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A federal district court in California granted a stay pending an interlocutory appeal of the Court’s order invalidating an arbitration agreement that barred class-wide proceedings. The stay will preserve the benefits of arbitration in case the Ninth Circuit holds that the Federal Arbitration Act (FAA) requires California courts to honor agreements to arbitrate on an individual basis.
In Winig v. Cingular Wireless LLC, No. C-06-4297 MMC, 2006 WL 3201047 (N.D. Cal. Nov. 6, 2006), Winig brought a class action against Cingular, his wireless phone service provider, alleging that Cingular improperly deducted “anytime minutes” for calls Winig made to check his voice mail.
Cingular moved to compel arbitration pursuant to an arbitration agreement that barred class-wide proceedings. The trial court denied the motion on the ground that the bar on class-wide proceedings rendered the arbitration agreement unenforceable. The trial court based its ruling on Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005).
Cingular subsequently filed a notice of appeal and requested a stay of further proceedings pending the outcome of its appeal. The Court applied a four-prong test in deciding to issue a stay.
First, the Court found that Cingular “raised a substantial question of law to be resolved on appeal.” The “substantial question” raised by Cingular’s appeal is whether the Federal Arbitration Act preempts California law and precludes California courts from refusing to enforce agreements to arbitrate on an individual basis.
In applying the second factor, the Court found that Cingular would be irreparably harmed in the absence of a stay because “if a party must undergo the expense and delay of a trial before being able to appeal an order denying a motion to compel arbitration, the advantages of arbitration – speed and economy – are lost forever.”
As to the third factor, the Court found that the proposed class would “suffer [] little additional injury as a result of the stay given [the] small amount of monetary damages.”
Finally, the Court found that a stay “would advance the public interest in arbitration” and “promote the public interest in the economical use of judicial resources.”
During the past year, there have been four other cases in which a federal district court in California granted a stay pending appeal of the same preemption question. In one of those cases, the appealing party is arguing that the FAA impliedly preempts a sweeping application of Discover Bank because class action procedures “are antithetical to the low-cost and efficient resolution of disputes that is the hallmark of arbitration.” Appellant’s Brief at 27, appealing from Laster v. T-Mobile USA, Inc., 407 F.Supp.2d 1181 (C.D. Cal. 2006) (No. 05-CV-1167).
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