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Massachusetts Supreme Court Holds Class Waiver in Arbitration Clauses Unenforceable

As part of the ongoing attempt to find exceptions to the Supreme Court's AT&T Mobility v. Concepcion ruling, the Massachusetts Supreme Court in Feeney v. Dell Inc., (Feeney II) recently held that a class action waiver in an arbitration clause is unenforceable if the waiver effectively denies plaintiffs a civil remedy due to the complexity of the law invoked and the small individual damages involved. Unfortunately for the plaintiffs’ bar, the U.S. Supreme Court most likely overruled the validity of such an "effective vindication" exception when it issued its opinion in American Express Co. v. Italian Colors Restaurant eight days later.

In Feeney, plaintiffs brought a putative class action against Dell, claiming that by collecting a sales tax not required by Massachusetts tax law, Dell engaged in unfair or deceptive acts or practices in violation of the Massachusetts consumer protection act. Dell charged the Feeneys a total of $13.65 in state tax on an optional service contract for their consumer computer purchase. Co-plaintiffs, the Denham Health and Athletic Complex, were charged a total of $215.55 in state tax for an optional service contract for their business order. Dell’s terms and conditions of sale contained an arbitration clause compelling individual arbitration with Dell if the customer initiated a dispute. The Massachusetts Supreme Court invalidated this arbitration clause in 2009.

In its ruling in Feeney I, issued two years before Concepcion, the Massachusetts Supreme Court concluded that Dell's class action waiver was unenforceable because it was "contrary to the fundamental public policy of the [state] favoring class actions under the [state consumer protection statute]." Feeney v. Dell Inc., 454 Mass. 192, 193 (2009). After Concepcion, the Massachusetts Supreme Court felt the need to reconsider its holding. In Feeney II, the Massachusetts court found this rationale was no longer valid. The court interpreted Concepcion as prohibiting states from explicitly disfavoring arbitration over other remedies-exactly what the court had done in Feeney I. But, the Massachusetts Supreme Court found wiggle room within Concepcion’s reasoning. Courts could still find an arbitration clause unenforceable if the clause would effectively deny plaintiffs any remedy.

As such, in Feeney II, the court reasoned that if it upheld Dell's class action waiver in the arbitration clause, plaintiffs would be denied access to any remedy due to the complex nature of the plaintiff's claims and the small amount of individual damages. Thus, even though its previous logic was invalid, the arbitration clause was properly invalidated under this nuanced reading of Concepcion. Under this reading, plaintiffs’ attorneys wishing to invalidate a class action waiver in an arbitration clause would meet this burden by showing the absolute superiority of a class action remedy over arbitration-not only that class action was better than other methods for adjudicating the case but that it was the only method possible. Though this may appear to be a high burden at first glance, given that most class action cases involve small individual damages and complex issues of law, the Feeney exception would undoubtedly apply to many class action cases.

Unfortunately for the plaintiffs’ bar, the U.S. Supreme Court's strict interpretation of the "effective vindication" exception in Italian Colors most likely overrules the Massachusetts Supreme Court's decision. In Italian Colors, the Supreme Court concluded that "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy." 133 S.Ct. 2304, 2311 (2013). Though Italian Colors left open the possibility of an effective vindication argument when arbitration filing or administration fees are so high as to make arbitration impracticable, this narrow exception is not likely to apply to Feeney II since the Massachusetts court explicitly cited cost as the primary factor.

One must question the timing of the Massachusetts Supreme Court’s decision. Knowing that the effective vindication exception was being considered in Italian Colors, a desire for both judicial efficiency and a final resolution for the Feeney litigants would have merited waiting to issue the Feeney opinion until after the Supreme Court issued its decision in Italian Colors. Not surprisingly, defendants in Feeney have already filed a petition for rehearing.

Feeney v. Dell Inc., et al., No. SJC-11133

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