SW Legal studies in Business

Class Action Waiver in Arbitration Clause Violates New Jersey Public Policy
Description

Appeals court held that a credit card company cannot enforce an arbitration clause in its credit card contract that prohibits class action suits against the card company in case of dispute. The court held that the clause violated New Jersey public policy, so was unconscionable.

Topic Alternate Dispute Resolution
Key Words

Arbitration Clause; Enforcement; Unconscionability

C A S E   S U M M A R Y
Facts

American Express (AE) had a promotional credit card program. It claimed that users of its “Blue Cash” credit card would earn up to 5% cash back on purchases made with the card. AE issued a Blue Cash card to Homa, a New Jersey resident. Homa later sued in federal court, claiming to represent a class of New Jersey consumers who obtained Blue Cash cards. Homa contended that AE misrepresented the actual terms of the rewards program and failed to award him the promised amount of cash back in violation of the New Jersey Consumer Fraud Act. The agreement with AE stated that arbitration was the exclusive forum for any complaint and that class-action complaints were prohibited. The agreement also stated that Utah law would govern. Utah law allows class-action waivers as existed in the agreement. The district court dismissed the suit and granted the AE motion to compel arbitration. Homa appealed.

Decision

Reversed and remanded. Ordinarily when parties to a contract have agreed to be governed by the laws of a particular state, New Jersey courts will uphold the contractual choice if it does not violate New Jersey public policy. Under New Jersey law, Utah’s allowance of class-action arbitration waivers violates public policy of New Jersey against such waivers, especially when found in contracts of adhesion and in circumstances involving small amounts of damages. That is the case here. Each potential class member has suffered a small loss and had no opportunity to bargain over the terms of the AE contract. New Jersey has a greater interest than Utah in the enforceability of a class-action arbitration waiver in a credit card agreement that applied to New Jersey residents. Due to the conflict between New Jersey and Utah law on this issue, the provision violates New Jersey public policy and cannot be enforced as it is unconscionable.

Citation

Homa v. American Express Co., 558 F.3d 225 (3rd Cir., 2009)

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