Massachusetts High Court Weighs In On Validity Of Class Action Waivers In Arbitration Agreements

On June 12, the Massachusetts Supreme Judicial Court (SJC) issued two companion opinions - one in the consumer contract realm, Feeney v. Dell Inc., SJC-11133, and one in the employment/independent contractor context, Machado v. System4 LLC, SJC-11175 - which clarify that class action waivers contained in valid arbitration agreements are enforceable unless a plaintiff can demonstrate the waiver effectively denies him or her a remedy. In these opinions the SJC sought to bring Massachusetts law in line with the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). In doing so, however, the SJC has left open substantial questions that will need to be addressed by future litigation. A brief summary of these cases and their lessons follows.

Feeney I

In 2003, John Feeney and Dedham Health Athletic Complex filed a class action against Dell, claiming Dell's collection of sales taxes on certain service contracts constituted unfair or deceptive trade practices in violation of Chapter 93A of the Massachusetts General Laws. Dell moved to stay the class action and compel arbitration pursuant to arbitration clauses contained in the service contracts mandating that such claims proceed on individual bases. The Superior Court granted Dell's motion to compel, and an arbitrator ultimately found in Dell's favor.

In February 2008, the plaintiffs moved the Superior Court unsuccessfully to vacate the arbitrator's award. Plaintiffs appealed, and the SJC granted their application for direct appellate review. In its Feeney I decision, 454 Mass. 192 (2009), the SJC reversed the order compelling arbitration and invalidated the arbitration clause, holding the class action prohibition contravenes Massachusetts public policy favoring class actions in Chapter 93A claims. The case was subsequently remanded to the Superior Court.

Concepcion

While Feeney was on remand, the U.S. Supreme Court issued its ruling in Concepcion, which involved a cell phone service contract containing an arbitration clause that similarly precluded class arbitration. The district court and the U.S. Court of Appeals for the Ninth Circuit found the clause unconscionable because it conflicted with California's fundamental public policy favoring consumer class actions. The Supreme Court reversed the Ninth Circuit, holding that the overarching purpose of the Federal Arbitration Act (FAA) is "to ensure the enforcement of arbitration agreements according to their terms...