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A federal court in New Jersey honored a choice-of-law provision and applied Utah law in upholding an arbitration agreement that barred class-wide proceedings. In honoring the Utah choice-of-law provision, the Court rejected the notion that New Jersey has a fundamental public policy against the enforcement of class action waivers.
In Homa v. American Express Co., No. 06-2985, 2007 WL 1585168 (D.N.J. May 31, 2007), Homa, a credit card holder, filed a class action against American Express Company and American Express Centurion Bank (collectively, American Express), alleging that they misrepresented the terms of cash back rewards program.
American Express filed a motion to compel arbitration pursuant to an arbitration clause in Homa's cardmember agreement. In opposing the motion, Homa argued that the arbitration agreement's bar on class-wide proceedings rendered the agreement unconscionable under New Jersey law.
Homa's argument relied on New Jersey law, but the cardmember agreement contained a choice-of-law provision that called for the application of Utah law. Accordingly, a pivotal question was whether New Jersey law or Utah law governed the enforceability of the bar on class-wide proceedings.
The Court's choice-of-law analysis turned on whether the application of Utah law would violate a fundamental policy of New Jersey. On that question, the Court held that the application of Utah law would not violate a fundamental policy of New Jersey because Muhammad v. County Bank of Rehoboth Beach, Delaware, 912 A.2d 88 (N.J. 2006), the case cited by Homa, "d[id] not establish a fundamental policy against the enforcement of class-action waivers in arbitration agreements."
Since no fundamental policy of New Jersey was at issue, the Court honored the Utah choice-of-law provision. Thus applying Utah law, the Court upheld the bar on class-wide proceedings. In upholding the bar, the Court cited a Utah statute that expressly permits the inclusion of class action waivers in consumer credit contracts. See Utah Code § 70-C-4-105.
Even if Homa had persuaded the Court that New Jersey has a fundamental policy against the enforcement of class action waivers, Utah law would still govern the enforceability of the bar on class-wide proceedings unless Homa also demonstrated that New Jersey had a greater interest in the determination of that issue. See Discover Bank v. Superior Court, 36 Cal. Rptr. 3d 456, 461 (Cal. Ct. App. 2005) (honoring Delaware choice-of-law provision and upholding class action waiver based on finding that California did not have a materially greater interest in the determination of that issue).
Homa may have been anticipating that issue when he amended the complaint and redefined the nationwide class to include only New Jersey cardholders. See Firchow v. Citibank (South Dakota), N.A., No. B187081, 2007 WL 64763, at *8 (Cal. Ct. App. Jan. 10, 2007) (refusing to honor South Dakota choice-of-law provision and distinguishing Discover Bank on the ground that only California residents comprised the proposed class).
Regardless of the composition of the proposed class, it would be difficult to argue that New Jersey has a materially greater interest than Utah in the enforceability of class action waivers when the Utah legislature has spoken to the issue, thus demonstrating the state's interest in the matter. Cf. MBNA America Bank, N.A. v. Newman, No. B190956, 2007 WL 882296, at *4 (Cal. Ct. App. Mar. 26, 2007) (finding that Delaware had a greater interest than California in the enforceability of an arbitration agreement because "Delaware has demonstrated by statute its concern that Delaware law should apply to claims between Delaware banks and their cardholders").
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