Post AT&T Mobility, New Jersey Appellate Court Rejects Class Waiver Provision Based On Contract Formation Principles

In recent years, New Jersey courts, like many others, developed a body of law that denied enforcement of class action waivers in arbitration provisions as being unconscionable and against principles of public policy in certain circumstances. See, e.g., Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 20-22 (2006). Earlier this year, the United States Supreme Court turned the tide on this issue by striking down California authority that similarly prohibited such class action waivers in consumer contracts of adhesion as unconscionable. Concepcion v. AT&T Mobility, LLC, 179 L. Ed. 2d 742, 759 (2011). Now, a New Jersey appellate court has dutifully followed the mandate of the Supreme Court, while at the same time seizing upon the rationale of Justice Thomas' concurring opinion in AT&T Mobility in order to deny enforcement of the class waiver and arbitration provisions at issue under traditional contract defenses relating to the formation of the parties' agreement.

The Supreme Court's Recent Holding in AT&T Mobility

In AT&T Mobility, 179 L. Ed. 2d at 759 the Supreme Court, in a 5-4 vote, overturned a 9th U.S. Circuit Court of Appeals decision, which had declared a class action waiver in an arbitration provision unenforceable under California law for public policy reasons. The case involved a dispute resolution provision in a consumer cellular telephone contract that the district court had described favorably as a "quick, easy to use" dispute resolution procedure that was likely to "promp[t] full or ... even excess payment to the customer without the need to arbitrate or litigate." Id. at 750. The district court refused to enforce the dispute resolution provision nonetheless because it included a class action waiver that was deemed unconscionable under California's Discover Bank rule, which required invalidation of class action waivers in consumer adhesion contracts under certain circumstances. Id. at 759 (citing Discover Bank v. Superior Court, 36 Cal. 4th 148, 162 (2005)). The 9th Circuit affirmed.

The Supreme Court reversed the 9th Circuit and held that the Discover Bank rule is pre-empted by the Federal Arbitration Act. Id. The Supreme Court expressly rejected the policy argument that class actions are necessary to prosecute small claims that "might otherwise slip through the legal system," noting that "States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons." Id. at 758...