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The Ninth Circuit Court of Appeals has affirmed an order denying certification of a national class because the need for a state-by-state inquiry into the enforceability of the arbitration agreement and class waiver meant that individual questions would predominate over class-wide questions.
In Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718 (9th Cir. 2007), Lozano filed a class action lawsuit against AT&T, his wireless service provider, alleging that AT&T engaged in “out-of-cycle billing” in violation of the Federal Communications Act (FCA), the California Consumer Legal Remedies Act (CCLRA), and the California Unfair Competition Law (UCL).
In response, AT&T filed a motion to compel arbitration pursuant to an arbitration agreement in Lozano’s service contract. The district court denied the motion based on its finding that the bar on class-wide proceedings (i.e., the class waiver) rendered the arbitration agreement unconscionable under California law.
Lozano subsequently filed a motion for class certification. Specifically, Lozano asked the court to certify two classes: (1) a national class for claims based on FCA violations; and (2) a California subclass based on state law claims. The district court certified a California subclass but declined to certify a national class. In denying certification of a national class, the district court reasoned that individual questions would predominate over class-wide questions given the need for a state-by-state inquiry into the enforceability of the class waiver.
On appeal, Lozano argued that the district court erred in denying certification of a national class. Specifically, Lozano argued that FCA claims are not arbitrable, thus obviating the need for a state-by-state inquiry into the enforceability of the class waiver. In rejecting this argument, the Court explained that there is no evidence of congressional intent to prohibit arbitration of FCA claims. Since the FCA claims could be subject to the arbitration agreement and class waiver in other jurisdictions, the trial court properly restricted the class to California residents.
Alternatively, Lozano argued that even if FCA claims are arbitrable, the district court erred in relying on prospective legal arguments – namely, that the arbitration agreement and class waiver are enforceable outside California – as the basis for concluding that individual questions would predominate. The Court rejected this argument based on Ninth Circuit precedent holding that courts may consider future events and variations in state law when deciding whether to certify a class.
The state-by-state inquiry becomes even more complex and particular if the underlying contract contains a choice-of-law provision designating state law under which the class waiver is enforceable. In that scenario, a state-by-state inquiry into the enforceability of the class waiver would be necessarily accompanied by a state-by-state inquiry into the enforceability of the choice-of-law provision.
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