The big news from the last couple weeks was the decision handed down in late February by the 3rd U.S. Circuit Court of Appeals in Homa v. American Express Co. Some background: G. R. Homa, a resident of New Jersey, filed a class action suit in the U.S. District Court for the District of New Jersey against American Express claiming the company misrepresented the cards terms and didn’t award him the 5 percent cash back as promised. The contract contained a “choice-of-law” provision, which said that any dispute would be governed by the laws of Utah, where the Amex subsidiary issuing the credit card was based. The contract also included a binding mandatory arbitration clause (which, lamentably, is currently legal in the United States) and a clause waiving customers’ rights to bring class actions (which is legal under Utah law but not in New Jersey). American Express filed a motion to compel arbitration under Utah Law, and the District Court dismissed the case. Homa appealed.
The 3rd Circuit found that the Federal Arbitration Act (FAA) didn’t prevent it from applying New Jersey’s unconscionability (“unfairness”) principles to American Express’s contract. While American Express claimed that the FAA protects all arbitration agreements from court review, the court wrote that this view “is in direct conflict with the language of the Supreme Court.”
Homa isn’t out of the woods yet, however. The 3rd Circuit ruling did not declare the class waiver to be unfair, but instead requires the District court to make that determination – using New Jersey law. Homa will have a chance to make his case in court, instead of in a kangaroo court some two thousand miles away.
The 5th Circuit U.S. Court of Appeals witnessed some role reversal recently, with a large corporation (Citigroup) asking the court to vacate an arbitration award given to a consumer. A district court had found that the arbitrator’s award was made in “manifest disregard of the law.” But the appeals court tossed out the district court ruling, citing last March’s Supreme Court ruling that courts were not able to overturn arbitration rulings because of manifest disregard of the law. While we’re happy to see a consumer come out ahead in arbitration for once, the vast majority of similar cases end with the corporation being the beneficiary. All the more reason for Congress to pass the Arbitration Fairness Act – and leave the interpretation of the law to the courts, as the Founders intended.
In other news, the Fairness in Nursing Home Arbitration Act was introduced in the House and Senate, and – surprise, surprise – the director of the nursing home industry group calls it “bad public policy”.