Unless you have been paying close attention, and most of us have not, the businesses you use everyday have been waging war on your ability to hold them accountable. Buried in those service agreements and “click through” licensing agreements are mandatory arbitration provisions that attempt to prevent you from enforcing your rights in court. Most heinous, some of these arbitration provisions require you to bring any dispute before an arbitrator named by the company. This has significant consequences because an arbitrator’s decisions are very, very difficult to appeal, even where the arbitrator unquestionably makes a mistake or rules contrary to law.
Given the corporate money awash in our dysfunctional federal government, it is no surprise that Congress passed the Federal Arbitration Act (FAA). This federal law is intended to “occupy the field” of arbitration and overrule state arbitration laws. The implications of the FAA came into critical focus two years ago in the U.S. Supreme Court case of AT&T Mobility LLC v. Concepcion. There, the court ruled that the FAA trumped state law and an arbitration provision that prohibited class actions was enforceable even in states that rejected such limitations as against public policy. The court in Concepcion found that arbitration provisions were contractual and folks are held to their contracts. But how many of you actually had any opportunity to negotiate your service agreements with your cable company, cell phone company, internet provider, credit card company, or bank?
To its great credit, the Washington Supreme has recognized the reality that consumers are not freely negotiating and agreeing to arbitration provisions. Accordingly, our Court has refused to follow Concepcion in three recent decisions.
In two cases, our Supreme Court found that the FAA preemption in Concepcion did not apply to costly venue or choice of law provisions for Washington residents. In Saleemi v. Doctor’s Associates, Inc. (Subway), the Supreme Court upheld a lower court’s ruling that Subway could not require its Washington franchisee to arbitrate in Connecticut under Connecticut law. Specifically, the Subway arbitration agreement acknowledged that Connecticut franchise law would not apply to franchisees outside Connecticut. Therefore, the court reasoned, any arbitration would apply Washington franchise law despite a contrary arbitration provision. Additionally, the court held that an arbitration agreement could not waive rights to a court trial under the Washington Consumer Protection Act by applying another state’s law.
Most recently, in Gandee v. LDL Freedom Enterprises, Inc., the court rejected mandatory arbitration in a debt relief company’s service contract because it was one-sided, overly harsh, or exceedingly calloused. The contract required arbitration in California under the American Arbitration Association (AAA) and awarded attorney fees and costs to the winner. The court found that Gandee could not be forced to arbitrate where her travel expenses and the $4775 AAA filing fee far exceeded her $3500 claim. Additionally, the court noted that Gandee’s claim under the Washington Consumer Protection Act did not risk her having to pay Freedom’s attorney fees and costs if she lost, so the arbitration provision could not change that.
Finally, the Washington Supreme Court also found that Concepcion did not apply to insurance issues in State, Dept. of Transp. v. James River Ins. Co. There, the dispute centered on the term “jurisdiction” because RCW 48.18.200 does not allow any insurance policy to “depriv[e] the courts of this state of the jurisdiction of action against the insurer.” James River argued that the mandatory arbitration clause in its policy was permissible because the court still had jurisdiction to confirm any arbitration award. The court disagreed, finding that the limited power of a court to confirm an arbitration award was not the original jurisdiction that the legislature intended. The court further found that the FAA could not apply because the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), explicitly prevented Congress from invalidating, impairing, or superseding any state insurance law.
So let’s hear it for state’s rights and the Washington Supreme Court. To Washington consumers: our Court has your back!
1) While Class Action lawsuits may be abused and unnecessarily cost businesses lots of legal fees, we have yet to see an alternative to preventing massive small-scale theft. For example, where a credit card company charges millions of its customers an illegal one dollar fee, it makes no sense for any single customer to bring a lawsuit. But stealing is stealing, and it is wrong whether you take one dollar or a million dollars. So, in these situations a class action joining many consumers together is the only real way to hold offending companies accountable.