Thursday, April 28, 2011

Class Action Ruling an Earthquake for California Litigation

Class action attorneys handling cases in California are scrambling to figure out what the U.S. Supreme Court's latest ruling on arbitration clauses means for their practices.

Today's 5-4 decision in AT&T Mobility v. Concepcion held that the Federal Arbitration Act trumps a California rule invalidating as "unconscionable" a class action waiver provision in a cellphone arbitration agreement.

Plaintiff and defense lawyers agree that the result will be far fewer consumer class actions filed. Plaintiff attorneys won't have incentive to bring small-money cases if they must be arbitrated individually, rather than pooled into a class.

"This is a devastating decision for people whose practices depend on class actions," said San Francisco employment attorney Cliff Palefsky, who's brought class actions in the past but doesn't specialize in the area now. "It affects not only the right to bring class actions in the future but the validity and status of cases that are presently in class action arbitration proceedings. The status of most of those cases is uncertain at best and in jeopardy at worst."

Lieff Cabraser Heimann & Bernstein partner Jonathan Selbin, who's based in New York but works on litigation in California, said the decision was on his mind all day. "This is an earthquake," he said, adding that the firm is looking at the impact on legal strategies, policy and legislative issues, and specific cases.

Selbin said that in the past 16 years he's recovered more than $2 billion in cash from corporations on behalf of consumers in these types of cases. "That's what's at risk here," he said. "That's why corporations care so much."

San Francisco plaintiff attorney James Sturdevant was taken aback by the ruling, given that even the conservative justices seemed to be leaning toward upholding the California law during oral argument. He said he hopes the ruling will prompt an outcry from consumers and employees across the country that will lead Congress to act. "I'm very hopeful that Congress will quickly pass legislation to overturn this decision," Sturdevant said.

Defense attorneys, meanwhile, are focusing less on the drop in future class action litigation and more on an expected increase in counseling for companies that want to add mandatory arbitration clauses into their employment agreements.

Seyfarth Shaw partner Brian Ashe, who represents employers in class actions, said he views the ruling as a clarion call for employers, especially in California, that are facing wage-and-hour, Title 7 and other class actions. "I think it's going to be just fine for business," said Ashe, who's based in San Francisco. Those employers who don't have arbitration agreements and now need them, and those who don't have class action waivers but want them, are going to be looking for advice. For those reasons Ashe doesn't expect litigation to drop in the next two years. "There's an entire industry built around this area of law," Ashe said. "The agreements aren't out there."

Covington & Burling partner Sonya Winner, whose practice focuses on class actions centered around financial services products, said she spent the morning thinking about new strategies, including bringing arbitration back into matters where it was off the table. She estimated that about 80 percent of the matters she's worked on this week are affected by the new rule.

She doesn't expect this to be the end of class actions, though. "I didn't call the business committee to say I need a new practice area," she said with a laugh.

Other plaintiff employment lawyers similarly expect the impact to be circumscribed. Michael Rubin of San Francisco's Altshuler Berzon said the decision doesn't actually prohibit class actions in arbitration, so the handful of class actions his firm has will likely move forward.

"All the decision today says is that a clause prohibiting class actions cannot be the basis for striking down an arbitration agreement as unconscionable," Rubin said. "That means arbitration agreements can still be struck down as unconscionable on other grounds," such as if it limits substantive rights or remedies. He said he expects to see a rise in mass tort cases to make up for the curb in class actions.

Palefsky sounded more pessimistic, and pointed out a seeming irony for defense attorneys: "These lawyers who've been inserting these clauses into contracts have just eliminated a significant portion of their business."

By Petra Pasternak


1 comment:

  1. Good question, what does "unconscionable" mean in legal terms? Isn't that redundant?


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