A case that began when two people bought "free" cell phones and eventually led all the way to the Supreme Court has resulted in a decision that will provide some degree of protection to credit unions in civil litigation.
At its essence, AT&T Mobility LLC v. Concepcion overrules California case law, which had severely limited the imposition of mandatory arbitration by holding that the Federal Arbitration Act (FAA) preempts state law in that regard. The case further holds that provisions in arbitration clauses prohibiting class actions are also enforceable.
In our practice, we see class action claims against CUs most frequently in wage and hour claims, and claims arising out of retail installment sales contracts for the motor vehicles. The AT&T Mobility case may prove to be useful, so long as the CU (in the case of the employment claims) or the CU's assignors (in the case of the retail installment contracts) have included enforceable clauses in the applicable contracts.
Here are the facts of the case. Vincent and Liza Concepcion purchased phones and plans from AT&T Mobility ("AT&T) pursuant to a written agreement. The phones were free except for sales tax. They asserted that because of the sales tax, the phones were not really free, and that they had been cheated. The purchase agreement provided for arbitration of all disputes between the parties and required all claims be brought in the parties' "individual capacities, and not as a plaintiff or class member in any purported class or representative proceeding." In other words, the Concepcions could not file a lawsuit in court. They instead had to litigate any claim before an arbitrator, and they could not participate in a class action.
Ostensibly, these provisions favored AT&T which could proceed in front of an arbitrator rather than a jury, and the company would not be subjected to any class action lawsuits arising out of its phone and plan contracts. The contract, though, had further provisions with regard to potential claims, all of which favor consumers.
Impact of Case
One consumer organization has asserted that the Concepcion decision will have a dire impact on consumers because it enables corporations the "ability to write 'get out of jail free' clauses into the fine print of contracts, allowing them to cheat consumers and discriminate against employees."
This would seem to be an extreme position and one inconsistent with the facts in the case. The genesis of class actions is that without them, businesses are free to bamboozle individuals of relative small amounts of money because it would be not be cost effective for consumers to litigate individual claims, and it would be impossible for them to retain counsel. That concern, however, is ameliorated because of the cornucopia of consumer-favorable terms, particularly when the contractual provisions also include "fee shifting" where only the consumer can recover fees as a prevailing party.
Effect On Credit Unions
Credit unions can make use of arbitration provisions in connection with both their employee relationships and their contracts with members, although in the latter instance, they have no say as to retail installment contracts assigned by car dealers.
Notwithstanding the Supreme Court's enthusiasm for the FAA and arbitration generally, the court acknowledged the "savings clause" portion of section two of the FAA, which permits arbitration provisions to be declared unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." The court noted the clause in connection with the Discover Bank case, which had precluded collective-arbitration waivers in consumer contracts as unconscionable, and the court held that that interpretation was improper. We would expect that plaintiffs' opposing motions to compel arbitration would raise other unconscionability arguments if consumer friendly provisions of the sort in the AT&T arbitration provision, (i.e., venue lying where the contract was made, AT&T's obligation to pay the entirety of the arbitrator's fee, etc.) were not included in the credit union arbitration provision.
With that in mind, credit unions wishing to avail themselves of collective-arbitration waivers should work with their counsel to include enough consumer/employee favorable terms to pass judicial muster while at the same time being acceptable to the credit union.
Eric Schneider is a managing partner at Anderson McPharlin & Conners LLP with offices in Los Angeles, San Diego, Ontario (California), and Las Vegas. Schneider has been litigating on behalf of credit unions since 1985.