Massachusetts High Court Strikes Down Arbitration Class Action Ban

This morning, the Massachusetts Supreme Judicial Court (SJC) issued two opinions addressing whether there remain any circumstances in which an arbitration agreement that bans class actions can still be challenged after the Supreme Court's decision in AT&T Mobility LLC v. Concepcion. The SJC strongly aligned itself with the view that Concepcion does not make class action bans unassailable. The court held that if a class action ban in an arbitration agreement effectively prevents plaintiffs from obtaining a remedy under state law, it is unenforceable. The court struck down a class action ban under this standard in one of the two cases, Feeney v. Dell Inc.,finding that the plaintiffs had carried their burden of showing the class action ban would effectively prevent them from pursuing their claims. In the other case, Machado v. System4 LLC, the court held the arbitration agreement containing the class action ban was enforceable because the plaintiffs had not shown that their claims could not be pursued on an individual basis in arbitration.

In the lead opinion, Feeney, the SJC presented a comprehensive discussion of the Supreme Court's arbitration jurisprudence up to and including Concepcion, as well as case law and commentary in the wake of Concepcion. The court stated that, after Concepcion, a general public-policy-based prohibition on class-action bans could not be sustained. However, the court concluded that the principle that arbitration procedures must not effectively preclude plaintiffs from pursuing their claims survives Concepcion.

Importantly, the court rejected the suggestion that this principle applies only to federal statutory rights. The court reasoned that the objectives of the Federal Arbitration Act do not include denying remedies available under state law, and thus a state court does not erect any obstacles to the accomplishment of the FAA's aims when it strikes down provisions of an arbitration agreement that prevent the assertion of claims. Thus, according to the court, there is no "irreconcilable conflict between the FAA's interest in ensuring the enforceability of agreements to arbitrate and a State's
interest in voiding contracts that create de facto immunity from private civil liability for violations of State law merely because that immunity was procured through the device of an arbitration clause."

The court thus concluded that a "case-specific factual showing" that a class-action ban would preclude plaintiffs from obtaining remedies to which they were entitled under state law suffices to permit invalidation of an arbitration agreement. In Feeney, a consumer class action involving complex, small-dollar claims, the court found this burden had been met, but in Machado, involving more substantial monetary claims, it had not been.

The SJC joined the Missouri Supreme Court and the Second Circuit in recognizing that there are circumstances under which a class action ban is invalid. Of course, the Second Circuit’s decision in Amex that a class action ban that prevents vindication of federal-law rights is unenforceable is currently before the U.S. Supreme Court, and the decision in Amex may have much to say about whether reasoning like the SJC's is viable. But for various reasons, Amex may not fully resolve
these issues, and if so the SJC's decisions today will be a significant development.