Noohi v. Toll Bros., Inc., ___ F.3d ___ (4th Cir. 2013): Dialing Back AT&T Mobility LLC v. Concepcion

On February 26, 2013, a panel of the 4th Circuit Court of Appeals in Noohi v. Toll Bros., Inc., a putative class action alleging the wrongful retention of class members' earnest money deposits under the terms of their purchase and sale contracts, held that the arbitration provision contained in those agreements was unenforceable based on a requirement of state law. The Noohi Court specifically found that state law was not preempted by the Federal Arbitration Act ("FAA") in this instance, as it had been in the United States Supreme Court's decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), with respect to California's judicial rule regarding the unconscionability of class arbitration waivers in consumer contracts. In so doing, the 4th Circuit has added fuel to the fire in the debate over how broadly to apply the Concepcion decision.

The state law requirement at issue in Noohi was the decision of the Maryland Supreme Court in Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656 (Md. 2003), holding that for an arbitration provision to be enforceable the obligation to arbitrate must be mutual, and not just at the election of one of the parties to the agreement. Otherwise, the agreement to arbitrate fails for lack of consideration, even if the contract as a whole includes sufficient consideration to be enforceable by both parties. As described by the Noohi Court: "under Maryland law as articulated in Cheek [citation omitted], an arbitration provision is treated as a severable contract that must be supported by adequate consideration." Slip op. at 6.

Pursuant to the subject arbitration provision, only the plaintiff buyers ("Buyer") agreed "that any and all disputes with Seller . . . shall be resolved by binding arbitration," and expressly waived "the right to a proceeding in a court of law...