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In the spirit of a recent California Court of Appeal decision disclaiming an “across-the-board rule” against class action waivers, a federal district court in California has upheld an arbitration agreement containing a class action waiver.
In Galbraith v. Resurgent Capital Services, No. CIV S 05-2133 KJM, 2006 WL 2990163 (E.D. Cal. Oct. 19, 2006), Galbraith obtained a Best Buy credit card. After Galbraith fell behind on payments, Resurgent attempted to collect an unpaid balance of $2,691.35. Galbraith subsequently brought a putative class action against Resurgent, alleging unfair debt collection practices.
Resurgent filed a motion to compel arbitration pursuant to an arbitration clause in the cardholder agreement. The arbitration clause contained language stating that “no class actions or joinder or consolidation of any Claim with the claim of any other person are permitted in arbitration without consent of you and us.”
In opposing the motion to compel arbitration, Galbraith argued that the arbitration clause was unconscionable, primarily because of the class action waiver. The Court found that the clause was enforceable under both California and Nevada law. Though the Court did not elaborate on its decision, it held that “in the context of this case, the class action waiver does not render the arbitration clause substantively unconscionable.”
The Court’s decision supports a recent proclamation by the California Court of Appeal that there is not an “across-the-board rule” that all class action waivers are unenforceable. See Merritt v. Cingular Wireless LLC, No. B178747, 2006 WL 2744357 (Cal. Ct. App. Sep. 27, 2006). In one California case invalidating a class action waiver, the court concluded that the waiver would prevent consumers who lost “individually small sums of money” from pursuing legal remedies. See Cohen v. DirecTV, Inc., No. B184630, 2006 WL 2664199 (Cal. App. 2 Dist. Sept. 18, 2006).
In Galbraith’s situation, the amount in dispute was less than $3,000, an amount that the consumer could readily seek to recover in arbitration. For example, the National Arbitration Forum filing fee for such a claim is only $35 and the maximum amount a consumer would have to pay for a participatory hearing would be $250. And, if the consumer prevails, the consumer would be able to recover those fees under the law.
This case is an example of how a consumer can recover their full damages in an individual claim, and would only receive partial compensation in a class action resolution.
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