Using Arbitration Agreements To Bar Class Action Litigation
February 2, 2015
Class action lawsuits were filed against four energy suppliers in late 2014. Accordingly, suppliers may wish to consider a contractual provision that could provide some protection from future class action litigation.
The United States Supreme Court has upheld a contractual provision that expressly prohibited class action litigation.[1] In that case, mobile phone customers brought a putative class action against AT&T alleging that AT&T had engaged in false advertising and fraud under California law. AT&T moved to compel arbitration under the terms of its (pre-dispute) standard contract, which contained an arbitration provision that waived the right to commence class action litigation.
The Supreme Court’s opinion was lauded as the death of class action lawsuits. That was not the case, and federal and state courts continue to invalidate class action waivers.
For example, it is well documented that Stream Energy and its marketing arm Ignite have introduced, and changed, arbitration terms in their contracts – with (so far) mixed results. In 2009, the Independent Associates (IAs) of Ignite (who are also customers of Stream) commenced a class action lawsuit against them alleging that their multilevel marketing program violated federal law. In 2009, the U.S. District Court for the Southern District of Texas granted a motion to dismiss, finding venue was improper because the IAs agreed to arbitrate all claims.[2] The same result was later reached in 2010, by the U.S. District Court for the Northern District of Georgia in a separate class action lawsuit.[3]
The Eleventh Circuit Court of Appeals affirmed the result of the District Court of Georgia.[4] But, in Texas, the District Court’s judgment was reversed by the Fifth Circuit Court of Appeals and the case was remanded.[5] After remand and as the federal class action litigation proceeded in Texas, the arbitration clause was amended in an attempt to cure the deficiencies identified by the Fifth Circuit. Class certification was granted by the District Court of Texas in 2014.[6] But, in doing so, that District Court upheld the modified arbitration clause and limited the class to IAs who joined Ignite prior to the effective date of the modification (April 3, 2011). The certification of that class was appealed to the Fifth Circuit.[7] A decision is pending.
These cases suggest that a supplier may be able to use: (a) a dispute resolution provision that requires claims by a customer (except for a claim challenging the validity or enforceability of this arbitration agreement, including the Class Action Waiver) to be resolved by the regulatory body of the customer’s state (such as the Public Utility Commission) or arbitration; and (b) a Class Action Waiver provision that would limit arbitration to an individual basis. Such provisions – if ultimately upheld by the courts – would preclude the joinder or consolidation of claims in arbitration or in court.
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[1] AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).
[2] Torres v. SGE Mgmt. LLC, 2009 U.S. Dist. LEXIS 130169 (S.D. Tex., Nov. 6, 2009).
[3] See Betts v. SGE Mgmt. LLC, 2010 U.S. Dist. LEXIS 123957 (N.D. Georgia, May 12, 2010).
[4] Betts v. SGE Mgmt. LLC, 402 Fed. Appx. 475, 2010 U.S. App. LEXIS 23376 (11th Cir. Georgia, November 9, 2010).
[5] Torres v. SGE Mgmt. LLC, 397 Fed. Appx. 63, 2010 U.S. App. LEXIS 20520 (5th Cir. Tex., Oct. 5, 2010), certiorari denied, 132 S. Ct. 117 (US, 2011).
[6] Torres v. SGE Mgmt. LLC, 2014 U.S. Dist. LEXIS 3741 (S.D. Tex., Jan. 13, 2014).
[7] Torres v. SGE Mgmt. LLC, Fifth Circuit Case No. 14-20128.
If you have any questions about consumer contracts, please contact Carl Shultz at (717)255-3742; cshultz@eckertseamans.com, Deanne O’Dell at(717)255-3744; dodell@eckertseamans.com, or Dan Clearfield at (717) 237-7173; dclearfield@eckertseamans.com.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice.