violations of numerous statutes. The arbitration
88 See Ting v. AT&T, 319 F.3d 1126, 1130 (9th Cir. 2003). 89 See id., at 1148-1149. 90 Imburgia v. DirecTV, Inc., 225 Cal. App. 4th 338, 347 (2014). 91 See id., at 345. 92 See id., at 344. 93 See id., at 347. 94 Lauren Van Waardhuizen, The Evolution of Class Arbitration Waivers and the Courts, 62, Drake L. Rev, 1154 (2014).
14
provision provided that all disputes shall be resolved by individual arbitrations and parties were
responsible for their respective costs.95 The Brewer Court both upheld Conception decision and
alleviated it by finding it did not apply in the current case.96 After finding evidences such as the
disparity in bargaining power, the impossibility for Brewer to have an attorney on an individual
basis and the prohibitive costs Brewer would incur, the Brewer Court held that the whole
arbitration contract was unconscionable and unenforceable.97
Moreover, the Supreme Court of Missouri held a similar opinion in Robinson v. Title Lenders,
Inc.(Robinson).98 The Robinson Court found that the trail court erred in finding the agreement
was unconscionable based on the waiver provision since neither a solely adhesive waiver clause
nor a state public policy ground could be used to invalidate an arbitration clause in post-
Conception,99 whereas it also found the trail court failed to examine borrowers’ other claims of
unconscionability.100 As a consequence, the case was remained.101
Washington courts adopted a similar approach to invalidate wavier clauses after Conception. In
Gandee v. LDL Freedom Enterprises, Inc. (Gandee), the respondent, Gandee, had a debt
adjustment contractual relationship with the appellants, LDL Freedom Enterprises, Inc.
(Freedom). Gandee sued Freedom on a class basis, alleging Freedom had charged excessive fees
and thus had breached the CPA.102 The Supreme Court of Washington denied Freedom’s motion
to compel individual arbitrations, found the FAA did not preempt in the current case, and held
that the arbitration clause was unconscionable and could not be enforced.103
95 See Brewer v. Missouri Title Loans, 364 S.W.3d 486, 487-488 (Mo. 2012). 96 See infra notes 182-186 and the accompanying texts. 97 See Brewer v. Missouri Title Loans, 364 S.W.3d 486, 493-496(Mo. 2012). 98 See Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 508 (Mo. 2012). 99 See id., at 507, 515-516. 100 See id., at 517-518. 101 For more discussions on Robinson Court’s reasoning on unconscionability defense, see infra notes 187-189 and the
accompanying texts. 102 Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197, 1199 (2013) 103 See id. at 1198. See also infra notes 196-198 and the accompanying texts.
15
3. Analysis of the Opposing Approaches
To date, the divergent practice in the enforceability of waivers is closely related to the
interpretation of Section 2 of the FAA:
A written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction, or the refusal to perform
the whole or any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.104
Proponents of waiver clauses firstly argue that it is the requirement of arbitrations’ informality
and efficiency. And then they also attack opponents’ opinions by finding they are preempted by
the FAA. While opponents usually relied themselves on unconscionability doctrine and
vindication of statutory rights principle. This chapter provides a critical analysis of these
arguments.
3.1 General Background - Section 2 of the FAA
As has been above mentioned, these debates center around the interpretation of the FAA.105
Since the enactment of the FAA by the U.S. Congress in 1925, both the U.S. Congress and the
U.S. Supreme Court have presented a strong preference for enforcing arbitration agreements.106
104 The FAA, Section 2: Validity, Irrevocability, and Enforcement of Agreements to Arbitrate. Available at
http://www.sccinstitute.com/media/37104/the-federal-arbitration-act-usa.pdf, visited on 31 March 2017. 105 See Frank Blechschmidt, All Alone in Arbitration: AT&T Mobility v. Concepcion and the Substantive Impact of Class
Action Waivers, 160(2), U. Pa. L. Rev, 546 (2011). 106 E.g., with regard to the issue of the arbitrability of the dispute, the U.S. Supreme Court declared favouring arbitration as a
national policy and stating “Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary… and the Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration”, Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
16
The aim of FAA had been read as shaking off traditional judicial hostilities to arbitration
agreements in the U.S., treating arbitration agreements as equally as other contracts, and
providing an efficient and speedy dispute resolution.107
Especially the saving clause “… shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract” had been used as the bible
for the equal treatment defense. It forbids state courts to invalidate arbitration agreements on
grounds that are not applied to other contracts generally. In DirecTV, the U.S. Supreme Court
overturned the California Court of Appeals by stating it focused only on arbitration in the
interpretation of an ambiguous clause and did not place “arbitration contracts on equal footing
with all other contracts”.108 In fact, the U.S. Supreme Court did address this issue in an earlier
decision in Doctor's Associates, Inc. v. Casarotto (Doctor's Associates). The U.S. Supreme Court
held in Doctor's Associates that Montana’s law was inconsistent with Section 2 of the FAA
because it did not govern any contract but specifically targeted at arbitration.109
Under the national policy of favouring arbitration, the scope on the application of FAA has been
widely broadened in the U.S. For example, in the land mark case Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc. (Mitsubishi),110 the U.S. Supreme Court decided, by a majority of
five to three decision, that anti-trust claims in international context were arbitrable under FAA.111
In the area of consumer protection, different from European Legislators, the U.S. resorts to
general contract law principles and arbitration is used as an effective way to enforce consumer
protection law.112 The U.S. arbitration has been utilized in a wide range of categories including
107 See Heather Bromfield, The Denial of Relief: The Enforcement of Class Action Waivers in Arbitration Agreements, 43(1),
UC Davis L. Rev, 320-322 (2009). 108 See DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, at 470, 468 (2015). See also supra note 43 and accompanying text. 109 See Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 683 (1996). See also supra note 107, at 323. 110 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985). 111 See Nigel Blackaby, et al., Redfern and Hunter on International Arbitration, at paras 2.135-2.136 (6th ed., Oxford
University Press. 2015). 112 See Alexander J. Belohlavek, Autonomy in B2C Arbitration: Is the European Model of Consumer Protection Really
Adequate?, 2, CYArb-Czech (& Central European) Yearbook of Arbitration, 17 (2012).
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daily health care service, telecommunication service, etc.113 Accordingly, consumer arbitration is
a normal kind of arbitration in the U.S. If an arbitration provision is inserted in a consumer
contract, the possible defense can either be “the FAA mandate is overridden by a contrary
congressional command” or be a general contractual defense by claiming suffering fraud, duress,
or unconscionability without violating the FAA.114
3.2 Upholding Waivers in Consumer Contracts
It is obvious that the FAA has a strong tradition in favour of arbitration. In upholding waivers,
Courts usually find class arbitrations to be inconsistent with the nature of arbitration or find state
laws are preempted by the FAA as arbitration agreements need to be enforced as written.
3.2.1 Arguments on the Nature of Arbitration
There has always been an argument as to whether class arbitration is arbitration as “class
proceedings do not resemble the traditional view of arbitration as a swift, simple and pragmatic
bilateral procedure with few witness, documents, or formalities”.115 In Stolt-Nielsen SA v. Animal
Feeds International,116 the dispute involved very complicated business issues.117 The issue was
whether it was permissible to proceed to arbitration on behalf of class basis when the arbitration
clause was silent.118 Justice Alito delivered the opinion of the U.S. Supreme Court, holding that
113 See id, at 34-35. 114 See Alvaro J. Peralta, The Legal Landscape of Class Arbitration Waivers in Consumer Contracts, 3 March 2016.
Available at http://apps.americanbar.org/litigation/committees/appellate/articles/winter2016-0316-legal-landscape-class-arbitration-waivers-consumer-contracts.html, visited on 31 March 2017.
115 S. I. Strong, Does class arbitration change the nature of arbitration-Stolt-Nielsen, AT&T, and a return to first principles. 17 Harv. Negot. L. Rev. 203 (2012).
116 Stolt-Nielsen SA v. AnimalFeeds International, 130 S. Ct. 1758, 559 U.S. 662, 176 L. Ed. 2d 605 (2010). 117 Stolt-Nielsens are large shipping companies sharing a large share of the world market. AnimalFeeds was one of those
customers, whose business was supplying raw ingredients. As a charter party in marine trade, AnimalFeeds signed a standard contract with Stolt-Nielsen. The arbitration agreement included in the contract was silent on whether class arbitration was permissible. After learning the engagement in illegal price-fixing conspiracy of Stolt-Nielsens, AnimalFeeds brought a putative class action against Stolt-Nielsens asserting antitrust claims. See Stolt-Nielsen SA v. AnimalFeeds International, 130 S. Ct. 1758, 1765 (2010).
118 In 2005, AnimalFeeds demanded for class arbitration and was granted by the arbitrators. In the judicial review, the District Court vacated the award and concluded that the arbitrators’ decision was made in manifest disregard of law. While the Court of Appeals reversed and held that nothing in New York case law was against class arbitration. See id., at 1766.
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the arbitration panel failed to identify and apply either the rule of the FAA or New York law and
“imposed its own policy choice and thus exceeded its powers”.119 “The primary purpose of the
FAA is to ensure that private agreements to arbitrate are enforced according to their terms.”120
Thus, in the construction of an arbitration clause, courts and arbitrators must take the contractual
rights and expectations of the parties into account.121 Arbitration is a matter of consent and no
parties can be compelled to arbitration. Therefore,
An implicit agreement to authorize class-action arbitration, however, is not a
term that the arbitrator may infer solely from the fact of the parties' agreement
to arbitrate. This is so because class-action arbitration changes the nature of
arbitration to such a degree that it cannot be presumed the parties consented
to it by simply agreeing to submit their disputes to an arbitrator. (Parties
choose a bilateral arbitration because of) the lower costs, greater efficiency
and speed, and the ability to choose expert adjudicators to resolve specialized
disputes.122
The U.S. Supreme Court expanded the above argument in the interpretation of such waiver
clauses. In Concepcion, Justice Scalia delivered the opinion of the U.S. Supreme Court and held
that class arbitration was inconsistent with the FAA and the state law was preempted as class
arbitration scarified expeditiousness and informality of traditional bilateral arbitration. 123 In
support of this argument, he reasoned that:
The point of affording parties discretion in designing arbitration processes is
to allow for efficient, streamlined procedures tailored to the type of
dispute…And the informality of arbitral proceedings is itself desirable,
119 See id., at 1770. 120 Id., at 1773. 121 See id., at 1774. 122 Id., at 1775. 123 See Emanwel J. Turnbull, Opting Out of the Procedural Morass: A Solution to the Class Arbitration Problem, 20(1),
Widener Law Review, 55 (2014).
19
reducing the cost and increasing the speed of dispute resolution… (while)
class arbitration requires procedural formality. (Therefore) the switch from
bilateral to class arbitration sacrifices the principal advantage of
arbitration—its informality— and makes the process slower, more costly, and
more likely to generate procedural morass than final judgment.124
Subsequently, in American Express, Justice Scalia followed and quoted Conception and held that
a law which conditioned arbitration to proceed on a class basis was interfered with “fundamental
attributes of arbitration”.125
The opinion of the U.S. Supreme Court on the nature of class arbitration itself is quite
controversial. Justice Breyer delivered a dissent opinion in Conception, in which he rejected the
majority’s opinion on the primary goal of the FAA was to enforce arbitration provisions
according to their terms by stating “the overriding goal of the FAA was to promote expeditious
resolution of claims”, and by holding all the requirement of Section 2 was to put agreements to
arbitrate on equal footing with agreements to litigate.126 He further rejected majority’s view by
raising the facts that class arbitration was already a well-known form of arbitration in California,
following elsewhere, and by reasoning majority’s comparison was not between class arbitration
and bilateral arbitration but between class arbitration and class action.127
Professor Gary Born has been critical of the argument that class arbitration is incompatible with
the nature of arbitration. He noted that arbitration is a developing concept and historically it has
taken a wide range of forms in widely varying settings.128 Since the enactment of the FAA in
1925, arbitration has developed and “had been tailored to respond to economic, social and
124 See AT&TMobility LLC v. Concepcion, 131 S. Ct. 1740, at 1748, 1751 (2011). 125 See American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2312 (2013). 126 See AT&TMobility LLC v. Concepcion, 131 S. Ct. 1740, at 1748, 1758 (2011). 127 See id., at 1759. 128 He further noted that arbitration can range from institutional to ad hoc, from commercial to investment, from domestic to
international, etc. See Gary Born & Claudio Salas, The United States Supreme Court and Class Arbitration: A Tragedy of Errors, 2012(1), J. Disp. Resol, 39 (2012).
20
technological developments.” 129 Multi-parties’ arbitration is nothing new. The priority of
arbitration is to ensure parties’ procedural autonomy, and informality is not an essential part of
arbitration.130 Thus, Justice Scalia’s argument was not well founded. Professor S. I. Strong
considered this issue in a wider concept, arguing class arbitration resembles traditional forms of
arbitration in many aspects and does meet necessary standards for arbitration.131
The argument on the nature of arbitration is a fake standpoint. It seemed to make sense in Stolt-
Nielsen, in which the issue was the interpretation of a silent clause. Since the arbitration
agreement did not make it clear whether arbitration could be proceeded on a class basis,
accordingly, the parties did not agree they could arbitrate on a wide-class basis or on a merely
consolidated basis. Therefore, they could not be forced to a procedure which is costlier and more
formalized that they did not agree. Thus, the argument on the nature of arbitration seems logical
in the interpretation of a silent clause. However, different considerations should be taken when a
case concerns the enforceability of waiver clauses in consumer contracts. When faced with a
silent clause, the courts should focus on the parties’ consent,132 not on whether class arbitration
is costlier or more formalized. Because consumers “agree” to waive their rights. Whether class
arbitration is formalized to traditional bilateral arbitration should be a debate staying at the level
of legal systematic design, hiding behind the real argument on parties’ consent. Even if it is a
real argument, stating class arbitrations do not represent the nature of traditional arbitrations just
presents judicial hostilities to class arbitration, a dispute resolution mechanism for collective
redress, in the U.S. The concept is so far-reaching that can be used to attack almost any claim.
129 Id. 128, at 42. 130 See id., at 39-41. 131 She departed from case laws themselves and took into consideration this issue in the concept on the formation of
arbitration. In her opinion, class arbitration resembles traditional arbitration in many ways, for example, “the number of parties, the amount of dispute, the relationship between the parties and the selection of arbitrators”. It only differentiated from traditional multi-party arbitration in “the provision of representative relief and the underlying policy rationales”. In her opinion, these two points also meet the procedural requirement of arbitration. See supra note 115, at 268-269.
132 For more discussions on parties’ consent, see infra Chapter 4.3.3 of this Article.
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3.2.2 Arguments on the Preemption of the FAA
As mentioned above, the strong argument in upholding waivers lies in the national policy of
favouring arbitration and enforcing arbitration agreements. Section 2 of the FAA has been
interpreted as treating arbitration agreements in equity with other contracts and enforcing them
as written.133 The U.S. Supreme Court upheld the preemption of the FAA in considering the
arbitrability of a fraud claim in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., and
stated “as a matter of federal law, any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to arbitrability”.134
Subsequently, in Southland Corp. v. Keating, the problem before the Court was whether an
arbitration agreement with a class action wavier was enforceable. 135 Though the California
Supreme Court held that the exclusive jurisdiction of courts on franchisee agreement under the
California law did not contravene the FAA, 136 the U.S. Supreme Court found the FAA
preempted the California Franchise Investment Law as the Congress intended to create “a
substantive rule applicable in state as well as federal courts” and the arbitration agreement
needed to be placed “upon the same footing as other contracts” under the FAA, while the
California Supreme Court failed to do so.137
In this way, state laws disfavouring such waiver clauses are usually found to be preempted by the
FAA. In Conception, except for the argument on the nature of arbitration mentioned above,138
the U.S. Supreme Court held that California’s Discover Bank Rule, intending to treat almost all
133 See supra notes 104. 134 Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). 135 See Southland Corp. v. Keating, 465 U.S. 1, 4 (1984). 136 See id., at 5. 137 The U.S. Supreme Court created a substantive application of the FAA in state courts as well as in the federal in this case,
while the issue of whether the FAA precluded class-action arbitrations was not decided by the Court due to the inappropriate time. See id., at 15-17.
138 See supra notes123-124 and the accompanying texts.
22
waiver clauses in consumer contracts as unconscionable,139 was preempted by Section 2 of the
FAA as it targeted waiver clauses. The Court further reasoned:
When state law prohibits outright the arbitration of a particular type of claim,
the analysis is straightforward: The conflicting rule is displaced by the FAA…
Although § 2’s saving clause preserves generally applicable contract defenses,
nothing in it suggests an intent to preserve state-law rules that stand as an
obstacle to the accomplishment of the FAA's objectives.140
The Conception decision was straightforward: arbitration agreements should be treated equally
to all other contracts. It also raised an interesting question: how to distinguish general contractual
law principles applying to all contracts from those targeting at arbitration agreements when using
the reservation clause in Section 2 of the FAA. The Third Circuit answered this question in Gay
v. CreditInform.141 In this case, the claimant, Gya, filed a class action against CreditInform
alleging fraudulent credit repair services had violated the CROA. CreditInform moved to compel
individual arbitrations based on the arbitration provision including a waiver clause. 142 Gay
argued that the arbitration agreement was unconscionable under Pennsylvania law.143 However,
the Third Circuit overruled Gay’s claim and found the Pennsylvania law was preempted by the
FAA, and further “distinguished state law principles that applied to contracts generally from
those that were unique to arbitration agreements” by reasoning as:
A court may not, then, in assessing the rights of litigants to enforce an
arbitration agreement, construe that agreement in a manner different from that
in which it otherwise construes non-arbitration agreements under state law…
(And) nor may a court rely on the uniqueness of an agreement to arbitrate as a
139 See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011). 140 Id., at 1747-1748. 141 Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007). 142 The arbitration clause at issue required all disputes to be submitted to arbitration under the AAA arbitration rules and
provided that no consolidated arbitration would be allowed. See id, at 375. 143 See id., at 375-376.
23
basis for a state-law holding that enforcement would be unconscionable, for
this would enable the court to effect what we hold today the state legislature
cannot.144
The U.S. Supreme Court applied a similar reasoning in the recent case of DirecTV, which
concerned the issue of interpretation under California law. The DirectTV Court stated that it was
the issue of whether the state law was inconsistent with the FAA, but not whether the decision
(on the interpretation) was correct under California law needed to be decided.145 The Court found
that the state law was inconsistent with and was preempted by the FAA as California courts did
not treat arbitration agreements equally to all other contracts:
We conclude that California courts would not interpret contracts other than
arbitration contracts the same way… and nothing in the Court of Appeal’s
reasoning suggests that a California court would reach the same interpretation
of ‘law of your state’ in any context other than arbitration… (furthermore), the
language used by the Court of Appeal focused only on arbitration...146
Thus, in the U.S. Supreme Court’s opinion, if a state court did not take seriously on the national
policy of favouring arbitration, it would risk being preempted by the FAA. 147 The most
frequently used method to attack states’ argument on unconscionability is finding they do not
treat arbitration equally to other contracts.
144 Id., at 393-394 (quoting William H. Baker, Class Action Arbitration, in Carter, James H., and John Fellas,
eds., International Commercial Arbitration in New York 352-353 (Oxford University Press, 2010)). 145 See DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 468-471 (2015). 146 See id., at 469-471. 147 See id., at 471.
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3.3 Challenges to Waivers in Consumer Contracts
If a consumer cannot prove the available defenses under the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention),148
according to the saving clause in Section 2 of the FAA, the possible defense to an arbitration
agreement would be general contractual law defenses. As the U. S. Supreme Court stated,
“generally applicable contract defenses, such as fraud, duress or unconscionability, may be
applied to invalidate arbitration agreements without contravening FAA § 2”.149 In the consumer
context, contractual law defenses are also applied as the law does not make distinctions between
consumer arbitration and commercial arbitration.150 In practice, either a successful construction
of unconscionability or invocation of effective vindication of statutory rights might nullify a
class action/arbitration waiver clause in the U.S.
3.3.1 Arguments on Unconscionability Doctrine
Statues on consumer protection themselves are not sufficient in providing feasible grounds to
withhold the enforcement of arbitration provisions in the U. S. However, in accordance with
Section 2 of the FAA, only contract law may do so. Accordingly, unconscionability, as a general
state contractual defense, has usually been used to invalidate adhesive waiver clauses in
consumer contracts.151
148 See the New York Convention, Article V. Available at http://www.uncitral.org/pdf/english/texts/arbitration/NY-
conv/New-York-Convention-E.pdf, visited on 7 April 2017. 149 Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 686 (1996). See also supra note 4, at 1644 (stating contractual and
other common law attacks are much more successful than constitutional or federal statutory arguments in challenging arbitration agreements).
150 See Norbert Reich, Party Autonomy and Consumer Arbitration in Conflict: A Trojan Horse in the Access to Justice in the EU ADR-Directive 2013/11, 4 Penn St. JL & Int'l Aff, 294 (2015).
151 Including but not limited to adhesive waiver clauses, unconscionability is the most popular contractual law ground for state courts relying on to reject the enforcement of adhesive arbitration provisions. See Stephen Ware, The Case for Enforcing Adhesive Arbitration Agreements-With Particular Consideration of Class Actions and Arbitration Fees, 5(2), Journal of American Arbitration, 265 (2006).
25
An official explanation to the unconscionability defense is provided in the Uniform Commercial
Code.152 Accordingly, “the principle is one of the prevention of oppression and unfair surprise…
and not of disturbance of allocation of risks because of superior bargaining power”, and “usually
the clause involved are so one-sided as to be unconscionable under the circumstances existing at
the time of the making of the contract.”153 As indicated from the explanation, unconscionability
doctrine consists of two aspects: the procedural unconscionability and the substantive
unconscionability. In general, the procedural unconscionability refers to unequal bargaining
powers between parties; the focus is on the formation of contracts and can be presented as fine
print, lack of consent or understanding. The substantive unconscionability deals with a situation
in which terms unreasonably favour the stronger party; the focus is on actual terms and values of
contracts and can be presented as overly harsh or one-sided results.154
The application of unconscionability doctrine varies from court to court, both at states’ and
federal levels. Some courts require both procedural and substantive unconscionability to
establish unconscionability defenses, while for some courts only one aspect of unconscionability
is necessary.155 In conformity with Chapter two of this article, the following discussion focuses
on California, Missouri and Washington.
(1) California
152 Uniform Commercial Code § 2-302 - Unconscionable contract or Clause. Available at
https://www.law.cornell.edu/ucc/2/2-302, visited on 8 April 2017. 153 Official Comment to Uniform Commercial Code § 2-302, (2003), (quoting Ramona Lampley, Is Arbitration Under
Attack?: Exploring the Recent Judicial Skepticism of the Class Arbitration Waiver and Innovative Solutions to the Unsettled Legal Landscape, 18(2), Cornell Journal of Law and Public Policy, 490 (2009)).
154 See supra note 151, at 265-266. 155 For example, in California, Alabama and Ohio, both procedural and substantive unconscionability are required to
establish an unconscionability defense; in Washington, both procedural and substantive unconscionability are admitted in law, but construction of unconscionability defense solely on substantive unconscionability is permissible there; in Texas, although both procedural and substantive unconscionability are also admitted in law, a finding of unconscionability defense is more like a case by case analysis, there were case laws there admitted construction of unconscionability defenses solely on the basis either of procedural unconscionability or of substantive unconscionability. See Yongdan Li, Applying the Doctrine of Unconscionability to Employment Arbitration Agreements, with Emphasis on Class Action/Arbitration Waivers, 31, Whittier L. Rev, 671-696 (2009).
26
In California, both procedural and substantive unconscionability are required to challenge the
enforceability of a waiver clause in a consumer contract. The California Court of Appeals
explained in Szetela v. Discover Bank (Szetela)156 that procedural unconscionability focused on
the “weaker bargaining position”. Accordingly, if a provision was imposed to the weaker party
on a “take it or leave it” basis such as a bill stuffer in the present case, it would be found
procedurally unconscionable.157 While substantive unconscionability addressed “the fairness of
the term” itself and usually presented as overly harsh terms. 158 The Szetela Court further
emphasized that a manifest one-sided class action waiver clause was blindingly obvious
substantive unconscionable.159 The Court explained that an adhesive arbitration provision was
not inherently unconscionable. However, a class action waiver clause was an exception, as it was
not only harsh and unfair which provided customers with no benefits, but it also granted the
Discover opportunities to get rid of punishments from unlawful commercial practices.
Furthermore, the wavier clause violated California’s public policy by “granting Discover a get
out of jail free card while compromising important consumer rights”.160
Unconscionability doctrine is an evolving concept in California. In Wayne v. Staples, Inc.
(Wayne), the Court of Appeals of California for the Second District admitted that both
procedural and substantive unconscionability were required to establish an unconscionability
defense. Nevertheless, the Wayne Court further explained that the two aspects “do not have to be
presented in the same degree”.161 Accordingly, the relationship between the procedural and
substantive unconscionability was in a constant state of flux: the more oppressive substantive
156 In Szetela, plaintiff John Szetela challenged an order granting Discover Bank’s motion to compel arbitration by arguing
the arbitration provision with a class action waiver clause included was unconscionable and unenforceable. See Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 864 (Ct. App. 2002).
157 Id., at 867. 158 Id., at 867. 159 Id., at 867. 160 Id., at 867-868. 161 Wayne v. Staples, Inc., 37 Cal. Rptr. 3d 544, 554 (Ct. App. 2006).
27
there was in the contract terms, the less procedural unconscionability was needed to be proved to
reach a successful unconscionability defense, and vice versa.162
In Discover Bank, the Supreme Court of California agreed with the concept of the two aspects of
unconscionability in former case laws,163 howbeit it slightly disagreed with the Szetela Court in
the construction of an unconscionability defense to a waiver clause. Instead of holding wavier
clauses were inherently unconscionable,164 the Discover Bank Court held that not all waiver
clauses in consumer contracts were necessarily unconscionable in California.165 Moreover, the
Court reasoned the situation in which a wavier clause would be found unconscionable under
California law:
Firstly, when, a consumer is given an amendment to its cardholder agreement
in the form of a "bill stuffer" that he would be deemed to accept if he did not
close his account, an element of procedural unconscionability is present;
(secondly, the adhesive contract is) in a setting in which disputes between the
contracting parties predictably involve small amounts of damages; (thirdly, if
the clause will lead to a consequence in which) party with
the superior bargaining power has carried out a scheme to deliberately cheat
large numbers of consumers out of individually small sums of money.166
This three-part test was well known as the Discover Bank Rule and had been widely used to
contribute to the establishment of unconscionability defenses against such waiver clauses in
162 See id., at 554. 163 The Discover Bank Court held that unconscionability doctrine had “both a procedural and a substantive element”, and the
procedural unconscionability referred to unconscionable surprise due to “unequal bargaining powers” while usually presented as adhesive contracts, while the substantive unconscionability focused on “overly harsh or one-sided results”. See Discover Bank v. Superior Court, 30 Cal. Rptr. 3d 76, 85 (2005).
164 See supra note 160 and the accompanying texts. 165 Discover Bank v. Superior Court, 30 Cal. Rptr. 3d 76, 85 and 87 (2005). 166 Id., at 85-87. The Discover Bank Court also reasoned it was contradict to the public policy of California. The California
Civil Code § 1668 provides: “All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law”. The provision is available at http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=1668, visited on 9 April 2017.
28
consumer contracts. For example, in Cohen v. DirecTV (Cohen), Inc., when the company moved
to compel individual arbitrations, the California Court of Appeals relied on the Discover Bank
Rule, holding the waiver clause was unconscionable and unenforceable.167 And in Shroyer v.
New Cingular Wireless Services, 168 the Ninth Circuit also relied itself on the Discover Bank
Rule and reasoned: firstly, New Cingular’s Agreements were non-negotiable to consumers;169
secondly, the Cingular Agreements were set predictably involving small amounts of damages,170
and thirdly, New Cingular made customers entering into the New Cingular’s agreement by
taking a fraudulent scheme which deliberately designed to cheat numerous consumers out of
small sums of money individually.171 Therefore, the waiver provision was both procedurally and
substantively unconscionable and could not be enforced under California law.
In order to shake off influences brought by Conception in post-Conception period, California
courts developed new ways to apply the California law by interpreting Conception. 172 In
Imburgia, the California Court of Appeals tried to apply the California law (the Discover Bank
Rule) through the interpretation of the choice of law provisions and held that “class action
waiver is unconscionable under California law”. 173 The interpretation also happened in
employment contracts. In Sonic-Calabasas A, Inc. v. Moreno (Sonic), the Supreme Court of
California found the adhesive waiver clause was both procedural and substantive
167 The Cohen Court reasoned that Discover Bank clarified situations (the three-part test) in which a waiver clause could be
found unconscionable, and circumstances in the Cohen were “comparable to those discovered in Discover Bank”, hence the class action wavier in the present case was unconscionable and unenforceable. See Cohen v. DirecTV, Inc., 48 Cal. Rptr. 3d 813, 817-823 (2006). The Cohen Court also noted a number of cases followed Discover Bank Rule, e.g. Aral v. EarthLink, Inc. 134 Cal.App.4th 544, 36 Cal.Rptr.3d 229 (2005); Klussman v. Cross Country Bank 134 Cal.App.4th 1283, 1287, 36 Cal.Rptr.3d 728 (2005), and Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court 133 Cal.App.4th 396, 34 Cal. Rptr.3d 659 (2005) (quoting Cohen v. DirecTV, Inc., 48 Cal. Rptr. 3d 813, 821-822 (2006)).
168 See Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, 979-980 (9th Cir. 2007). 169 See id., at 983-984. 170 See id., at 984. 171 See id., at 984. 172 Instead of interpreting unconscionability defense itself under California law, California courts tended to find ways to
apply it. 173 See Imburgia v. DirecTV, Inc., 225 Cal. App. 4th 338, 347 (Ct. App. 2014). See also supra notes 90-93 and the
accompanying texts.
29
unconscionable.174 The Sonic Court further held that the unconscionability defense was not
preempted by the FAA as there were no discriminations to the arbitral provision at issue.175
Moreover, in Sanchez v. Valencia Holding Co., LLC, the Supreme Court of California found the
class action wavier clause was unconscionable and unenforceable by holding that Conception did
not eliminate the application of unconscionability doctrine as a general contractual law
defense.176 Though some of the interpretations were not in consumer contexts, they definitely
have impacts on consumer arbitrations.
(2) Missouri
The general concept of unconscionability in Missouri is defined as “an injustice so strong, gross,
and manifest that it must be impossible to state it to one with common sense without producing
an exclamation at the inequality of it.”177 It also requires both the procedural and substantive
aspects to establish an unconscionability defense. In Whitney, the Court affirmed the concept of
unconscionability as “generally, there must be both procedural and substantive unconscionability
before a contract or a clause can be voided”.178 Subsequently, the Court further reasoned that the
relations between the procedural and substantive aspects should be balanced in a “sliding scale”
scheme. Accordingly, an existence of gross procedural unconscionability would alleviate
burdens of proof on substantive unconscionability and vice versa. 179 Moreover, the Court
174 See Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1134-1135 (2013). 175 Id., at 1135 (the Sonic-Calabasas Court did not invalidate the arbitration agreement not because the unconscionability
defense was not successfully built, but due to the employee’s request for a Berman hearing). 176 Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 906-907 (2015) (the Sanchez Court emphasized that
“Concepcion had reaffirmed the FAA does not preempt generally applicable contract defenses, such as fraud, duress, or unconscionability”, and these general contractual law defenses were applicable if they did not conflict to the fundamental spirits of the FAA).
177 McMullin v. McMullin, 926 S.W.2d 108, 110 (Mo. Ct. App. 1996) (quoting Whitney Hampton, A New Twist on an Old Approach: Missouri's Use of Unconscionability and Consent in the Class Arbitration Waiver Analysis-Brewer v. Missouri Title Loans, Inc, 2011(1), J. Disp. Resol, 211(2011)).
178 Whitney v. Alltel Communications, Inc., 173 S.W.3d 300, 308 (Mo. Ct. App. 2005) (the Whitney Court also explained that procedural unconscionability focused on contract formation and presented as fine print, misrepresentation, or unequal bargaining position; substantive unconscionability referred to the undue harshness in contract terms).
179 See id., at 308. The Missouri Court of Appeals for Western District pointed that the procedural and substantive aspects of unconscionability need to be operated on a “sliding scale” a long time ago, see Funding Systems Leas. Corp. v. King Louie Intern., Inc., 597 S.W.2d 624, 634 (Mo. Ct. App. 1979) (quoting supra note 177, at 212).
30
explained that Section 2 of the FAA had provided approaches, general contractual law defenses,
to states to protect consumers against unjust business acts in forcing them to agree arbitration
clauses which they didn’t want. Hence, the alleged arbitration agreement was unenforceable by
finding it both procedurally and substantively unconscionable.180
In post-Conception period, courts in Missouri adopted a similar approach to California to
invalidate a wavier clause, by interpreting Conception and holding the state law was not
preempted by the FAA.181 On the one hand, courts in Missouri supported Conception by holding
the Discover Bank Rule was preempted by Conception or stating an adhesive wavier clause itself
could not result in the invalidity of an arbitral provision. On the other hand, a case by case
analysis method was developed in finding whether the arbitral agreement as a whole was
enforceable. Such as in Brewer, the Court defined the issue as “whether the arbitration agreement
as a whole is unconscionable”182 and found evidences were capable to prove that “the entire
arbitral agreement” was unconscionable. 183 The Brewer Court first admitted
California’s Discover Bank Rule was preempted by the FAA, criticizing it may invalidate almost
all waiver clauses in consumer contracts even in a situation where an unconscionability defense
could not be well established.184 However, the Court further held that Conception did not apply
to the current case because “the issue in Conception was whether California’s Discover Bank
Rule was preempted, not whether all state law unconscionability defenses are preempted.”185
Since general state contractual defenses are still available, if there is a successful construction of
180 See Whitney v. Alltel Communications, Inc., 173 S.W.3d 300, at 310, 314(Mo. Ct. App. 2005). See also supra notes 68-
72 and the accompanying texts. 181 See supra notes 172-176 and the accompanying texts. 182 Brewer v. Missouri Title Loans, 364 S.W.3d 486, 493 (Mo. 2012). 183 See id., at 493 (the Brewer Court noted that not only the entire agreement was non-negotiable (no customers had ever
negotiated any terms of the contracts successfully) and too difficult for consumers to understand, but it was also extremely one-sided, so it was fundamentally different form Conception).
184 See id., at 489. 185 Id., at 490.
31
an unconscionability defense, the whole arbitral clause will be found unconscionable and
unenforceable.186
The Robinson Court also admitted the Discover Bank Rule was preempted by the FAA.187 In the
Robinson Court’s opinion, all state law disfavoured arbitration was contrary to Conception and
might be found preempted by the FAA. It suggested:
(In) post-Concepcion, a court should not invalidate an arbitration agreement
in a consumer contract simply because it is contained in a contract of adhesion
or because the parties had unequal bargaining power,…courts may (also) not
apply state public policy concerns to invalidate an arbitration agreement even
if the public policy at issue aims to prevent undesirable results to
consumers.188
Hence, in the Robinson Court’s opinion, it was wrong for the trail court to build an
unconscionability defense solely on a basis of a class action wavier clause. However, neither did
the Court uphold the wavier clause. The Robinson Court delivered a similar reasoning to Brewer,
that is, taking all relevant facts into account and treating the arbitration agreement as an integral
whole in deciding the issue of enforceability of an arbitration agreement.189
(3) Washington
186 See id., at 493-496. 187 See Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 514 (Mo. 2012). 188 Id., at 515-516. There are also some other examples mimicked Brewer Court’s and Robinson Court’s reasoning on this
point, see Davis v. Sprint Nextel Corporation, No. 12-01023-CV-W-DW, (W.D. Mo. Nov. 26, 2012) (holding “merely standardized, non-negotiable form of contract did not establish unconscionability under Missouri law”), see also Bush v. AT&T CORP., No. 12-6106-CV-SJ-DGK, 2 (W.D. Mo. Dec. 3, 2012) (holding incorporating unsigned terms and conditions to an agreement was available under Missouri law and mandatory arbitration provision was not inherently unconscionable) (quoting Michael A. Clithero, Is Your Arbitration Clause Prohibiting Class Arbitration Enforceable?, July – August, 2013, available at http://www.mobar.org/uploadedFiles/Home/Publications/Journal/2013/07-08/arbitration.pdf, visited on 2 May 2017. While in this article, the author argued Davis and Bush were reflections of court’s split after Conception).
189 Id., at 517-518.
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Both procedural and substantive unconscionability are recognized in Washington, while a
construction of unconscionability does not require both of the two aspects. “Either a
substantive or a procedural unconscionability is sufficient to void a contract.”190 According to a
previous study, very few unconscionability defenses were built on a mere procedural
unconscionability. The frequently used method is establishing a successful substantive
unconscionability,191 which means a clause is “one-sides or overly harsh” that would shock the
conscience in accordance with the Washington law.192
In Scott, by a successful finding of pure substantive unconscionability, the Supreme Court of
Washington held that the class action wavier at issue was unconscionable and unenforceable.193
The Court reasoned that the waiver clause prevented the private enforcement of CPA, which was
indispensable to realize the purpose of CPA, aiming at preventing consumers from being harmed
by unfair and deceptive business practice and protecting public interests.194 Then the Court
further reinforced its reasoning on substantive unconscionability and attacked consumer friendly
clauses by quoting Carnegie v. Household Intern. In the Court’s opinion, consumer friendly
clauses could not exculpate harm caused by the waiver clause because:
It would hardly be an improvement to have in lieu of this single class action
17,000,000 suits each seeking damages of $15.00 to $30.00…
the realistic alternative to a class action is not 17 million individual suits, but
zero individual suits, as only a lunatic or a fanatic sues for $30.195
Washington Courts also found new ways to apply state unconscionability doctrine through
interpreting Conception in post-Conception period. In Gandee, the Supreme Court of
190 Adler v. Fred Lind Manor, 153 Wash. 2d 331, 347 (2004) (quoting Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d
1197, 1999). 191 see supra note 155, at 681, it also showed that a mere fact that a contract was adhesive was not enough for a finding of
procedural unconscionability. 192 See Adler v. Fred Lind Manor, 153 Wash. 2d 331, 334-335 (2004). 193 Scott v. Cingular Wireless, 161 P.3d 1000, 1005 (2007). 194 See id., at 1005- 1006. 195 Carnegie v. Household Intern., Inc., 376 F.3d 656, 661 (7th Cir. 2004) (quoting id., at 1007).
33
Washington held that the arbitration provision was substantively unconscionable because: firstly,
the arbitration agreement effectively denied Gandee to vindicate her statutory rights; secondly,
the loser pays provision was too hard and one-sided and thirdly, the included statute of limitation
also shortened the limitation period provided by the CPA. 196 The Court further noted that
Conception did not preempt in the current case as it was different from Discover Bank. In the
Court’s opinion, the Discover Bank Rule was a rule too overbroad that may invalid a
conscionable arbitration clause according to California law, while in the current case, the
arbitratral provision contained “numerous unconscionable provisions based on the specific facts
at issue.”197
The approach adopted by Washington courts was similar to Missouri’s, supporting Conception
by rejecting California’s Discover Bank Rule, and drifting away from Conception by holding the
FAA only preempts absolute unconscionability rules like the Discover Bank Rule.198 On a case
by case analysis, substantive unconscionability defenses against arbitral clauses are still alive in
Washington.
3.3.2 Arguments on Effective Vindication of Statutory Rights
In addition to raise the unconscionability defense, challengers may also seek to invalidate waiver
clauses on the ground “that they are void under a state statue or state constitution”.199 The
vindication of statutory rights is a judiciary created defense originally aiming at drawing
attention to the equal treatment of arbitration forum with judicial forum.200 In Mitsubishi, in
considering the issue of enforceability of an arbitration agreement involving anti-trust claims in
international context,201 the U.S. Supreme Court held that:
196 Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197, 1201-1202 (2013). See also James Dawson, Contract After
Conception: Some Lessons from the State Courts, 124 The Yale Law Journal, 237 (2014). 197 See Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197, 1202-1203 (2013). 198 See supra note 196 James Dawson, at 237. 199 See supra note 4, at 1646. 200 See supra note 153, at 493-494. 201 See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 624 (1985).
34
By agreeing to arbitrate a statutory claim, a party does not forgo the
substantive rights afforded by the statute; it only submits to their resolution in
an arbitral, rather than a judicial, forum… the party should be held to
it unless Congress itself has evinced an intention to preclude a waiver of
judicial remedies for the statutory rights at issue.202
The vindication of statutory rights principle developed by the Mitsubishi Court was followed by
several courts.203 Vindication of statutory rights was created in Mitsubishi to shake off judicial
hostilities to arbitration. If there was no evidence showing the Congress intended to preclude the
arbitrability of a statutory right, then the arbitration agreement should be enforceable.
Correspondingly, if “a litigant would be required to forfeit his or her substantive rights in
arbitration, then the arbitration clause should not be enforced.”204 Subsequently, a frequently
used method in finding a waiver clause invalid is to examine whether it withholds consumers
from vindicating their rights effectively.
Green Tree Financial Corp.-Ala. v. Randolph was the very first case to use vindication of
statutory right principle as a defense to arbitration. It addressed the issue of the arbitrability of
the statutory rights where the arbitration costs were too high for consumers to realize their
rights.205 Randolph argued that the class action waiver clause prevented her from pursing federal
statutory claims because the arbitration cost was too high.206 In respond to the argument, the U.S.
Supreme Court held that “it may well be that the existence of large arbitration costs could
preclude a litigant such as Randolph from effectively vindicating her federal statutory rights in
202 Id., at 627-628. 203 See e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, at 23, 29 (1991) (holing claims under the Age
Discrimination in Employment Act (ADEA) was arbitrable and Congress “did not explicitly preclude arbitration or other nonjudicial resolution of claims, even in its recent amendments to the ADEA”); Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001) (holding “an expansive construction of the FAA's exclusion provision that goes beyond the meaning of the words Congress used”) (quoting Stacey L. Pine, Employment Arbitration Agreements and the Future of Class-Action Waivers, 4(1), Am. U. Labor & Emp, 7-9 (2014)).
204 Katherine V.W. Stone, Procedure, Substance, and Power: Collective Litigation and Arbitration Under the Labor Law, 61 UCLA Law Review Discourse, 172 (2013).
205 See Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 82 (2000). 206 See id., at 89.
35
the arbitral forum,” however, Randolph only contended there was a risk for her to bear
prohibitive cost but did not show the risk would come into existence.207 Furthermore, it was for
the party seeking to avoid arbitration clause bearing the burden of proof to establish Congress’
intention to preclude arbitration on the statutory claims, and as well as a successful argument on
prohibitive costs.208 Therefore, Randolph could not fulfill the burden of proof by arguing there
would be a risk of incurring prohibitive costs.
The Randolph Court made it clear that vindication of statutory right principle could be a valid
defense to arbitral provisions. Besides, a party who asserted such an interference such as
prohibitive costs bore the burden to show it. Many courts followed and required consumers to
prove the prohibitive costs interference.209
In addition, some courts held that a waiver clause would withhold consumers from vindicating
their substantive rights as consumers would give up small claims in lacking of class redress
mechanisms. For instance, the Kristian Court quoted Carnegie and held that class actions and
class arbitrations were procedures for redressing claims in which substantive implications could
not be ignored.210 The Court further noted that “the denial of class arbitration in the pursuit of
antitrust claims has the potential to prevent Plaintiffs from vindicating their statutory rights.”211
207 See id., at 90-91. 208 See id., at 92. 209 See e.g., Delta Funding Corp. v. Harris, 912 A.2d 104, 114 (2006) (holding Harris successfully proved the cost was too
high for her to vindicate her rights); Cicle v. Chase Bank USA, 583 F.3d 549, 556 (8th Cir. 2009) (holding since Cicle “seeks to invalidate an arbitration agreement (the class action waiver clause) on the ground that arbitration would be prohibitively expensive, (therefore) she bears the burden of showing the likelihood of incurring such costs”); James v. McDonald's Corp., 417 F.3d 672, 679 (7th Cir. 2005) (holding the party opposing the arbitration clause should show the expenses she would definitely incur) (quoting Myriam Gilles, Killing Them with Kindness: Examining Consumer-Friendly Arbitration Clauses after AT&T Mobility v. Concepcion, 88(2), Notre Dame L. Rev. 832-833 (2012)). See also Livingston v. Associates Finance, Inc., 339 F.3d 553, 554-557 (7th Cir. 2003) (holding the party sought to invalidate the waiver clause failed to prove the cost of arbitration was too high for them and specifically pointed out that disclosed fees of $2,000 per day was not enough prove prohibitive costs, since Associates agreed to pay all relevant prohibited costs associated with arbitration).
210 Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006) 211 See id., at 55 (the Kristian Court reasoned that the defense on vindicating of rights was established because the expert
witness provided by the plaintiff confirmed the complexity of prosecuting an antitrust claim: the prohibitive costs on expert witness fees amounted to a minimum of $300,000 and may even exceed $600,000, therefore consumers would lack incentive to pursue individual small values of claims, at 58-59); see also Scott v. Cingular Wireless, 161 P.3d 1000, 1007 (2007) (holding pursing small claims on a basis of individual arbitration was impractical by quoting Carnegie).
36
Accordingly, both class actions and class arbitrations are important collective redress
mechanisms for consumers to pursue their small claims. A waiver clause would bar access to
vindicate the statutory rights for consumers, as it would not only bring prohibitive costs such as
expert fees for individuals, but also cut off incentives for consumers to pursue their small claims
directly.
However, the attitude of the U.S. Supreme Court dramatically changed in American Express. In
order to resist American Express’s motion on compelling individual arbitrations, Italian Colors
claimed the costs would be prohibitively high for them to vindicate their statutory rights. They
submitted a statement from an economist stating, “the cost of an expert analysis necessary to
prove the antitrust claims would be at least several hundred thousand dollars, and might exceed
$1 million, while the maximum recovery for an individual plaintiff would be $12,850, or
$38,549 when trebled.”212 Despite this irrebuttable evidence, Justice Scalia representing the
majority played tricks in interpreting vindication of statutory rights principle. He held that
neither the anti-trust laws intended to preclude the use of arbitration, nor did the Rule 23 entitle
litigants vindicating statutory rights through class proceedings.213 He further overturned what had
been delivered in Randolph indirectly, by stating even though costs attached to arbitration might
be “so high as to make the access to the forum impracticable”,214 the effective vindication would
only be applied on public policy grounds and “the antitrust laws do not guarantee an affordable
procedural path to the vindication of every claim”.215 Thus, “the fact that it is not worth the
expense involved in proving a statutory remedy does not constitute the elimination of the right to
pursue that remedy.”216
Evidently, in American Express, the Court went too far on this point. Justice Scalia hardly made
a strong and cogent case. If the access to statutory rights is barred and is proved, those statutory
212 American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2308 (2013) 213 See id., at 2309-2310. 214 Id., at 2310-2311. 215 Id., at 2309-2310. 216 Id., at 2311.
37
rights would become a dead letter. Italian Colors made every single effort to realize their rights
but were thwarted by the waiver clauses in the arbitration agreements. Regardless of the
evidences provided, the majority still insisted on enforcing the arbitration agreement as written
and enabled the arbitration agreement to bar Italian Colors’ access to vindicate their rights. As
Justice Kagan wrote in her dissent:
The monopolist gets to use its monopoly power to insist on a contract
effectively depriving its victims of all legal recourse…The effective-vindication
rule would ensure that Amex's arbitration clause does not foreclose Italian
Colors from vindicating its right to redress antitrust harm…Without the rule, a
company could use its monopoly power to protect its monopoly power, by
coercing agreement to contractual terms eliminating its antitrust liability.217
American Express casted shadow to effective vindication of statutory rights principle as a
defense to arbitration clause. It delivered a message that small claims are not worth for pursuing.
Though the dispute involved was anti-trust claims, it would definitely impact on consumer
arbitrations. It de facto blocked the way for compensation through anti-trust claims for
consumers. The Second Circuit had already given up its struggle in In Re American Express I
and II.218 In Sutherland v. Ernst & Young LLP, the Second Circuit held that despite the economic
obstacles Sutherland had faced with to vindicate its rights, American Express compelled it to
217 Id., at 2313. The second circuit also disagreed with the majority in both its initial opinion and opinion on remanded, see
In Re American Express Merchants' litigation, 554 F.3d 300, 320 (2d Cir. 2009) (holding the class action waiver clause could not be enforced “because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery”); see also In Re American Express Merchants' litigation, 634 F.3d 187, 198 (2d Cir. 2011) (the Second Circuit adhered to its original opinion and held “we find the record evidence before us establishes, as a matter of law, that the cost of plaintiffs' individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws”) (quoting supra note 204, at 178). Despite the battle inside the U.S. Supreme Court, the ruling of American Express is quite controversial. Commentators criticized it as “the worst Supreme Court arbitration decision ever”, and the ruling made companies using arbitration to insult themselves from class-action liability. See James Schurz, Consumer Class Actions Take Another Hit: Supreme Court Rules Class-Action Arbitration Waiver Covers Antitrust Claims, 20 (6) Westlaw Journal, 4 (2013).
218 See supra note 217, In Re American Express Merchants' litigation, 554 F.3d 300, 320 (2d Cir. 2009) and In Re American Express Merchants' litigation, 634 F.3d 187, 198 (2d Cir. 2011).
38
reach a conclusion that the claim at issue was “not economically worth pursuing individually.”219
Subsequently, in Raniere v. Citigroup Inc., the Second Circuit held that American Express had
made it clear that effective vindication doctrine did not simply apply as “it is not economically
feasible for a plaintiff to enforce his statutory rights individually”.220 Just as Robert Barnes said,
there is almost future for consumer, employment and even shareholder to pursue class
proceedings in post- American Express.221
4. Waivers and Access to Justice Test in Consumer Contracts
This chapter examines the practical reactions in the U.S. to the current judicial practice and
studies the possible reliefs for consumers faced with the waiver clauses.
4.1 The Abuse of Waiver Clauses in Consumer Contracts
In response to the financial crisis of 2008-2009, the U.S. Congress enacted Dodd–Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank). Under the Dodd-Frank, a
Consumer Financial Protection Bureau (CFSB) was established, which consequently carried out
a study on pre-dispute mandatory clauses in consumer financial products. Accordingly, a report
named “Arbitration Study” was published in 2015.222 Since debates and splits over the issue on
waiver clauses have been ongoing for years, one important task of the study was to study waiver
219 See Sutherland v. Ernst & Young LLP, 726 F.3d 290, 298 (2d Cir. 2013) (quoting Jason M. Halper & William J. Foley,
United States: Seven Months After “American Express v. Italian ColorsRestaurant”: The End of Class Actions?, 14 January 2014, available at http://www.mondaq.com/unitedstates/x/285906/Class+Actions/Seven+Months+After+American+Express+v+Italian+Colors+Restaurant+The+End+Of+Class+Actions, visited on 17 April 2017.
220 Thus, the Second Circuit found the District Court errored in finding plaintiffs met the burden proving costs were too high to vindicate statutory rights and remained the case, see Raniere v. Citigroup Inc., No. 11-5213-cv (2d Cir. Aug. 12, 2013). Upon remanding, the New York District Court had no choice but to agree, holding there was a very real probability that plaintiffs would lose chances for prevailing, see Raniere v. Citigroup Inc., No. 11 Civ. 2448 (S.D.N.Y. Sept. 29, 2015).
221 Robert Barnes, Supreme Court sides with American Express on arbitration, 20 June 2013, available at https://www.washingtonpost.com/politics/supreme-court-sides-with-american-express-on-arbitration/2013/06/20/dc78c022-d9dc-11e2-a016-92547bf094cc_story.html?utm_term=.92a8166edc09, visited on 17 April 2017.
222 See Richard Corday, Consumer Protection in the Financial Marketplace, 9 Harv. L. & Pol'y Rev., 307-308(2015), see also Brenna A. Sheffield, Pre-Dispute Mandatory Arbitration Clauses in Consumer Financial Products: The CFPB's Proposed Regulation and Its Consistency with the Arbitration Study, 20 N.C. Banking Inst., 219-221 (2016).
39
clauses comprehensively and find out whether those waiver clauses “had prevented consumers
from vindicating their rights.”223 According to the study, almost all of the arbitration clauses
studied since 2013 have contained class arbitration waivers, and some also have contained class
action waiver clauses simultaneously:
No class arbitration No provision on class
arbitration
No class action224
% of contracts % of market % of contracts % of market % of samples with
arbitration clauses
Credit cards 62
(93.9%)
99.9% 4
(6.1%)
0.1% 13.6%
Checking
accounts
54
(88.5%)
97.1% 7
(11.5%)
2.9% 30%
Prepaid cards 47
(97.9%)
100.0% 1
(2.1%)
n/a 12.5%
Storefront
payday loans
63
(88.7%)
98.2% 8
(11.3%)
1.8% 5.6%
223 Laetitia L. Cheltenham, The Consumer Financial Protection Bureau and Class Action Waivers after AT&T v.
Concepcion, 16 NC Banking Inst, 292-293 (2012). 224 Consumer Financial Protection Bureau, Arbitration Study, Section 2, at 46-47, available at
http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf, visited on 20 April 2017. Prior to 2013, there was another study showed until 2004, 69.2% of consumer contracts studied contained mandatory arbitration agreements, see Linda Demaine & Deborah R. Hensler, Volunteering'to Arbitrate Through Pre-Dispute Arbitration Clauses: The Average Consumer’s Experience, 67 Law & Contemp. Probs., 57 (2004) (quoting Arbitration Study, Section 2, at 4); and until 2007, 76.9% of the consumer contracts studied contained arbitration clauses and almost all of them have class arbitration waiver clauses included. See Eisenberg, Theodore, Geoffrey P. Miller & Emily Sherwin, Arbitration's Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. Mich. JL Reform 881(2007) (quoting Arbitration Study, Section 2, at 4).
40
Private student
loans
6
(100.0%)
n/a 0
(0.0%)
n/a 33.3%
Mobile wireless 6
(85.7%)
99.7% 1
(14.3%)
0.3% 57.1%
Though only financial consumer contracts were covered in the study, the impact of Conception
and American Express was clear since consumers and employers had relied themselves on class
proceedings to get access to social protection over the past years.225 Supporters for waiver
clauses argued “arbitration is a matter of forum selection, not remedies” and as well as class
actions. They are merely procedural mechanisms but not substantive remedies. Therefore, the
interpretation of a waiver clause, a mere procedural matter, could not undercut the goal of the
FAA in “making an arbitral forum available”.226 Or by attacking defenses to wavier clauses such
as the vindication of right doctrine, arguing it would “greatly increase the cost of enforcing
arbitration agreement” as courts would have to examine the merits and determine the appropriate
expert testimonies with regard to those defenses. Hereby, a direct consequence would be
“displace arbitration with a trial court whenever lawyers assert a class claim.”227
Flaws in these arguments are obvious: since all substantive rights need to be realized through
certain procedures, if the fairness in procedure could not be guaranteed, then substantive rights
would become into dead letters. Besides, when the FAA was enacted, its aim was to make
arbitral forum accessible to commercial corporations with similar economic status and
bargaining powers. Attention was paid to values on efficiency and party autonomy. Since
Mitsubishi, the scope of the FAA has been widely broadened. However, consumer disputes
usually involve large amounts of small claims, and furthermore, consumers are always in weak
225 See supra note 204, at 166. 226 See Jacob Spencer, Arbitration, Class Waivers, and Statutory Rights, 35 Harv. JL & Pub. Pol'y 999-1000 (2012). 227 LEADING CASE: II. Federal Jurisdiction and Procedure: A. Class Actions - 2. Class Arbitration Waivers - American
Express Co. v. Italian Colors Restaurant, 127 Harv. L. Rev. 286 (2013).
41
bargaining positions. Therefore, in a judicial system relying heavily on private enforcement of
laws, class proceedings are essential for consumers to vindicate their rights.
This is not to say waiver clauses are inherently unconscionable, nevertheless, at least “an
accessible and affordable forum” needs to be available228 and “some reasonable chance for
prevailing” needs to be kept for consumers.229 Conception and American Express deprived it,
whereas practical reactions of business aggravated it. Opponents criticized it as “waivers of
aggregation are waivers of rights”,230 and “in fact consumers do not have any real opportunities
to negotiate those terms and the waiver clauses left them without any forum in which bringing
class claims is available”.231 Professor Jean R. Sternlight further pointed out that since the costs
for challenging such waiver clauses are very high, many plaintiffs and their attorneys would
simply drop the attack “not because they lack merits but because they are not economically
feasible”.232 Currently, almost all the companies are using wavier clauses to “effectively deprive
its victims of all legal recourse”233 and to shield themselves from liabilities.
4.2 Access to Justice Test in Consumer Contracts
Waiver clauses have adversely affected the access to class proceedings for consumers, and thus,
the question arises how can consumers try to reclaim their access to justice?234 In answering this
question, this chapter intends to explore possible reliefs to consumers in confronting with such
wavier clauses, including consumer friendly clauses, small claim courts, the Arbitration Fairness
Act (the AFA) and challenges to waiver clauses.
228 AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1751(2011). 229 See supra note 227, at 286. 230 Richard A. Nagareda, Aggregation and Its Discontents: Class Settlement Pressure, Class-Wide Arbitration, and CAFA,
106(7), Columbia Law Review, 1897 (2006). 231 See supra note 144, at 339. Similar comments to this point are merchants would refuse to offer essential services if
consumers do not agree all the mandatory terms, see supra note 196 James Dawson, at 243. 232 Jean R. Sternlight & Elizabeth J. Jensen, Using Arbitration to Eliminate Consumer Class Actions: Efficient Business
Practice or Unconscionable Abuse?, 67 (1/2) Law and Contemporary Problems 100 (2004). 233 American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2313 (2013). 234 See supra note 151, at 280.
42
4.2.1 Consumer-Friendly Clauses, Small Claims Courts and the AFA
(1) Consumer-Friendly Clauses
There are different attempts to justify pre-dispute mandatory waiver clauses, and the most
frequently used being the consumer-friendly clauses. In general, a consumer-friendly is a clause
removing offending provisions and providing an avenue for consumers to vindicate their
rights. 235 According to a previous study in 2009, there are two generations of consumer
arbitration clauses, reflecting a shifting from unfriendly clauses to friendly clauses.236 Another
study of 37 companies found that all of them adopted adhesive arbitration clauses with waivers
and most of them amended their terms after Conception to include some pro-consumer clauses,
while only six companies offered clauses as friendly as AT&T did. AT&T presented the best in
inserting consumer friendly clauses in this study, and it offered “automatic cost-shifting, bounties,
premiums and doubling of attorneys’ fees.” 237 Furthermore, the recent Arbitration Study
examined the initial payment, reallocation of arbitration fees, and the award of attorneys’ fees in
the sample provisions. In accordance with the statistics, except for provisions provided by
mobile wireless companies, provisions offered by other companies did not seem that friendly.238
It is meaningless to examine the unfriendly clauses; thus, this paper asks are consumer-friendly
clauses actually friendly?
235 See supra note 153 Ramona Lampley, at 503. 236 It noted that in the beginning, the arbitration clauses were extremely unfriendly: they usually included terms as
“excluding punitive damages,” “prohibitive attorneys’ fees” or “requiring arbitration to proceed far from consumers’ domicile”. Then the main arbitral institutions such as the AAA and Judicial Arbitration and Mediation Service (JAMS) had published rules, the Consumer Due Process Protocol (the AAA Protocol) and the Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses Minimum Standards of Procedural Fairness (the JAMS Standards), to ensure a minimum standard of fairness in pre-dispute mandatory arbitration clauses. See supra note 153 Ramona Lampley, at 503-508. Besides, AAA updated the Protocol in 2010 and published new Consumer Arbitration Rules in 2014.
237 See supra note 209 Myriam Gilles, at 850-853. 238 E.g., for companies offering credit cards service, in only 33.3% of the sampled contracts companies would pay and in
22.2% of the sampled contracts companies would advance some or all initial fees; in 34.8% of the sampled contracts permitting shifting company fees to consumer; in 40.9% of the sampled contracts providing parties bear their own costs and in only 19.7% of the sampled contracts permitting attorneys’ fees awardable to prevailing consumer. For more information see supra note 224 Arbitration Study, Section 2, at 57-70.
43
A realistic problem that existed in these consumer-friendly clauses is that they fail to create
incentives for consumers to pursue small claims individually as they alleged. The Carnegie
Court reasoned it, accurately, as a waiver clause would only lead to zero individual lawsuits, not
a huge amount of individual lawsuits because only lunatics or fanatics would sue for $30.239 The
Scott Court and the Kristian Court followed this reasoning holding consumer friendly could not
justify waiver clauses.240 Moreover, the Ninth Circuit hit it trenchantly and vividly, as “the
$30.22 at issue here is even less of an incentive to file a claim”, and AT&T’s premium payment
could not “transform a $30.22 case into a predictable $7,500 case”.241 Furthermore, even a few
hundred dollars could not “provide adequate incentive for a customer to bother pursuing
individual arbitration”.242 Besides, no lawyer would waste time to represent such a claim, like
Justice Breyer asked, “what rational lawyer would have signed on to represent the Conceptions
in litigation for the possibility of fees stemming from a $30.22 claim?”243 In addition, James
Schurz even pointed out consumer-friendly clauses were meaningless not only because it failed
to motivate consumers to pursue their claims individually, but also for the reason that the U.S.
Supreme Court did not pay attention to it. 244 Consumer-friendly clauses just do not make
individual claims feasible for consumers.
(2) Small Claims Courts
Will small claims courts provide an adequate relief to consumers in the absence of class
proceedings? There is no doubt that small claims courts have advantages themselves: they are
faster, cheaper, easier for being accessible and have been permitted in many arbitration
239 See Carnegie v. Household Intern., Inc., 376 F.3d 656, 661 (7th Cir. 2004). 240 See Scott v. Cingular Wireless, 161 P.3d 1000, 1007 (2007), Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006).
See also supra notes 193-195, 210-211 and the accompanying texts. 241 Laster v. AT & T Mobility LLC., 584 F.3d 849, 855-856 (9th Cir. 2009). 242 Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, 986 (9th Cir. 2007) (quoting id., at 856). 243 AT&T Mobility LLC V. Concepcion, 131 S. Ct. 1740, 1761 (2011). 244 See supra note 217 James Schurz, at 4.
44
provisions.245 Nevertheless, it still has its shortcomings. On the one hand, the requirement for
self-representation would make it time consuming; on the other hand, consumers may be
reluctant to sue in small claims courts. According to the Arbitration Study, in a sample of 31
jurisdictions, there were only 870 pieces of consumer-filed consumer credit card cases in
2012;246 while in jurisdictions where did not prohibit companies using small claims courts,
ironically, claims initiated by companies uniformly outnumbered those initiated by consumers.247
(3) The AFA
Another attempt is to ban pre-dispute arbitration clauses completely. The AFA248 intends to ban
pre-dispute arbitration agreements in relation to employment, consumer, antitrust, or civil rights
relations.249 Proponents argued it stands for consumers, employers and other weaker parties.250
However, despite whether it would be enacted being unknown, the trend in both domestic and
international sphere is “treating certain types of dispute as arbitrable.”251 Neither a complete ban
is consistent with judicial traditions of the U.S., nor does it correspond to the current trend in
arbitration. Even if it would be passed, a bargain for a consumer after dispute is more difficult
and courts definitely would be drowned with cases. The attention should be focused on the
overbroad interpretations of the FAA.252
245 A permission of small claims courts is mandatory in both the AAA Protocol and the JAMS Standards. See supra note
224 Arbitration Study, Section 7, at 2-3. 246 See supra note 224 Arbitration Study, Section 7, at 9. 247 See supra note 224 Arbitration Study, Other Appendices, at 114. 248 Democrats in the U.S. Congress have continued to introduce this Arbitration Fairness Act in 2007, 2009, 2011, 2013,
2015 and 2017. The very recent version of 2017 was assigned to a congressional committee in March of 2017, until now there is no idea of whether it would be passed. Available at https://www.govtrack.us/congress/bills/115/hr1374, visited on 20 April 2017.
249 See Arbitration Fairness Act of 2017, § 402. Available at https://www.congress.gov/bill/115th-congress/house-bill/1374/text, visited on 20 April 2017.
250 Ashlee Kieler, Arbitration Fairness Act Would Reinstate Consumers’ Right to Sue in Court, 30 April 2015, available at https://consumerist.com/2015/04/30/arbitration-fairness-act-would-reinstate-consumers-right-to-sue-in-court/, visited on 20 April 2017.
251 See supra note 111, at para 2.127. 252 Olga Bykov, Vindication of Federal Statutory Rights: The Future of Cost-Based Challenges to Arbitration Clauses after
American Express v. Italian Colors Restaurant and Green Tree v. Randolph, 50 UCDL Rev., 1356-1357 (2016).
45
4.2.2 Challenges on Public Policy Grounds
Several state courts and circuits have found waiver clauses unenforceable on public policy
grounds either by finding the clause is unconscionable, or by finding that the clause effectively
prevents consumers from vindicating their rights. As mentioned above, Section 2 of the FAA
allows general contractual defenses against arbitration agreement that are consistent with the
FAA. Moreover, since Randolph, the judiciary created vindication of right principle has become
a defense to arbitration agreements.253 However, in post-Conception and post-American Express
periods, such defenses are almost always found being preempted by the FAA and thus only play
a limited role.
As a general contractual defense, unconscionability doctrine still is used to challenge the validity
of arbitral provisions including the waiver clauses. This is because Conception did not and could
not deny the fact that general contractual law defenses are permissible under Section 2 of the
FAA if they do not interfere with the fundamental attributes of arbitration. In post-Conception
period, courts developed new ways to apply states’ unconscionability defense on a case by case
analysis in facing with wavier clauses. In California, Missouri and Washington, they applied the
unconscionability doctrine through interpreting choice of law provisions, treating the arbitration
provision instead of targeting at wavier clauses especially, and held that Conception only
preempts absolute clauses.254 The issue is note settled, meaning that there is likely to be more
cases regarding interpretations and applications of unconscionability defenses.
253 E.g. see Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867-868 (Ct. App. 2002) (holding the waiver clause was
unconscionable and violated California’s public policy); Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1135 Cal. Rptr. 3d 269 (2013) (holding the waiver clause was contrary to public policy and was unconscionable); Fiser v. Dell Computer Corporation, 188 P.3d 1215, 1221 (2008) (holding the waiver clause was unconscionable and contrary to public policy). For more analysis on unconscionability defense and vindication of right principle, see supra Chapter 3.3 of this article.
254 See supra note 198, at 234, see also Richard Frankel, Concepcion and Mis-Concepcion: Why Unconscionability Survives the Supreme Court's Arbitration Jurisprudence, 2014(2), Journal of Dispute Resolution, 234 (2014) (holding “unconscionability will not be preempted” and the “determination of the enforceability of an agreement” should not focus on arbitration’s formality, but should “examine the one-sidedness of its provisions and the circumstances in which it was formed”). see also previous analysis in Chapter 3, at supra notes 156-198 and the accompanying texts.
46
Furthermore, regarding public policy defenses, we should mention the vindication of statutory
right principle. In Damato v. Time Warner Cable, Inc., though the court compelled arbitration as
the plaintiffs failed to carry the burden of proof; however, it also rejected the defendant’s
arguments, by holding that American Express focused on expert fees while “the costs of
arbitration” in the current case “have to do with access to the arbitral forum”.255 Thus, on a case
by case analysis, there are also some development potentials for interpretation of vindication of
statutory right principle.
4.2.3 Challenges to Mutual Consent
An essential issue for a valid and enforcement arbitration agreement is the existence of mutual
consent, accordingly, parties agree to submit their disputes to an arbitral forum or a particular
type of arbitral forum rather than a judicial court with full awareness.256 This chapter examines
the contractual law standards of consent under the FAA, exploring whether it could establish a
strong evidence of consent for consumer arbitration agreements, and whether the mutual consent
could be a challenge ground for mandatory waiver clauses.
(1) Contractual Law Standards of Consent under the FAA
The contractual school of thought plays a dominant role in viewing arbitration, that is, arbitration
is “a matter of contract”, and an “essentially private and consensual system” of dispute
resolution”.257 Stacey L. Pine argued that the goal of the FAA is to ensure that arbitration clauses
are enforced as contracts and to shake off the judicial hostilities to arbitration.258 As the U.S.
Supreme Court stated, “arbitration is a matter of contract” and needs to be “rigorously enforced
255 Damato v. Time Warner Cable, Inc., No. 13-CV-994 (ARR)(RML) (E.D.N.Y. July 31, 2013) (quoting supra note 219
Jason M. Halper & William J. Foley). 256 See Alexander Blumrosen, The Globalization of American Class Actions: International Enforcement of Class Action
Arbitral Awards, in Cour permanente d'arbitrage, et al., Multiple party actions in international arbitration, 367 (Oxford University Press, 2009); see also Francisco Blavi & Gonzalo Vial, Class Actions in International Commercial Arbitration, 39(4), Fordham International Law Journal, 813 (2016).
257 See supra note 111, at paras 1.04-1.05; see also Gary B. Born, International Commercial Arbitration, 214 (2nd ed., Kluwer Law International. 2014).
258 See supra note 203 Stacey L. Pine, at 29.
47
according to its terms”.259 This implies the contractual law standards of consent under the
FAA.260 The doctrine emphasizes “self-reliant freedom of parties” and maximizes a procedural
freedom of contract in which parties are free to negotiate and make agreements. It upholds that
“freely made agreements shall be enforced by courts”.261 It is consistent with the requirement of
commercial arbitration, pursing a faster dispute resolution regime and laying stress on party
autonomy.
What proofs can be taken under the contractual law standards of consent? The widely accepted
idea in international commercial arbitrations is the “writing” or “written form” of requirement
fulfills obligations of the formal validity of an arbitration agreement.262 Under the New York
Convention, the written form is “…signed by the parties or contained in an exchange of letters or
telegrams;”263 under the Model Law, the requirement is more relaxed, stating “an agreement is in
writing if its content is recorded in any form”.264 Thus, generally, written instruments including
formal and less formal signatures, exchanges of writing, oral communications, conduct or
acquiescence usually can be viewed as evidences for consent in international commercial
arbitration.265 The FAA is less demanding than the New York Convention, as it only requires for
a written agreement but with “no reference to a signed document or exchange of letters”.266
Therefore, a tacit acceptance of a party, either orally or by conduct, in an unsigned contract
259 American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2309 (2013); see also AT&T Mobility LLC v. Concepcion,
131 S. Ct. 1740, 1748 (2011) (holding the purpose of FAA is to “ensure arbitration agreements are enforce according to their terms”); CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 673 (2012) (holding arbitration is a matter of contract and FAA requires it to be enforced according to its terms); DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, generally (2015) (emphasizing the contractual model of arbitration and holding arbitration agreements should be enforced according to its terms), and Stolt-Nielsen SA v. AnimalFeeds International, 130 S. Ct. 1758, 1773 (2010) (holding enforcing arbitration agreements according to their terms is the primary goal of arbitration).
260 See Stephen J. Ware, Arbitration Clauses, Jury-Waiver Clauses, and Other Contractual Waivers of Constitutional Rights, 67(1/2), Law and Contemporary Problems, 170 (2004).
261 See Chris Willett, Fairness in Consumer Contracts: The Case of Unfair Terms, at 4, 19-20 (Ashgate Publishing, Ltd. 2007).
262 See supra note 257 Gary B. Born, at 657. 263 The New York Convention, article II (2). 264 The Model Law 2006, article 7(3). 265 See supra note Gary B. Born 257, at 742. 266 See the FAA § 2, (quoting supra note 257 Gary B. Born, at 701).
48
including an arbitration agreement also satisfies a consent requirement under the FAA.267 This is
also the case in consumer arbitration. Behaviours either by signing the contract or by other forms
of assent, such as performing the contract, receiving a bill stuffer or by general reference to other
contracts can constitute assent to the arbitration agreement.268
Is it appropriate to apply the contractual law standards of consent in commercial arbitrations to
consumer arbitrations? The contractual character of arbitration is beyond doubtless. It bears the
burden to solve disputes between two or more parties in a more efficient way in a commercial
context. Thereby, a goal of reducing time costs and promoting business transactions could be met.
Besides, those agreements are negotiated between pure merchants with similar bargaining
powers, which usually refer to the battle of forms in business transactions. Even for small
businesses, they are not as “ignorance” as consumers do. Factors as bargain powers have less
impacts in a commercial context. Thus, consent could be reached with a guarantee of minimum
standard of justice; a maximum of promoting the validity of arbitration agreement is also
reasonable and even necessary. However, consumer arbitration is different. These agreements are
“agreed” because consumers are forced to: neither do they understand those terms nor can they
bargain on those terms.
“Formal requirements fulfill important functions in relation to proving initial consent”,269 but it is
not equal to mutual consent. Whether the parties intend to be bound by the agreement and what
they intend to be bound to are essential elements in reaching an agreement.270 Therefore, parties’
intent, requiring full awareness, is a core issue in the interpretation of consent to arbitration
267 See supra note 257 Gary B. Born, at 701. 268 See supra note 260, at 171. E.g., Discover Bank v. Superior Court, 30 Cal. Rptr. 3d 76, 85 (2005) (in which the Discover
Bank Court held a bill stuffer was procedurally unconscionable, but not admitted by the U.S. Supreme Court), AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744 (2011) (in which AT&T Mobility also rights to amend the terms at any time).
269 Andrea M. Steingruber, Consent in International Arbitration, 107 (OUP Oxford, 2012). 270 UNIDROIT Principles of Commercial of International Commercial Contracts 2010, article 2.1.1 and article 2.1.2,
available at http://www.unidroit.org/english/principles/contracts/principles2010/integralversionprinciples2010-e.pdf, visited on 24 April 2017 (quoting id., at 83).
49
agreement.271 Do consumers intend to be bound by such a waiver clause? Like Hiro N. Aragaki
argued, these waiver clauses inserted in arbitration agreements lack meaningful assent.272 Do
consumers understand those terms they have entered into? The Arbitration Study found that at
least 80% of consumers misunderstood of their contracts, 54.4% of the consumers did not know
if they could sue in court if there were pre-dispute arbitration clauses in their contracts, 38.6% of
the consumers believed they could sue in court even if there were pre-dispute arbitration clauses
in their contracts, and only less than 7% of the consumers knew they could not sue in court with
arbitration clauses in their contract.273 These figures are clear on the issue. If a consumer did not
understand or notice the existence of the arbitration clause, how could it be deduced that he/she
intended to be bound by those terms? And how could he/she negotiate those terms?
Even if a consumer understood the terms and did not agree, would he/she have a chance to
negotiate? The fact is such terms are non-negotiable and statistics showed in a sample of 1007
consumers that only one said he was offered an opportunity to opt-out.274 It is clear that most
consumer arbitration agreements are indeed non-consensual. This dominant objective contractual
law standard of consent has been playing a dominant role for a long time, and it requires
contractual terms to be enforced as much as possible, irrespective of their substantive features
and the surrounding factors.275
(2) Standards on Informed Consent
271 See id., at 139. 272 See Hiro N. Aragaki, The Federal Arbitration Act as Procedural Reform, 89 NYUL Rev., 15 (2014); see also supra note
4, at 1649, 1651 (stating these mandatory arbitration agreements are nonconsensual, they are merely adopted as a method to bar consumers to sue against them in a class basis).
273 See supra note 224 Arbitration study, Section 3, at 3-4. Figures in previous study are more astonishing, a document released by researchers from St. John School of Law showed that 87% of the consumers said they had never entered into consumer contracts with arbitration contracts included where in fact 89% of the consumers had entered into contracts with arbitration clauses at least for once, at 7-8.
274 See supra note 224, Section 3, at 4. 275 See supra note 261, at 31.
50
Informed consent, also being described as “fairness-oriented”276 consent, distinguishes itself
from the contractual law standard of consent in two main aspects: firstly, it requires the
contractual terms to be noticeable, accordingly, enabling consumers to know the existence of
those terms. Therefore, terms cannot be unclear, in fine print or cross-referenced poorly.
Furthermore, it requires those contractual terms to be readable and understandable for consumers,
that is, terms phrased in a very complex or unambiguous way could also be found to lack mutual
consent.277 Since consumers are the weaker party, there have always been arguments that a
higher standard of consent, the informed consent, needs to be adopted in consumer arbitrations.
In some European countries, the standard for consent in consumer arbitrations highly adheres to
the concept of informed consent. For example, in Austria, an arbitration agreement must be
signed by a consumer in person, and he/she must have received “legal advice on the significant
differences between arbitration proceedings and court proceedings” before signing. 278 In
Germany, the arbitration agreements should not be a “surprise” for consumers,279 and they need
to be “contained in a separate document” in order to call attentions of consumers.280 While the
European Union (EU) imposed standard “specific acceptance” even goes further to this concept.
Under Article 10(2) of the ADR Directive,281 an ADR procedure may be binding on a consumer
only if its binding nature has been informed in advance and has been specifically accepted by the
consumers.282 Under this “specific acceptance” standard, not only do merchants need to notify
276 See supra note 261, at 4. 277 See supra note 261, at 4; see also supra note 260, at 175. 278 See Austrian Code of Civil Procedure, article 617(3) (quoting Youseph Farah & Leonardo VP De Oliveira, Releasing the
Potential for a Value-Based Consumer Arbitration under the Consumer ADR Directive, 24(1), European Review of Private Law, 124 (2016)).
279 See supra note 112, at 30. 280 See Maud Piers, Spillovers of European Consumer Law: Validity of Arbitration Agreements... And Beyond, 22 (4) Am.
Rev. Int'l Arb. 645 (2011). 281 DIRECTIVE 2013/11/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 May 2013 on
alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC ( the ADR Directive), available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013L0011&from=en, visited on 26 April 2017.
282 The ADR Directive, article 10(2): “Member States shall ensure that in ADR procedures which aim at resolving the dispute by imposing a solution the solution imposed may be binding on the parties only if they were informed of its binding
51
consumers that they are giving up their rights to sue in court by agreeing these arbitration
agreements, but alike the German approach, the statement also has to be separated from other
contractual terms.283 However, if the pre-dispute ADR clause calls for arbitration, the consumer
is never bound by such an agreement according to article 6(1) of the Unfair Terms Directive.284
Will a similar informed consent standard be accepted by the FAA? A decade ago Professor
Stephen J. Ware argued that informed consent was not a valid defense under the FAA.285 The
above analysis also shows that the U.S. Supreme Court has been stubborn at enforcing arbitration
agreements according to their terms. If contractual law standards of consent in commercial
context are inevitable, are there any solutions to maintain a reasonable fairness and justice?
(3) Mutual Consent as a Challenge Ground under the FAA
As defenses on public policy play a limited role and adhesive arbitration agreements with waiver
clauses are non-consensual, there are growing discussions regarding whether mutual assent, a
central issue in both general contract and arbitration agreement, could be a defense to those
waiver clauses. 286 Recently, in Knutson v. Sirius XM Radio Inc., the Ninth Circuit upheld
arguments on regarding the lack of mutual assent. The appellee, Sirius XM, a
satellite radio service company that Knutson had a 90-day trial subscription from. After
Knutson’s Sirius XM was activated during the trial period, Sirius XM mailed a “Welcome Kit”
to Knutson containing an arbitration clause requiring consumers to waive their rights to arbitrate
on a class basis. Knutson never opened the mail.287 Following a dispute regarding “violations of
nature in advance and specifically accepted this. Specific acceptance by the trader is not required if national rules provide that solutions are binding on traders”.
283 See supra note 150, at 311-312. 284 COUNCIL DIRECTIVE 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (Unfair Terms Directive):
article 6(1): “Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.”
285 See supra note 260, at 177-178. 286 See supra note 252, at 1347-1348; see also supra note 254 Richard Frankel, at 243. 287 Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 562-263 (9th Cir. 2014).
52
the Federal Telephone Consumer Protection Act,”288 Knutson filed a class action in the court.
The district court granted the motion on compelling individual arbitrations,289 while the Ninth
Circuit reversed and held that:
Arbitration is a matter of contract… A party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit… Mutual assent
may be manifested by written or spoken… words, or by conduct…290
Therefore, Knutson could not agree to the arbitration agreement if he had not opened the mail
and read it. In holding that the arbitration agreement was unenforceable, the Ninth Circuit relied
on the lack of mutual assent.291 In the case of Nguyen v. Barnes & Noble, Inc. (Nguyen), the
Ninth Circuit applied a similar reasoning. In Nguyen, the arbitration agreement with a class
action waiver clause included was unenforceable as there was no evidence to prove that “the
website user had actual knowledge of the agreement”.292 The Nguyen Court further emphasized
the notice requirement for mutual consent, 293 and held that including an arbitration clause on a
website was not enough for a mutual assent. The Court noted “the validity of the browsewrap
agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the
terms of the contract.”294
In 2016, the Seventh Circuit held in Sgouros v. TransUnion Corp. that a click-wrap arbitration
agreement was unenforceable as it lacked mutuality. The plaintiff, Sgouros, filed a putative class
288 See id., at 564. 289 See id., at 564. 290 See id., at 565. 291 See id., at 569-570. 292 In this case, Nguyen purchased two units of Hewlett-Packard Touchpads on Barnes & Noble's website during the fire
sale. But the order was cancelled due to a high demand. “The website's Terms of Use are available via a ‘Terms of Use’ hyperlink located in the bottom left-hand corner of every page on the Barnes & Noble website,” it contained an arbitration agreement with a waiver clause. Nguyen never clicked on the link and filed a class action in the court. See Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, at 1173-1174, 1177 (9th Cir. 2014).
293 See F. Paul Bland, Jr., et al., Consumer Arbitration Agreements: Enforceability and Other Topics, 45 (2nd ed., National Consumer Law Center. 2010).
294 See Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1177 (9th Cir. 2014). Some other courts also treated non-consensual arbitration agreement as unconscionable, see supra note 254 Richard Frankel, at 243 (Richard argued non-mutual arbitration agreements could be struck down as unconscionable).
53
action while TransUnion moved to compel arbitration.295 The Seventh Circuit denied the motion
and reasoned: “arbitration is a matter of contract”, though generally signing a contract could be
“presumed to have notice of all of the contract’s terms”, however, “whether the web pages
presented to the consumer adequately communicate all the terms and conditions of the agreement,
and whether the circumstances support the assumption that the purchaser receives reasonable
notice of those terms” must be examined.296 The Court further noted that a person may never
notice he/she agreed those terms online when surfing the internet.297 Moreover, the Seventh
Circuit upheld a similar argument with different phrasing in Jackson v. Payday Financial, LLC.
The Court held that the arbitration clause at issue was procedurally unconscionable “because the
Plaintiffs could not have ascertained or understood the arbitration procedure to which they were
agreeing”.298 Here, the lack of mutual assent could be considered as procedural unconscionability.
Likewise, the U.S. Supreme Court also struck down an arbitration agreement as it lacked mutual
consent. In U.S. Legal Services Group, L.P. V. Atalese (U.S. Legal Services Group), there was an
arbitration clause in the company’s 23-page adhesive service contract. The plaintiff, Atalese,
filed an individual action in New Jersey state court. The U.S. Supreme Court denied U.S. Legal
Services’ petition and held that:
Mutual assent requires that the parties have an understanding of the terms to
which they have agreed… any contractual waiver-of-rights provision must
reflect that the party has agreed clearly and unambiguously to its terms… and
(it) is fully consistent with the FAA… (and)arbitration clauses—and other
295 Sgouros v. TransUnion Corp., 817 F.3d 1029, 1033 (7th Cir. 2016) 296 See id., at 1034-1035. 297 See id., at 1035. 298 Jackson v. Payday Financial, LLC, 764 F.3d 765, 781 (7th Cir. 2014). Besides, in Arkansas, mutuality requires for both
mutual assent and mutual obligations. Recently, Supreme Court of Arkansas also struck down several arbitration clauses due to lack of mutuality, see Regional Care of Jacksonville, LLC v. Henry, 444 S.W.3d 356, 360-361 (2014) (holding the arbitration clause at issue lacked mutuality because “there is no mutuality of obligation where one party uses an arbitration agreement to shield itself from litigation, while reserving to itself the ability to pursue relief through the court system”); Alltel Corporation V. Rosenow, 2014 Ark. 375, (2014) (holding the arbitration agreement in a cellphone contract lacked mutuality for the same reason) (quoting George H. Friedman, State Supreme Courts Exploring Limits of FAA Preemption, 29 September 2014, available at http://www.sacarbitration.com/blog/state-supreme-courts-exploring-limits-faa-preemption/, visited on 25 April 2017).
54
contractual clauses—will pass muster when phrased in plain language that is
understandable to the reasonable consumer. 299
In this case, the U.S. Supreme Court delved further into what constituted mutual consent: besides
a notice obligation, the company should use “plain language” and make the arbitration agreement
“understandable”. Though U.S. Legal Services Group did not involve discussions on waiving
rights to sue on a class basis and its impacts on judicial practice is unclear, the Court tried to
limit the over-broaden interpretations in the last few years and made it clear that an arbitration
agreement lacking mutual assent was unenforceable. Although informed consent has progressed
further from pure contractual standard of consent, it is not yet clearly a uniform and permissive
standard according to the FAA to date. Its further impacts still need more observations.
5. Current Practice in China and Suggestions
The current practice related to a waiver in arbitration clause in China does not correspond to the
situation in the U.S. A “waiver” clause in China refers to an adhesive arbitration agreement that
waives consumers’ rights to sue in Courts. This Chapter intends to examine the current practice
in China in a critical manner and make suggestions accordingly.
5.1 “Waiver Clauses” in Consumer Arbitrations in China
Although joint litigations, public interest litigations and consolidated arbitrations are available in
Chinese legal system, the practice in China is not like that in the U.S. Currently, the main issue is
whether an adhesive consumer arbitration agreement waives consumers’ rights. In particular,
whether such a clause should be pointed out to consumers in an appropriate/reasonable manner.
In general, to remind consumers in an appropriate/reasonable way means the seller/service
providers have to use “special characters, symbols, fonts and other signs sufficient to arouse the
299 See generally U.S. Legal Services Group, L.P. V. Atalese, 135 S.Ct. 2804 (2015). Available at
http://guptawessler.com/wp-content/uploads/2013/12/Atalese-BIO.pdf, visited on 25 April 2017.
55
other party's attention to the content of the standard clauses.”300 This is the case in traditional off-
line arbitration agreements301 and no specific acceptance as in the EU standard is required.302 In
on-line area, a clause that is clear, obvious and enables consumers to have sufficient
opportunities to read it fulfills reminder obligations.303 While the specific standard is based on a
case by case analysis. In the case of Dingding Sun v. Suning Tesco E-commerce Co., Ltd., the
Court reasoned that a bold type jurisdiction clause was not clear enough for reminding
consumers online as the website was rich in content. Thus, consumers’ attention would be
distracted by all those contents.304 However, an adverse decision was made in a similar situation
by another court.305
The above debate in China further crystalizes around the interpretation of article 31 of the
Interpretation of The Interpretation of the Supreme People's Court on the Application of the Civil
Procedure Law of the People’s Republic of China 2015 (the Interpretation of Chinese Civil
Procedure Law):
Where, after a business enters into a jurisdiction agreement with a consumer
by using standard clauses without reminding in appropriate manners the
consumer to pay attention to such clauses, the consumer claims the
nullification of the jurisdiction agreement, the claim shall be supported by the
people's court.306
300 The Interpretation II of the Supreme People’s Court of Several Issues concerning the Application of the Contract Law of
the People's Republic of China 2009 (the Interpretation II of the Chinese Contract Law), article 6(1). 301 E.g. see Ying Chen v. Shanghai Jiecheng Automobile Sales & Service Co., Ltd., (2015) Hu Erzhong Minyi (Min) Zi No.
2209 (holding the adhesive consumer arbitration agreement at issue was enforceable because Jiecheng Automobile had already reminded consumers the jurisdiction clause in a reasonable manner).
302 E.g. see Si Jia v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 3, see also Ying Chen v. Shanghai Jiecheng Automobile Sales & Service Co., Ltd., (2015) Hu Erzhong Minyi (Min) Zi No. 2209.
303 See Qisheng He, On the Requirement of Internet Arbitration Agreements, 4 Law Review, 112 (2003). 304 See Dingding Sun v. Suning Tesco E-commerce Co., Ltd., (2015) Consulting Case, No. 79. 305 See Xia Cao v. Nanjing Suning Tesco E-commerce Co., Ltd, (2015) Yan Shang Xia Zhong Zi, No. 00044 (holding
Suning fulfilled the reminder obligations by using a bold type online). 306 The Interpretation of Chinese Civil Procedure Law, article 31.
56
This translation, however, is not 100% accurate because in mandarin, as the character
“jurisdiction agreement” can mean both jurisdiction clause and arbitration clause. In practice, the
mandarin character for the term “litigation jurisdiction clause” refers to an agreement that parties
are to submit their disputes to courts. Therefore, the “jurisdiction agreement” here should be
translated as “dispute resolution clause”.
5.1.1 The Split on the Enforceability
In 2016, in the case of Ningbo Jiangdong Hong Cheng Information Technology Co., Ltd. v.
Yongpei Chen, the Ningbo City Intermediate People’s Court of Zhejiang Province held that an
adhesive arbitration agreement in a consumer contract was invalid.307 The appellee, Yongpei
Chen, entered into a Mobile APP Product Service Contract with Hong Cheng Tech. There was a
Customer Information on the back of the contract in question, which contained an arbitration
agreement stating that any disputes arising out of the Contract shall be submitted to the China
International Economic and Trade Arbitration Commission (CIETAC). The appellant, Hong
Cheng Tech, argued in accordance with article 5 of the Arbitration Law of the People's Republic
of China (2009 Amendment) (the Chinese Arbitration Law), that the court shall not accept the
case if there was a valid arbitration clause. Since both the parties had signed the contract, in
which a clear arbitration clause was included, the arbitration agreement should be enforced as
they had agreed. The court rejected and held that article 31 of the Interpretation of the Chinses
Civil Procedure Law was clear on this issue.308 It further noted that the arbitration clause inserted
in the Consumer Information at issue was an adhesive clause, and neither did the two parties sign
on the Consumer Information, nor Hong Cheng Tech. proved that it had reminded the appellee in
307 See Ningbo Jiangdong Hong Cheng Information Technology Co., Ltd. v. Yongpei Chen, (2016) Zhe 02 Min Xia Zhong
No. 113. 308 See supra note 306.
57
appropriate manners. Therefore, under article 31 of the Interpretation of Chinese Civil
Procedural Law, the arbitration agreement was invalid and unenforceable.309
In the case of Yongjun Wang v. China People’s Property Insurance Co., Ltd. Guangzhou Branch,
the Zhuhai City Intermediate People's Court of Guangdong Province also reversed and
invalidated an adhesive arbitration clause in an insurance contract.310 The arbitration clause at
issue, providing that all disputes shall be submitted to the Guangzhou Arbitration Commission,
was respectively inserted in two insurance policies provided by the PICC Guangzhou Branch:
the Motor Vehicle Insurance Policy and Motor Vehicle Traffic Accident Liability Insurance
Policy. The insurance policy at issue also provided that it would be deduced to agree if no
objections were raised within 48 hours. The appellant, Yongjun Wang, argued he had never seen
the arbitration clause before and did not sign on it. The Court reasoned under both the article 31
of the Interpretation of Chinese Civil Procedural Law and the article 6(1) of the Interpretation II
of the Chinese Contract Law, that the party who provides a standard contract should remind the
other party in a reasonable way. Thus, the arbitration clause could not be enforced.311 The
Zhuzhou City Intermediate People’s Court of Hunan Province also invalidated a standard
arbitration clause in an insurance contract upon a similar reasoning.312
However, several courts enforced adhesive arbitration clauses in similar situations. Si Jia v.
Leshan Xinhe Real Estate Co., Ltd. concerned disputes on sale and purchase of real estate.313 The
arbitration agreement in the Real Estate Sales Contract provided that all disputes arising out of
the implementation of the contract shall be submitted to the Leshan Arbitration Commission. The
plaintiff, Si Jia, was the consumer, and he argued that he had never seen the arbitration
309 See Ningbo Jiangdong Hong Cheng Information Technology Co., Ltd. v. Yongpei Chen, (2016) Zhe 02 Min Xia Zhong
No. 113. 310 See Yongjun Wang v. China People's Property Insurance Co., Ltd. Guangzhou Branch, (2016) Yue 04 Min Zhong No.
243. 311 See id. 312 See China Pacific Property Insurance Co., Ltd. Zhuzhou Center Company v. Li Moumou, (2015) Zhu Zhong Fa Guan
Zhong Zi No. 82. 313 See Si Jia v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 3.
58
agreement because Xinhe Real Estate only took some sheets of the contract to him when signing
the contract. The arbitration clause just appeared in the binding contract when handed over to
him. Moreover, Xinhe Real Estate did not explain the terms of arbitration to him. He claimed to
have no intention to be bound by the arbitration clause. Therefore, in accordance with article
16(1) of the Chinese Arbitration Law314 and article 31 of the Interpretation of the Chinese Civil
Procedure Law, the arbitration agreement at issue should be considered as invalid. The Leshan
City Intermediate People’s Court of Sichuan Province rejected the argument and reasoned on the
one hand the arbitration clause was a part of the Real Estate Sales Contract, and therefore the
arbitration clause was concluded when both parties signed the contract and requirement for
specific signing on the arbitration-agreement-page was not necessary. Furthermore, the court
noted that “jurisdiction agreement” in the article 31 of the Interpretation of Chinese Civil
Procedure Law specifically referred to the territorial jurisdiction in civil litigations and did not
apply to arbitration agreements. Accordingly, the court enforced the arbitration agreement.315
5.1.2 Existing Problems in Current Practice
The spit in current practice is due to different interpretations of the article 31 of the
Interpretations of Chinese Civil Procedure Law. Should an adhesive consumer arbitration clause
be reminded to the consumers in a reasonable way? The key rationale behind this split is whether
an adhesive consumer arbitration agreement waives consumers’ rights to go to court.
Critics argue that the right to arbitrate and the right to litigate shall be put on an equal footing, as
an adhesive arbitration clause depriving a consumer of the right to choose a dispute resolution
mechanism does not deprive the one of its substantive rights. In other words, they claim that the
right to arbitrate is a pure procedural right. Therefore, it shall be treated differently than from
314 See the Chinese Arbitration Law, article 16(1): “An arbitration agreement shall contain the following particulars, (1) an
expression of intention to apply for arbitration”. 315 See Si Jia v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 3. The Leshan City Intermediate People's Court of
Sichuan Province enforced all the arbitration agreements respectively in the same series of cases, see Yufang Xu v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 4, and Wenting Zhang v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 5.
59
substantive terms. 316 Flaws in these arguments are obvious. If the fundamental rights of
consumers cannot be guaranteed, how can citizens realize their substantive rights? The only
instance where the arguments make some sense is in a pure commercial relationship. For
example, in the case of Fujian Maisen Children’s Products Technology Co., Ltd. v. Industrial
and Commercial Bank of China Co., Ltd. Quanzhou Taiwan Businessmen Investment Zone
Branch, the Xiamen City Intermediate People’s Court of Fujian Province held that though the
seat of arbitration was in none of parties’ domicile, the adhesive arbitration agreement did not
deprive the other party of its main rights.317 In a commercial relationship, the concept of the
weaker party has less footing. Furthermore, arbitrations are usually far more effective than
litigations for merchants.
Moreover, leaving aside article 31 of the Interpretation of Chinese Civil Procedure Law itself, a
valid adhesive arbitration clause in a consumer contract needs to satisfy relevant provisions
under the Chinese contract Law, the Chinese consumer protection law and the Chinese
arbitration law. Although an adhesive arbitration agreement is not inherently invalid, as a
mandatory dispute resolution clause, it deprives consumers access to courts. Therefore, at least a
minimum level of procedural fairness as provided in law needs to be ensured to guarantee a
reasonable access to justice. Hereafter, more specific analysis is provided.
Firstly, it shall satisfy relevant requirements for standard contracts under the Contract Law of the
People’s Republic of China 1999 (the Chinese Contract Law). Accordingly, article 39, 40, 41, 52
and 53 of the Chinese Contract Law. There is an argument stating that relevant provisions on
standard contracts do not apply to arbitration agreement, as arbitration is a pure procedural right
while provisions on standard contracts in contract law only govern substantive rights. However,
wordings in these articles do not specify whether rights involved into standard terms have to be
316 See A Case Analysis, 22 August 2016, available at
http://www.huanzhonglaw.com/templates/consulting_009_1/second_147_652.html, visited on 29 April 2017. 317 See Fujian Maisen Children's Products Technology Co., Ltd. v. Industrial and Commercial Bank of China Co., Ltd.
Quanzhou Taiwan Businessmen Investment Zone Branch, (2015) Xia Min Ren Zi No. 200.
60
restricted to substantive rights. Moreover, with regard to the general principle on the
interpretation of standard contracts,318 the interpretation shall favour the party who does not
provide standard terms. Therefore, an adhesive arbitration agreement needs to be interpreted as
being governed by the contract law.
In accordance with the Chinese contract law, a party who provides an adhesive contract should
act under the principle of fairness, shall inform the other party “to note the exclusion or
restriction of its liabilities in a reasonable way”, and shall also explain those terms if required;319
the contract is invalid if it is concluded under fraud or duress. 320 As abovementioned, a
“reasonable way” is specified as “special characters, symbols, fonts and other signs (that were)
sufficient to arouse the other party’s attention.”321 Besides, the standard terms would risk being
found to be invalid if they have the effect of shielding the party providing the standard contract
from liabilities, increasing liabilities of the other party or depriving material rights of the other
party.322 In short, standard terms need to be reminded and explained to the other party in a
reasonable way, and shall not be obviously unconscionable under the Chinese contract law.
Secondly, obligations under the Law of the People’s Republic of China on the Protection of
Consumer Rights and Interests (2013 Amendment) (the Chinese Consumer Protection Law) also
need to be fulfilled. The Chinese consumer protection law further specifies the reminder
obligations of an adhesive contract provider. In addition to those substantive rights, it provides
that the business operators shall not deprive or restrict consumers’ rights, reduce or waive their
own responsibilities by using standard terms.323 Different from the phrasing “material rights” in
the contract law, the consumer protection law provides a stronger protection to consumers by
using the term “consumers’ rights”. Undoubtedly, rights on access to courts and rights to choose
318 See the Chinese Contract Law, article 41. 319 See the Chinese Contract Law, article 39. 320 See the Chinese Contract Law, article 52 (1). 321 See the Interpretation II of the Chinese Contract Law, article 6. 322 See the Chinese Contract Law, article 40. 323 See the Chinese Consumer Protection Law, article 26.
61
favourite dispute resolution mechanisms are parts of consumers’ rights. They cannot be waived
without proper reminding and explanations.
Thirdly, it shall satisfy relevant provisions of the Chinese arbitration law. In conformity with the
Chinese arbitration law, an arbitration clause shall have “an expression of intention to apply for
arbitration,”324 and should not be concluded under duress.325 Furthermore, such clauses need to
be in writing. The Interpretation of the Supreme People’s Court concerning Some Issues on
Application of the Arbitration Law of the People's Republic of China 2008 (the Interpretation of
Chinese Arbitration Law) further notes what could be evidenced as a “written form,”326 and
which could be used as an initial but not a sufficient proof for parties’ intention. Mutual assent is
a key value in arbitration. Thus, an adhesive consumer arbitration clause needs to reflect both
parties’ true intention.
Therefore, such an arbitral clause shall be fair, reasonable and concluded in accordance with
party autonomy. If it is adhesive, it shall be reminded to consumers to provide reasonable
opportunities for them for reviewing.327 A further deduction of parties’ intention is based on a
case by case analysis. However, in the case of Shujun Qin v. Sichuan Changhong Electric
Appliance Co., Ltd., the Mianyang City Intermediate People’s Court of Sichuan Province failed
to apply the above requirements. In the case, the applicant claimed that she was forced to sign
the adhesive agreement. 328 The Court simply reasoned Qshujun Qin must have noticed the
arbitration agreement since she claimed against it. Therefore, the court failed to provide further
reasoning as to whether the agreement was concluded in accordance with the parties’ true
intention.329
324 See the Chinese Arbitration Law, article 16 (1). 325 See the Chinese Arbitration Law, article 17. 326 See the Interpretation of Chinese Arbitration Law, article 1. 327 See supra note 303, at 112. 328 Shujun Qin v. Sichuan Changhong Electric Appliance Co., Ltd., (2015) Mian Min Zhong Zi No. 31. 329 See id.
62
Thereby, under these provisions, the business operator should behave under the principle of
fairness, remind consumers to notice adhesive terms in an appropriate way and explain to them if
required. An adhesive consumer arbitration agreement would risk being found invalid if it was
made under duress or presented as unconscionable. Reminding is also necessary in making sure
it is the parties’ true intention to submit their disputes to arbitration. Article 31 of the
Interpretation of Chinese Civil Procedure Law makes a clearer guidance to the business operator,
reminding consumers to notice adhesive jurisdiction agreement is necessary and obligatory. A
restrictive interpretation to the “jurisdiction clause” in article 31 of the Interpretation of Chinese
Civil Procedure Law, limiting it to the territorial jurisdiction clause in civil litigations as the
Leshan City Intermediate People’s Court did, would lead to a consequence inconsistent with
requirements of the Chinese contract law, the Chinese consumer protection law and the Chinese
arbitration law. It may also open the door to the abuse of mandatory arbitration clauses as
happened in the U.S.
5.2 Suggestions
The split in practice on this issue will continue until further instructions from the Chinese
Supreme People’s Court. An adhesive consumer arbitration clause indeed waives consumers’
rights to courts. The American practice has shown that a pure contractual standard of consent is
insufficient in ensuring access to justice for consumers. At present, specific acceptance is not
required in consumer arbitrations in China, while reminding consumers in a reasonable manner is
the demanding under the Chinese contract law, the Chinse consumer protection law, and the
Chinese arbitration law. It is also necessary to guarantee a minimum fairness in the future in
consumer arbitrations. Therefore, “jurisdiction clause” in the article 31 of the Interpretation of
Chinese Civil Procedure Law needs to be interpreted as including arbitration clauses. Besides, it
shall also be noted that this article only applies to consumer disputes but not pure commercial
relations.
63
6. Conclusion
Debates regarding the enforceability of waiver clauses in consumer contracts have been ongoing
for years in the U.S. The split exists on both federal and lower courts level. Generally, the Fourth,
Fifth, and Eleventh Circuits enforced such waiver clauses by relying on the preemption of the
FAA, while California, Missouri, New Jersey, Washington, the First, Second, and Ninth Circuit
based themselves on unconscionability defense or vindication of statutory rights to invalidate
waiver clauses. In post-Conception and post-American Express periods, many courts, such as the
Second Circuit Court, had been forced to follow Conception and American Express. Another
impact of American Express is the abuse of waiver clauses in practice: most giant companies
have included waivers in their mandatory arbitration clauses prohibiting consumers to
sue/arbitrate on a class basis.
This article set out to criticize the tendency to enforce waiver clauses in consumer contracts.
Arguments upholding the enforcement of waiver clauses do not support themselves. Moreover,
waiver clauses prevent consumers form realizing their rights.
In the U.S., weaker parties such as consumers have relied on class proceedings for decades to
realize their small claims. Waiver clauses are not inherently unconscionable and unenforceable,
while at least some relief needs to be offered to the consumers to vindicate their rights. The
abusive application of these waiver clauses has blocked the access to justice for consumers. Still,
courts in California, Missouri and Washington found new ways to interpret and apply state
unconscionability defense by treating arbitration clauses as a whole without targeting especially
at the waiver clauses. Furthermore, mutual consent is a growing ground to challenge waiver
clauses. In recent years, the Seventh and Ninth Circuits invalidated wavier clauses on grounds of
mutual consent while the U.S. Supreme Court held in U.S. Legal Services Group, that parties
should understand the terms they have agreed. Further impacts of recent judicial practice are not
clear; what is clear is that the split in the U.S. practice will continue for the foreseeable future.
Neither the judicial practice, nor the legal system of China corresponds to the situation in the U.S.
The current practice is split in the interpretation of article 31 of the Interpretation of Chinse Civil
64
Procedure Law, accordingly, whether a standard consumer arbitration clause must be pointed out
to consumers in a reasonable way in order to be enforceable. An adhesive consumer arbitration
clause is not inherently unenforceable; however, it is reasonable to expect sellers or service
providers to remind consumers of the mandatory nature of arbitration clauses. In particular, to
require reminder complies with Chinese contract law, Chinese consumer protection law and
Chinese arbitration law. Moreover, China should take into consideration the developments in the
U.S. in its approach to enforcing waiver clauses in order to avoid the abuse thereof and to ensure
access to justice for consumers.
65
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Arbitration Waiver Covers Antitrust Claims, 20 (6) Westlaw Journal, (2013).
Sheffield, Brenna A. Pre-Dispute Mandatory Arbitration Clauses in Consumer Financial
Products: The CFPB's Proposed Regulation and Its Consistency with the Arbitration Study, 20
N.C. Banking Inst., (2016).
Spencer, Jacob. Arbitration, Class Waivers, and Statutory Rights, 35 Harv. JL & Pub. Pol'y
(2012).
Sternlight, Jean R. 57, Creeping Mandatory Arbitration: Is It Just?, Stanford Law Review,
(2005).
69
Sternlight, Jean R., and Elizabeth J. Jensen. Using Arbitration to Eliminate Consumer Class
Actions: Efficient Business Practice or Unconscionable Abuse?, 67 (1/2) Law and Contemporary
Problems, (2004).
Stone, Katherine V.W. Procedure, Substance, and Power: Collective Litigation and Arbitration
Under the Labor Law, 61 UCLA Law Review Discourse, (2013).
Strong,. S. I., Does class arbitration change the nature of arbitration-Stolt-Nielsen, AT&T, and a
return to first principles, 17 Harv. Negot. L. Rev., (2012).
Turnbull, Emanwel J. Opting Out of the Procedural Morass: A Solution to the Class Arbitration
Problem, 20(1), Widener Law Review, (2014).
Waardhuizen, Lauren Van. The Evolution of Class Arbitration Waivers and the Courts, 62,
Drake L. Rev, (2014).
Ware, Stephen J. Arbitration Clauses, Jury-Waiver Clauses, and Other Contractual Waivers of
Constitutional Rights, 67(1/2), Law and Contemporary Problems, (2004).
Ware, Stephen. The Case for Enforcing Adhesive Arbitration Agreements-With Particular
Consideration of Class Actions and Arbitration Fees, 5(2), Journal of American Arbitration,
(2006).
Table of Cases
The U.S.
Sgouros v. TransUnion Corp., 817 F.3d 1029 (7th Cir. 2016).
U.S. Legal Services Group, L.P. V. Atalese, 135 S.Ct. 2804 (2015).
Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899 (2015).
Raniere v. Citigroup Inc., No. 11 Civ. 2448 (S.D.N.Y. Sept. 29, 2015).
DirecTV, Inc. v. Imburgia, 136 S. Ct. 463, 577 U.S., 193 L. Ed. 2d 365 (2015).
70
Imburgia v. DirecTV, Inc., 225 Cal. App. 4th 338, 170 Cal. Rptr. 3d 190 (Ct. App. 2014).
Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014).
Jackson v. Payday Financial, LLC, 764 F.3d 765 (7th Cir. 2014).
Regional Care of Jacksonville, LLC v. Henry, 444 S.W.3d 356 (2014).
Alltel Corporation V. Rosenow, 2014 Ark. 375 (2014).
American Exp. v. Italian Colors Restaurant, 133 S. Ct. 2304, 570 U.S. 333, 186 L. Ed. 2d 417
(2013).
Raniere v. Citigroup Inc., No. 11-5213-cv (2d Cir. Aug. 12, 2013).
Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013).
Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013).
Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197 (2013).
Damato v. Time Warner Cable, Inc., No. 13-CV-994 (ARR)(RML) (E.D.N.Y. July 31, 2013).
CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 565 U.S. 95, 181 L. Ed. 2d 586 (2012).
Bush v. AT&T CORP., No. 12-6106-CV-SJ-DGK (W.D. Mo. Dec. 3, 2012).
Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. 2012).
Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012).
Davis v. Sprint Nextel Corporation, No. 12-01023-CV-W-DW (W.D. Mo. Nov. 26, 2012).
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 563 U.S. 333, 179 L. Ed. 2d 742 (2011).
In Re American Express Merchants' litigation, 634 F.3d 187 (2d Cir. 2011).
71
Stolt-Nielsen SA v. AnimalFeeds International, 130 S. Ct. 1758, 559 U.S. 662, 176 L. Ed. 2d 605
(2010).
Laster v. AT & T Mobility LLC., 584 F.3d 849 (9th Cir. 2009).
In Re American Express Merchants' litigation, 554 F.3d 300 (2d Cir. 2009).
Cicle v. Chase Bank USA, 583 F.3d 549 (8th Cir. 2009).
Fiser v. Dell Computer Corporation, 188 P.3d 1215 (2008).
Lowden v. T-MOBILE USA, INC., 512 F.3d 1213 (9th Cir. 2008).
Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007).
Scott v. Cingular Wireless, 161 P.3d 1000, 160 Wash. 2d 843, 160 Wash. 843 (2007).
Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007).
Cohen v. DirecTV, Inc., 48 Cal. Rptr. 3d 813, 142 Cal. App. 4th 1442 (Ct. App. 2006).
Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88, 189 N.J. 1 (2006).
Wayne v. Staples, Inc., 37 Cal. Rptr. 3d 544 (Ct. App. 2006).
Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).
Delta Funding Corp. v. Harris, 912 A.2d 104 (2006).
James v. McDonald's Corp., 417 F.3d 672 (7th Cir. 2005).
Jenkins v. First American Cash Advance of Georgia, 400 F.3d 868 (11th Cir. 2005).
Discover Bank v. Superior Court, 113 P.3d 1100, 30 Cal. Rptr. 3d 76, 36 Cal. 4th 148 (2005).
Whitney v. Alltel Communications, Inc., 173 S.W.3d 300 (Mo. Ct. App. 2005).
Aral v. EarthLink, Inc. 134 Cal.App.4th 544, 36 Cal.Rptr.3d 229 (2005).
72
Klussman v. Cross Country Bank 134 Cal.App.4th 1283, 1287, 36 Cal.Rptr.3d 728 (2005).
Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court 133 Cal.App.4th 396, 34
Cal. Rptr.3d 659 (2005).
Iberia Credit Bureau, Inc. v. Cingular Wireless, 379 F.3d 159 (5th Cir. 2004).
Carnegie v. Household Intern., Inc., 376 F.3d 656 (7th Cir. 2004).
Adler v. Fred Lind Manor, 153 Wash. 2d 331 (2004).
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S. Ct. 2402, 156 L. Ed. 2d 414 (2003).
Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003).
Livingston v. Associates Finance, Inc., 339 F.3d 553 (7th Cir. 2003).
Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002).
Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Ct. App. 2002).
Randolph v. Green Tree Financial Corp., 244 F.3d 814 (11th Cir. 2001).
Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
Green Tree Financial Corp. - Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d
373 (2000).
Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997).
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996).
McMullin v. McMullin, 926 S.W.2d 108 (Mo. Ct. App. 1996).
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991).
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S. Ct. 3346, 87 L.
Ed. 2d 444 (1985).
73
Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984).
Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983).
Keating v. Superior Court (645 P.2d 1192, 31 Cal. 3d 584, 183 Cal. Rptr. 360 (1982).
Funding Systems Leas. Corp. v. King Louie Intern., Inc., 597 S.W.2d 624 (Mo. Ct. App. 1979).
China
Ningbo Jiangdong Hong Cheng Information Technology Co., Ltd. v. Yongpei Chen, (2016) Zhe
02 Min Xia Zhong No. 113.
Yongjun Wang v. China People's Property Insurance Co., Ltd. Guangzhou Branch, (2016) Yue
04 Min Zhong No. 243.
China Pacific Property Insurance Co., Ltd. Zhuzhou Center Company v. Li Moumou, (2015) Zhu
Zhong Fa Guan Zhong Zi No. 82.
Si Jia v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 3.
Yufang Xu v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 4.
Wenting Zhang v. Leshan Xinhe Real Estate Co., (2015) Le Min Te Zi No. 5.
Fujian Maisen Children's Products Technology Co., Ltd. v. Industrial and Commercial Bank of
China Co., Ltd. Quanzhou Taiwan Businessmen Investment Zone Branch, (2015) Xia Min Ren
Zi No. 200.
Shujun Qin v. Sichuan Changhong Electric Appliance Co., Ltd., (2015) Mian Min Zhong Zi No.
31.
Ying Chen v. Shanghai Jiecheng Automobile Sales & Service Co., Ltd., (2015) Hu Erzhong
Minyi (Min) Zi No. 2209.
Dingding Sun v. Suning Tesco E-commerce Co., Ltd., (2015) Consulting Case, No. 79.
74
Xia Cao v. Nanjing Suning Tesco E-commerce Co., Ltd, (2015) Yan Shang Xia Zhong Zi, No.
00044.
Legislations
Arbitration Fairness Act of 2017, available at https://www.congress.gov/bill/115th-
congress/house-bill/1374/text, visited on 20 April 2017.
The Interpretation of The Interpretation of the Supreme People’s Court on the Application of the
Civil Procedure Law of the People’s Republic of China 2015.
The Law of the People’s Republic of China on the Protection of Consumer Rights and Interests
(2013 Amendment).
DIRECTIVE 2013/11/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of
21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation
(EC) No 2006/2004 and Directive 2009/22/EC, available at http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32013L0011&from=en, visited on 26 April 2017.
UNIDROIT Principles of Commercial of International Commercial Contracts 2010, available at
http://www.unidroit.org/english/principles/contracts/principles2010/integralversionprinciples201
0-e.pdf, visited on 24 April 2017
The Interpretation II of the Supreme People’s Court of Several Issues concerning the Application
of the Contract Law of the People’s Republic of China 2009.
The Arbitration Law of the People’s Republic of China (2009 Amendment).
The Interpretation of the Supreme People’s Court concerning Some Issues on Application of the
Arbitration Law of the People's Republic of China 2008.
The UNCITRAL Model Law 2006
The Contract Law of the People’s Republic of China 1999.
75
COUNCIL DIRECTIVE 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts,
available at http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:31993L0013&from=en, visited on 11 May 2017.
The New York Convention, available at
http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf,
visited on 7 April 2017.
The Federal Arbitration Act 1925, available at http://www.sccinstitute.com/media/37104/the-
federal-arbitration-act-usa.pdf, visited on 31 March 2017.
Uniform Commercial Code § 2-302, available at https://www.law.cornell.edu/ucc/2/2-302,
visited on 8 April 2017.
The California Civil Code, available at
http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CIV§ionNum=
1668, visited on 9 April 2017.
12 U.S. Code § 5481, available at https://www.law.cornell.edu/uscode/text/12/5481, visited on 6
May 2017.
Austrian Code of Civil Procedure
Internet Resources
A Case Analysis, 22 August 2016, available at
http://www.huanzhonglaw.com/templates/consulting_009_1/second_147_652.html, visited on 29
April 2017.
Barnes, Robert. Supreme Court sides with American Express on arbitration, 20 June 2013,
available at https://www.washingtonpost.com/politics/supreme-court-sides-with-american-
76
express-on-arbitration/2013/06/20/dc78c022-d9dc-11e2-a016
92547bf094cc_story.html?utm_term=.92a8166edc09, visited on 17 April 2017.
Class Action Update: Supreme Court Reaffirms Enforcement of Class Arbitration Waivers, 15
December 2015, available at https://www.davispolk.com/publications/class-action-update-
supreme-court-reaffirms-enforcement-class-arbitration-waivers/, visited on 14 March 2017.
CompuCredit Corp. v. Greenwood, https://www.law.cornell.edu/supct/cert/10-948, visited on 13
March 2017.
Consumer Financial Protection Bureau, Arbitration Study, available at
http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf,
visited on 20 April 2017.
Friedman, George H. State Supreme Courts Exploring Limits of FAA Preemption, 29 September
2014, available at http://www.sacarbitration.com/blog/state-supreme-courts-exploring-limits-faa-
preemption/, visited on 25 April 2017.
Halper, Jason M. & William J. Foley, United States: Seven Months After “American Express v.
Italian ColorsRestaurant”: The End of Class Actions?, 14 January 2014, available at
http://www.mondaq.com/unitedstates/x/285906/Class+Actions/Seven+Months+After+American
+Express+v+Italian+Colors+Restaurant+The+End+Of+Class+Actions, visited on 17 April 2017.
Kieler, Ashlee. Arbitration Fairness Act Would Reinstate Consumers’ Right to Sue in Court, 30
April 2015, available at https://consumerist.com/2015/04/30/arbitration-fairness-act-would-
reinstate-consumers-right-to-sue-in-court/, visited on 20 April 2017.
Michael A. Clithero, Is Your Arbitration Clause Prohibiting Class Arbitration Enforceable?,
July – August, 2013, available at
http://www.mobar.org/uploadedFiles/Home/Publications/Journal/2013/07-08/arbitration.pdf,
visited on 2 May 2017.
News, available at https://www.govtrack.us/congress/bills/115/hr1374, visited on 20 April 2017.
77
Peralta, Alvaro J. The Legal Landscape of Class Arbitration Waivers in Consumer Contracts, 3
March 2016. Available at
http://apps.americanbar.org/litigation/committees/appellate/articles/winter2016-0316-legal-
landscape-class-arbitration-waivers-consumer-contracts.html, visited on 31 March 2017.
U.S. Legal Services Group, L.P. V. Atalese, 135 S.Ct. 2804 (2015), available at
http://guptawessler.com/wp-content/uploads/2013/12/Atalese-BIO.pdf, visited on 25 April 2017.