Opposition Brief — County Bank of Rehoboth Beach, Delaware v. Muhammad, 127 S. Ct. 2032 (2007) (No. 907)

BB MAR § ~ 2007

In The

Supreme Court of the Anited States

¢

COUNTY BANK OF REHOBOTH BEACH, DELAWARE ~

AND MAIN STREET SERVICE CORPORATION,

Petitioners,

v.

JALIYAH MUHAMMAD, ON BEHALF OF HERSELF

AND ALL OTHERS SIMILARLY SITUATED,

Respondent.

¢

On Petition For A Writ Of Certiorari

To The Supreme Court Of New Jersey

S

RESPONDENT'S BRIEF IN OPPOSITION

ro

¥

F. PAUL BLAND, JR. MICHAEL J. QUIRK

Counsel of Record MARK R. CUKER

PUBLIC JUSTICE, P.C. WILLIAMS CUKER BEREZOFSKY

1825 K Street, Suite 200 210 Lake Drive East,

Washington, DC 20006 Suite 101

(202) 797-8600 Cherry Hill, NJ 08002

DONNA SIEGEL MOFFA (856) 667-0500

TRUJILLO, RODRIGUEZ

& RICHARDS

8 Kings Highway West

Haddonfield, NJ 08033

(856) 795-9002

Counsel for Respondent

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE UF CONTENTS

Page

TABLE OF AUTHORITIEG . ccccvcsereoscsvevecassvosessereesseeness ili

SEER TATE e ITE ahah bi phctieeisonciecesenadagabicdinapironsonnwcieds 1

STATEMENT OF THE CASE..........sseccocossssorscsesserssoasess 2

A. The Underlying Transactions and State Law

NI cei stesccctcpeeesicdaieussaanevevetiabigkbentéebiiesetesactariniesaaes 2

‘B. The New Jersey Supreme Court’s Decision....... 5

REASONS FOR DENYING THE PETITION............... 7

I. The Court Lacks Jurisdiction Over This

Il.

Interlocutory State Court Order Compelling

PERE soccioncicrsctesitinhatinulanmniiasbedinaininaanniin

A.

B.

The Decision Below Is Not a Final Judg-

ment Under 28 U.S.C. § 1257(a)..............66

The Cox Broadcasting Exceptions to

§ 1257’s Final Judgment Rule Do Not Ap-

WEY ss iccs ss Scab ncapiociseandaccapbedepeakemmsteredieaiteohinien

The Federal Arbitration Act Preemption Issue

Raised in the Petition Does Not Merit Review.....

A.

B.

There Is No Split of Authority on Petition-

ers’ FAA Preemption Argument................0+

The Decision Below Does Not Conflict

With This Court’s Decisions ....................0006

i. The Petition’s Principal Argument Is

Contrary to This Court’s Decisions Ap-

RVR GS FI on csiecisinendesiatsteidersinbctvins

2. This Court’s Decision in Bazzle Dem-

onstrates That the Decision Below Was

AR LAR MPR MND e PM RIOR TEAS

16

ii

TABLE OF CONTENTS - Continued

Page

3. The Decision Below Is Consistent With ©

This Court’s Decision in Gilmer.............

C. Petitioners’ Policy Arguments Are Unper-

RNIN shasta Loic thdicatiedl vakaes testeaesbasberttunevenesiionee

III. The Petition’s Second and Third Questions —

Presented Likewise Do Not Merit Review.........

Nee cadehoasaminna

19

20

21

TABLE OF AUTHORITIES

Page

CASES ‘

Adams v. Robertson, 520 U.S. 83 (1997).........:cceccccseceeeeee 24

Allen v. Marshall Field & Co., 93 FR.D. 438 (N.D.

Bes SUD iicekit choi cintanssleegdieisilinbisioiitbenieabsintnidegmuancadiglibaanaatoals 20

Allied-Bruce Terminix Co’s, Inc. v. Dobson, 513 U.S.

Fe CA iiniia dliccsncintlonisctnduenendicnsinbbiaeapabetiiibecasalabeianes 21

Amchem Products, Inc. v. Windsor, 521 U.S. 591

CII FeiiissscccasnassecscesisensisinareecdbnsaihaneaR aie adnbee accesses Saaiesileadanaalias 23

Bess v. DirecTV, Inc., 815 N.E.2d 455 (Ill. App.

a ictiicseninsins oleic iiss cis ocak cetapriuedsdioiaaasd aanacsaiaiantian 18

Best & Co., Inc. v. Maxwell, 311 U.S. 454 (1940) .......0..... 26

Board of Directors of Rotary Int'l v. Rotary Club of

Duarte, 481 U.S. 537 (1987)......cscscsssessresreesereteenseeees 24

Bowen v. Georgetown Univ. Hospital, 488 U.S. 204

RI ScochinivechisiesiieisissScaei cea ahs celeste ebasaaebaiiaiiccdipan 25

Caley v. Gulstream Aerospace Corp., 428 F.3d 1359

CR RGR Sie Fai acioceansicsdinscsinnanccslencpsastinitiiebsnbeinmesiitinncwss 15

Cox Broadcasting Corp. v. Cohn, 420 US. 469

CRT iiccccsnvvspiccacinvueishonniuiciongi apeieaeninesdipsadaaiambtans 2,9, 10, 11

Delta Funding Corp. v. Harris, 912 A.2d 104 (N.J

SG sickiskinnisnisecisacicndnitirncasibeienliias ctssauacasbeakecibandicducedeuniivn 13

Delta Funding Corp. v. Harris, 466 F.3d 273 (3d

Fe SIE ions che iseeviind conenennisteseniiecineresaiciehiaicib denies dibiuuapiiaeidaes 14

Doctor’s Assoc’s, Inc. v. Casarotto, 517 U.S. 681

(Fy ivcnitenncsciintclicccndpinaessanicipamvndcdsmnasesoniaedeauass 16, 21

EEOC v. Waffle House Corp., 534 U.S. 279 (2002)........... 22

Freightliner Corp. v. Myrick, 514 U.S. 280 (1995) ........... 21

iv

TABLE OF AUTHORITIES — Continued

Page

Garcia v. DirecTV, Inc., 9 Cal. Rptr. 3d 190 (Cal.

BA, TGs hticiccreisivcianibbiasiabiiopesiipiivientecicininbanisinininajiibmcsiatane 18

Genus Credit Management Corp. v. Jones, 2006 WL

905936 (D. Md. April 6, 2006) ...........coscsssssssrscssrsressesens 18

Gilmer v. Interstate Johnson Lane Corp., 500 U.S.

FE RU a Ricakiccisciiadessonsaeennncdtinsbosiors taviicanicke onncssentcensi4 passim

Gras v. Associates First Capital Co., 786 A.2d 886

SOs MN, SING SNEED ssnisisisvsnsntisdunsmeiidanddaciobcsndieatnaesesaniionaneh 6

Green Tree Financial Corp. v. Bazzle, 539 U.S. 444

ENON I cs vistinuiiesuuscossisdlobioynsasverdenssenecnvucaonapnectionmiestal passim

Green Tree Financial Corp. v. Randolph, 531 U.S.

FO (QOD) wecivvcscesvsce scubhideesapainats cibiaiucctuipucncuidinaaiente 22

Healy v. The Beer Institute, 491 U.S. 324 (1989).............. 26

Iberia Credit Bureau, Inc. v. Cingular Wireless

LIC, 379 F.3d 159 (6th Cir. 2004)........ccrccccccssscseseeees 14, 15

Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th

Si: Ss ies seenisiselenbci aici bouidebanabbaUlccensania ucdnnalaatannbiapsude’ 15

In re Wood, 140 S.W.3d 367 (Tex. 2004)..........scscceccssreenees 18

Jefferson v. City of Tarrant, Ala. , 522 U.S. 75 (1997)..... 7, 8

Johnson v. W. Suburban Bank, 225 F.3d 366 (3d

Ch Re. SARA Reade iat eomay os SN Rts ee Neo A aR 12, 13

McCarthy v. NASCAR, Inc.) 226 A.2d 713 (1967) ...ssesss00- 6

Mitsubishi Motors Corp. v. Soler Chrysler-Plyr:cuth,

Fe BA Ts Ga) tint dcicciathaticrtstrnccnioattomncceticszicier 16

Pedcor Mgmt. Co. v. Nat'l Personnel of Texas, 343

Fee ee Cae FG in isiseics i aicsitstecescastcbcctccesenbscsionvcoane 18

Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351

CR Fs I Te i icteiiicierrsiiseadisctisaiscaitadibenaneobepioness 12

TABLE OF AUTHORITIES — Continued

Page

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120

EP UED hacirsidcsid cerisesedicucdeicenindsbudeiiupedssasubiacmileiddsoniaciass 8, 24

Ramirez v. Cintas Corp., 2005 WL 659984 (N.D.

i eis PD sci cin in-esid cantunsddeintbiscvacsela teeineiasadis 18

Randolph v. Green Tree, 244 F.3d 814 (11th Cir. 2001)....... 13

Rudbart v. North Jersey Dist. Water Supply

Comm’n, 605 A.2d 681 (N.J. 1992)...........:sseeeseeeees 5, 6, 25

Schultz’ v. AT&T Wireless Servs., Inc., 376

F. Supp.2d 685 (N.D. W. Va. 2005)...cc.ssssssssecsssccesssseeenes 12

Snowden v. CheckPoint Check Cashing, 290 F.3d

RE CI Sa Pe his cdccha ciiiverccarsesnctvceusverrbaiunidideumeens 15

Southland Corp. v. Keating, 465 U.S. 1 (1984)..............06 10

State ex rel. Dunlap v. Berger, 567 S.E.2d 265 (W.

Va. 2002), cert. denied, 537 U.S. 1087 (2002) ............0. 19

Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003), cert.

Martha, GAG 17. BAT (QOOB) nvissessniconiessesevevsisnesssssscasvacene 15

UNUM Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999)....... 23

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

Ue Fai snctadibuvedeciavadidcsesacapseiantiasieoiavensaieccanuaeratadasaeiaienies 25

Veliz v. Cintas Corp., 2005 WL 1048699 (N.D. Cal.

DO, Fe ixkissciinscainndaciviccinsdaowkdasssoeiincnveucdaibecmermedcaenee 18

Volt Info. Sciences, Inc. v. Bd. of Trustees of Stan-

ford Univ., 489 U.S. 468 (1989)......cc.ccccsescescserverseenes 20, 21

Walther v. Sovereign Bank, 872 A.2d 7 35 (Md. 20085) ...... 15

Wein v. Morris, 909 A.2d 1186 (N.J. Super. App. Div.

MPIED jis si siisansicas insicinsatensesses casio testes Ga naiaciados Saxkicusuaakadddacbaaneliichnin 8

vi

TABLE OF AUTHORITIES ~— Continued

Page

STATUTES

Nas WP irda cicisicisinisak Cocnchcbaderonsastocininsddcaands tacmeinat passim

See SON saikcssniniitndeceiewidiusvunhivcniieendiniscininiidivagsicighialiineis 8

RL SET UMET soins bcssinissedoancesenctecechinbieiesobindeonaisnans passim

at ge Bt || SRST IRD OPN EAR OaIONE pu Oe NOIR. re 8

La. Rev. Stat. Ann. § 51:1409(A)......ssssssscssecssesesseesseeessseen 15

FIRE ALE AEELD ciiiscbnstiickconcdedaniciaennsensdvadlicmmabalevaselabiasosedeca 3

Re ED icin sciesniss csoseciusesoessonoomenetetacinneehe 10

PO SE PSI iidcdctncsiearduosenecsitsccieassaninbiicladabseceeondacahainetvimiiie 3

OTHER AUTHORITY

American Arbitration Association, “Class Arbitra-

tion Case Docket” (available at www.adr.org/

CTE TN son cies inca icnscllecrossiesacinsencssiocisiccine 18

Carole J. Buckner, Toward a Pure Arbitral Para-

digm of Classwide Arbitration: Arbitral Power

and Federal Preemption, 82 Denv. U. L. Rev. 301

CT iis sicsiiesasacehiacchesiaisisacasanacelta cinncabdtacediatianig cipecssbiiaslian 18

Federal Rule of Civil Procedure 23(b) ..............ccccssceseceeeee 23

Office of Comptroller of Currency News Release

OD GO, BI BGI vc kectsntcssinscsenccsancesaeiiescsciortanesie 3

INTRODUCTION

The decision below favors arbitration by prohibiting

exculpatory contract terms that prevent arbitration from

ever occurring. This Petition arises from a state court

order compelling the parties to arbitrate. What Petitioners

are now seeking is not the right to arbitrate, which they

already have, but a right to compel arbitration under rules

that unduly favor them by preventing Respondents from

vindicating their state-law claims. No one disputes that

federal law gives Petitioners and other companies a

general right to enforce contracts for arbitration. But this

is not an unlimited right that forces courts to rubber-

stamp any arbitration terms a company can devise.

Instead, the Federal Arbitration Act (“FAA”) makes arbi-

tration clauses revocable “upon such grounds as exist at

law or in equity for the revocation of any contract.” 9

U.S.C. § 2.

Because the plaintiffs’ claims here are quite complex,

but small in value, the New Jersey Supreme Court held

that the Petitioners’ contract term banning class actions

was effectively an illegal exculpatory clause. Because a

longstanding body of generally applicable New Jersey

contract law arising in settings that have nothing to do

with arbitration holds that exculpatory contract terms are

unenforceable, the New Jersey Supreme Court struck that

term as unenforceable before ordering the parties to

arbitrate. The issue here thus is not whether arbitration is

ever allowed, but whether federal law overrides generally

applicable New Jersey contract law prohibiting exculpa-

tory terms in contracts of adhesion merely because those

terms are embedded in an arbitration clause. For each of

the following reasons, the New Jersey Supreme Court’s

resolution of this question does not warrant review.

2

A. preliminary matter, the Petition should be

rejects. ~ecause this Court does not have jurisdiction. The

ruling below compelling the parties to arbitrate is not a

final judgment under 28 U.S.C. § 1257(a), and this case

does not fall within any of the four exceptions to the final

judgment rule recognized in Cox Broadcasting Corp. v.

Cohn, 420 U.S. 469 (1975).

Even if the Court did have jurisdiction, it still should

not grant the Petition. The Petition raises three issues.

The first issue poses a theory of federal law that has never

been adopted by any state high court or federal appellate

court. The second and third issues posed in the Petition

were not timely raised in the state courts below, present

no split of authority, and also are wholly lacking in merit.

For all of these reasons, the Petition should be denied.

4

bi

STATEMENT OF THE CASE

A. The Underlying Transactions And State Law

Claims

Plaintiff Jaliyah Muhammad was a part-time student

at a business school when she took out her first payday

loan to pay for her school books. On May 26, 2003, Ms.

Muhammad obtained a $200 payday loan from the defen-

dants in exchange for a loan note requiring a lump sum

payment of $260 (including a $60 finance charge) by June

13. This amounts to an interest rate of 608.33%. When she

could not repay this balance, she twice paid additional $60

charges to extend the same $200 principal. In total, she

paid $180 interest on a $200 loan she had for under two

months.

3

Although Ms. Muhammad’s loan papers listed County

Bank as the lender, Ms. Muhammad alleges that the

actual lender was Easy Cash, which marketed these loans

to New Jersey consumers through the mass media and

over the Internet. After the consumer signs a loan form

and transmits it to Easy Cash by telephone, fax, or over

the Internet, Easy Cash arranges to transfer funds to the

consumer’s checking account.

Ms. Muhammad filed a putative class action in State

court claiming that these loans violated New Jersey’s civil

usury limit of 16% APR (NJSA § 31:1-1(a)), as well as its

criminal usury limit of 30% APR (NJSA § 2C:21-19). She

alleged that Easy Cash conspired to evade New Jersey’s

usury laws by naming County Bank as the lender when, in

fact, it was the Easy Cash defendants who financed,

marketed, originated, and serviced these loans, and bore

all of the risk through an agreement to indemnify County

Bank. This sort of arrangement is often referred to as a

“rent a bank” scheme, and has been sharply criticized by

federal regulators (among others). See, eg., Office of

Comptroller of Currency News Release 2003-06 (Jan. 31,

2003) (“We have been greatly concerned with arrange-

ments in which national banks essentially rent out their

charter to third parties who want to evade state and local

consumer protection laws.”) Plaintiff claimed that this

enterprise violated New Jerseys Consumer Fraud Act

(“CFA”) and its RICO statute’s prohibition against. crimi-

nal usury racketeering. Ms. Muhammad also charged that

County Bank’s involvement in this enterprise violated the

CFA’s and State RICO statute’s separate prohibitions

against aiding and abetting usury.

Petitioners responded to Ms. Muhammad’s lawsuit

first by removing the case to federal court based on a

4

“complete preemption” argument. Pet. Al7. After this

argument failed and the case was remanded, Petitioners

next moved the State court to bar Ms. Muhammad's class

claims and compel her to arbitrate an individual action. In

support of this motion, Petitioners invoked a mandatory

arbitration clause in their payday loan contracts. The

primary operative sentence of Petitioners’ arbitration

clause is 157 words long. In addition to requiring arbitra-

tion, this clause barred Petitioners’ customers from bring-

ing or participating in class actions. The clause also

incorporated the rules of procedure of the National Arbi-

tration Forum (“NAF”). One of those rules limited the

discovery available to parties to an amount commensurate

with the value of their claims. Under this rule, if Ms.

Muhammad were required to proceed on an individual

basis, she would only be permitted to take discovery

commensurate with her $180 damages claim in support of

her allegation that the whole rent-a-bank structure was a

sham to conceal who the true lender was.’ The NAF’s

rules also included a “loser pays” term, which permits

arbitrators to force any consumer who does not prevail on

her claims to pay the defendant’s attorney fees and arbi-

tration costs.

Ms. Muhammad opposed Petitioners’ motion on the

grounds that the arbitration clause is unconscionable

under New Jersey law in light of its adhesive and excul-

patory terms. Under established New Jersey law, a

* Proving this allegation is essential to hers and the class members’

claims because, absent such proof, a finding that County Bank is the

lender defeats her claims under a federal preemption doctrine that

allows a Delaware bank to make loans in New Jersey while ignoring its

laws governing interest rates.

5

non-negotiable adhesive contract provision is unconscion-

able if there is a disparity in sophistication and bargaining

power between the parties and the provision’s terms are

either exculpatory or unreasonably one-sided in favor of

the drafter. See Rudbart v. North Jersey District Water

Supply Comm’n, 605 A.2d 681 (N.J. 1992). With respect to

the first prongs of this argument, the record contained

copies of the arbitration clauses of all of the defendants’

competitors, establishing that clauses banning class

actions and using NAF are pervasive in the payday lend-

ing industry. The record also established that Petitioners’

mandatory arbitration clause is a non-negotiable, adhesive

provision imposed by experienced lending companies

against payday loan borrowers with limited commercial

experience and credit options. The arbitration clause is a

pre-printed, standard form provision, transmitted between

borrower and lender by facsimile with no opportunity for

negotiation. With respect to the exculpatory and one-sided

effect of the arbitration clause’s terms, the record estab-

lished that since County Bank began putting its name on

payday loans nationwide in 1997, only two (2) customers

have ever even attempted to arbitrate claims.

The State trial court rejected Ms. Muhammad’s

argument and held that the arbitration clause’s terms

prohibiting her class claims were enforceable. The New

Jersey Superior Court, Appellate Division, affirmed.

B. The New Jersey Supreme Court’s Decision

After granting Ms. Muhammad’s petition for leave to

file an interlocutory appeal, the New Jersey Supreme

Court reversed in part by holding that the class arbitra-

tion ban was unconscionable, but severable, so that the

6

arbitration clause could still be enforced. The court began

its discussion with a recognition of the federal policy

favoring arbitration, Pet. A19, while noting this Court’s

decisions directing that the FAA does not preclude an

examination into whether a given arbitration clause is

unconscionable under state law. Jd.

The New Jersey Supreme Court then addressed New

Jerseys standard for finding unconscionability, a “multi-

factor analysis” that had been developed in a series of

cases none of which involved the enforcement of arbitra-

tion clauses. In particular, the court relied heavily upon

the considerations set forth in its prior decision in Rud-

bart, supra. E.g., Pet. A12, A22, A23, A25-A26. The court

then noted the pivotal and longstanding rule that, “[iJn

New Jersey, exculpatory waivers that seek a release from

a statutorily imposed duty are void as against public

policy. McCarthy v. NASCAR, Inc., 226 A.2d 713 (1967).”

Pet. A27. The court discussed prior New Jersey law, as

well as decisions from this Court and numerous other

courts, establishing that, in certain circumstances (par-

ticularly those involving small-value claims), the class

action device offers the only means for individuals to

effectively vindicate their rights. Pet. A26-A29. The court

distinguished, but did not overrule, a prior decision by an

intermediate appellate court in New Jersey, Gras uv.

Associates First Capital Co., 786 A.2d 886 (N.J. App. Div.

2001). Pet. A29.

The ccurt explained that its decision was consistent

with New Jerseys policy favoring arbitration, because

“(njothing in the arbitration process requires that claims

be brought only by individuals.” Pet. A380. The court also

noted the consistency between its decision and this Court’s

7

statement that “arbitration is allowed in actions author-

ized by federal statutes ‘[slo long as the prospective

litigant effectively may vindicate [his or her] statutory

cause of action in the arbitral forum.’” Pet. A31, citing

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28

(1991). The Court pointedly added, twice, that it would

have reached the same conclusion on unconscionability of

the class action ban had it appeared with or without an

arbitration clause. Pet. A12, A29.

The court then held that the provision banning class

actions was severable from the remainder of the arbitra-

tion agreement, Pet. A33-A34, and thus ordered the

parties to proceed to arbitration with that provision

stricken. Pet. A34.

&

v

REASONS FOR DENYING THE PETITION

I. The Court Lacks Jurisdiction Over This

Interlocutory State Court Order Compelling

Arbitration.

A. The Decision Below Is Not a Final Judg-

ment Under 28 U.S.C. § 1257(a).

This Court has jurisdiction to review “[flinal judg-

ments or decrees rendered by the highest court of a State

in which a decision could be had...” 28 U.S.C. § 1257(a).

Section 1257(a) establishes a “firm final judgment rule.”

Jefferson v. City of Tarrant, Ala., 522 U.S. 75, 81 (1997).

This means that a state court’s decision must be “final as

an effective determination of the litigation and not merely

of interlocutory or intermediate steps therein.” Jd. Section

1257’s requirement of finality “‘is not one of those techni-

calities to be easily scorned. It is an important factor in

8

the smooth working of our federal system.’” Jd. (quoting

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120, 124

(1945)). Here, since the New Jersey Supreme Court did not

issue a final judgment or decree, this Court lacks jurisdic-

tion under § 1257(a).

After finding County Bank’s class-action ban unen-

forceable, the New Jersey Supreme Court held that the

waivers were severable so that “the remainder of the

arbitration agreement is enforceable.” Pet. A33. In remand-

ing the case to the state trial court “for proceedings consis-

tent with this opinion” (Pet. A34), the New Jersey Supreme

Court ordered the parties to arbitrate Ms. Muhammad’s

claims. This order thus is not final as an “effective determi-

nation of the litigation.” Jefferson, 522 U.S. at 81.

Indeed, orders compelling arbitration without dismiss-

ing claims are not final or appealable as of right under

either federal or New Jersey law. See 9 U.S.C. § 16(b)

(except under the permissive appeal provisions of 28

U.S.C. § 1292(b), appeal may not be taken from an “inter-

locutory” order directing arbitration or staying litigation in

favor of arbitration); Wein v. Morris, 909 A.2d 1186, 1194

(N.J. Super. App. Div. 2006) (“A stay of an action pending

arbitration does not constitute a final, appealable order

because it inherently anticipates further proceedings prior

to the ultimate entry of a final judgment.”); see also id. n.6

(noting that subsequently enacted N.J. Uniform Arbitra-

tion Act “does not appear to expressly permit an appeal

from an order staying an action and compelling arbitra-

tion.”).’ The decision below compelling arbitration thus is

not a final judgment under § 1257(a).

* In the proceedings below, Ms. Muhammad did not have an appeal

of right to the New Jersey Supreme Court. Instead, she had to obtain

(Continued on following page)

9

B. The Cox Broadcasting Exceptions to § 1257’s

Final Judgment Rule Do Not Apply.

Under Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

(1975), the Court may review state court decisions prior to

a final judgment in four narrow circumstances. The first

involves cases where “there are further proceedings . . . yet

to occur in the state courts but where for one reason or

another the federal issue is conclusive or the outcome of

further proceedings preordained.” Jd. at 479. Second are

cases in which “the federal issue, finally decided by the

highest court in the State, will survive and require deci-

sion regardless of the outcome of future state-court pro-

ceedings.” Jd. at 480. Third are cases where “the federal

claim has been finally decided with further proceedings on

the merits in the state courts to come, but in which later

review of the federal issue cannot be had, whatever the

ultimate outcome of the case.” Id. at 481. The fourth

exception arises where (a) “the federal issue has been

finally decided in the state courts ... and where reversal

of the state court on the federal issue would be preclusive

of any further litigation on the relevant cause of action”;

and (b) “a refusal immediately to review the state-court

decision might seriously erode federal policy.” Id. at 482-

83. None of these exceptions to § 1257(a)’s final-judgment

rule applies here.

The first three Cox Broadcasting exceptions do not

apply because all claims and defenses on the merits are

yet to be resolved, and thus could be subject to later

appeals. This is not a case where “the federal issue is

leave for an interlocutory appeal. See Pet. Al8, B19. New Jersey law

does not have an equivalent to 28 U.S.C. § 1257(a) requiring a final

judgment for all appeals.

10

conclusive” in further proceedings or the outcome of these

proceedings is “preordained,” 420 U.S. at 479, because

either party could still prevail on its unresolved merits

claims or defenses. The first exception thus does not apply.

Nor does the second exception apply because, if Muham-

mad fails to prove her state-law claims or County Bank

prevails on a merits defense, the federal question asserted

here would not “survive and require decision.” Jd. at 480.

Likewise, the third exception does not apply because there

is no state-law bar to a later appeal by any party, id. at

481, in the event of an adverse judgment. To the contrary,

New Jersey law expressly recognizes a party’s right to an

appeal after arbitration proceedings are completed. See

NJSA § 2A:23B-28(a)(3) (“An appeal may be taken from an

order confirming or denying confirmation of an [arbitral]

award.”).

Finally, the fourth Cox Broadcasting exception like-

wise does not apply here for two independent reasons.

First, a reversal of the decision below on the federal issue

asserted would not as a matter of law “be preclusive of any

further litigation on the relevant cause of action,” 420 U.S.

at 482-83, since Ms. Muhammad would retain her individ-

ual state-law claims, whether or not she could effectively

vindicate them. Thus, the Petition fails to meet the fourth

exception. Moreover, this is not a case where “a refusal to

review the state-court decision might seriously erode

federal policy.” Id. at 483. The Court has applied this

exception to allow interlocutory appeals from state court

orders denying arbitration, finding that “to delay review of

a state judicial decision denying enforcement of the con-

tract to arbitrate until the state-court litigation has run its

course would defeat the core purpose of a contract to

arbitrate.” Southland Corp. v. Keating, 465 U.S. 1, 7-8

11

(1984). The decision below, however, compelled arbitration

of Ms. Muhammad’s claims. Thus, a refusal to grant

immediate review here that allows the parties to arbitrate

would not erode federal policy favoring arbitration. For

each of these reasons, the New Jersey Supreme Court’s

decision does not fall within Cox Broadcasting’s fourth

exception.

In sum, this case presents no basis to depart from

§ 1257(a)’s imposition of a “firm final judgment rule.” The

Court thus lacks jurisdiction, and the petition should be

denied.

II. The Federal Arbitration Act Preemption Issue

Raised in the Petition Does Not Merit Review.

A. There Is No Split of Authority on Peti-

tioners’ FAA Preemption Argument.

As set forth above, in this case, the New Jersey

Supreme Court held that Petitioners’ contract provision

banning class actions was unconscionable, because under

the facts of this case (involving very complicated and

difficult-to-prove, but individually small claims), it would

serve as an exculpatory clause and exculpatory clauses

embedded in contracts of adhesion are unconscionable

under New Jersey contract law. The Petition argues that

even if a contractual provision banning consumers from

bringing or participating in a class action is unconscion-

able under normal state doctrines of contract law, this

body of state law is nonetheless preempted by the FAA.

E.g., Pet. 19. The Court below rejected Petitioners’ argu-

ment that the FAA preempts normal state principles of

contract law. To establish a conflict between the decision of

the New Jersey Supreme Court and other state high

12

courts or federal appellate courts, Petitioners must iden-

tify some such court holding that even though a contract

term banning class actions embedded in an arbitration

clause is unconscionable under state law, that rule of state

law is nonetheless preempted by the FAA. Petitioners do

not cite to any such case, and there is none.’ There are

courts that have enforced class action bans in given cases,

but each was decided on grounds unrelated to the federal

legal theory advanced in the petition. In sum, Petitioners

never identify a split of appellate authority on the federal

law question raised in the Petition.‘

Instead, Petitioners point to imapposite cases to

generate the appearance of a conflict. For example, the

Petition alleges a conflict between the lower court here

and a number of cases where courts have held that the

language and legislative history of certain other federal

statutes do not conflict with the FAA. E.g., Pet. at 4, 17

(citing Johnson v. W. Suburban Bank, 225 F.3d 366 (3d

Cir. 2000)). The Petition claims that the decision below

represents a split with Johnson that would result in the

* The closest Petitioners come (Pet. 14-16) is a case from a Tennes-

see intermediate appellate court, Pyburn v. Bill Heard Chevrolet, 63

S.W.3d 351, 365 (Tenn. Ct. App. 2001), and a case from a federal trial

court in West Virginia. Schultz v. AT&T Wireless Servs., Inc., 376

F. Supp.2d 685, 691 (N.D. W. Va. 2005)). Pyburn does not represent the

view of a state court of last resort, see S. Ct. Rule 10, and in any event

held that a class action ban at issue was not unconscionable under state

law. Accordingly, Pyburn’s preemption discussion was unnecessary to

its holding and thus is pure dicta.

* The Petition blurs this fact through the use of vague language. It

states, for example, that “[t]he question divides” state and federal

courts, Pet. at 12, but does not say which question divides those courts.

As will be shown, none of the cases cited support the proposition that

the question of federal law advanced in the opinion divides those courts.

13

law being different in federal courts in New Jersey and in

New Jersey state courts. Pet. at 17. But Johnson does not

conflict with the opinion below because it did not hold that

state law relating to a class action ban was preempted by

the FAA. Instead, Johnson’s holding allowing enforcement

of an arbitration clause’s class-action prohibition turns

upon the language and legislative history of the federal

Truth in Lending Act (“TILA”).° This case says nothing

about the FAA’s relationship to state contract law.°

In fact, the Third Circuit — in sharp contrast to Peti-

tioners’ approach — holds that the question of the uncon-

scionability of an arbitration clause term banning class

claims is one of state, not federal, law. Petitioners repeat-

edly cite to the New Jersey Supreme Court’s decision in

Delta Funding Corp. v. Harris, 912 A.2d 104 (N.J. 2006)

for its policy arguments, but that case was certified to the

state court by the Third Circuit, id. at 108, for a determi-

nation of whether provisions in a mandatory consumer

arbitration clause, including its class action waiver, id. at

115, were unconscionable under New Jersey law. The

Third Circuit’s certification and subsequent embrace of the

* The proper interpretation of TILA was also the issue in Randolph

v. Green Tree, 244 F.3d 814 (11th Cir. 2001), Pet. at 4, and thus that

case also does not pose a conflict on the federal law issue presented in

this Petition.

* That Johnson’s holding is based on unique considerations

relating to TILA claims is demonstrated by the Third Circuit's subse-

quent finding in a case involving claims under the Fair Debt Collection

Practices Act (“FDCPA”) that class actions appear to be fundamental to

the statutory structure of the FDCPA, so that “lacking this procedural

mechanism meritorious FDCPA claims might go unaddressed because

the awards in an individual case might be too small to prosecute an

individual action.” Weiss v. Regal Collections, 385 F.3d 337, 345 (3d Cir.

2004) (emphasis added).

14

New Jersey Supreme Court’s opinion applying state

contract law, see Delta Funding Corp. v. Harris, 466 F.3d

273 (3d Cir. 2006), demonstrate that the Third Circuit

squarely rejects the federal preemption theory Petitioners

espouse here.

Likewise, Petitioners cannot manufacture a split by

pointing to cases where the general contract laws of states

other than New Jersey do not consider class action bans to

be exculpatory. See Pet. at 15 (acknowledging that various

state court holdings enforcing class action bans are based

upon state unconscionability law). This Court does not sit

to resolve differences among the states relating to their

contract law doctrines governing exculpatory clauses. This

is particularly so under the FAA, whose savings clause

calling for the application of state contract law principles

to arbitration clauses makes the existence of such differ-

ences in result inevitable.

In one example of this confusion of state and federal

law, the Petition mis-cites Iberia Credit Bureau, Inc. v.

Cingular Wireless LLC, 379 F.3d 159 (5th Cir. 2004), to

allege the existence of a split justifying this Court’s review

of the FAA question presented here. Pet. at 16. In fact, the

difference between the holding in Iberia and the holding of

the New Jersey Supreme Court this case is based entirely

on a difference in state law. The two cases are entirely

consistent on the federal law issue raised in the Petition.

The reason the Fifth Circuit upheld the class action ban at

issue in Jberia was because there is no general Louisiana

policy in favor of class actions in consumer litigation.

In making its unconscionability determination, the court

noted that the Louisiana Unfair Trade Practices Act

(LUTPA) does not permit class actions, and that Louisiana

law recognizes alternative remedies to class actions. 379

15

F.3d at 174-75 (citing La. Rev. Stat. Ann. § 51:1409(A)).

Iberia acknowledged that the enforceability of a class

action ban is a question of state law, distinguishing (rather

than disagreeing with) a Ninth Circuit case that held that

an arbitration clause barring class actions was uncon-

scionable under California law on the grounds of the

difference in state law between California and Louisiana.

379 F.3d at 174 (citing Ting v. AT&T, 319 F.3d 1126, 1150

(9th Cir. 2003), cert. denied, 540 U.S. 811 (2003)).

The same is true of Caley v. Gulstream Aerospace

Corp., 428 F.3d 1359 (11th Cir. 2005) (cited at Pet. 16),

where the court upheld a class action ban based upon its

reading of Georgia state contract law. 428 F.3d at 1379.

The court did not even mention preemption, and like

Iberia distinguished (rather than disagreed with) a Ninth

Circuit case applying the different contract law of Califor-

nia. Jd. at 1378 (distinguishing Ingle v. Circuit City Stores,

Inc., 328 F.3d 1165 (9th Cir. 2003)).

Similarly, the Petition asserts a conflict with Snowden

uv. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002).

Pet. 4, 17. As with Iberia, Caley, and numerous other cases

cited in the Petition, Snowden does not conflict with the

decision below on any issue of federal law, however, but

merely reflects that Maryland’s state law of exculpatory

clauses differs from the law in New Jersey. See, e.g.,

Walther v. Sovereign Bank, 872 A.2d 735, 750 (Md. 2005).

In sum, these cases are only in conflict with the

decision below in the sense that the contract laws of New

Jersey, Louisiana, Maryland and Georgia differ. There is

no split of authority on the federal law question presented.

For this reason alone, the Petition should be denied.

16

B. The Decision Below Does Not Conflict

With This Court’s Decisions.

1. The Petition’s Principal Argument Is

Contrary to this Court’s Decisions Ap-

plying the FAA.

The Petition repeatedly argues that arbitration

agreements must always be enforced in their entirety,

precisely as written, without any interference with state

law. E.g., Pet. at 19. This argument ignores the FAA’s

savings clause, and this Court’s decisions interpreting it.

As the Court below established at some length, New

Jersey law disfavoring adhesive exculpatory contracts is

part of the State’s general law of unconscionability and

public policy governing all contracts. Under this Court’s

decisions applying the FAA, this general contract law

applies to arbitration clauses just as it does to any other

contract term. See Doctor’s Assoc’s, Inc. v. Casarotto, 517

U.S. 681, 687 (1996) (“[GJenerally applicable contract

defenses such as fraud, duress or unconscionability, may

be applied to invalidate arbitration agreements without

contravening [9 U.S.C. § 2].”); Gilmer v. Interstate Johnson

Lane Corp., 500 U.S. 20, 33 (1991) (“courts should remain

attuned to well-supported claims that the agreement

resulted from the sort of fraud or overwhelming economic

power that would provide grounds for the revocation of

any contract.”) (quoting Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985)) (inter-

nal quotation omitted).

17

2. This Court’s Decision in Bazzle Dem-

onstrates that the Decision Below Was

Correct.

Petitioners argue that this Court’s decision in Green

Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) should

be read as holding that courts may not “vary” from con-

tract terms with respect to bans on class actions if those

terms are embedded in arbitration clauses. Pet. at 5 (citing

to a dissent in Bazzle). In fact, nothing in Bazzle supports

Petitioners’ argument — Bazzle did not involve an uncon-

scionability challenge to a class action ban and did not

involve the FAA’s savings clause.

In fact, Bazzle disproves one of Petitioners’ central

assumptions: that a contract term banning class actions is

inherently part of any agreement to arbitrate. The Petition

argues, for example, that if the decision below (which

enforced the agreement to arbitrate but struck the class

action ban) is enforced, that all businesses will have to

fear that “their arbitration agreements” will all be invali-

dated. Pet. at 18. In Petitioners’ world, class action bans

are inseparable from arbitration clauses. See also Pet. at 4

(asserting that courts may never order class-wide arbitra-

tion unless parties have expressly agreed to that proceed-

ing, the same theory as was unsuccessfully advanced in

Bazzle).

This theory was rejected by six Justices of this Court

in Bazzle. In Bazzle, the plurality held that, where an

arbitration clause does not explicitly allow the arbitrator

to proceed on a class basis, the question of whether the

arbitration may proceed on that basis is “a matter of state

law.” 539 U.S. at 447. Two other Justices would have left

undisturbed the decision of the South Carolina Supreme

Court, which — contrary to Petitioners’ proposed rule of

18

federal law — permitted class-wide arbitration. Although

Petitioners continue to insist that class actions are inher-

ently inconsistent with arbitration, courts throughout the

United States applying Bazzle in the last several years

have rejected similar arguments and instead have held

that cases could proceed in arbitration on a class action

basis in cases where the arbitration clauses did not ex-

pressly authorize class action treatment.’

As further proof that class actions are not inconsistent

with arbitration, shortly after this Court issued its deci-

sion in Bazzle, the American Arbitration Association

(“AAA”) adopted a new set of rules for handling class

actions in arbitration. E.g., Carole J. Buckner, Toward a

Pure Arbitral Paradigm of Classwide Arbitration: Arbitral

Power and Federal Preemption, 82 Denv. U. L. Rev. 301

(2004) (“The AAA promulgated the first set of classwide

arbitration rules in October 2003, following the Bazzle

decision.”). As of this writing, AAA lists over 100 cases being

heard under its “Supplementary Rules for Class Arbitra-

tions.” See American Arbitration Association, “Class Arbitra-

tion Case Docket” (available at www.adr.org/Classarbitration

policy). Under Petitioners’ theory, the American Arbitration

Association has been actively undercutting the FAA for the

past three years since Bazzle was decided.

" See, e.g., Pedcor Mgmt. Co. v. Nat'l Personnel of Texas, 343 F.3d

355 (5th Cir. 2003); Genus Credit Management Corp. v. Jones, 2006 WL

905936 (D. Md. April 6, 2006); Veliz v. Cintas Corp., 2005 WL 1048699

at *5 (N.D. Cal. May 4, 2005); Ramirez v. Cintas Corp.;-2005 WL

659984 at *10-11 (N.D. Cal. Mar. 22, 2005); In re Wood, 140 S.W.3d 367

(Tex. 2004); Bess v. DirecTV, Inc., 815 N.E.2d 455, 460 (Ill. App. 2004),

and Garcia v. DirecTV, Inc., 9 Cal. Rptr. 3d 190, 195-96 (Cal. App. 2004),

19

Accordingly, after Bazzle, there is no reason why a

decision finding that a class action ban is unconscionable

even implicates the FAA. A contract can include a class

action ban without including an arbitration provision, or a

contract could include an arbitration agreement without a

class action ban. The FAA does not allow a party to evade

state contract law “merely because the prohibiting or

limiting provisions are part of or tied to provisions in the

contract relating to arbitration.” State ex rel. Dunlap v.

Berger, 567 S.E.2d 265 (W. Va. 2002), cert. denied, 537 U.S.

1087 (2002). Nothing in the FAA permits parties to laun-

der otherwise illegal contract terms and make them legal

merely by placing them under the heading “arbitration.”

3. The Decision Below Is Consistent With

This Court’s Decision in Gilmer.

Petitioners also argue that this Court held that

arbitration clauses are enforceable even where they do not

provide for class actions, citing to this Court’s decision in

Gilmer. Pet. at 5. This argument misreads Gilmer. First,

unlike the arbitration clause at issue here, the clause in

Gilmer allowed for class arbitrations. 500 U.S. at 32

(noting that collective relief could be obtained in arbitra-

tion). Therefore, unlike the plaintiffs here, the Gilmer

plaintiff would not be deprived of a class remedy if arbitra-

tion were compelled on the terms set forth in the contract.

Second, Gilmer was not a class action, but an individual

civil rights action seeking damages substantially greater

than the damages sought here. Thus, the availability of a

class action was not necessary for the Gilmer plaintiff to

obtain relief.

20

In addition, in Gilmer, the Court was interpreting the

text and structure of the federal Age Discrimination in

Employment Act, not a state law challenge to an arbitra-

tion clause such as those permitted under §2 of the

Federal Arbitration Act. The case contains no discussion of

state law dealing with exculpatory clauses (or any other

topic of state law). Moreover, in Gilmer there was no

reason to imagine that a class action ban would prevent

the plaintiff from effectively vindicating his substantive

rights. Indeed, Congress was evidently aware that ADEA

claims (typically claims that a person at the peak of her

earning power was wrongfully terminated) are unlike

small consumer claims, and that class actions are gener-

ally not necessary to provide a remedy to such plaintiffs.

This is demonstrated in part by the fact that class actions

under the ADEA proceed on an opt-in basis rather than

the normal opt-out process such as that under Rule

23(b)(3). See, e.g., Allen v. Marshall Field & Co., 93 F.R.D.

438 (N.D. Ill. 1982).

4, Petitioners’ Theory Is Contrary to Cases

Addressing Implied Conflict Preemp-

tion.

The decision below is also consistent with this Court’s

jurisprudence involving the doctrine of implied conflict

preemption. As this Court has made clear in a variety of

contexts, a federal law does not impliedly preempt a body

of state law where the federal law says nothing about this

subject. Here, the FAA has no express preemption provi-

sion and does not reflect Congress’s intent to occupy the

entire field of arbitration or contract law. Volt Info. Sci-

ences, Inc. v. Bd. of Trustees of Stanford Univ., 489 U.S.

468, 477 (1989). Instead, the FAA preempts state laws only

21

if they conflict with the Act’s underlying purposes. Id. at

477-78. Thus, the FAA preempts state laws singling out

arbitration clauses for disfavored treatment because they

conflict with the Act’s goal of putting these clauses on the

same footing as other contracts.”

The New Jersey unconscionability and public policy

principles applied by the lower Court here address not the

choice of an arbitral or judicial forum, but the exculpatory

rules Petitioners imposed in requiring arbitration. As

Bazzle demonstrates, the FAA nowhere addresses this

subject. Where federal law is silent on a subject, there is

no implied conflict preemption of state law based on

frustration of federal policy.”

C. Petitioners’ Policy Arguments Are Unper-

suasive.

Petitioners argue for a one-size-fits-all rule of federal

law that contract terms banning class actions are always

enforceable, so long as they are embedded in an arbitra-

tion clause, without respect to the facts of a case or state

jaw. Under Petitioners’ view, state law is powerless to

regulate such terms no matter how complex the individual

claim, how small its value, or how impracticable it would

be for individuals to vindicate their legal rights without

* See, eg., Casarotto, 517 U.S. at 686-87 (FAA preempts state

statute imposing extra disclosure requirements for arbitration clauses);

Allied-Bruce Terminix Co’s, Inc. v. Dobson, 513 U.S. 265, 280-81 (1995)

(FAA preempts state law barring enforcement of all pre-dispute

arbitration contracts).

* Cf. Freightliner Corp. v. Myrick, 514 U.S. 280, 289-90 (1995) (“A

finding of liability against petitioners would undermine no objectives or

purposes with respect to ABS devices since none exist.”).

22

the class action mechanism. Instead of having courts

consider whether a class action ban is exculpatory and

thus violates a particular state’s generally applicable

contract law, Petitioners demand that this Court enunci-

ate a new sweeping rule of federal law that would protect

their interests whether or not a given arbitration clause’s

terms are exculpatory so that arbitration will never actu-

ally take place. See, e.g., Pet. 20 (arguing that FAA bars

fact-based analyses of enforceability under state law).

Petitioners’ argument ignores this Court’s decisions

stating that arbitration is acceptable as an alternative to

the civil justice system only where it permits a party to

“effectively vindicate” his or her statutory rights. See, e.g.,

EEOC v. Waffle House Corp., 534 U.S. 279, 295 n.10

(2002); Gilmer, 500 U.S. at 28; Mitsubishi, 473 U.S. at 637.

The Court has never said that an arbitration clause is

always enforceable without respect to whether its terms

allow for vindication of claims. To the contrary, in Green

Tree Financial Corp. v. Randolph, 531 U.S. 79, 81 (2000),

the Court found that “the existence of large arbitration

costs may well preclude a litigant ... from effectively

vindicating [its] rights.” In direct contrast to Petitioners’

proposed approach, this Court in Randolph refused to hold

that arbitration is always so cheap that it permits parties

to vindicate their rights, or that it is never cheap enough

to permit parties to vindicate their rights. Instead this

Court required courts to conduct what Petitioners would

call “ad hoc” fact specific determinations as to whether the

costs of arbitration are too high or too low in particular

cases.

Petitioners suggest that it is unworkable for courts to

conduct a case-by-case determination as to whether a class

action ban serves as an exculpatory clause that prevents

23

parties from “effectively vindicating” their rights in a

given case, but this is precisely the kind of analysis that

courts regularly conduct. To take the most obvious exam-

ple, Federal Rule of Civil Procedure 23(b) provides that,

for cases where damages predominate over injunctive

relief, courts may only certify class actions if — on the facts

of those cases — they find that a class action is superior to

other methods of adjudicating the dispute. Accordingly,

every day in this country, courts evaluate whether indi-

vidual litigants would be better able (or able at all) to

effectively vindicate their claims without the class action

device. See, e.g., Amchem Products, Inc. v, Windsor, 521

U.S. 591, 617 (1997) (“The policy at the very core of the

class action mechanism is to overcome the problem that

small recoveries do not provide the incentive for any

individual to bring a solo action prosecuting his or her

rights.”).

Finally, Petitioners’ policy arguments are at odds with

the FAA itself. As noted, this Court has repeatedly recog-

nized that the FAA incorporates general principles of state

contract law. This fact overrides Petitioners’ desire for an

all-federal FAA, where no variations are permitted be-

tween states with respect to contract law. Where, as here,

a statute preserves a role for states, that reflects a con-

gressional intent to accept some degree of disuniformity.

Cf. UNUM Ins. Co. of Am. v. Ward, 526 U.S. 358, 376 n.9

(1999) (disuniform state regulations “are the inevitable

result of the congressional decision [in ERISA] to save

local insurance regulation.”).

In sum, none of Petitioners’ arguments based on the

FAA merit review.

24

Ill, The Petition’s Second and Third Questions

Likewise Do Not Merit Review.

Petitioners’ second and third questions presented

addressing the Due Process ard Interstate Commerce

Clauses are not worthy of review. First, these arguments

are waived because neither was timely raised in the state

court proceedings. Petitioners did not raise their Due

Process Clause argument until they petitioned the New

Jersey Supreme Court for rehearing (see Pet. F16-20), and

did not raise their Interstate Commerce Clause argument

until filing their Petition with this Court. In reviewing

state court judgments under 28 U.S.C. § 1257, this Court

adheres to the general rule that it “will not consider a

petitioner’s federal claim unless it was either addressed

by, or properly presented to, the state court that rendered

the decision” under review. Adams v. Robertson, 520 U:S.

83, 86 (1997). As the Court explained in Adams, “we have

generally refused to consider issues raised clearly for the

first time in a petition for rehearing when the state court

is silent on the question.” Jd. at 89." Since this is precisely

what Petitioners did in the state court proceedings with

their Due Process question, and Petitioners never raised

their Interstate Commerce Clause question below, these

thirteenth-hour arguments come “too late for considera-

tion here.”

” See also Board of Directors of Rotary Int'l v. Rotary Club of

Duarte, 481 U.S. 537, 550 (1987) (“Appellants did not present the issues

squarely to the state courts until they filed their petition for rehearing

with the Court of Appeal.”); Radio Station WOW, 326 U.S. at 128

(“Questions first presented to the highest State court on a petition for

rehearing come too late for consideration here .. . ”).

25

Neither of these questions presents a basis for review

in any event. In support of their argument that the deci-

sion below “denies Petitioners Due Process by retroactively

enforcing a new interpretation of New Jersey law” (Pet.

23), Petitioners cite Bowen v. Georgetown Univ. Hospital,

488 U.S. 204 (1988), and Usery v. Turner Elkhorn Mining

Co., 428 U.S. 1 (1976). Bowen held that federal Medicare

regulations imposing retroactive cost limits were invalid

because they were not authorized by statute, 488 U.S. at

215, while also upholding the agency's retroactive applica-

tion of the rule in adjudication on a case-by-case basis. Id.

at 209. Turner Elkhorn upheld a federal statute imposing

retroactive liability upon coal mine operators for the death

and disability benefits of their injured former workers. See

428 U.S. at 18 (“[T]he imposition of liability for the effect

of disabilities bred in the past is justified as a rational

measure to spread the costs of the employees’ disabilities

to those who have profited from the fruits of their labor

...”). The decision below conflicts with neither of these

cases because (1) it involves no legislative or administra-

tive rule-making; and (2) its holding invalidating the class-

action waiver is grounded in prior New Jersey law ad-

dressing terms of adhesion contracts and the necessity of

class actions for vindicating small-value claims. See Pet.

A22-31 (applying unconscionability test set forth in Rud-

bart v. North Jersey Dist. Water Supply Comm’n, 605 A.2d

681 (N.J. 1992)). Petitioners thus fail to raise a substantial

Due Process question of retroactivity meriting review.

Petitioners’ Interstate Commerce Clause argument

meets the same fate. In support of their argument that the

decision below “unduly burdens interstate commerce by

seeking to impose disparate requirements on arbitration

agreements made in the interstate market” (Pet. 25),

26

Petitioners cite several of this Court’s decisions invalidat-

ing state laws that discriminated between interstate and

intrastate commerce. See Healy v. The Beer Institute, 491

U.S. 324, 340-43 (1989) (striking down state statute

imposing effective price-limit on interstate beer merchants

while exempting purely intrastate merchants); Best & Co.,

Inc. v. Maxwell, 311 U.S. 454, 456-57 (1940) (striking down

state law imposing tax on hotel room advertisements by

any business that is not a regular retail merchant in the

state). The decision below does not conflict with or other-

wise implicate these cases. The New Jersey Supreme

Court applied a general, non-discriminatory standard of

unconscionability based on longstanding state-law princi-

ples concerning adhesion and exculpation. In arguing that

the differences between this and other states’ laws gives

rise to a Commerce Clause violation (Pet. 27), Petitioners

are challenging not merely the decision below but the very

existence of state-law regulation of contracts. None of the

cases Petitioners cite comes close to supporting this

challenge.

In sum, the second and third questions presented do

not deserve serious attention.

*

v

27

CONCLUSION

For all the reasons set forth herein, the petition for a

writ of certiorari should be denied.

Respectfully submitted,

F. PAUL BLAND, JR.

Counsel of Record

PUBLIC JUSTICE, P.C.

1825 K Street, N.W.,

Suite 200

Washington, DC 20036

(202) 797-8600

MICHAEL J. QUIRK

MARK R. CUKER

WILLIAMS CUKER BEREZOFSKY

210 Lake Drive East, Suite 101

Cherry Hill, NJ 08002

DONNA SIEGEL MOFFA

TRUJILLO, RODRIGUEZ &

RICHARDS

8 Kings Highway West

Haddonfield, NJ 08033

Counsel for Respondent

Date: March 7, 2007