By the Consumer Financial
In the first federal appeals court decision
to apply AT&T Mobility LLC v. Concepcion to a non-AT&T Mobility
arbitration agreement, the U.S. Court of Appeals for the Third Circuit has held
that the Federal Arbitration Act (FAA) preempts New Jersey law prohibiting the
enforcement of class action waivers in certain small-dollar cases.
On August 24, 2011, the Third Circuit
issued a precedential opinion in Litman v. Cellco
Partnership, in which Ballard Spahr submitted an amicus brief
on behalf of the U.S. Chamber of Commerce, Consumer Bankers Association, and
American Financial Services Association.
Ruling unanimously, the Third Circuit held
that its decision in Homa v. American Express Co., 558 F.3d 225 (3d Cir.
2009), had been abrogated by the U.S. Supreme Court's landmark Concepcion
decision and that, under Concepcion, the FAA preempts the New Jersey
Supreme Court decision in Muhammad v. County Bank of Rehoboth Beach, Del.,
912 A.2d 88 (N.J. 2006). (Click here
to read our alert on the Concepcion decision.)
Plaintiffs' attorneys have argued
that Concepcion should not be followed in cases where the arbitration
agreement lacks all of the consumer-friendly features contained in AT&T
Mobility's arbitration agreement. The Third Circuit did not so limit Concepcion.
Rather, it put to rest any question as to the scope and applicability of Concepcion
and the breadth of the FAA's preemptive effect:
We understand the holding of Concepcion to
be both broad and clear: a state law that seeks to impose class arbitration
despite a contractual agreement for individualized arbitration is inconsistent
with, and therefore preempted by, the FAA, irrespective of whether class
arbitration "is desirable for unrelated reasons." Therefore, we must hold that,
contrary to our earlier decisions in Homa and this case, the rule
established by the New Jersey Supreme Court in Muhammad is preempted by
the FAA. It follows that the arbitration clause at issue here must be enforced
according to its terms, which requires individual arbitration and forecloses
In Muhammad, the New Jersey Supreme
Court held that class action waivers in small-dollar consumer contracts of
adhesion violate New Jersey public policy and are not enforceable. In Homa,
the Third Circuit, applying New Jersey law, refused to enforce a class action
waiver in the parties' arbitration agreement because of Muhammad and
held that the FAA did not preempt Muhammad because the prohibition
against class action waivers for small-dollar claims was a general contract
defense that did not apply exclusively to arbitration provisions.
Litman similarly involved the
application of New Jersey law and Muhammad. Initially, the Third Circuit
had refused to enforce an express class action waiver given its ruling in Homa.
See Litman v. Cellco Partnership, 381 Fed. Appx. 140, 143 (3d
Cir. 2010) ("Homa is prior precedent that is directly on point and
binding on us.").
On May 2, 2011, one week after deciding Concepcion,
the U.S. Supreme Court vacated the Third Circuit's decision in Litman
and ordered the appeals court to reconsider the decision in light of Concepcion.
Litman v. Cellco Partnership, No. 10-551, 2011 WL 1631042 (U.S. May 2,
2011). (Click here
to read our earlier alert on this matter.)
On August 24, 2011, the Third Circuit, on
remand, applied the "broad and clear" holding of Concepcion and found
that its decisions in Litman and Homa had been wrongly decided
because Muhammad is preempted by the FAA:
The specific question before us remains
whether the FAA preempts the New Jersey Supreme Court's ruling in Muhammad.
As noted above, we had previously held that, pursuant to Homa, it did
not. We now examine that decision anew and hold that Homa has been
abrogated by Concepcion and that Muhammad is preempted by the
A Pennsylvania federal district court
recently applied the same "broad and clear" holding of Concepcion to
find that the FAA similarly preempts Pennsylvania law refusing to enforce class
action waivers in consumer arbitration agreements. Alfeche v. Cash America
International, Inc., et al. Ballard Spahr represented the defendants in Alfeche.
to read our earlier alert on this matter.)
Ballard Spahr's Consumer Financial Services
Group is nationally recognized for its skill in litigation defense, its
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products, and its experience with the full range of federal and state consumer
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Alan S. Kaplinsky, 215.864.8544 or firstname.lastname@example.org; Vice Chair
Jeremy T. Rosenblum, 215.864.8505 or email@example.com; Mark J. Levin,
215.864.8235 or firstname.lastname@example.org; Martin C. Bryce, Jr., 215.864.8238 or
email@example.com; or Daniel J.T. McKenna, 215.864.8321 or
Copyright © 2011 by Ballard Spahr LLP.
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This alert is a periodic publication of
Ballard Spahr LLP and is intended to notify recipients of new developments in
the law. It should not be construed as legal advice or legal opinion on any
specific facts or circumstances. The contents are intended for general
informational purposes only, and you are urged to consult your own attorney
concerning your situation and specific legal questions you have.
Martin C. Bryce,
Mark J. Levin
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