Authored by Jeff Burns
After the Supreme Court’s June 20, 2013 decision in American Express Co. v. Italian Colors Restaurant (AmEx) (here), many questioned whether AmEx abrogated other state court decisions that had invalidated class arbitration agreements based on the “effective vindication” doctrine.
Today (here), the Massachusetts Supreme Judicial Court (SJC) answered that question. The SJC acknowledged that AmEx abrogated its decision in Feeney v. Dell (issued eight days before AmEx), and held that class arbitration waivers may not be invalidated in Massachusetts on the grounds that they effectively deny plaintiffs a remedy.
The SJC’s Feeney and Machado Decisions
In AT&T Mobility, LLC v. Concepcion (2011) (here), the Supreme Court held that the Federal Arbitration Act (FAA) preempted a California rule that classified most consumer class arbitration waivers as unconscionable.
In light of Concepcion, in Feeney the SJC acknowledged that Massachusetts courts could no longer invalidate class arbitration waivers based solely on Massachusetts’ public policy favoring class proceedings in certain contexts. According to the SJC, courts could invalidate such waivers only when a plaintiff demonstrated that “the class waiver, when combined with other terms of the arbitration agreement, effectively denies the plaintiff a remedy and insulates the defendant from private civil liability for violations of State law.” The SJC held that the Feeney plaintiffs sustained their burden because the claims asserted were hotly contested and required advanced knowledge of tax codes, the claimed damages were nominal (less than $250), and there were no mandatory fee-shifting or bounty provisions for successful plaintiffs.
In Machado v. System4, LLC, a companion decision issued the same day as Feeney, the SJC held that the plaintiffs could not sustain their burden because their alleged damages based on certain franchise fees alone ranged from approximately $9,500 to over $21,000. However, the SJC did strike the arbitration agreement’s bar on multiple damages as an illegal attempt to circumvent the Massachusetts Wage Act, M.G.L. c. 149, § 148. The SJC held that an arbitrator who finds for a plaintiff in a Wage Act claim must award treble damages and attorneys’ fees.
The SJC Reverses Itself
Following AmEx, Dell filed a petition for rehearing on the grounds that AmEx undermined the SJC’s holding in Feeney.
Although the SJC stated that it regarded “as untenable the Supreme Court’s view that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims,” it recognized that it was bound to accept that view “as a controlling statement of Federal law.” As a result, it (i) held that class arbitration waivers may no longer be invalidated in Massachusetts on the grounds that they effectively deny plaintiffs a remedy, and (ii) reversed the trial court’s denial of Dell’s motion to confirm the arbitration award.
In a companion rescript for Machado (also issued today (here)), the SJC applied its holding today in Feeney to the claims at issue in Machado. This makes clear that the rejection of the “effective vindication” doctrine applies equally to wage and hour claims. The SJC also reaffirmed its ruling that the bar on multiple damages was not enforceable.
We believe that the SJC’s decision in Feeney is a harbinger of how other state courts will respond to AmEx. This portends well for employers that seek to enforce class arbitration waivers and limit plaintiffs to arbitrating their individual claims in employment disputes, including wage and hour claims.