Blog Post

Homa v. American Express Co., No. 07-2921 (3d Cir. Feb. 24, 2009)

Posted by: Paul Mollica
February 24, 2009
Topic: Daily Developments in EEO Law

In a post on January 30, 2009, there was a discussion of In re American Express Merchants` Litigation, No. 06-1871 (2d Cir. Jan. 30, 2009), an antitrust case that tossed a class-action waiver imbedded in an arbitration clause. Today, the Third Circuit issued a decision -- again, involving AmEx -- allowing a putative class of consumers to attack another such waiver as unconscionable under New Jersey law.

Homa v. American Express Co., No. 07-2921 (3d Cir. Feb. 24, 2009): A class-action complaint under the N.J. Consumer Fraud Act led to a Rule 12(b)(6) motion to dismiss on the grounds that the consumers who held their card waived the right to proceed in civil litigation or as a class. As the panel describes:

"Upon issuance of the Blue Cash card, Appellees mailed Homa a document entitled Agreement Between American Express Credit Cardmember and American Express Centurion Bank ('Agreement'), which delineated the terms and conditions governing each cardholder's account. The Agreement included a provision requiring arbitration of all claims upon election of either party and that specifically required all claims to 'be arbitrated on an individual basis . . . [with] no right or authority for any Claims to be arbitrated [as] a class action.' ('class-arbitration waiver'). The Agreement also included a choice-of-law provision indicating that any
disputes arising out of the Agreement would be governed by Utah state law."

The choice of law is significant in this case, because Utah law expressly authorizes class-action waivers, while the decisional law in New Jersey provides grounds for challenging them. The district court followed Utah law, but the Third Circuit finds that New Jersey law ought to apply.

AmEx advanced two arguments in defense of the waiver. The first was that the Federal Arbitration Act alone governed, and preempted application of a pro-consumer state-law decision on this issue, Muhammad v. County Bank of Rehoboth Beach, Del., 912 A.2d 88 (N.J. 2006). For this argument, AmEx cited to the language of Section 2 of the FAA, which states that "an agreement in writing to submit to arbitration an existing controversy arising out of [a transaction involving commerce] shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. AmEx argued that because the unconscionability defense under New Jersey law was supposedly directed only at arbitration -- rather than the contract as a whole -- the complaint was not rescued by the final clause. But the panel, distinguishing its prior decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007) (decided under Pennsylvania law), holds that the New Jersey Muhammad decision encompassed a general contract defense, and thus might be enforced consistent with Section 2.

The second argument was that an express choice-of-law provision incorporated Utah law. The panel begins by applying the forum (New Jersey) choice-of-law principles under Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487 (1941)). It finds that New Jersey courts would enforce a choice-of-law clause provided that it did not violate New Jersy public policy. The panel then holds that "Muhammad suggests that the Supreme Court of New Jersey might well find that the application of Utah law allowing class-arbitration waivers in the context of a low value consumer credit suit violates a fundamental policy of New Jersey." Because of the stage of the proceedings, the panel held on the pleadings that there was a valid basis for challenging the waiver:

"In the current case, as in Muhammad, the contract at issue bears the hallmarks of a contract of adhesion -- it was '‘presented on a take-it-or-leave-it basis, . . . in a standardized printed form, [and] without opportunity for the ‘adhering' party to negotiate except perhaps on a few particulars'' -- and, as Appellant's underlying claim implicates less than five percent of a cardholder's overall credit card balance, 'predictably involves a small amount of damages.' Id. at 96, 99 (quoting Rudbart v. North Jersey Dist. Water Supply Comm'n, 605 A.2d 681, 685 (N.J. 1992)). Assuming -- as is proper at the 12(b)(6) stage-that the claims at issue are of
low monetary value, the District Court should have denied the 12(b)(6) motion and concluded that, in light of Muhammad, at this stage the class-arbitration waiver at issue violates New Jersey's fundamental public policy."

In a concurring opinion, Judge Weis flagged other issues that might be relevant to the enforceability of the class-action waiver on remand, including the complexity of the case, the availability of attorneys fees and treble damages, and the effect of an express non-severability clause that might blow up the agreement.