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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

A Tale of Two Arbitrations

Posted in Motions Practice

Those who argue that AT&T v. Concepcion killed the class action must be having an interesting January. Two of the more significant cases so far this year–Compucredit Corp. v. Greenwood (2012) and D.R. Horton, Inc. v. Cuda (NLRB 2012), have involved similar questions about when a defendant can move to compel arbitration in a class action.

But wait, I hear you ask. Didn’t Concepcion decide that issue last year? Well, like with most legal questions, the answer is yes and no. Concepcion held that general statements about state unconscionability law cannot trump the dictates of the Federal Arbitration Act. But it left open the question of whether a federal statute could supplant § 2 of the FAA. Both of these lawsuits test that opening: CompuCredit involves the Credit Repair Organizations Act (CROA), and D.R. Horton involves the Fair Labor Standards Act (FLSA).

In CompuCredit, the plaintiffs alleged that the defendant had misrepresented its ability to rebuild card-users’ credit, as well as the effective credit limits on its accounts. CompuCredit had moved to compel arbitration, but the district court had denied the motion, and the Ninth Circuit had affirmed.

The Ninth Circuit adopted the following line of reasoning, urged upon us by respondents here: The disclosure provision gives consumers the "right to sue," which "clearly involves the right to bring an action in a court of law." Because the nonwaiver provision prohibits the waiver of "any right of the consumer under this subchapter," the arbitration agreement— which waived the right to bring an action in a court of law— cannot be enforced. 

The flaw in this argument is its premise: that the disclosure provision provides consumers with a right to bring an action in a court of law. It does not.

(Internal citations omitted.) The plaintiffs also relied on the fact that the CROA contained a number of references to lawsuits, and specifically to class actions. They argued that these mentions demonstrated Congress intended to allow a right to a class action in this case. The Court disagreed:

These references cannot do the heavy lifting that respondents assign them. It is utterly commonplace for statutes that create civil causes of action to describe the details of those causes of action, including the relief available, in the context of a court suit. If the mere formulation of the cause of action in this standard fashion were sufficient to establish the "contrary congressional command" overriding the FAA, valid arbitration agreements covering federal causes of action would be rare indeed. But that is not the law.

(Emphasis added, internal citation omitted.)

By contrast, in D.R. Horton, the NLRB held that the right to bring a class or collective action cannot be waived by an arbitration clause. Is that consistent with CompuCredit?

Probably. D.R. Horton involved allegations that the defendant had misclassified building superintendents as exempt from the FLSA. The plaintiff, Michael Cuda, filed a classwide arbitration, and D.R. Horton moved to dismiss, because its arbitration clause did not allow for collective action. Accepting the defendant’s logic, the judge dismissed the claim.

The NLRB reversed, explaining:

Section 7 of the NLRA vests employees with a substantive right to engage in specified forms of associational activity. It provides in relevant part that employees shall have the right "to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection …"

And it went on to observe that

The Board has long held, with uniform judicial approval, that the NLRA protects employees’ ability to join together to pursue workplace grievances, including through litigation.

Section 7 does not specifically mention class actions. But the NLRB decided that, because it did specifically allow for concerted action to protect employees, that class-action litigation fell within the scope of the statute as drafted.

These forms of collective efforts [including class actions] to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7. Such conduct is not peripheral but central to the Act’s purpose.

(Emphasis added.) In other words, the NLRA specifically stated that the parties had a right to use collective action (which had been interpreted to include class actions) to improve their working conditions. The substantive right to use a class action came from the statute itself.

So what can defense lawyers take from this? So long as the federal statute at issue does not specifically provide a right to bring a class actions, it will still be worth including arbitration clauses where appropriate, and moving to enforce those clauses.