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Applying Utah law, the Tennessee Court of Appeals joined the “vast majority of state and federal courts” in upholding an arbitration agreement’s exclusion of class-wide proceedings. The Court concluded that consumers can successfully pursue their individual claims and that the lack of a class action proceeding does not prevent them from pursuing their legal remedies.
In Spann v. American Express Travel Related Services Co., No. M2004-02786-COA-R3-CV, 2006 WL 2516431 (Tenn. Ct. App. Aug. 30, 2006), Spann and Higgins commenced a putative class action against American Express, alleging that their credit cards had been charged for publications they never agreed to buy. The cardmember agreement contained an arbitration provision that prohibited class-wide proceedings.
American Express moved to compel separate arbitrations. The trial court granted the motion to compel arbitration but found the prohibition on class-wide proceedings unconscionable and therefore unenforceable. American Express appealed.
All parties agreed that Utah law governed the agreement. As the Court noted, there is no Utah case law addressing the enforceability of an arbitration agreement that prohibits class-wide proceedings. Accordingly, in analyzing the issue, the Court relied on the general contours of Utah’s unconscionability doctrine.
Under Utah law, substantive unconscionability may render a contract unenforceable, even in the absence of procedural unconscionability. A contract is considered substantively unconscionable if it leaves “decent, fair-minded” people with a “profound sense of injustice.”
Applying that standard, the Court held that the prohibition on class-wide proceedings was not substantively unconscionable because it did not exculpate American Express or preclude the cardholders from seeking recovery. Instead, it “simply require[d]” the cardholders to resolve their claims individually. In reaching its holding, the Court noted that “the vast majority of state and federal courts that have considered the question have rejected the argument that class action and class arbitration waiver clauses are unconscionable per se.”
The Court also found that the prohibition on class-wide proceedings was not procedurally unconscionable because four of the six factors enunciated in Ryan v. Dan’s Food Stores, Inc., 972 P.2d 395 (Utah 1998) weighed against a finding of procedural unconscionability.
Following oral arguments in Spann, Utah enacted legislation specifically authorizing the inclusion of class action waivers in cardmember agreements. See Utah Code Ann. § 70C-4-105 (2006). Though not the basis for its holding, the Court found that this legislation refutes the notion that a bar on class-wide proceedings renders an arbitration agreement unconscionable.
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