Important Development Favoring Enforceability of Class Action Waivers in Arbitration Agreements
In a major development supporting the enforceability of class action waivers in consumer arbitration agreements, the California Supreme Court ruled on June 23, 2014 in Iskanian v. CLS Transportation Los Angeles LLC that class action waivers in such agreements are generally enforceable, and that a state rule (the Gentry rule) against enforcing such waivers on the grounds of public policy or unconscionability was preempted by the Federal Arbitration Act (“FAA”). However, the Court also held that the FAA did not preempt a state rule against waiver of Private Attorney General Act claims.
Overall, the Iskanian decision is an important step forward in continuing the trend toward broad enforcement of class action waivers, which gathered momentum from the U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion. Before Iskanian, California had been identified by many as a potential exception to this trend based on its strong history of consumer protection. With the Iskanian decision, California has now (importantly) brought its case law in line with federal law—and much of the rest of the country.
The California Supreme Court’s decision is welcome news to businesses, but businesses should still consult counsel regarding class action waivers and arbitration clauses in consumer agreements, as enforceability continues to remain a significant hurdle in certain contexts.
PDF of News Alert.