|
A federal district court in California granted a stay pending an interlocutory appeal of the Court’s order invalidating an arbitration agreement’s bar on class-wide proceedings. The stay would preserve the benefits of arbitration in the event of a Ninth Circuit decision holding that the Federal Arbitration Act (FAA) preempts California law singling out arbitration agreements that bar class-wide proceedings.
In Stern v. Cingular Wireless Corp., No. CV 05 8842 CAS, 2006 WL 2790243 (C.D. Cal. Sep. 11, 2006), Stern brought a class action against Cingular, her wireless phone service provider, alleging that she had been billed for unauthorized services.
Cingular moved to compel arbitration pursuant to the service agreement, which contained an arbitration agreement barring class-wide proceedings. The Court denied the motion based on Discover Bank v. Superior Court of L.A. County, 113 P.3d 1100 (Cal. 2005), in which a 4-3 majority of the California Supreme Court held that under California law, if a bar on class-wide proceedings is part of deliberate scheme to cheat large numbers of people out of small sums of money, it is unconscionable and therefore unenforceable.
After denial of its motion to compel arbitration, Cingular moved the Court for an order staying all proceedings pending an interlocutory appeal of that ruling. Though constrained by current California law in denying the motion to compel, the Court recognized the value of Cingular’s right to arbitration and thus granted a stay based on the four factors enunciated in Hilton v. Braunskill, 481 U.S. 770 (1987).
The Court found that the first Hilton factor favored a stay because Cingular “presented a substantial question which, when coupled with a finding of irreparable injury, satisfie[d] the ‘likelihood of success on the merits’ requirement.” Cingular presented a substantial question by arguing that the FAA preempts the application of Discover Bank.
Two of the other Hilton factors also favored a stay. The Court found that the second factor – whether the absence of a stay would cause irreparable injury – favored a stay because Cingular would “lose the benefits of arbitration in the event the Ninth Circuit upholds the arbitration clause.” The fourth factor – the public interest – favored a stay because “a stay w[ould] serve the public interest in arbitration as articulated by Congress.”
In this case, Cingular was entitled to an interlocutory appeal of the Court’s ruling that the bar on class-wide proceedings was unenforceable because as part of that ruling, the Court denied Cingular’s motion to compel arbitration. See 9 U.S.C.A. § 16(a)(1)(B) (providing that an order denying a motion to compel arbitration is immediately appealable).
In federal cases where the court orders arbitration but severs a bar on class-wide proceedings, see, e.g., Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006), the aggrieved party’s right to an interlocutory appeal depends on whether the order constitutes “a final decision with respect to an arbitration,” 9 U.S.C.A. § 16(a)(3), which in turn depends on whether the court dismisses the underlying claims, see Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 88-89 (2000), or stays further proceedings, see 9 U.S.C.A. § 16(b)(1).
Subscribe to a free weekly update on ADR case law and
legislation
|