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Discover Bank v. Superior Court

Supreme Court of California

June 27, 2005, Filed



 [***78]  [**1103]   MORENO, J.—This case concerns the validity of a provision in an arbitration agreement between Discover Bank and a credit cardholder forbidding classwide arbitration. The credit cardholder, a California resident, alleges that Discover Bank had a practice of representing to cardholders that late payment fees would not be assessed if payment was received by a certain date, whereas in actuality they were assessed if payment was received after 1:00 p.m. on that date, thereby leading to damages that were small as to individual consumers but large in the aggregate. Plaintiff filed a complaint claiming damages for this alleged deceptive practice, and Discover Bank successfully moved to compel arbitration pursuant to its arbitration agreement with plaintiff.

Plaintiff now seeks to pursue a classwide arbitration, which is well accepted under California law. (See Keating v. Superior Court (1982) 31 Cal.3d 584, 613–614  [***79]  [183 Cal. Rptr. 360, 645 P.2d 1192] (Keating), overruled on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1 [79 L. Ed. 2d 1, 104 S. Ct. 852] (Southland).) But plaintiff's arbitration agreement with Discover [****4]  Bank has a clause forbidding classwide arbitration. Moreover, the agreement has a Delaware choice-of-law provision. Discover Bank argues that Delaware law allows contracting parties to waive class action remedies.  [*153]  The trial court ruled that the class arbitration waiver was unconscionable and enforced the arbitration agreement with the proviso that plaintiff could seek classwide arbitration. The Court of Appeal, without disputing that such class arbitration waivers may be unconscionable under California law and without addressing the choice-of-law issue, nonetheless held that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempts the state law rule that class arbitration waivers are unconscionable.

As explained below, we conclude that, at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration. We further conclude that the Court of Appeal is incorrect that the FAA preempts California law in this respect. Finally, we will remand to the Court of Appeal to decide [****5]  the choice-of-law issue.

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36 Cal. 4th 148 *; 113 P.3d 1100 **; 30 Cal. Rptr. 3d 76 ***; 2005 Cal. LEXIS 6866 ****; 2005 Daily Journal DAR 7782; 2005 Cal. Daily Op. Service 5684


Subsequent History: On remand at, Writ granted by Discover Bank v. Superior Court, 2005 Cal. App. LEXIS 1875 (Cal. App. 2d Dist., Dec. 7, 2005)

Prior History:  [****1]  Superior Court of Los Angeles, No. BC 256167, Carolyn Kuhl, Judge. Court of Appeal, Second Dist., Div. One, No. B161305.

Discover Bank v. Superior Court, 105 Cal. App. 4th 326, 129 Cal. Rptr. 2d 393, 2003 Cal. App. LEXIS 41 (Cal. App. 2d Dist., 2003)

Disposition: The judgment of the Court of Appeal is reversed, and the cause is remanded for proceedings consistent with this opinion.


arbitration, class action, unconscionable, arbitration agreement, waivers, consumer, parties, cardholder, classwide arbitration, choice-of-law, courts, customers, public policy, terms, circumstances, contracts, contractual, provisions, rights, arbitration clause, principles, preempted, trial court, unenforceable, disputes, remedies, matters, silent, credit card, state court

Business & Corporate Compliance, Contracts Law, Types of Contracts, Adhesion Contracts, Contracts Law, Defenses, Unconscionability, General Overview, Public Policy Violations, Torts, Exculpatory Clauses, Settlements, Releases From Liability, Civil Procedure, Alternative Dispute Resolution, Arbitration, Contract Conditions & Provisions, Exculpatory Clauses, Waivers, Bargaining Power, Affirmative Defenses, Fraud & Misrepresentation, Arbitration Clauses, Labor & Employment Law, Collective Bargaining & Labor Relations, Labor Arbitration, Enforcement, Federal Arbitration Act, International Trade Law, Dispute Resolution, International Commercial Arbitration, Arbitration, Arbitration Agreements, Pretrial Matters, Judicial Review, Coercion & Duress, Criminal Law & Procedure, Coercion & Duress, Forum Selection Clauses, Preliminary Considerations, Federal & State Interrelationships