Dear Ninth Circuit: We Like Arbitration – Signed, The Supreme Court

The United States Supreme Court reaffirmed its favor of arbitration yesterday in one of its first decisions of the year. InCompuCredit v. Greenwood, the high court once again reversed the Ninth Circuit in an arbitration case.

You might recall that the Supreme Court reversed the Ninth Circuit last April in its much discussed AT&T Mobility v. Concepcion decision. In that case the Supreme Court overturned California’s Discover Bank rule, which had rendered class arbitration waivers in consumer adhesion contracts all but unenforceable in California. AT&T Mobility effectively gives companies a way to opt out of class arbitrations altogether, albeit — unless the ruling is broadened in future cases — at the cost of providing individual consumers a more effective remedy in arbitration than they would likely have via class action. See my discussion of the opinion in AT&T Mobility v. Concepcion: Is Class Arbitration Dead?

The CompuCredit plaintiffs brought an action in court for, among other things, violations of the Credit Repair Organizations Act, although their credit card agreement contained a clause that required claims to be resolved through arbitration. The United States District Court for the Northern District of California denied the defendants’ motion to compel arbitration, concluding that Congress intended claims under the CROA to be non-arbitral, and the Ninth Circuit affirmed the decision.

The Federal Arbitration Act, which was enacted by Congress in 1925 in response to courts’ hostility toward arbitration, requires courts to enforce binding arbitration provisions. The FAA mandate to enforce arbitration provisions applies to claims where federal statutes are at issue unless it is “overridden by a contrary congressional command.”

Although the CROA does not expressly state that claims under the statute are non-arbitral, the Act’s disclosure provisions require credit repair organizations to disclose to consumers that they “have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” In addition, the Act contains a provision that renders unenforceable any waiver by consumers of their protections under the Act.

The plaintiffs argued that the Act’s required disclosure was sufficient to create a right to sue in court for violations of the CROA. The Supreme Court disagreed, holding that Congress would have been more clear if it had intended to make claims under the CROA non-arbitral. After noting that binding arbitration provisions were common in contracts at the time when the CROA was enacted, the Court stated, “Had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse than what respondents suggest.”

I look forward to seeing what the arbitration experts have to say about the decision. I don’t think the result was unexpected or that it will be particularly controversial (only Justice Ginsburg dissented, in contrast to AT&T Mobility’s 5-4 decision). Nor do I think it breaks new ground, other than reinforcing the Supreme Court’s support of arbitration, although it does resolve a split in the circuits.

In Category: U.S. Supreme Court Contract Cases

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