class action arbitration waiver

website terms of service

Dropbox revised its terms of service recently and sent an email to its users notifying them of the changes. I haven’t read through the entire ToS yet. But Bill Carleton’s post on his Counselor @ Law blog yesterday prompted me to take a look at the arbitration clause. I’m sharing my comment to his post here because I’d like to hear some contrary views. Let me know what you think in the comments or shoot me an email.

Here’s my comment:

Bill: When I read the bit about arbitration in Dropbox’s email alerting me to changes in the ToS, I assumed Dropbox was inserting a class action waiver in response to recent favorable court cases. Many companies have used such provisions to effectively insulate themselves completely from customer complaints. I view this as deeply troublesome, and I’m leaning toward hoping that Congress will overturn recent precedent by legislating consumer protections. (This is in contrast to my initial reaction to the cases, as reflected in my post AT&T Mobility v. Concepcion: Is Class Arbitration Dead?. My views have changed as the subsequent Supreme Court decisions have taken a different tack than I expected and companies have taken advantage of the decisions to the detriment of their customers.)

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Most areas of contract law change very little over time. When a new way of doing business comes along, the law might take a while to figure out how to deal with it, but eventually a consensus approach (or two) is adopted by the courts, and things hum along once again.

Recent developments in contract law

An example during my lifetime are boxtop or shrinkwrap agreements that reflect a “terms to come later” approach to contracting. In these situations, merchants sell their computers or software and enclose additional terms in the product package. Thus, the buyer doesn’t have an opportunity to read all of the terms when they purchase the product. This poses a challenge to traditional contract law, which generally doesn’t give effect to silent terms.

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In two opinions filed on March 6, 2012, the Missouri Supreme Court applied recent U.S. Supreme Court arbitration precedent to cases involving binding arbitration agreements. In yesterday’s post I discussed Brewer v. Missouri Title Loans, in which the Missouri Supreme Court held that a binding arbitration agreement was unenforceable due to unconscionability. Today I’ll discuss Robinson v. Title Lenders, Inc. d/b/a/ Missouri Payday Loans, in which the Missouri Supreme Court reversed the lower court’s determination that an arbitration agreement was unenforceable due unconscionability.

Background of Robinson v. Title Lenders, Inc.

The petitioner had borrowed money from Title Lenders, Inc. on 13 occasions, signing a loan agreement each time that contained a binding arbitration provision precluding class arbitration. She brought suit in October 2006 alleging, among other things, violations of the Missouri Merchandising Practices Act and seeking relief for herself as well as a putative class of borrowers. The lender moved to stay the action and to compel the borrower to pursue her claims through either arbitration or small claims court. In March 2009 the trial court stayed the court proceedings and ordered arbitration, but struck the class action waiver, finding it to be unconscionable. [click to continue…]

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In two opinions filed on March 6, 2012, the Missouri Supreme Court applied recent U.S. Supreme Court arbitration precedent to cases involving binding arbitration agreements. In tomorrow’s post, I’ll discuss the court’s application of Stolt-Nielsen, S.A. v. AnimalFeeds International Corp. and AT&T Mobility LLC v. Concepcion to reverse a lower court’s judgment that refused to enforce an arbitration agreement due to unconscionability. But in today’s post, I’ll discuss Brewer v. Missouri Title Loans, in which the Missouri Supreme Court held that a binding arbitration agreement was unenforceable due to unconscionability.

Background of Brewer v. Missouri Title Loans

Petitioner Beverly Brewer borrowed $2,215 from Missouri Title Loans via a loan that had an annual percentage rate of 300% and that was secured by her automobile. The loan agreement contained a binding arbitration provision that required her to arbitrate claims and prohibited class arbitration, while the lender specifically retained its right to utilize the courts in order to repossess the vehicle. The agreement also provided that the parties would each be responsible for their own expenses, including fees for attorneys, experts, and witnesses.

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I noticed via a post yesterday on the ADR Prof Blog that the Supreme Court has granted certiorari in an arbitration case that I characterized in a post earlier this year as probably the case most affected by the Supreme Court’s recent arbitration decisions (i.e., Stolt-Nielsen v. Animal Feeds and AT&T Mobility v. Concepcion). This will be the third time for the case to make its way to the Supreme Court.

My initial reaction to Concepcion was that it’s not a bad deal for consumers because the tradeoff AT&T had to make to ensure that it wouldn’t be subject to a class action was to provide consumers with better relief than they would likely receive in court. As a (rather cynical) consumer who would expect to receive very little in a class action suit, that seems like a fair tradeoff, as I noted in AT&T Mobility v. Concepcion: Is Class Arbitration Dead?.

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The U.S. Supreme court issued its opinion in AT&T Mobility v. Concepcion yesterday. The Court held that California’s Discover Bank rule is preempted by the Federal Arbitration Act. The Discover Bank rule states that a class action waiver in an arbitration agreement is unconscionable and should not be enforced

  • when it is found in a consumer contract of adhesion
  • in a setting in which disputes between the contracting parties predictably involve small amounts of damages, [click to continue…]
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