How Class Action Rights are Being Limited by Legislation

An Irvine business litigation attorney helps companies to take steps to minimize the risks of civil liability and assists individuals and entities with claims against companies. Whether you are hoping to avoid a lawsuit or  you are looking to initiate a claim for a legal remedy because you feel you have been wronged, Brown & Charbonneau, LLP is here to help you. 

The civil justice system provides an important opportunity to obtain remedies for wrongs. However, in recent years, access to the courts has been curtailed through the use of mandatory arbitration clauses as well as through class action waivers found in many commercial contracts.

Although California courts have repeatedly ruled that class action waivers are void because they are against public policy, the U.S. Supreme Court has been moving in the other direction in terms of allowing waivers of class action rights in an increasing number of situations.

Both individuals and business organizations should understand how the courts are addressing the use of class action waivers and arbitration clauses in consumer contracts. Brown & Charbonneau, LLP can provide insight into this complex issue, so give us a call today.

Developing Laws on Class Action Waivers

In several California cases, including McGill v. Citibank and Iskanin v. CLS Transportation, California courts have held that mandatory arbitration clauses were unenforceable in various circumstances, such as when a class is suing for injunctive relief or when a class action would otherwise arise under the Private Attorneys General Act. California courts that would not uphold mandatory arbitration clauses and/or class action waivers have generally held that allowing these clauses to restrict consumer rights is against public policy.

However, the U.S. Supreme Court has repeatedly held that class action waivers and mandatory arbitration provisions in consumer contracts are enforceable. In American Express v. Italian Colors Restaurant, the U.S. Supreme Court specifically addressed the theory that public policy could result in an arbitration clause in a consumer contract not being enforceable. The Court indicated that individual state public policies against arbitration clauses cannot create an exception to the Federal Arbitration Act.

The Federal Arbitration Act preempts state law and it dictates that mandatory arbitration clauses are largely enforceable – even in consumer contracts. This means the decisions made by California courts to use public policy as a justification for refusal to enforce mandatory arbitration clauses may not be able to survive a review by a higher court. The U.S. Supreme Court is at odds with these California decisions and the lower courts must follow precedent set by the U.S. Supreme Court.

It is not just the U.S. Supreme Court, either, which has been broadly favorable to arbitration clause and waivers of class action rights in consumer contracts. When the Consumer Financial Protection Bureau (CFPB) took action to restrict the use of mandatory arbitration clauses and class action waivers in certain contracts that consumers enter into with their financial institutions, the United States House of Representatives passed a resolution to overturn the rule made by the CFPB. This means that while the CFPB aimed to make it impossible for financial institutions to prevent class actions, Congress has taken action to once again prevent consumers from being able to join together in order to file a class action when many consumers suffer similar wrongs perpetrated by financial institutions.

Curtailing class action rights and limiting access to courtrooms has consequences, especially as many class actions are brought by groups of plaintiffs who only suffered small individual wrongs. Since losses are often not substantial enough for individual claims to be worth pursuing, class action waivers can essentially immunize companies from lawsuits when the company’s action causes only minor damage to consumers.

Getting Help from an Irvine Business Litigation Attorney

An Irvine business litigation attorney at Brown & Charbonneau, LLP will help your company to understand when and how the law allows you to include clauses in consumer contracts limiting class action rights so you can protect your organization from costly litigation. We can also provide representation to individuals who believe they have been wronged and who wish to understand their rights to pursue a class action. To find out more about how we can help, give us a call at (866)237-8129 or contact us online today.