FAA Preempts Florida Law Invalidating Arbitration Class Action Waivers as Void Against Public Policy

In McKenzie Check Advance v. Betts, 112 So. 3d 1176 (Fla. 2013), the Florida Supreme Court held that the Federal Arbitration Act (FAA) preempted invalidating a class action waiver in an arbitration agreement on the basis that the waiver was void against public policy. After the Fourth District Court of Appeal had decided the underlying case, concluding that the class action waiver violated public policy, and certified a question to be of great public importance, the United States Supreme Court issued its decision in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011). InConcepcion, the Court found that the FAA "prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures."Id. at 1744.

The Betts plaintiffs had asserted claims based on the Florida lending practices statute (chapter 687), Florida Consumer Finance Act (chapter 516), Florida Deceptive and Unfair Trade Practices Act (chapter 501) (FDUTPA), and the Florida Civil Remedies for Criminal Practices Act (chapter 772) (FCRCPA).The crux of the plaintiff's claims was that the defendant, under the deceptive guise of a check cashing service, was in reality loaning money at usurious and exorbitant rates. One of the plaintiffs paid a total of $860 in fees on a $300 loan. She presented evidence that the class action waivers left her "without a viable means of seeking redress." Her expert witnesses testified that it was virtually impossible for an individual consumer to find a competent attorney for a payday loan case because of the complex nature of such cases and the small amount of potential recovery.

The trial court denied the defendant's motion to compel arbitration, finding that it would have been virtually impossible for the plaintiff to obtain competent individual representation for her claims, and that the class action waiver was unenforceable because it was void as against public policy. The trial court specifically found that "enforcement of the class ban would deprive [plaintiff] and similarly situated consumers of any remedy" and would defeat the implicated statutes' remedial purposes and undercut their deterrent value." On appeal, the Fourth District certified the question of whether a class action waiver in an arbitration agreement violates public policy when the trial court is persuaded that the waiver prevents consumers from obtaining competent counsel.

In applying Concepcion to Betts, the Florida Supreme Court first acknowledged that under Florida law, a contractual provision that defeats the purpose of a remedial statute violates public policy and is thus unenforceable. Thus the plaintiff argued, and the Fourth District agreed, that the defendant's class action waiver violates public policy because consumers would be unable to obtain competent counsel if the small-value claims could not be brought in a class action proceeding, and the result would prevent a consumer from vindicating the rights that FDUTPA and FCRCPA are designed to create and nuture.

However, the Florida Supreme Court did not reach the merits of the public policy argument, because to the extent that Florida law would invalidate the class action waiver on such basis, the FAA preempts Florida law under Concepcion:

[S]tate rules mandating the availability of class arbitration based on generalizable characteristics of consumer protection claims--including that the claims "predictably involve small amounts of damages," . . . that the company's deceptive practices may be replicated across "large numbers of consumers," . . . and that many potential claims may go unprosecuted unless they may be brought as a class, . . . --are preempted by the FAA, even if they may be "desirable," . . . Therefore, to the extent that Florida law would be sympathetic to the Plaintiffs' arguments here, and would invalidate the class waiver simply because the claims are of small value, the potential claims are numerous, and many consumers might not know about or pursue their potential claims absent class procedures, such a state policy stands as an obstacle to the FAA's objective of enforcing arbitration agreements according to their terms, and is preempted.

Accordingly, the Court quashed the Fourth District's decision and declined to answer the certified question as moot.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com