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July 23, 2012 / Admin

Class Action Waivers – Big Business’ Attempts to Get Away with Fraudulent Behavior

In a creative attempt to avoid class action litigation, big companies have been including class action waivers in the arbitration clauses of their agreements. These companies include these class action waivers in the multitude of fine print that they send their clients (think of those long agreements you get every time you apply for a new service, loan, or account).

For years, we have seen arbitration clauses in these contracts – requiring all disputes to be settled in arbitration and not before a court or a jury. Most recently, these contracts have included a “class action waiver” in the arbitration clause which state that consumers may only arbitrate claims individually, not in a representative capacity or on behalf of the general public. Basically, these companies are trying to avoid liability by requiring individual claims, claims that they know are often too small to justify individual arbitration (and the costs associated with it).

California law states that class action waivers in consumer contracts may be unenforceable, especially where they violate public policy (such as including the waiver in that multitude of fine print). Discover Bank v. Superior Court (Boehr) 36 Cal.4th 148, 158-160 (2005). The Supreme Judicial Court of Massachusetts recently became another state to agree with California’s holding, and held that arbitration clauses precluding class action lawsuits were contrary to the fundamental public policy of Massachusetts favoring consumer class actions. Feeney v. Dell, Inc., 454 Mass. 192, 205 (Mass. 2009) (“Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy.”)

What does this mean for you? Most significantly, it means a growing number of states are seeing through big businesses’ attempts to escape liability for their wrongs. If these waivers were deemed acceptable, it would effectively get rid of the class action procedure. All companies would include these waivers in their contracts, and the class action mechanism may die out.

While you may not think that class actions are that helpful, think again. For example, when a credit card company receives a customer’s payment on time, but still charges that customer a late payment penalty, it is unlikely that any one individual would file a lawsuit or an arbitration claim for a late payment penalty of under $50. It’s also unlikely that a company would stop charging their thousands or millions of other customers that fee if only a few individuals filed a claim. The class action mechanism, however, provides an avenue to allow customers to stop the company’s practice of fraudulently charging these fines – not only to themselves but to all of the company’s customers. It’s a matter of principle in many instances, and making sure that the company doesn’t get away with these fraudulent practices. As more states hold that class action waivers are unenforceable, consumers’ rights are protected.



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