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A federal district court in Michigan determined that a class action waiver in an arbitration agreement was unenforceable, finding that a class litigation was necessary for the plaintiff to vindicate his statutory rights. This decision runs counter to the significant majority of courts which have held that class action waivers are enforceable.
In Wong v. T-Mobile USA, Inc., No. 05-73922, 2006 WL 2042512 (E.D. Mich. July 20, 2006), T-Mobile provided cellular phone service to Wong under a contract containing an arbitration agreement and class action waiver.
After T-Mobile allegedly “bilked” him for $19.74, Wong commenced a putative class action against T-Mobile, alleging violation of the Michigan Consumer Protection Act and four other causes of action. T-Mobile moved to compel arbitration. By its terms, the arbitration agreement would not apply if the class action waiver was determined to be unenforceable. Accordingly, the Court’s ruling turned on the enforceability of the class action waiver.
The Court acknowledged that the Third, Fourth, Seventh, and Eleventh Circuit Courts of Appeal enforce class action waivers in arbitration agreements, but decided against following these decisions. The Michigan District Court followed the reasoning of Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006), in which the First Circuit Court of Appeals held that a class action waiver was unenforceable in an antitrust case. The Court in Kristian ultimately enforced the parties’ agreement to arbitrate, while excising contract language it deemed invalid.
Although the Wong Court applied the Kristian antitrust analysis, all claims in Wong appeared to hinge on a single consumer transaction or limited series of transactions rather than antitrust allegations. Unlike Kristian, the Court’s ruling in Wong invalidated the parties’ agreement to arbitrate rather than saving it.
One week after Wong was decided, a federal district court in New York upheld a class action waiver under Texas law, rejecting plaintiff’s argument that the waiver rendered the arbitration agreement unconscionable. See Sherr v. Dell, Inc., No. 05 CV 10097(GBD), 2006 WL 2109436 (S.D.N.Y. July 27, 2006). In upholding the waiver, the court noted that “the FAA’s primary purpose is not to create a right to sue as a class” but rather “to ensure that private agreements to arbitrate are enforced according to their terms.” The Sherr reasoning reflects the conclusion reached by the substantial majority of other federal and state courts.
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