Appendix — County Bank of Rehoboth Beach, Delaware v. Muhammad, 127 S. Ct. 2032 (2007) (No. 907)
Supreme Court brief2007
Ask Donna
What actually matters in this document.
Text
Gl
SUPREME COURT OF NEW JERSEY
NO. 58,430
JALIYAH MUHAMMAD _ : ON APPEAL FROM THE
: SUPERIOR COURT OF
: NEW JERSEY,
Plaintiff-Appellant : APPELLATE DIVISION
v. : DOCKET NO. A-0558-04T3
COUNTY BANK OF
REHOBOTH BEACH,
DELAWARE; EASY CASH;:
TELECASH; and MAIN
STREET CORPORATION
Defendants-
Respondents
SAT BELOW:
HON. HOWARD H. KESTIN, PJAD
HON. STEVEN L. LEFELT, JAD
HON. JOSEPH A. FALCONE, JAD
BRIEF OF AMICUS CURIAE
CHAMBER OF COMMERCE OF THE UNITED
STATES OF AMERICA IN SUPPORT OF
RESPONDENTS
G2
OF COUNSEL
MAYER, BROWN, ROWE & MAW LLP
Evan M. Tager (pro hac vice)
David M. Gossett (pro hac vice)
1909 K Street, NW
Washington, DC 20006
(202) 263-3000
NATIONAL CHAMBER LITIGATION CENTER, INC.
Robin S. Conrad (pro hac vice)
Amar D. Sarwal (pro hac vice)
1615 H Street, NW
Washington, DC 20062
(202) 463-5337
Andrew B. Joseph
DRINKER BIDDLE & REATH LLP
A Pennsylvania Limited Liability Partnership
500 Campus Drive
Florham Park, NJ 07932
Telephone: (973) 360-1100
Attorneys for Chamber of Commerce of the
United States of America
INTEREST OF THE AMICUS CURIAE
PRELIMINARY STATEMENT .....cccccscccsescssscossesveseores
PROCEDURAL HISTORY AND
PR Pa IEE OE BS BO cihnveesssieposiscevnistoseniegesonewiececien
Rear S Es ATA RIINT Ewe hciichicadainnchnensicbdnsteiiccbats seseenenen
I. AN AGREEMENT TO ARBITRATE ON
G3
TABLE OF CONTENTS
AN INDIVIDUAL BASIS CANNOT BE
DEEMED UNENFORCEABLE MERELY
BECAUSE THE UNDERLYING
CONTRACT PROHIBITS CLASS
Pe chennai dilscindchindoitedniiiainbusisedbiiiataia sabes
A. Under Either New Jersey or Delaware
Law, Class-Action Waivers Are Not
a a
l. Under New Jersey law, class-
arbitration waivers are enforceable .......
z. Class-arbitration waivers are also
enforceable under Delaware law ...........
B. The FAA Would Preempt A Rule That
Class-Arbitration Waivers In
Arbitration Agreements Are
RIEIOUIIID | Sasccvvecsscansbocsiseccorpenicictions
G4
: Section 2 of the FAA would
expressly preempt any holding
that prohibitions against class
arbitration are unconscionable ........ 22
rk Conditioning the enforceability
of arbitration provisions on the
availability of class-wide
arbitration would conflict with
Congress's objectives _—in
enacting the FAA and would
therefore be preempted ..............00006 29
Il. AN OFFER TO PAY THE COSTS OF
ARBITRATION AND TO PROCEED IN AN
ALTERNATIVE ARBITRAL FORUM
MOOTS ANY ARGUMENT THAT THE
COSTS OF ARBITRATION ARE
EXCESSIVE OR THAT THE ORIGINAL
FORUM JS PROBLEMATIC .......cccsesssescesssesereoree 35
Ill. MUHAMMAD MAY NOT EVADE HER
OBLIGATION TO ARBITRATE BY
LEVELING A PUBLIC-POLICY ATTACK
ON THE UNDERLYING CONTRACT ......... 43
IV. THE ENFORCEABILITY OF AN
ARBITRATION PROVISION SHOULD
NOT BE SUBJECT TO QUESTION
MERELY BECAUSE IT HAPPENS TO BE
CONTAINED WITHIN A FORM
ET A PRIUS B - inierdeiueintda tivthinninesin tindnkinbokinacckosnvinphesies 46
Cae MITT icici tntionshiesrnadeueberhonrevticgssnpasshanlvasbensovesedsseevers 50
G5
TABLE OF AUTHORITIES
Page(s)
CASES
3H & Assocs., Inc. v. Hanjin Eng'g & Contr. Co.,
1998 WL 657722 (9th Cir. Sept. 3, 1998)............... 44
Allied-Bruce Terminex Cos. V. Dobson,
513 U.S. 265, 115 S. Ct. 834, 130 L.Ed 2d
FEET dinisicinlaseehininvenantndimnbineiiilanbonasables passim
Am. Gen. Life & Accident Ins. Co. v. Wood,
BEF FF Oe CO ar te i theriviteinsnctactiniicnrencenies 35
Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
117 S. Ct. 2231, 138 L.Ed 2d 689 (1997)................ 17
Anders v. Hometown mtg. Servs., Inc., 346 F.3d 1024
CE RUE Gr, Bed iteiccistescevtcviennseirntednibanssieakansione 37
Anderson v. Delta Funding Corp., 316 F. Supp. 2d 554
CPE, GORD Bee ieveinctieencsnisiacncsnstesiideubimicneibaniaaanaeh 37
AutoNation USA Corp. v. Leroy, 105 S.W.3d 190
Cs Re Oe Bins tiinstbescrvinsvinedinienimsancalionie 15
Barcon Assocs., Inc. v. Tri-County Asphalt Corp.,
OP BG GFP COED icicinicticeanensesaiecebiniaieniaomaieneei 30
Battels v. Sears Nat’l Bank, 365 F. Supp. 2d 1205
PRS: BPE whiainsiitinins cs bieccoeitcinbnstinlinntpaaiansiasinataieidiegs 16
Baugher v. Dekko Heating Techs., 202 F. Supp. 2d 847
See Ee BEE beitkinchccininigtinddiins ehinieeadadaapeaiaias 37
G6
Bess v. Check Express, 294 F.3d 1298
CE BOE Gis sac apeaniadicantiaiveadecahicbndenssasarncdinnnadiiaoes 44
Billups v. Bankfirst, 294 F. Supp. 2d 1265
Ce Fi, SE weieitestisckiccpinenstiteebinhvacemeaiones 14, 16
Booker v. Robert Half Int’l, Inc. 413 F.3d 77
cca SPD cbs cecestiiniciriaeciniinstaceiaseapemniennininiiseeteade 42
Boomer v. AT&T Corp., 309 F.3d 404
SPU Gls ED shiticcesstcasidipedecceccshacauibcaesentdonmancicsibaeia 26
Brown v. KFC Nat’l Mgmt Co., 921 P.2d 146
SD arcotitnivnssschieaiosensbbicniieinlinidatiakchidodeluiokans 15
Burden v. Check Into Cash of Ky., LLC, 267F.3d 483
Cae PP ce Siieencsssiiissacenencpashchnieice Rbaiatiaaianaisiidti 44
In re Cadillac V-8 Class Action, 93 N.J. 412 (1983)........... 17
Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359,
RN 13, 35
Carbajal v. H&R Block Tax Servs., Inc., 372 F.3d 903
EF aes I eiiharicessnsianiiissecstnhassccspombasedinacsenceias deasesciihe 47
Cardegna v. Buckeye Check Cashing, Inc.,
894 So. 2d 860 (Fla.), cert. granted,
125 S. Ct. 2937 (2005), argued
EE ta MII Sidhtiecitcaidins bardnicdicetilin cinadet oaecret seas 44
Carnegie v. Household International, Inc.,
DFO FF Ce CF GAR: DIO cocecvccccnctinnsecevccectnus 18,19
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585,
111 S. Ct. 1522, 113 L.Ed 2d 622 (1991)................ 26
G7
Carter v. Countrywide Credit Indus., Inc.,
362 F.3d294 (Sth Cir. 2004) ...cssisescsesssssssssasseaes 38, 39
Champ v. Siegel Trading Co., 55 F.3d 269
CFG Oe. TSF F) oes ismbacecbaapniats 13, 20
Copeland v. Katz, 2005 WL 3163296
(EE). Wile, Mav: 26 2OGS) ivcscenivisinxesvsisnirnerssrvanens 14
Cunningham y. Citigroup, Inc., 2005 WL 3454312
(29: PAF, TORR. 2G, DOC iccetnsciicdeasntesacantiuaaavean 12, 24
In re Currency Conversion Antitrust Litig., :
361 F. Supp. 2d 237 (S.D.N.Y. 2005)....14, 20-21, 37
Dambrosio v. Comcast Corp., 2005 WL 3543794
CEE). Pan. S06. 27, DOP ikcoiip ceetenictenutaamcmaen 14
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,
105 S. Ct. 1238, 84 L.Ed. 2d 158 (1985)..........00000+ 40
Discover Bank v. Superior Court, 113 P.3d 1100
EO DOI) sicicnssndinsnsereatoiioniesdanbapeiansiliaisaaoddi 15, 21
Discover Bank v. Superior Court, 36 Cal. Rptr. 3d 456
(Cal. Ct. App.), on remand from 113 P.3d 1100
CED, DOGS) ivciciicnssinvnsniintutedsesoestchpabbenmaia diamante tes 21
Dobbins v. Hawk's Enters., 198 F.3d 715
CIES CAE, FOB oii scinissssipiarscceitboecsonaitoaseiinsamadiaaa 37
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681,
116 S. Ct. 1652, 134 L.Ed 2d 902 (1986)................ 22
Edelist v. MBNA America Bank, 790 A.2d 1249
CUE. Beek Oe: ZI Nia oiscsecnicicmaceljasecnanas 20, 21
G8
Edwards v. Blockbuster, Inc., 400 F. Supp 2d 1305,
ad cileed ndsgonasvenanieccsoceveneavaeeies 14
First Family Fin. Servs., Inc. v. Sanford,
203 F. Supp. 2d 662(N.D. Miss 2002)............:000000 37
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
111 S. Ct. 1647, 114 L.Ed 2d 26 (1991)........... passim
Gipson v. Cross Country Bank, 294 F. Supp. 2d 1251
seis cds in cipcateeesdivuseccvorestverenxescodeen 16
Gras v. Assocs First Capital Corp., 346 N.J. Super.
PPR: BPEVs: ZOU ) sctevsennsveseorseesenvesvorce 11, 12, 17, 24
Green Tree Fin. Corp.-Ala. V. Randolph, 531 U.S. 79,
121 S. Ct. 513, 148 L.Ed. 2d 273 (2000)............ 36, 39
Harter v. Iowa Grain Co., 220 F.3d 544 |
a ia dicusecennendeutcepsceceebiaseases 44
Howard v. Diolosa, 241 N.J. Super. 222
ii srrdicneivesenwaxeverysecrervensesece 11,25
Howsman vy. Dean Witter Reynolds, Inc., 537 U.S. 79,
Bee oe Ct. SOG, 194 LB 2d 491 (2002) .....000ccce0000e0ss 9
Hubbert v. Dell Corp.., 835 N.E.2d 113
I IN IEE Bs cnsin condvyveseuseseovensevansinvecteoussiavee 15
Hutcherson v. Sears Roebuck & Co., 793 N.E.2d 886
I iis iccacacusousdicecaevasieassoareserernssenereos 15
Iberia Credit Bureau, Inc. v. Cingular Wireless LLC,
379 F.3d 159 (Sth Cir. 2004)................. 14, 23, 29, 34
G9
Jenkins v. First Am. Cash Advance of Ga., LLC,
400 F.3d 868 (11th Cir. 2005)... eeccceeseeeeees 14, 44
Johnson v. W. Suburban Bank, 225 F.3d 366
COG AAE: IPOD sicccsttectevicsvonsasmleaabeonccuceeignatasestioeds 13, 20
Jones v. Genus Credit Mgmt. Corp., 353 F. Supp. 2d 598
CDi AEs TD caceconiacirabiciiesitinenesncheisaatiacdtmactbiduieusaasi 14
Jung v. Ass'n of Am. Med. Colls., 300 F. Supp. 2d 119
CERI Ask TE ciccstitsenkcovopiiedaubnacaiaceaaiumbeaaceoaaan 37
Klussman v. Cross Country Bank, 36 Cal. Rptr. 3d 456
CRs Ci a Fre vosciccciniies ooehicieicsananshedinitemedade eae 5
Large v. Conseco Fin. Servicing Corp., 292 F.3d 49
EC Ge.’ SERNAME Obatiaty Raiser eee SeCmen ene ey 37
Lawrence v. Comprehensive Bus. Servs. Co.,
833 F.2d 1159 (Sth Cir. 1987) ...cccccccsecccsesccsseesssecees 44
Lawrence v. Household Bank (SB), N.A.,
343 F. Supp. 2d 1101 (M.D. Ala. 2004)... 16
Leonard v. Terminex Int’] Co., 854 So. 2d 529
(PE FO icestaiioasnteaabancemennablinemionaiin 16
Livadas v. Bradshaw, 512 U.S. 107, 114 S. Ct. 2068,
ya gee 2 a ey.) Omran Nas eencra nimi eo ane 34
Livingston v. Assocs. Fin., Inc., 339 F.3d 553
Bg fe es) UNDE aba tanto PM Suh OE NO eS SVN Se eat VES 36
Lloyd v. MBNA Am. Bank, N.A., 27 Fed. Appx. 82
(Sb Cie BONO) oo 14, 20
G10
Lomax v. Woodmen of the World Life Ins. Soc’y,
228 F. Supp. 2d 1360 (N.D. Ga. 2002)......... eee 14
Lucier v. Williams, 366 N.J. Super. 485
CE Ti a sia csiecniaetndiasscicebiiicenenodecaeesces sein 17, 18
Lux v. Good Guys, 2005 WL 1713421
Oi ccas. Mi: SUNN EE RPM ssccstnscdscancnsncacadevepeeesensnninnis 14
Martindale v. Sandvik, Inc., 173 N.J. 76 (2002).......... 7, 9, 45
Metro East Center for Conditioning & Health v. Qwest
Communications Int’l, Inc., 294 F.3d 924
CFR Ss PUD cticileshachntninntedstepuidinohinsscsdantoigceis 26-27
Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 105 S. Ct. 3346,
BF ECF 4O4 CGS) vcsciccsnonevvevesnsveovtsenave 19, 30, 45
Moses H. Cone Mem’ Hosp. V. Mercury Constr. Corp.,
460 U.S. 1, 103 S. Ct. 927, 74 L.Ed.2d 765 ......40, 44
Muhammad v. County Bank of Rehoboth Beach, Del.,
379 N.J. Super. 222 (App. Div. 2005),
leave to appeal granted, 185 N.J. 254 (2005) .. passim
Nelson v. Insignia/ESG, Inc., 215 F. Supp. 2d 143
(D.D.C. 2002) ..eceeeessnes Se eee 37
Nur v. K.F.C., USA, Inc., 142 F. Supp. 2d 48
CERF A EP ese sevsnccadecsinstoromicshitinconicuciimenctsnabdins 37
O’Quin v. Verizon Wireless, 256 F. Supp. 2d 512
CERI BAN, OE Pika geet dainiaicecinctdamencsbhetokantcanisoaietinicediins) 14
Oblix, Inc. v. Winiecki, 374 F.3d 488
CF ee iiecnecadicticictaticttniderebcéateie 23, 25
G11
Ortiz v. Fibreboard Corp., 527 U.S. 815,
119 S. Ct. 2295, 144 L.Ed.2d 715 (1999)................ 17
Perry v. Thomas, 482 U.S. 483, 107 S. Ct. 2520,
PGT OP G26 CFG Piivciceiedesssctissedveccsavyess 8, 9, 22, 24
Phillips v. Assocs. Home Equity Servs, Inc.,
179 F. Supp. 2d 840 (N.D. Ill. 2001)... 37
Pick v. Discover Fin. Servs., Inc., 2001 U.S. Dist.
LEXIS 15777
(12. Dek, Sept. 2B 20 T ireacusarsiccseraveseaccesvecsaie 14-15, 20
Pitchford V. AmSouth Bank, 285 F. Supp. 2d 1286
CINE DD: AGG. DOGGY cai siivloccittadidvcscsisncdenesevissrtacssoiptian 16
Prima Pain v. Flood & Conklin Manufacturing Co.,
388 U.S. 395, 87S. Ct. 1801, L.Ed.2d 1270
CRY sin cecasissvesetateivitiovicndstuastataaysviaasiaaeiceaes 9, 44, 45
Provencher v. Dell, Inc., __ F. Supp. 2d __
2006 WL 9626 (C.D. Cal. Jan. 3, 2006)............ 14, 41
Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351
(Tenn. Ct. App. 2001), appeal denied
CEG, PION 19, BEE) weiccrtiabesaviseraccanscrtaniosivgasieoens 34
Ragan v. AT&T Corp., 824 N.E.2d 1183
CTU PRAM: SOE, PRIA oi lacici coco vestscecntasdveieietcdedoosscans 15
Rains v. Found. Health Sys. Life & Health,
23.P 3d 1249 (Colo. Ct Apt. 201) cccecicessrcsscxsseines 15
Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477, 109 S. Ct. 1917,
306 TG 20. SO EIR istic dircesscsonscicsreicees 33, 38
G12
Rosen v. SCIL, LCC, 799 N.E.2d 488
FB RS pepe llemmotntrenteentmromtes keranrenenrn oo 15
Rudbart v. North Jersey District Water Supply
Commission, 127 N.J. 344 (1992) .......csssccsesseeeesees 46
Sapiro v. VeriSign, 310 F. Supp. 2d 208
Pe TED sikcracanicinsasnschtaphieensinchoraacbasdeinaueinads 4]
Scherk v. Alberto-Culver Co., 417 U.S. 506,
94 S. Ct. 2449, 41 L.Ed.2d 270 (1974)... eee 7
Schultz v. AT&T Wireless Servs., Inc.,
376 F. Supp. 2d 685 (N.D. W. Va. 2005).......... 16, 34
Sitogum Holdings, Inc. v. Ropes, 352.N.J.Super.555
Cs es IPO E viickncaatncisidivechecianinicaupbusientiniadeiniavind 11,25
Snowden v. CheckPoint Check Cashing, 290 F.3d 631
EE ss IPD adecnped streak ivtdoteipseventtesinvnctcamacs 14, 44
Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852,
Peg we RS: SRR ER aR ERS, Matageitieess Rec Soar 7
State ex rel. Dunlap v. Berger, 567 $.E.2d 265
De Ti EF iccestneccbiuthiticehecs eateiaessaiceebmiaakcounnichatn 16
Stein v. Geonerco, Inc. 17 P.3d 1266
Ce Keka PAN, PE Picnextacecisiesiciarncatvcgitiientanticns 15
Stenzel v. Dell, Inc., 870 A.2d 133 (Me. 2005) .................. 15
Strand v. U.S. Bank Nat’l Ass’n ND, 693 N.W.2d 918
CGR ee Bins sisi séngnimduitn iaasaiveelgteastuanansinnaientiashtnt 15
Taylor v. Citibank USA, N.A., 292 F. Supp. 2d 1333
CTs FR, aD iseikcctacicchiesetncnnmcencnaiens 16
G13
Taylor v. First N. Am. Nat’l Bank, 325 F. Supp. 2d 1304
CORED, FARE: DGD sicksincsscetaiiiidiaaetinssiicespinteanitiaphdanpeesales 16
Tsadilas v. Providian Nat'l] Bank, 786 N.Y.S.2d 478
CAE. i TIF iii stn esitvobeteninticnscreanitincis 15
United States v. Locke, 529 U.S. 89, 120 S. Ct. 1135,
OG FB Fi Ca hivvnciseshinstnnrtsnactriattevenienkaithioiete 29
Vigil v. Sears Nat’l Bank, 205 F. Supp. 2d 566
CREF. Ei ID Mo nescirersieakdncnsestoeaiictnshetebaasteninsaidteaiesiil 14
Walther v. Sovereign Bank, 872 A.2d 735
OE case iisiciacsaranncteltiientiennaneneivons 15
Weiss v. Regal Collections, 385 F.3d 337
CO, Be daticsitasidesdsnsiciisbncingacticbidcubosnecdimipeulent 19
Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L.Ed. 168
(1953), overruled on other grounds by Rodriguez de
Quijas v. Shearson/American Express, Inc.,
490 U.S. 477, 109 S. Ct. 1917, 104 L.Ed.2d 526
Ee fp OURS Sey Cera tet Bic don Dey anna ee ete EO 33
Wilson v. Mike Steven Motors, Inc. 2005 WL 1277948
Cate GL Re: NERY ZF; BIS his ciscccsisstcviveresnecietnéoviin 15
Zawikowski v. Beneficial Nat’l Bank, 1999
U.S. Dist. LEXIS 514
CE Bee Fg A ricnicitcss aces sercescdaesicconenensionea 15
Zobrist v. Verizon Wireless, 822 N.E.2d 531
Ce: i: Be on se stenieanni Macedonia: 37
Zuver v. Airtouch Communications, Inc., 103 P.3d
FAT. FEE widitivesiiti totic indiiwinipensiveinctcovuiel 23,37
G14
STATUTES
NG DE on cicdersidindivitcciistiecridieaiionaaioemnne 17
FOG. Fh, CAV s Pi a iccesettonpciccsisictcivipiepaniavuaiaisadinmctanoaacnae 17
BG as SGV, Pi Gi i sasssccosssicoscinceebadansasenabopehetaaemipnatannaeiniiods 19
FS Row Be Raat vicichiicsosnciadcncsseanestidaciesiannaipnvaabasnnad 3, 8, 22
DUE Bi Rars BB Recrckcsvcrniceiieariccidboséucacsnssnerilabaradestneiameauien 33
CU re WEEE BR iiiccisesnccdlasticesizisquemmeeanneie 28
ALR REP. NO. 97-542, Ot TS CHEZ) cosissiseccereeionshsssessenisoones 30
MISCELLANEOUS
Elizabeth P. Allor, Note, Keating v. Superior Court:
Oppressive Arbitration Clauses in Adhesion
Contracts, 71 CAL. L. REV. 1239 (1983) .............. 32
Lindsay R. Androski, Comment, A Contested Merger: The
Intersection of Class Actions and Mandatory
Arbitration Clauses, 2003 U. CHI. LEGAL F.
Jonathan R. Bunch, Note, To Be Announced: Silence
from the United States Supreme Court and
Disagreement Among Lower Courts Suggest an
Uncertain Future for Class-Wide Arbitration:
Green Tree Fin. Corp. v. Bazzle, 2004 J. DisP.
RF LIS viii cccvierensuisiunasntaboinauscabieiipaiatebese 32
John J.A. Burke, Contracts as a Commodity: A
Nonfiction Approach, 24 SETON HALL
EAA: bo dat CAI isin panei scisnestnlaapsaadaiod 47
G15
Ronald H. Coase, The Choice of the Institutional
Framework: A Comment, 17 J.L. &
RU ED CR PED ssi caincernaseciuncbscoosecndranucdsoneeonss 47
Richard Craswell, Property Rules and Liability
Rules in Unconscionability and Related
Doctrines, 60 U. CHI. L. REV. 1 (1993) «0.0.00. 47
Robert W. Gomulkiewicz, The License Is the
Product: Comments on the Promise of
Article 2B for Software and Information Licensing,
13 BERKELEY TECH. L.J. 891 (1998) ......cccccoses 47
Harris Interactive, Arbitration: Simpler, Cheaper, and
Faster Than Litigation (Apr. 2005), at 5, available at
http://www. instituteforlegalre-
form.org/resources/ArbitrationStudyFinal.pdf ....... 27
Deborah R. Hensler, Revisiting the Monster: New Myths
and Realities of Class Action and Other Large
Scale Litigation, 11 DUKE J. COMP. &
Be i BU IIE TD sictudsincodermntraveccsnsrassocastosossitonseh 28
Joint Hearings on S. 1005 and H.R. 646 Before the
Subcomms. of the Comms. on the Judiciary,
68th Cong., Ist Sess., at 7 (1924) oo... eee 29-30
Joshua Lipshutz, Note, The Court's Implicit Roadmap:
Charting the Prudent Course At the Juncture of
Mandatory Arbitration Agreements and Class
Action Lawsuits, 57 STAN. L. REV. 1677 (2005) .27
Penn, Schoen & Berland Associates, U.S. Chamber of
Commerce, Institute for Legal Reform, Polling on
The Class Action System: National Results,
available at http://www. instituteforlegalre-
form.com/resources/classaction.pdf .................. 27-28
G16
1 JOSEPH M. PERILLO, CORBIN ON CONTRACTS
EE; SUES. RIOD te icsibo chicane tics ociamebitadieusmnmsioiadiinins 46 - 47
RICHARD A. POSNER,
ECONOMIC ANALYSIS OF THE LAW
Ca Na a 47
Jean R. Sternlight, As Mandatory Binding Arbitration
Meets the Class Action, Will the Class Action
Survive?, 42 WM. & MARY L. REV. 1 (2000) .....32
Stephen J. Ware, Paying the Price of Process:
Judicial Regulation of Consumer Arbitration
Agreements, 2001 J. DIsP. RESOL. 89 ..........0000e 26
Jack Wilson, "No-Class-Action Arbitration Clauses,"
State-Law Unconscionability, and the Federal
Arbitration Act: A Case for Federal Judicial
Restraint and Congressional Action,
23 QUINNIPIAC L. REV. 737 (2004) ............. 3a, 33
G17
INTEREST OF THE AMICUS CURIAE
The Chamber of Commerce of the United States of
America (the "Chamber") is the world’s largest business
federation, representing an underlying membership of more
than 3 million businesses and organizations of all sizes.
Many of the Chamber's members, constituent organizations,
and affiliates have adopted as standard features of their
business contracts provisions that mandate the arbitration of
disputes arising from or related to those contracts. They use
arbitration because it is a prompt, fair, inexpensive, and
effective method of resolving disputes with consumers and
other contracting parties.
In this case, appellant Jaliyah Muhammad joins a
growing (and disturbing) bandwagon of parties who seek to
avoid arbitration agreements by use of state-law
unconscionability principles. If this Court were to nullify the
arbitration agreement at issue here on unconscionability
grounds, it would wreak havoc on countless arbitration
provisions in contracts entered. into by the Chamber's
members. Such an outcome would be gravely troubling
because the business community has substantially relied on
arbitration provisions - indeed, businesses have structured
millions of contractual relationships around them - in light of
the U.S. Supreme Court's consistent endorsement of
arbitration over the past several decades as a favored means
of dispute resolution. Thus, the Chamber has a strong interest
in explaining why this Court should hold thatthe arbitration
agreement at issue here is enforceable.
PRELIMINARY STATEMENT
Although Muhammad and her amici raise a
litanychallenges to the parties' arbitration agreements, in this
brief we focus on a subset of those attacks that are especially
important to the business community as a whole.
G18
1. Because of its importance to businesses and
consumers in New Jersey and throughout the nation, we
initially focus on the question whether a court may rely upon
a requirement that arbitration proceed on an individual basis
to invalidate an arbitration provision. See Muhammad Br.
16-24 (arguing that class waiver renders arbitration
agreements unconscionable). There are a number of reasons
why a court may not do so. To begin with, we agree with
respondents (collectively "County Bank") that because the
prohibition on class actions is contained in a provision of
Muhammad's contracts that is separate from the arbitration
provision and would by its terms apply not only in
arbitration but also in court, the question of the
enforceability of that waiver of class actions is reserved for
an arbitrator to decide. But even if this Court were to reach
the issue, neither New Jersey nor Delaware
unconscionability law supports the invalidation of class
waivers. Indeed, a holding that the class waiver in this case is
unconscionable would necessitate distorting New Jersey (and
Delaware) unconscionability law. | Consequently, such a
holding would be expressly preempted by Section 2 of the
Federal Arbitration Act ("FAA"), 9 USC. § 2, which
specifies that arbitration provisions may be invalidated only
on the basis of state-law principles that apply neutrally to all
contractual provisions. Such a holding also would be
impliedly preempted by the FAA because conditioning the
enforceability of arbitration provisions on the availability of
class arbitration would strongly discourage the inclusion of
such provisions in contracts.
2. Muhammad also argues that the Court should give
no weight to County Bank's offer to pay the full costs of
arbitration and to submit to individual arbitration before the
American Arbitration Association, which she had suggested
in her trial-court briefing is a preferable forum to the
National Arbitration Forum (the arbitration provider
designated in her contracts). As we explain below, numerous
G19
courts around the country have held that offers by a company
to waive challenged features of an arbitration provision moot
challenges to the enforceability of the arbitration provision
based on the waived features. This practice is eminently
sensible: it ensures that customers will resolve disputes in an
arbitral forum (as they have agreed to do), thereby
effectuating the federal policy favoring the enforcement of
arbitration provisions.
2. Muhammad's reliance on policy challenges to
"payday lending" as a basis for invalidating her arbitration
agreement is an improper diversion because she is not
entitled to attack the validity of the underlying contract in
this proceeding. As the U.S. Supreme Court made clear
nearly four decades ago, an arbitration agreement is
separable from the remainder of a contract, and its
enforceability must be determined independently from an
analysis of any challenge to the contract as a whole.
3. Finally, in resolving the issues in this case, the
Court should reject the hostility to standard form contracts
that so evidently underlies Muhammad's arguments. Form
contracts of the sort involved here are critically necessary to
the modern economy. As a consequence, any rule that
categorically impairs the enforceability of form contracts
would have devastating implications for both businesses and
consumers.
PROCEDURAL HISTORY AND
STATEMENT OF FACTS
Plaintiff-appellant Jaliyah Muhammad entered into
three short-term loan agreements (so-called "payday loans")
with County Bank. As part of these contracts, Muhammad
agreed to arbitrate her disputes with County Bank.
Muhammad v. County Bank of Rehoboth Beach, Del., 379
N.J. Super. 222, 229 (App. Div. 2005). Muhammad's
G20
contracts also contained a separate provision under which
she agreed not to pursue or participate in class actions. Id.
Notwithstanding her contractual agreements,
Muhammad filed a putative class action lawsuit in Superior
Court against respondents, alleging violations of the New
Jersey Consumer Fraud Act, New Jersey's racketeering
statute, and New Jersey's usury laws. See id. at 230-31.
County Bank removed the case to federal court and moved to
compel arbitration. The federal court remanded to state
court without ruling on the arbitration motion. Thereafter,
County Bank again moved to compel arbitration under
Muhammad's agreements. The superior court granted County
Bank's motion, rejecting Muhammad's arguments that her
agreements to arbitrate are unconscionable.
Muhammad sought and was granted leave to appeal
to the Superior Court, Appellate Division. The Appellate
Division affirmed, rejecting Muhammad's arguments that the
arbitration provision and the class action prohibition are
unconscionable. It also concluded that Muhammad's
criticisms of the National Arbitration Forum's (NAF)
dispute-resolution procedures lacked merit. Jd. at 241-44.
Judge Kestin concurred in the result, explaining that
because County Bank had offered to make the American
Arbitration Association available as. a forum for Muhammad
to pursue her claims, he would not have "consider[ed] any of
plaintiffsarguments addressed to the validity of NAF's
arbitration procedures." /d. at 249.
This Court granted Muhammad's motion for leave to
appeal. 185 N.J/. 254 (2005).
G21
LEGAL ARGUMENT
Muhammad's challenges to the enforcement of her
arbitration agreements are imbued with the hostility towards
arbitration that the Federal Arbitration Act was enacted eight
decades ago to nullify. Not only do her arguments give short
shrift to the federal and New Jersey policies favoring
arbitration; they also inappropriately invoke her merits
arguments (wholly unrelated to arbitration) to distract this
Court from those policies and the resultant necessity of
enforcing arbitration agreements.
Rather than duplicating County Bank's arguments, in
this brief we make -several related but distinct points to
demonstrate to this Court why the decision of the Appellate
Division was correct, and why requiring these parties to
arbitrate is important to the business community generally.
I. AN AGREEMENT TO ARBITRATE ON AN
INDIVIDUAL BASIS CANNOT BE DEEMED
UNENFORCEABLE MERELY BECAUSE THE
UNDERLYING CONTRACT PROHIBITS
CLASS ACTIONS.
Muhammad asks this Court to declare the prohibition
against class actions in her loan agreements unconscionable
and thereby nullify her agreement to arbitrate individually.
Her arguments are premised on a fundamental misconception
that, because the doctrine of unconscionability is generally
applicable to all contracts, an arbitration agreement may be
voided by the simple expedient of making an ad hoc
determination that one of its provisions. is
"unconscionable."In fact, the FAA cannot be circumvented
so easily.
In enacting the FAA, Congress "declared a national
policy favoring arbitration and withdrew the power of the
G22
states to require a judicial forum for the resolution of claims
which the contracting parties agreed to resolve by
arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10, 104
S. Ct. 852, 858, 79 L.Ed.2d 1, 12 (1984). The Act's "basic
purpose” is "to put arbitration provisions on the same
footing' as a contract's other terms." Allied-Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 275, 115 S. Ct. 834, 840, 130
L.Ed.2d 753, 765 (1995) (quoting Scherk v. Alberto-Culver
Co., 417 U.S. 506, 511, 94 S. Ct. 2449, 2453, 41 L.Ed 2d
270, 276 (1974)). See also Martindale v. Sandvik, Inc., 173
N.J. 76, 83-84 (2002) ("Congress enacted the Federal
Arbitration Act * * * to abrogate the then-existing common
law rule disfavoring arbitration agreements ‘and to place
arbitration agreements upon the same footing as other
contracts.,") (quoting Gilmer V. Interstate/Johnson Lane
Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 1651, 114 L.Ed 2a
26, 36 (1991)).
Accordingly, Section 2 of the FAA "embodies a clear
federal policy of requiring arbitration unless the agreement
to arbitrate * * is revocable ‘upon such grounds as exist at
law or in equity for the revocation of any contract."
PerryThomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 2525, 96
L.Ed. 2d 426, 435 (1987) (quoting 9 U.S.C. § 2). Unless
that savings clause applies, "[a]n agreement to arbitrate is
valid, irrevocable, and enforceable, as a matter of federal
law.” Id. at 492 n.9 (emphasis in original) (citation omitted).
Thus, section 2 of the FAA carves out a limited role
for the states in the regulation of contractual arbitration. An
agreement to arbitrate may be invalidated on state-law
grounds only "if that law arose to govern issues concerning
the validity, revocability, and enforceability of contracts
generally." Perry, 482 U.S. at 492 n.9 (emphasis in original).
Accordingly, Section 2 gives the states, for example, "a
method for protecting consumers against unfair pressure to
agree to a contract with an unwanted arbitration provision."
G23
Allied-Bruce, 513 U.S. at 281. However, "[a] state-law
principle that takes its meaning precisely from the fact that a
contract to arbitrate is at issue does not comport with this
requirement of § 2." Perry, 482 U.S. at 493 n.9 (citation
omitted). "Nor may a court rely on the uniqueness of an™
agreement to arbitrate as a basis for a state-law holding that
enforcement would be unconscionable, for this would enable
the court to effect what * * * the state legislature cannot." /d.
In sum, as the Supreme Court has ruled:
What States may not do is decide that a contract is
fair enough to enforce all its basic terms (price,
service, credit), but not fair enough to enforce its
arbitration clause. The Act makes any such state
policy unlawful, for that kind of policy would place
arbitration clauses on an unequal “footing,” directly
contrary to the Act's language and Congress' intent.
Allied-Bruce, 513 U.S. at 281. See also Martindale, 173 N.J.
at86 (quoting Allied-Bruce).
The ad hoc creation of unconscionability doctrine in
order to defeat arbitration is impermissible under any
circumstances. But in this case it is particularly uncalled for
because the prohibition on class actions in the contracts
between Muhammad and County Bank is not contained
within the arbitration provisions. Instead, it is a separate,
free-standing provision. Pa 186-88. Accordingly, we agree
with County Bank that whether the class-action prohibition
is enforceable is not a "gateway" question of arbitrability for
a court (see Howsam v. Dean Witter Reynolds, Inc., 537 U.
S. 79, 84, 123 S. Ct. 588, 592, 154 L. Ed. 2d 491, 497
(2002)); rather, it is reserved for the arbitrator. Prima Paint v.
Flood & Conklin Manufacturing Co., 388 U.S. 395, 402-04,
87 S. Ct. 18011 1805-06, 18 L.E.2d 1270, 1276-77 (1967).
See generally County Bank Br. 31-34.
G24
Even if the Court were to reach the issue, however, it
would be inappropriate to deny enforcement of Muhammad's
arbitration agreement on the ground that her underlying
contract contains a class-action waiver. Under the existing
law of this state, the inclusion of such a waiver in a contract
is not umconscionable. Moreover, any newly-minted
principle of New Jersey law that invalidates waivers of class
arbitration would be preempted by the FAA.
A. Under Either New Jersey or Delaware:
Law, Class-Action Waivers Are Not
Unconscionable.
Muhammad challenges the class-action waivers in
her contracts as unconscionable under New Jersey law. See
Muhammad Br. 16-24. Her arguments in this case are a
particularly clear example of the burgeoning strategy of
seeking the invalidation of arbitration agreements based on
state-law rules that are described under the rubric of general
contract law, but in fact have been fashioned solely to deal
with arbitration agreements. However, there is no place for
her arguments either in the law of this state or under
Delaware law.
1. Under New Jersey law, class-
arbitration waivers are enforceable.
Courts are (and should be) sparing in their reliance on
the doctrine of unconscionability to invalidate contractual
agreements. In accordance with this principle, the standards
under New Jersey law for a finding of unconscionability are
stringent. As one appellate court has explained, to
' As the Appellate Division noted, courts in New Jersey (as in many
other states) examine unconscionability by looking "at two factors,
namely, unfairness in the formation of the contract (procedural
unconscionability) and excessively disproportionate terms (substantive
unconscionability)." Muhammad, 379 N.J. Super. at 236 (citing Sitogum
G25
“demonstrate unconscionability," a plaintiff must "show[)
some overreaching or imposition resulting from a bargaining
disparity between the parties, or such patent unfairness in the
contract that no reasonable person not acting under
compulsion or out of necessity would accept its terms.”
Howard y. Diolosa, 241 N.J. Super. 222, 230 (App. Div.
1990) (emphasis added). See also Sitogum, 352 N.J. Super.
at 565 (contract is substantively unconscionable only if it is
"so one-sided as to shock the court's conscience")
(emphasis added).
Given the strict nature of New _ Jersey's
unconscionability standard, it is no surprise, then, that the
leading New Jersey appellate decision on the issue has
concluded that class-action waivers in arbitration provisions
are fully enforceable. See Gras v. Assocs. First Capital
Corp., 346 N.J. Super. 42, 54 (App. Div. 2001). In Gras, the
plaintiffs argued (as Muhammad does here) that an
"arbitration agreement's preclusion of their right to proceed
as a class * * * violates New Jersey's policy of protecting
consumers." Jd. at 49. Canvassing case law from around the
country, the Appellate Division noted some of the many
cases that have found class-action waivers to be enforceable.
Id. at 49-51. As to those cases "Where courts have found
arbitration agreements precluding a class action to be
unenforceable because of their detrimental impact on
consumers’ rights" (id. at 51), the court's conclusion was
Straightforward: "These cases are not persuasive." Id.
Finally, the court held that nothing about the Consumer
Fraud Act ("CFA") precluded parties to an arbitration
agreement from agreeing to arbitrate CFA claims on an
individual basis. Id. at 53-54. See also Cunningham vy.
Citigroup, Inc., 2005 WL 3454312, at *6 (D. N.J. Dec. 16,
2005) ("anti-class action provisions have not been found to
Holdings, Inc. v. Ropes, 352 N.J. Super. 555, 564 (Ch. Div. 2002)). We
focus here on the issue of substantive unconscionability.
G26
be per se contrary to public policy under New Jersey state
law") (citing Gras and decision below).
Gras, Cunningham and the decision below are
consistent with the decisions of the overwhelming majority
of courts around the country that have addressed the question
and declared that a class-action waiver, standing by itself, is
not substantively unconscionable.
To begin with, the U.S. Supreme Court broached the
issue in Gilmer y. Interstate/Johnson Lane Corp., supra. The
plaintiff. there contended that disputes under the Age
Discrimination in Employment Act ("ADEA") should not be
subject to arbitration because, among other things, arbitration
procedures "do not provide for * * * class actions." 500 US.
at 32. The SupremeCourt rejected that argument, explaining
that, "even if the arbitration could not go forward as a class
action or class relief could not be granted by the arbitrator,
the fact that the [ADEA] provides for the possibility of
bringing a collective action does not mean that individual
attempts at conciliation were intended to be barred.” /d.
(quotation marks and citation omitted; alteration in original).
Numerous other courts have upheld arbitration
provisions that included a prohibition on class actions. As
the U.S. Court of Appeals for the Seventh Circuit has
explained, "{[w]hen contracting parties stipulate that disputes
will be submitted to arbitration, they relinquish the right to
certain procedural niceties which are normally associated
with a formal trial.* * * One of those * * * is the possibility
of pursuing a class action.". Champ v. Siegel Trading Co.,
55 F.3d 269, 276 (7" Cir. 1995) (quotation marks and
citation omitted). This is perfectly acceptable because the
right to a class action is "merely a procedural one, * * * that
may be waived." Johnson v. W. Suburban Bank, 225 F.3d
366, 369 (3d Cir. 2000).
G27
The list of other cases upholding class-action waivers
against state-law unconscionability challenges’ is long and
growing by the day. See, eg., Caley v. Gulfstream
Aerospace Corp., 428 F.3d 1359, 1378 (ilth Cir. 2005)
(Georgia law); Jenkins v. First Am. Cash Advance of Ga.,
LLC, 400 F.3d 868, 877-78 (11th Cir. 2005) (Georgia law);
Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379
F.3d 159, 174-75 (Sth Cir. 2004) (Louisiana law); Snowden
v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir.
2002) (Maryland law); Lloyd v. MBNA Am. Bank, N.A. 27
Fed. Appx. 82, 84 (3d Cir. 2002) (Delaware law);
Provencher v. Dell, Inc., _ F. Supp. 2d 2006 WL 9626, at*5-
*7 (C.D. Cal. Jan. 3, 2006) (Texas law); Dambrosio v.
ComcastCorp., 2005 WL 3543794, at *17 (E.D. Pa. Dec. 27,
2005) (Pennsylvania and Illinois law); Copeland v. Katz,
2005 WL 3163296, at *4 (E.D. Mich. Nov. 28, 2005)
(Michigan law); Edwards v. Blockbuster, Inc., 400 F. Supp.
2d 1305, 1309 (E.D. Okla. 2005) (Oklahoma law); Lux v.
Good Guys, 2005 WL 1713421 (C.D. Cal. July 11, 2005)
(Nevada law); Jn re Currency Conversion Antitrust Litig.,
361 F. Supp. 2d 237, 259 & n.l(S.D.N.Y. 2005) (Arizona,
Delaware, Nevada, New Hampshire, and South Dakota law);
Jones v. Genus Credit Mgmt. Corp., 353 F. Supp. 2d 598,
603 (D. Md. 2005) (Maryland law); Billups v. Bankfirst, 294
F. Supp. 2d 1265, 1273-77 (M.D. Ala. 2003) (Alabama law);
O'Quin v. Verizon Wireless, 256 F. Supp. 2d 512, 517 (M.D.
La. 2003) (Louisiana law); Lomax v. Woodmen of the World
Life Ins. Soc'y, 228 F. Supp. 2d 1360, 1365 (N.D. Ga. 2002)
(Georgia law); Vigil v. Sears Nat'l Bank, 205 F. Supp. 2d
566, 572 (E.D. La. 2002) (Arizona law); Pick v. Discover
Fin. Servs., Inc., 2001 U.S. Dist. LEXIS 15777, at *16 (D.
Del. Sept. 28, 2001) (Delaware law); Zawikowski v.
Beneficial Nat'l Bank, 1999 U.S. Dist. LEXIS 514, at *5
(N.D. Ill. Jan. 11, 1999) (Illinois law); Rains v. Found.
Health Sys. Life & Health, 23 P.3d 1249, 1253 (Colo. Ct.
App. 2001) (Colorado law); Brown v. KFC Nat'l Mgmt Co.,
921 P.2d 146, 166-67 & n.23 (Haw. 1996) (Hawaii law);
G28
Ragan v. AT&T Corp., 824 N.E.2d 1183, 1193-94 (Ill. App.
Ct. 2005) (New York law); Rosen v. SCIL, LLC, 799 N.E.2d
488, 494-95 (Ill. App. Ct. 2003) (Illinois law);Hutcherson v.
Sears Roebuck & Co., 793 N.E. 2d 886, 894-96 (Ill. App. Ct.
2003) (Arizona law); Hubbert v. Dell Corp., 835 N.E.2d 113,
125-26 (Ill. App. Ct. 2005) (Texas law); Wilson v. Mike
Steven Motors, Inc., 2005 WL 1277948, at *7 (Kan. Ct. App.
May 27, 2005) (Kansas law); Stenzel v. Dell, Inc., 870 A.2d
133, 144 (Me. 2005) (Texas law); Walther v. Sovereign
Bank, 872 A.2d 735, 749-51 (Md. 2005) (Maryland law);
Tsadilas v Providian Nat'l Bank, 786 N.Y.S.2d 478, 480
(N.Y. App. Div. 2004) (New York law) ; Strand v. U. S.
Bank Nat'l Ass'n ND, 693 N. W.2d 918, 926-27 (N.D. 2005)
(North Dakota law); AutoNation USA Corp. v. Leroy, 105
S.W.3d 190, 200 (Tex. Ct. App. 2003) (Texas law); Stein v.
Geonerco, Inc., 17 P.3d 1266, 1270-71 (Wash. Ct. App.
2001) (Washington law).”
? But see, e.g., Discover Bank v. Superior Court, 113 P.3d 1100 (Cal.
2005) (determining that in "some circumstances" class action waivers in
arbitration provisions are unconscionable); State ex rel. Dunlap v.
Berger, 567 S.E.2d 265, 279-81 (W. Va. 2002); Leonard v. Terminix Intl
Co., 854 So. 2d 529 (Ala. 2002). The U.S. District Court for the Northern
District of West Virginia recently refused to follow Berger on the ground
that its analysis is preempted by the FAA. See Schultz v. AT&T Wireless
Serrs., Inc., 376 F. Supp. 2d 685, 691 (N.D. W. Va. 2005). Meanwhile,
numerous federal district courts in Alabama have distinguished Leonard
and enforced class-action waivers under Alabama law on the ground that
the arbitration fees in Leonard were far greater than any potential
recovery and that the arbitration provision in Leonard limited the types
of damages that could be awarded and in particular precluded the award
of attorneys’ fees. See, e.g., Pitchford v. AmSouth Bank, 285 F. Supp. 2d
1286, 1296 (M.D. Ala. 2003) ("The costs of arbitrating the Leonards’
claim (at least [$1,1001) exceeded the dollar value of their claim (less
than [$5001), which effectively made arbitration an illusory forum for
vindicating their substantive rights."); Taylor v. First N. Am. Nat'l Bank,
325 F. Supp. 2d 1304, 1319-22 (M.D. Ala. 2004)); Battels v. Sears Nat'l
Bank, 365 F. Supp. 2d 1205, 1217 (M.D. Ala. 2005); Lawrence v.
Household Bank (SB), N.A., 343 F. Supp. 2d 1101, 1112 (M.D. Alla.
2004); Billups v. Bankfirst, 294 F. Supp. 2d 1265, 1276-77 (M.D. Ala.
2003); Gipson v. Cross Country Bank, 294 F. Supp. 2d 1251, 1263-64
G29
That so many courts have held that there is nothing
unconscionable about class-arbitration waivers makes perfect
sense because class actions, although at times useful, are in
no way so fundamental to the vindication of consumer
claims as to be unwaivable. For the vast majority of the
history of this state and this nation, class actions for money
damages did not even exist. Class actions for damages of the
type so prevalent today took shape no more than 40 years
ago.’ Such a recent innovation can hardly be deemed so
fundamental as to make a contractual waiver of it
categorically unconscionable under New Jersey law. Indeed,
the Gras court recognized as much, explaining that the CFA
contains no "legislative mandate or overriding public policy
in favor of class actions," whereas compelling public policy
favors the enforcement of arbitration provisions. 346 N.J.
Super. at 54.
In the face of such authority, Muhammad nonetheless
argues that the prohibition against class arbitration should be
deemed invalid under New Jersey law because, in her view,
it is "exculpatory." See Muhammad Br. 1-2, 16-24. The
central authority on which she relies is the Appellate
Division's decision in Lucier v. Williams, 366 N.J. Super.
485 (App. Div. 2004). See also Legal Servs. Amicus Br. 2
(M.D. Ala. 2003); Taylor v. Citibank USA, N.A., 292 F. Supp. 2d 1333,
1345-46 (M.D. Ala. 2003).
> "[M]odern class action practice emerged in the 1966 revision of
{Federal Rule of Civil Procedure] 23" (Ortiz v. Fibreboard Corp., 527
U.S. 815, 833, 119 S. Ct. 2295, 2308, 144 L.Ed 2d 715, 731-32 (1999)),
which gave federal-court class actions their "current shape” (Amchem
Prods., Inc. v. Windsor, 521 U.S. 591, 613, 117 S. Ct. 2231, 2245, 138
L.Ed.2d 689, 706 (1997)). Revised Rule 23's "most adventuresome
innovation” was its authorization of "class actions for damages designed
to secure judgments binding all class members save those
who.affirmatively elected to be excluded." /d at 614-15. The rule
governing modern class actions in New Jersey state courts is of even
more recent vintage; Rule 4:32-1 "is modeled after" Federal Rule 23 (Jn
re Cadillac V-8-6-4 Class Action, 93 N.J. 412, 42425 (1983)).
G30
(citing Lucier). But contrary to her implication, Lucier does
not hold that a consumer's contractual waiver of the class-
action device immunizes the business with which she has
contracted from liability. See Muhammad Br. 16. In Lucier, a
contract between a home inspection service and home buyers
placed a ceiling on the amount of damages recoverable by
the buyers, limiting the damages to the lesser of $500 or half
the home inspection fee. 366 N.J. Super. at 493. Because of
that substantive limitation, the Appellate Division held, "the
potential damage level is so nominal that it has the practical
effect of avoiding almost all responsibility for the
professional's negligence." Jd. By contrast, a prohibition of
class actions does not in itself exculpate anyone; a plaintiff
would be able to obtain the full measure of damages through
individual arbitration.
Nor does the recognition of courts that class actions
can be useful in certain cases translate into a general
principle of New Jersey law that waivers of the right to
proceed on behalf of a class are unenforceable. Muhammad
cites a number of cases that point out that class certification
may be warranted where individual /itigation of claims is not
feasible (Muhammad Br. 17410; see also Legal Servs.
Amicus Br. 13-22), but her reliance on those cases misses the
mark.* None of these cases involved arbitration; instead,
courts faced the binary choice between class litigation and
individual litigation. A third route individual arbitration -
was not presented, and the strong federal policy favoring
* For example, Muhammad cites Carnegie V. Household International,
Inc., 376 F.3d 656 (7th Cir. 2004). There, the Seventh Circuit affirmed
an order granting class certification explaining that "a class action has to
be unwieldy indeed before it can be pronounced an inferior alternative *
* * to no litigation at ail." \d. at 661 (emphasis added). Muhammad also
cites Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004). In that
transparently irrelevant case, the Third Circuit held that an offer of
judgment under Federal Rule of Civil Procedure 68 to a named plaintiff
in a putative class action did not moot the plaintiff's class action
complaint under the Fair Debt Collection Practices Act. /d. at 348.
G31
arbitration was therefore not at issue. Because of the
"simplicity, informality, and expedition of arbitration"
(Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 628, 105 S. Ct. 3346, 3354, 87 L.Ed.2d 444,
456 (1985)), individual arbitration is far more realistic and
accessible than individual litigation. Indeed, the U.S.
Supreme Court has strongly suggested that arbitration is a
superior method for consumers to resolve small claims. As
the Court explained in Allied-Bruce, without the availability
of arbitration, "the typical consumer who has only a small
damages claim (who seeks, say, the value of only a defective
refrigerator or television set)" would be left "without any
remedy but a court remedy, the costs and delays of which
could eat up the value of an eventual small recovery." 513
U.S. at 281. In contrast - as a substantial majority of courts
that have considered the issue have concluded - consumers
can effectively vindicate small claimsthrough individual
arbitration.” Accordingly, this Court should reject
Muhammad's invitation to devise a novel principle of New
Jersey unconscionability law declaring waivers of class
arbitration to be unenforceable.
2. Class-arbitration waivers are also
enforceable under Delaware law.
We agree with County Bank's contention that
Delaware law in fact applies to this case, so we will not
repeat the argument. Under the law of that state, too, it is
clear that class-arbitration waivers are fully enforceable.
* In addition to decisions of this Court, plaintiffs rely on decisions of the
U.S. Supreme Court and Third and Seventh Circuits for their encomium
to class actions. See Muhammad Br. 18-19. But the Supreme Court has
suggested in Gilmer that there is nothing problematic about class-action
waivers, and the Third and Seventh Circuits have ruled that class-action
waivers in arbitration provisions are enforceable. See Johnson v. W.
Suburban Bank, 225 F.3d 366; Champ v. Siegel Trading Co., 55 F.3d
269.
G32
Courts within and outside Delaware have repeatedly
concluded that Delaware law does not render the waiver of
class arbitration unconscionable. See, e.g., Edelist v. MBNA
America Bank, '790 A.2d 1249, 1260-61 (Del. Super. Ct.
2001); Lloyd v. MBNA Am. Bank, N.A. 27 Fed. Appx. 82, 84
(3d Cir. 2002); Pick v. Discover Fin. Servs., Inc., 2001 U.S.
Dist. LEXIS 15777, at *16 (D. Del. Sept. 28, 2001); Jn re
Currency Conversion Antitrust Litig., 361 F. Supp. 2d 237,
259 & n.ll (S.D.N.Y. 2005).
In Edelist, for example, the Delaware Superior Court
upheld a provision of a credit card agreement "preventing
arbitration of disputes on a class-wide basis"; noting that the
"surrender of that class action right was clearly articulated in
the arbitration amendment," the Court saw "nothing
unconscionable about it. 790 A.2d at 1260-61. And just last
month, two California courts ‘cited Edelist in reaching the
conclusion that "Delaware would not invalidate an
arbitration clause merely because it prohibited class
actions.”®
Thus, if the Court chooses to apply Delaware law (as
it should), the class-action waiver in Muhammad's
agreements must be upheld - just as it should be under New
Jersey law.
° Klussman v. Cross Country Bank, 36 Cal. Rptr. 3d 728, 735 (Cal. Ct.
App. 2005) (citing Edelist, but choosing to apply California law instead
to invalidate an arbitration provision); see also Discover Bank v.
Superior Court, 36 Cal. Rptr. 3d 456, 459-60 (Cal. Ct. App. 2005) (on
remand from California Supreme Court's decision in Discover Bank, 113
P.3d 1100, appiying Delaware law and holding that "the class action
waiver in (plaintiff's) cardholder agreement is enforceable, and not
unconscionable, under Delaware law").
G33
B. The FAA Would Preempt A Rule That
Class-Arbitration Waivers In Arbitration
Agreements Are Unconscionable.
As we explained above (at 10-21), class-action
waivers arenot unconscionable under either New Jersey or
Delaware law. In any event, the FAA would preempt any
state-law holding that it is unconscionable to include in a
contract a provision requiringindividual arbitration.
1. Section 2 of the FAA would
expressly preempt any holding that
prohibitions against class
arbitration are unconscionable.
Under Section 2 of the FAA,
[a]n agreement to arbitrate is valid, irrevocable, and
enforceable, as a matter of federal law, “save upon
such grounds as exist at law or in equity for the
revocation of any contract." * * * A _ state-law
principle that takes its meaning precisely from the
fact that a contract to arbitrate is at issue does not
comport with this requirement of § 2.
Perry, 482 U.S. at 492-93 n.9 (citation omitted; emphasis in
original) (quoting 9 U.S.C. § 2). Thus, agreements to
arbitrate may be invalidated on state-law grounds only "if
that law arose to govern issues concerning the validity,
revocability, and enforceability of contracts generally." /d.
(emphasis in original).
That principle does not simply prohibit the
invalidation of “arbitration agreements under state laws
applicable only to arbitration provisions." Doctor's Assocs.,
Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656,
G34
134 L.Ed.2d 902, 909 (1986) (emphasis in original). It also
bars courts from impeding the enforceability of arbitration
agreements by fashioning rules that invoke broad concepts of
contract law but in fact apply only or predominantly to the
arbitration setting. As the Fifth Circuit recently explained:
That a state decision employs a general principle of
contract law, such as unconscionability, is not always
sufficient to ensure that the state-law rule is valid
under the FAA. * * * [S] tate courts are not permitted
to employ those general doctrines in ways that
subject arbitration clauses to special scrutiny.
Iberia, 379 F.3d at 167.
Nor, despite Muhammad's exhortation to do so, could
the Court manufacture new principles in the context of
thwarting an arbitration agreement. To put it bluntly, "no
state can apply to arbitration (when governed by the Federal
Arbitration Act) any novel rule." Oblix, Inc. v. Winiecki, 374
F.3d 488, 492 (7th Cir. 2004). See also Zuver v. Airtouch
Communications, Inc., 103 P.3d 753, 759 (Wash. 2004)
("courts may not refuse to enforce arbitration agreements
under state laws which apply only to such agreements, or by
relying on the uniqueness of an agreement to arbitrate”)
(quotation marks, alterations, and citations omitted;
emphasis in original).
To accept Muhammad's invitation to declare County
Bank's arbitration provision unconscionable because the
underlying contract prohibits class arbitration would run
afoul of these rules and thus would be expressly preempted
by Section 2 of the FAA.
First, New Jersey has no generally applicable
prohibition against contractual waivers of class actions.
Neither Muhammad nor the amici supporting her have
G35
pointed to any authority for the proposition that class-action
waivers are generally unenforceable under New Jersey law
outside the context of arbitration.’ Absent such case law or
statutory authority, the FAA does not permit the creation of |
such a rule specifically in the context of arbitration. In
essence, what Muhammad is asking the_Court to do is to
declare a new principle of unconscionability and then to
apply it in the very same case to strike down an arbitration
provision. That request for the ad hoc creation of
unconscionability doctrine is inconsistent with the Supreme
Court's admonition that state-law contract defenses may be
used to void arbitration provisions only if they "arose to
govern issues concerning the validity, revocability, and
enforceability of contracts generally" (Perry, 482 U.S. at
493 n.9 (emphasis added)). Indeed, Congress's rationale for
authorizing contract-law exceptions to the general rule that
arbitration provisions are enforceable - that there can be no
impermissible animosity toward arbitration when a court is
merely applying an extant, generally applicable contract-law
defense - loses all force when, as here, the party seeking to
avoid arbitration is trying to reinvent and _ enlarge
unconscionability doctrine as it goes along. See Oblix, 374
F.3d at 492 ("[N]o state can apply to arbitration (when
governed by the Federal Arbitration Act) any novel rule.").
Second, as noted above (at 11), the generally
applicable standard for finding unconscionability in New
Jersey is a strict one. Under that standard, a plaintiff must
"show[] some overreaching or imposition resulting from a
bargaining disparity between the parties, or such patent
unfairness in the contract that no reasonable person not
acting under compulsion or out of necessity would accept its
” In fact, as we noted above, the leading New Jersey appellate decision on
the issue has concluded that class-action waivers in arbitration provisions
are fully enforceable. See Gras, supra, 346 N.J. Super. at 54; see also
Cunningham, supra, 2005 WL 3454312, at *6 (citing Gras and decision
below).
G36
terms.” Howard, 241 N.J. Super. at 230. Put another way, a
contract is unconscionable only if it is "so one-sided as to
shock the court's conscience." Sitogum, 352 N.J. Super. at
565.
We submit that it is impossible to conclude that it
shocks the conscience, or that one must be acting "under
compulsion," to accept a fully disclosed class-action waiver.
To the contrary, there are many reasons why a reasonable
person would accept a contract that allows for the easy
resolution of her own actual, concrete disputes via individual
arbitration, but deprives her of the ability to bring class
actions for other customers’ benefit. Foremost among them
is that individual arbitration is the least expensive means of
dispute resolution and hence serves to moderate the cost of
goods and services (such as the interest rate and fees
associated with the loans at issue here).” See Carnival
Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594, 111 S. Ct.
1522, 1527, 113 L.Ed.2d 622, 632 (1991) (explaining that
limiting fora in which cruise line may be sued leads to
reduced fares for passengers); see also Stephen J. Ware,
Paying the Price of Process: Judicial Regulation of
Consumer Arbitration Agreements, 2001 J. DISP. RESOL.
89, 94 (arguing that class arbitration makes consumers worse
* As the Appellate Division found here, the fact that Muhammad "needed
money to purchase school books" did not make her the "victim of
sufficient economic duress" to render the arbitration provision
unconscionable, though she "may have been experiencing financial
stress." Muhammad, 379 N.J. Super at 241.
* We do not dispute that the cost of short-term loans can be high when
expressed in annualized percentage terms (as opposed to absolute dollar
amounts). Yet they would be higher still in the absence of a prohibition
against class actions. Without a class waiver, the high-stakes nature of
class arbitration would result in substantially higher litigation costs to
lenders; those costs, in turn, would be passed along to borrowers in the
form of higher rates or loan fees. At some point, the cost would exceed
the means of some borrowers, potentially forcing them to turn to less
savory sources of short-term funds.
G37
off by increasing the cost of doing business and, as a result,
raises prices for consumers). As the Seventh Circuit has
recognized,"[a]rbitration offers cost-saving benefits and
‘thesebenefits are reflected in a lower cost of doing business
that in competition are passed along to customers." Boomer
v. AT&T Corp., 309 F.3d 404, 419 n.7 (7th Cir. 2002)
(quoting Metro East Ctr. for conditioning & Health v. Qwest
Communications Int'l, Inc., 294 F.3d 924, 927 (7th Cir.
2002) (Easterbrook, J.)).
Individuals may also understand that arbitration will
provide them with better results. Studies have shown that
"consumers are likely to fare better in arbitration, both in
terms of the likelihood of success on the merits and the size
of the award, than in litigation" and that "parties who
participate in arbitration proceedings are generally satisfied,
both in terms of the fairness of the process and the equity of
the outcome." Joshua Lipshutz, Note, Zhe Court's Implicit
Roadmap: Charting the Prudent Course At the Juncture of
Mandatory Arbitration Agreements and Class Action
Lawsuits, 57 STAN. L. REV. 1677, 1712 (2005) (footnotes
omitted). Consumer perceptions match the reality. A recent
poll found that "[a]rbitration is widely seen" by participants
"as faster (74%), simpler (63%), and cheaper (51%) than
going to court." Harris Interactive, Arbitration: Simpler,
Cheaper, and Faster Than Litigation (Apr. 2005), at 5,
available at http://www. instituteforlegalre-
form.org/resources/ArbitrationStudyFinal.pdf.
Moreover, many Americans have become skeptical
of classactions. A March 2003 survey found that 1167% of
Americans believe that lawyers benefit most from the current
class action suit system while. 61% think that consumers
(32%) and class members (29%) benefit least from the
current system." Penn, Schoen & Berland Associates, U.S.
Chamber of Commerce, Institute for Legal Reform, Polling
on The Class Action System: National Results, available at
G38
http://www. instituteforlegalreform.com/resources/classaction
.pdf (emphasis added). These results support the view that
"[mJany ordinary Americans seem to think that class actions
are a new-fangled litigation device invented by greedy
plaintiff attorneys." Deborah R. Hensler, Revisiting the
Monster: New Myths and Realities of Class Action and Other
Large Scale Litigation, 11 DUKE J. COMP. & INTEL L.
179, 180 (2001) . As Congress has recently recognized,’
"abuses of the class action device” have "undermined public
respect" for the judicial system, and created a system in
which "[c]lass members often receive little or no benefit
from class actions, and are sometimes harmed," while
lawyers generate large fees. Class Action Fairness Act of
2005, Pub. L. 109-2, § 2 (codified at 28 U.S.C. § 1711 note).
Accordingly, a consumer would not be irrational in
the least to trade the ability to be part of a class action for the
availability of arbitral dispute resolution, particularly
because individual arbitration generally leads to reduced
dispute-resolution costs for consumers.'? To assume
otherwise would contravene New Jersey's generally
applicable approach to unconscionability, which Section 2 of
the FAA forbids. "Even when using doctrines of general
applicability, the state courts are not permitted to employ
those general doctrines in ways that subject, arbitration
clauses to special scrutiny." /beria, 379 F.3d at 167.
'° Of course, the consumer could also rationally choose to trade the
ability to be part of a class action in consideration for other benefits
furnished as part of the underlying contract, such as ready access to
short-term, unsecured credit.
G39
yk Conditioning the enforceability of
arbitration provisions on _ the
availability of class-wide arbitration
would conflict with Congress's
objectives in enacting the FAA and
would therefore be preempted.
Any holding that an arbitration provision must allow
for class-wide arbitration in order to be enforceable is also
preempted under traditional principles of conflict preemption
because it "stands as an obstacle to the accomplishment and
execution of the full purposes and objective of Congress" in
enacting the FAA. United States v. Locke, 529 U.S. 89, 109,
120 S. Ct. 1135, 1148, 146 L.Ed. 2d 69, 89 (2000) (internal
quotation marks and citation omitted).
Section 2 of the FAA declares pre-dispute arbitration
agreements "valid, irrevocable, and enforceable" because
"arbitration saves time, saves trouble, saves money.” Joint
Hearings on S. 1005 and H.R. 646 Before the Subcomms. of
the Comms. on the Judiciary, 68th Cong., lst Sess., at 7
(1924) (statement of Charles Bernheimer, N.Y. Chamber of
Commerce). As Congress later explained, arbitration usually
is "cheaper and faster than litigation,” has "simpler
procedural and evidentiary rules,” "minimizes hostility," and
is "more flexible in regard to scheduling." H.R. REP. No. 97-
542, at 13 (1982). The U. S. Supreme Court, too, has
recognized the superior "simplicity, informality, and
expedition of arbitration." Mitsubishi, 473 U.S. at 628. See
also Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86
N.J. 179, 187 (1981) (arbitration's “object is the final
disposition, in a speedy, inexpensive, expeditious and
perhaps less forma! manner, of the controversial differences
between the parties”) (citation and quotation marks omitted).
Class-action procedures, by contrast, are antithetical
to the low-cost and efficient resolution of disputes that is the
G40
hallmark of arbitration. While the average length of an AAA
arbitration from filing to award is less than six months (see
Allied-Bruce, 513 U.S. at 280-81), class actions can take
years. These complex matters invariably begin with a
lengthy collateral proceeding to determine the propriety of
class certification, which generally entails (i) substantial
discovery, including depositions of all class representatives
(and often other witnesses) for purposes of determining such
statutory prerequisites as typicality and adequacy of the class
representatives and commonality of the claims across class
members; (ii) plenary briefing of the class certification issue;
(iii) an evidentiary hearing; (iv) a written ruling; and very
often (v) a motion for leave to appeal initiated by the losing
party; and, if leave is granted, (vi) the subsequent, fully-
briefed interlocutory appeal.
If, after all of that, a class is certified, there would
have to be full and adequate notice to class members and an
opportunity to opt out. Discovery commensurate with the
now-increased stakes of the litigation would then begin and
likely continue for years. Should the defendant then yield to
the hydraulic pressure to settle that class certification creates,
there would need to be another round of notice followed by a
fairness hearing, complete with extensive briefing by both
sides and by any objectors. And. if the defendant chooses not
to settle, there would need to be a class-wide trial - one in
which the plaintiffs are required to establish any
individualized elements of their claims and the defendant is
afforded the opportunity to put on any individualized
defenses.
Whether conducted by a court or by an arbitrator, all
of the procedures necessary to the fair administration of a
class action make arbitration more expensive and more time
consuming — and, in the process, eradicate the distinction
G41
between arbitration and _litigation.'' In fact, some
commentators believe that "class arbitration may actually
prove more burdensome than class litigation." Jack Wilson,
"No-Class-Action Arbitration Clauses," State-Law
Unconscionability, and the Federal Arbitration Act: A Case
for Federal Judicial Restraint and Congressional Action, 23
QUINNIPIAC L. REV. 737, 774 (2004) (emphasis added) ;
see also Lindsay R. Androski, Comment, A Contested
Merger: The Intersection of Class Actions and Mandatory
Arbitration Clauses, 2003 U. CHI. LEGAL F. 631, 649
(hybrid class arbitration "subjects arbitration to the very
judicial burden that the contracting parties sought to avoid
through arbitration").
Not only would grafting time-consuming and
expensive ciass-action procedures onto an arbitral
proceeding essentially eliminate the distinction between
arbitration and litigation, but it also presents businesses with
a "worst-of-all-worlds" scenario. While the stakes would be
increased exponentially over an individual arbitration, any
'! See Jonathan R. Bunch, Note, To Be Announced: Silence from the
United States Supreme Court and Disagreement Among Lower Courts
Suggest an Uncertain Future for Class-Wide Arbitration: Green Tree
Fin. Corp. v. Bazzle, 2004 J. DISP. RESOL. 259, 272 ("[W]hen class-
wide arbitration is chosen as the means to resolve many similar claims,
the many benefits of the arbitration process are lost in favor of a
procedural device which brings the burdens of litigation into the arbitral
forum. It is somewhat ironic that the greatest advantages of arbitration
are in many instances the greatest disadvantages of litigation, yet class-
wide arbitration * * * lessens the distinction between the two
processes."); Jean R. Sternlight, As Mandatory Binding Arbitration
Meets the Class Action, Will the Class Action Survive?, 42 Wm. &
MARY L. REV. 1, 44-45 (2000) ("[S]everal attorneys who have actually
participated in classwide arbitrations have found that the procedure, at
least as used to date, differs very little from litigation and thus offers few,
if any, advantages."); Elizabeth P. Allor, Note, Keating v. Superior
Court: Oppressive Arbitration Clauses in Adhesion Contracts, 7] CAL.
L. REV. 1239, 1253 (1983) ("[W]hen conducted -on a classwide basis,
arbitration is unlikely to remain inexpensive and efficient.").
G42
class-wide arbitral award would remain reviewable only for
fraud, bias, or "manifest disregard" of the law. See 9 U.S.C.
§ 10; Wilko v. Swan, 346 U.S. 427, 436-37, 74 S. Ct. 182,
187, 98 L.Ed. 168, 176 (1953), overruled on other grounds
by Rodriguez de Quijas V. Shearson/American Express, Inc.,
490 U.S. 477, 109 S. Ct. 1917, 104 L.Ed 2d 526 (1987). In
such circumstances, few businesses would be willing to roll
the dice by including an arbitration provision in their
consumer contracts; "[c]lass arbitration just seems to present
too many risks." Wilson, supra, 23 QUINNIPIAC L. REv. at
778.
As the distinction between litigation and arbitration
erodes, businesses will stop including arbitration provisions
in their contracts in the first place, concluding "that the
known, class litigation, is preferable to unknown, class
arbitration." Jd. Thus, the consequence of conditioning the
enforcement of consumer arbitration provisions on the
business subjecting itself to class-wide arbitration would not
be fairer or more efficient arbitration - but rather more
litigation and less arbitration. Nothing could more clearly
"frustrate the purpose" (Livadas v. Bradshaw, 512 U.S. 107,
116, 114 S. Ct. 2068, 2074, 129 L.Ed 2d 93, 105 (1994)) of
the FAA. As the Fifth Circuit recently explained in rejecting
an attack on a class-arbitration waiver "the fact that certain
litigation devices may not be available in arbitration is part
and parcel of arbitration's ability to offer ‘simplicity,
informality, and expedition,’ characteristics that generally
make arbitration an attractive vehicle for the resolution of
low-value claims." Jberia, 379 F.3d at 174 (quoting Gilmer,
500 U.S. at 31) ; see also id. At (for parties to demand "all of
the procedural accoutrements that accompany a judicial
proceeding” would undermine "the point of arbitration").
Accordingly, under the doctrine of conflict
preemption -and regardless of any state-law concern about
"the unavailability of class action relief" - "the Supremacy
G43
Clause of the Federal Constitution * * * preclude[s] [a court]
from invalidating an arbitration agreement otherwise
enforceable under the FAA simply because a plaintiff cannot
maintain a class action." Pyburn v. Bill Heard Chevrolet, 63
S.W.3d 351, 364 (Tenn. Ct. App. 2001), appeal denied
(Tenn. Nov. 19, 2001). See also Schultz v. AT&T Wireless
Servs., Inc., 376 F. Supp. 2d 685, 691(West Virginia
Supreme Court's holding that class-arbitration waiver was
unconscionable is preempted by the FAA and therefore "the
plaintiffs argument that the arbitration clause is
unconscionable due to its foreclosure of class action relief *
* * lacks merit"); Am. Gen. Life & Accident Ins. Co. v.
Wood, 429 F.3d 83, 90 (4th Cir. 2005) ("West Virginia
precedent generally barring state claims from arbitration
must be necessarily circumscribed in light of [the FAA]");
Caley, 428 F.3d 1359, 1378 (arbitration provision's
prohibition of class actions is "consistent with the goal of
‘simplicity, informality, and expedition’ touted by the
Supreme Court in Gilmer") (quoting Gilmer, 500 U. S. at
31).
The strong pro-arbitration purposes of the FAA thus
preempt the invention of any state-law principle that would
broadly invalidate class-action waivers as applied to
arbitration provisions.
Il. AN OFFER TO PAY THE COSTS OF
ARBITRATION AND TO PROCEED IN AN
ALTERNATIVE ARBITRAL FORUM MOOTS
ANY ARGUMENT THAT THE COSTS OF
ARBITRATION ARE EXCESSIVE OR THAT
THE ORIGINAL FORUM IS PROBLEMATIC.
Muhammad argues that she should not be required to
arbitrate because she considers the costs of arbitration to be
prohibitively expensive. See Muhammad Br. at 22-26. But
County Bank long ago offered to pay all of the costs of
G44
arbitration. Muhammad rebuffed that offer, however, so that
she could continue to pursue her argument that it is too
expensive for her to arbitrate. Allowing her to do so would
be entirely unjustified.
To be sure, the U.S. Supreme Court has recognized
that, in some circumstances, "the existence of large
arbitration costs could preclude a litigant * * * from
effectively vindicating her * * * rights in the arbitral forum."
Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90,
121 S. Ct. 513, 522, 148 L.Ed 2d 373, 383 (2000). But the
Court made clear that the mere "‘risk' that [one] will be
saddled with prohibitive costs is too speculative to justify the
invalidation of an arbitration agreement" (id. at 91).
Nevertheless, plaintiffs routinely invoke such speculation as
a stratagem to avoid arbitration. As a result, the Chamber's
members often find themselves faced with the argument
(whether legitimate or not) that arbitral costs are too high.
In such circumstances, offers to pay the costs of
arbitration (such as the one County Bank has made here) are
entirely appropriate. As numerous courts around the nation
have explained, in order to effectuate the strong federal
policy favoring arbitration, offers to pay the costs of
arbitration should be credited when considering whether an
arbitration provision is enforceable. See, e.g., Livingston v.
Assocs. Fin., Inc., 339 F.3d 553, 557 (7th Cir. 2003) ("the
fact that [the defendant] agreed to pay all costs associated
with arbitration forecloses the possibility that the [plaintiffs]
could endure any prohibitive costs in the arbitration
process") (emphasis in original) ; Anders v. Hometown Mtg.
Servs., Inc., 346 F.3d 1024, 1026 (11th Cir. 2003); Large v.
Conseco Fin. Servicing Corp., 292 F.3d 49, 56-57 (Ist Cir.
2002) ("Conseco's offer to pay the costs of arbitration and to
hold the arbitration in the Larges’ home state of Rhode Island
mooted the issue of arbitration costs.") ; Dobbins v. Hawk's
Enters., 198 F.3d 715, 717 (8th Cir. 1999) ; Anderson v.
G45
Delta Funding Corp., 316 F. Supp. 2d 554, 567 (N.D. Ohio
2004) ; Jung v. Ass'n of Am. Med. Colts., 300 F. Supp. 2d
119, 148-49 (D.D.C. 2004) ; In re Currency Conversion Fee
Antitrust Litig. 265 F. Supp. 2d at 41112; Nelson v.
Insignia/ESG, Inc. 215 F. Supp. 2d 143, 157 (D.D.C. 2002);
First Family Fin. Servs., Inc. v. Sanford, 203 F. Supp. 2d
662, 667 (N.D. Miss. 2002) ; Baugher v. Dekko Heating
Techs., 202 F. Supp. 2d 847, 850 (N.D. Ind. 2002) ; Phillips
v. Assocs. Home Equity Servs., Inc., 179 F. Supp. 2d 840,
847 (N.D. Ill. 2001) ; Nur v. K.F.C., USA, Inc., 142 F. Supp.
2d 48, 52 (D.D.C. 2001) ; Zuver, 103 P.3d at 763 & n.7
("refus[ing] to ignore" defendant's "offer[] to ‘defray the cost
of arbitration’ by paying arbitration fees," thus rendering
"moot" the plaintiffs argument that the fees were
unconscionable); Zobrist v. Verizon Wireless, 822 N.E.2d
531, 539 (Ili. Ct. App. 2004) ("Verizon has already stipulated
to a waiver of [the cost-sharing] provision, which, in effect,
serves to moot the plaintiff's argument" that arbitration costs
are excessive).
Muhammad cites a handful of cases that treat offers
to pay the costs of arbitration as unaccepted offers to modify
a contract (i.e., the arbitration agreement). See Muhammad
Br. 25-26. At bottom, the holding of these cases amounts to a
rule that an individual may rely on a contractual term for the
sole purpose of seeking to invalidate that contract as
unconscionable. That kind of reliance interest lacks
legitimacy; in any event, it must fall to the policies favoring
arbitration. As the U.S. Supreme Court has explained in a
different context, parties resisting enforcement of their
arbitration agreements could not avoid arbitration based on
the claim "that they agreed to arbitrate future disputes * * *
in reliance on |an earlier case] holding that such agreements
would be held unenforceable by the courts." Rodriguez, 490
U.S. at 485. Along similar lines, the Fifth Circuit reversed a
lower court's holding that an offer to pay costs constituted an
"invalid" unilateral revision to a contract. Carter v.
G46
Countrywide Credit Indus., Inc., 362 F.3d 294, 300 n.3 (5th
Cir. 2004). The court explained that, although that
“observation may be accurate as a matter of contract law,
what is at issue here is whether these plaintiffs will be
required to pay prohibitive arbitration fees and costs if they
are forced to proceed to arbitration." /d (emphasis in
original). Given an offer to bear all costs, the answer to that
question is plainly "no."
The strong federal policy favoring arbitration also
supports viewing such offers to pay the costs of arbitration as
mooting challenges based on cost. When companies draft
standardized arbitration provisions for large numbers of
customers, they cannot predict ex ante which customers will
initiate arbitration with them, what the issues will be in those
arbitrations, or what those customers, financial status will be
at the time of those disputes. Standardized arbitration
provisions nonetheless must allocate arbitration fees between
the company and customer in a way that ex ante seems
reasonable (or, with some frequency, incorporate the default
fee schedules of arbitration providers such as the American
Arbitration Association or National Arbitration Forum,
which Justice Ginsburg has described as providing "models
for fair cost and fee allocation." Randolph, 531 U.S. at 95
(Ginsburg, J., concurring in part and dissenting in part)).
Like any ex ante estimate, of course, from time to time the
estimated arbitration costs will be more expensive than some
customers can reasonably bear (and in other instances will be
less expensive than other customers can bear). If the
arbitration provision were held unconscionable with respect
to every customer who could not afford the costs of
arbitration (or claimed he or she could not), that would lead
to the widespread invalidation of arbitration provisions.
Such a result would run counter to “[t]he preeminent concern
of Congress in passing the [FAA]” which "was to enforce
private agreements into which parties had entered." Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S. Ct.
G47
1238, 1243, 84 L.Ed 2d 158, 166 (1985); see also Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-
261 103 S. Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983) ("any
doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration"). Permitting a company to
offer to pay arbitration costs alleged to be unaffordable, by
contrast, serves the policies favoring arbitration.
Similar considerations also support offers like the one
County Bank has made to ‘submit to individual arbitration
before an alternative forum - the American Arbitration
Association. County Bank made that offer after Muhammad
indicated in her briefing to the superior court that she
believed that her "rights “would be better protected in an
arbitration conducted before the AAA as opposed to the
[National Arbitration Forum.]"" 379 N.J. Super. at 232. For
the reasons explained in County Bank's brief, Muhammad's
challenges to the NAF, a leading arbitration provider, are
meritless.'* But in any event, as Judge Kestin explained in
his concurring opinion below, an offer to make the AAA
available as a alternative forum moots the attack on the
NAF:
Because of plaintiff's rejection of defendants' offer to
arbitrate the matter under the aegis of the American
Arbitration Association * * *, I would not consider
any of plaintiff's arguments addressed to the validity
of NAF's arbitration procedures. Having forgone the
opportunity to avoid the asserted bias and procedural
unconscionability inflicted by NAF arbitration
1?
Many members of the Chamber have entered into arbitration
agreements in which the NAF is the selected arbitration provider. As the
U.S. District Court for the Central District of California recently
remarked in ordering individual arbitration of a consumer claim, "the
NAF * * * is without question an inexpensive, efficient, and convenient
forum for resolving commercial disputes.” Provencher v. Dell, Inc., 2006
WL 9626, at *1.
G48
standards, plaintiff should not now be heard to attack
those very processes, which she, for a second time,
elected to be bound by.
379 N.J. Super. at 249.
In particular, County Bank's offer moots
Muhammad's argument that the discovery available under
the NAF rules is inadequate. To be sure, County Bank has
shown convincingly that Muhammad has misunderstood the
range of discovery available to her under the NAF rules; the
Appellate Division correctly concluded that the NAF rules
provide for at least as much discovery - if not more - as is
available in New Jersey small claims court. See Muhammad,
379 N.J. Super. at 243; see also County Bank Br. 23-25. But
even if not, Muhammad's argument is mooted by the bank's
offer to arbitrate under the AAA's rules. See, e.g., Sapiro v.
VeriSign, 310 F. Supp. 2d 208, 214 (D.D.C. 2004) ("While
defendant maintains that the rules and procedures in the
Arbitration Agreement provide for sufficient discovery,
[defendant] has agreed to proceed with the arbitration and all
discovery under the AAA Rules. * * * Thus, the Court need
not determine whether the discovery provisions in the
Arbitration Agreement are sufficient."). It would be sheer
speculation on Muhammad's part to claim that discovery
under the AAA rules is inadequate. As then-Judge Roberts
explained for the U.S. Court of Appeals for the D.C. Circuit,
the AAA's commercial arbitration rules "leave the decision
about which discovery tools to use, and in what manner, to
the discretion of the arbitrator." Booker v. Robert Half Int'l,
Inc., 413 F.3d 77, 82 (D.C. Cir. 2005). "To invalidate the
agreement on the basis of [plaintiff's] speculation would
reflect the very sort of suspicion of arbitration the Supreme
Court has condemned as far out of step with our current
strong endorsement of the federal statutes favoring this
method of resolving disputes." /d. (internal quotation marks
omitted).
G49
**e KK *
If the federal and New Jersey policies favoring the
enforcement of arbitration agreements are taken seriously,
offers to waive any allegedly problematic features of an
arbitration provision must not be cast aside.
Ill. MUHAMMAD MAY NOT EVADE HER
OBLIGATION TO ARBITRATE ¥
LEVELING A PUBLIC-POLICY ATTACK ON
THE UNDERLYING CONTRACT.
Muhammad's back-door challenge to the arbitration
agreementon public policy grounds should also be rejected.
Muhammad and her amici spend pages of their briefing
excoriating "payday lending” practices in an effort to
convince this Court that it should invoke policy concerns
related to such practices to deny enforcement of County
Bank's arbitration provision. See Muhammad Br. 13-16;
AARP Amici Br. 1, 5, 7-28; Legal Servs. Amicus Br. 3-10.
Indeed, one group of Muhammad's amici focuses its entire
brief on attacking the entire short-term loan industry,
addressing not only alleged present practices but also
purported conduct from as far back as 60 years ago. See
AARP Amici Br. 13-14.'° But such arguments are wholly
irrelevant to the enforceability of a specific arbitration
provision in a specific contract.
Concerns about payday lending can and should be
directed to the New Jersey State Legislature, United States
Congress, and state and federal agencies - all’ of which are
well-equipped to address them. However, such attacks
cannot be used to escape from an agreement to arbitrate
'? In their most dramatic claim, amici go so far as to suggest that payday
lending injures our soldiers (AARP Amici Br. 8-10). That sort of
overreaching attack is designed to distract the Court from the narrow
legal issue before it - whether an arbitration provision is enforceable.
G50
disputes arising out of a specific contract. Under the FAA,
challenges to the validity of a contract as a whole that
contains an arbitration provision are for the arbitrator, not a
court, to decide. An arbitration agreement is separable from,
and must be considered independently of, the underlying
contract. Prima Paint, 388 U.S. 395, 402-04. As a matter of
the "federal substantive law of arbitrability” (Moses H. Cone,
460 U.S. at 24), the sole focus must be on the arbitration
agreement. The subject matter of the underlying contract is
of no legitimate concern to the Court; such merits issues are
solely for an arbitrator to consider.'* Indeed, Muhammad is
free to argue to the arbitrator that her entire loan agreement
is invalid on public policy grounds. There is no basis to think
that an arbitrator cannot make such a determination, as "we
are well past the time when judicial suspicion of the
desirability of arbitration and of thecompetence of arbitral
tribunals inhibited the development of arbitration as an
alternative means of dispute resolution." Mitsubishi, 473
U.S. at 626-27.
Without trivializing New Jersey's legitimate interests
in the area of payday lending - which as discussed above can
be addressed by the representative branches of state and
federal government - it nonetheless remains the case that the
FAA does not permit reliance on such "public policy”
grounds to eviscerate the enforceability of arbitration
'* Hence, for example, every federal court of appeals to have considered
the issue has held that a party cannot avoid an arbitration agreement by
challenging the underlying contract as illegal. See Jenkins, 400 F.3d at
880-82; Bess v. Check Express, 294 F.3d 1298, 1304-06 (1 1th Cir. 2002);
Snowden, 290 F.3d at 636-38; Burden v. Check Into Cash of Ky., LLC,
267 F.3d 483, 489-90 (6th Cir. 2001); Harter v. Jowa Grain Co., 220
F.3d 544, 550 (7th Cir. 2000) ; 3H & Assocs., Inc. v. Hanjin Eng'g &
Constr. Co., 1998 WL 657722, at *2 (9th Cir. Sept. 3, 1998)
(unpublished) ; Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d
1159, 1161-62 (Sth Cir. 1987). But see, e.g., Cardegna v. Buckeye Check
Cashing, Inc., 894 So.2d 860 (Fla.), cert. granted, 125 S. Ct. 2937
(2005), argued Nov. 29, 2005.
G51
agreements. Prima Paint requires courts to determine
arbitrability with reference to the arbitration agreements
alone: courts "may consider only issues relating to the
making and performance of the agreement to arbitrate." 388
U.S. at 404. On that score, it is clear that, just as under
federal law, "New Jersey courts also have favored arbitration
as a means of resolving disputes." Martindale, supra, 173
N.J. at 84; see also id. at 85 (collecting cases).
Hence, Muhammad's attempt to shift attention from
the arbitrability of her dispute to policy concerns about
payday lending cannot withstand scrutiny under Prima Paint
and its progeny. The Appellate Division was right to reject it.
See Muhammad, 379 N.J. Super. at 234 ("if the practice of
offering payday loans in this State is to be abolished, it will
take legislative action to do so.").
IV. THE ENFORCEABILITY OF AN
ARBITRATION PROVISION SHOULD NOT BE
SUBJECT TO QUESTION MERELY BECAUSE
IT HAPPENS TO BE CONTAINED WITHIN A
FORM CONTRACT.
Muhammad also expends much effort criticizing her
arbitration agreement because it is part of a form contract
drafted by a company. See Muhammad Br. 13-16; see also
Legal Servs. Amicus Br. 24-29. Indeed, boiled down to their
essence, may of Muhammad's arguments are nothing more
than a challenge to the use of form contracts themselves.
However, as this Court has explained, "the observation that
[a given contract] fit{s] the definition of contracts of
adhesion is the beginning, not the end, of the inquiry."
Rudbart v. North Jersey Dist. Waiter Supply Comm'n, 127
N.J. 344, 354 1992). Although it is incumbent on courts to
ensure that form contracts - like any other contract - are not
used in such a one-sided fashion as to deny consumers their
rights, those contracts are critical to the modern economy
G52
and the business of the Chamber's members; generic
aspersions on them have no place in the law of this or any
other state.
The standardization of contractual terms serves the
same values as the standardization of goods and services,
and is equally "essential to the functioning of the economy."
1 JOSEPH M. PERILLO, CORBIN ON CONTRACTS (rev.
ed. 1993) § 1.4, at 15'°. Form contracts reduce transaction
costs by obviating the need to negotiate and draft a separate
agreement for each transaction. Market forces enhance the
efficiency of standard-form terms; even form contractual
terms that might appear to confer an undue advantage to the
drafter benefit consumers ex ante by resulting in lower prices
due to the drafter's lower marginal costs. See Carbajal v.
H&R Block Tax Servs., Inc., 372 F.3d 903, 906 (7th Cir.
2004) ("[florms reduce transactions costs and benefit
consumers because, in competition, reductions in the cost of
doing business show up as lower prices") ; see generally
RICHARD A. POSNER, ECONOMIC ANALYSIS OF THE
LAW 127-29 (Sth ed. 1998) ; Richard Craswell, Property
Rules and Liability Rules in Unconscionability and Related
Doctrines, 60 U. CHI. L. REV. 1, 39-40 (1993) ; Ronald H.
Coase, The Choice of the institutional Framework: A
Comment, 17 J.L. & ECON. 493, 494 (1974).
Indeed, without form contracts, significant portions
of the modern economy would come to a complete standstill.
Were banks required to negotiate individually with
consumers each time a consumer applied for a credit card or
'S See also John J.A. Burke, Contracts as a Commodity: A Nonfiction
Approach, 24 SETON HALL LEGIS. J. 285, 290 (2000) (estimating that
standard forms account for more than 99 percent of all contracts); Robert
W. Gomulkiewicz, The License Is the Product: Comments on the
Promise of Article 2B for Software and Information Licensing, 13
BERKELEY TECH. L.J. 891, 895-900 (1998) (noting that standard-form
terms make electronic commerce possible).
G53
a mortgage, no one but Bill Gates would have a credit card
or mortgage. Were manufacturers required to negotiate each
term in a warranty prior to the sale of an appliance, all
televisions would come "as is," without any warranty - or
manufacturers would simply stop making televisions. Were
cellular telephone providers required to negotiate each term
of their contracts on a customer-by-customer basis, there
would be no cell phones available for love or money.
Furthermore, even were it the case that some form
contracts contain terms that may be insufficiently protective
of the rights of consumers, the marketplace is itself more
than adequate to correct such abuses. For example, consumer
objections to the early-cancellation fees contained in certain
cellular telephone contracts has caused several companies to
offer plans that may be canceled at any time without a fee
(but under which the companies presumably charge more for
equipment and/or cellular service). Moreover, even if short-
term loans are not available without a requirement that
disputes be arbitrated, if enough consumers were to express
their desire to have agreements without arbitration
provisions, some lender would surely offer it - though, of
course, other terms of that no-arbitration loan might differ, as
the provider would have to price the loan based on its
expected costs, including litigation costs. The marketplace
will demonstrate whether consumers are willing to pay
higher interest rates or fees in exchange for a loan under
which all disputes may be resoived in court or via class-wide
arbitration; this Court's intervention is unnecessary to
achieve that result.'®
Accordingly, this Court should clarify that, merely
because a business offers a form contract on a uniform basis
'© Indeed, any holding that class-arbitration waivers are unenforceable
would cause lenders and other businesses to curtail operations in New
Jersey to the detriment of consumers who would have fewer choices and
incur higher prices.
G54
to all who seek that business's services, such a contract is in
no way suspect. Any contrary rule would be disastrous for
businesses and consumers.
CONCLUSION
This Court should reemphasize its commitment to the
well-established principles of federal and New Jersey law
favoring the resolution of disputes through arbitration by
clarifying that the arbitration agreements between
Muhammad and County Bank are fully enforceable.
Respectfully submitted,
/s/
Andrew B. Joseph
DRINKER BIDDLEE & REATH LLP
A Pennsylvania Limited Liability
Partnership
500 Campus Drive
Florham Park, New Jersey 07932
Telephone: (973) 360-1100
Attorney for the Chamber of Commerce of
the United States of America
OF COUNSEL
MAYER, BROWN, ROWE & MAW LLP
Evan M. Tager (pro hac vice)
David M. Gossett (pro hac vice)
1909 K Street, NW
Washington, DC 20006
(202) 263-3000
G55
NATIONAL CHAMBER LITIGATION CENTER, INC.
Robin S. Conrad (pro hac vice)
Amar D. Sarwal (pro hac vice)
1615 H Street, NW
Washington, DC 20062
(202) 463-5337
DATED: January 17, 2006
G56
SUPREME COURT OF NEW JERSEY
NO. 58,430
JALIYAH MUHAMMAD __: ON APPEAL FROM THE
- SUPERIOR COURT OF
: NEW JERSEY,
Plaintiff-Appellant : APPELLATE DIVISION
‘ - DOCKET NO. A-0558-04T3
COUNTY BANK OF
REHOBOTH BEACH,
DELAWARE: EASY CASH::
TELECASH: and MAIN
STREET CORPORATION
Defendants-
Respondents
SAT BELOW:
HON. HOWARD H. KESTIN, PJAD
HON. STEVEN L. LEFELT, JAD
HON. JOSEPH A. FALCONE, JAD
CERTIFICATION OF FILING AND
PROOF OF SERVICE
I, the undersigned, hereby certify that on this 17th
day of January, 2006, the original and nine (9) copies of an
Amicus Brief on behalf of the Chamber of Commerce of the
United States of America was filed with the Supreme Court
of New Jersey, at the Hughes Justice Complex, 25 West
Market Street, Trenton, New Jersey 08625-0970, via hand
delivery.
G57
I further certify that on the same date, a true and
correct copy of the foregoing was served by overnight mail,
postage prepaid, upon the following individuals:
Donna Siegel Moffa
Trujillo, Rodriguez & Richards
8 Kings Highway West
Haddonfield, NJ 08033
Marc Cuker
Williams, Cuker & Berzofsky
210 Lake Shore Drive East Suite 101
Cherry Hill, NJ 08002-1163
Michael J. Quirk
1717 Massachusetts Avenue, NW, Suite 800
Washington, DC 20036
Counsel for Appellant Jaliyah Muhammad
Marc Zucker
Susan Verbonitz
Weir & Partners LLP
20 Kings Highway West
Haddonfield, NJ 08033
Counsel for Respondent County Bank of Rehoboth
Beach, Del.
J. Michael Kunsch
Sweeny & Sheehan, PC
Sentry Office Plaza
Suite 500, 216 Haddon Avenue
Westmont, NJ 08108
G58
Claudia T. Callaway
Paul, Hastings, Janofsky & Walker LLP
875 15th Street, NW
Washington, DC 20005
Counsel for Respondent Main Street Service Corp.
William J. Pinilis
Pinilis Halpern, LLP
237 South Street, Lower Level
Morristown, NJ 07960
Deborah M. Zuckerman, AARP Foundation
Michael Schuster, AARP
601 E Street, NW
Washington, DC 20049
Counsel for Amici Curiae AARP, Consumers League
of New Jersey and National Association of Consumer
Advocates
Melville D. Miller, Jr.
David McMillin
Christopher Hill
Legal Services of New Jersey
100 Metroplex Drive
Suite 402
Edison, NJ 08818-1357
Counsel for Amicus Curiae Legal Services of New
Jersey
G59
Hon. Peter C. Harvey, Attorney General
Jeffrey Burstein
Carol Jacobson
Office of the Attorney General of New Jersey
R.J. Hughes Justice Complex
25 Market Street
Trenton, NJ 08625
Counsel for Amicus Curiae Attorney General of New
Jersey
I hereby certify that the foregoing statements made
by me are true. I am aware that if any of the foregoing
statements made by me are willfully false, I am subject to
punishment.
/s/
Andrew C. White
DATED: January 17, 2006
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.