Amex Class Action Defense Cases-Aviation Data v. American Express: California Court Holds Defense Misrepresentations Warrant Rejection Of Class Action Settlement And Waiver Of Right To Arbitrate

Misrepresentations by Defendant and Defense Counsel in Connection with Discovery and Court Proceedings Surrounding Proposed Settlement of Class Action Supported Trial Court Ruling that Defense Waived Right to Compel Arbitration California Court Holds

Plaintiffs filed a class action California state court against American Express Travel Related Services (Amex) alleging violations of the state’s unfair competition law arising out of the manner in which it charged for flight and baggage insurance. Aviation Data v. American Express Travel Related Services Co., Inc., ___ Cal.App.4th __, 62 Cal.Rptr.3d 396, Slip Opn., at 2 (Cal.App. 2007). A proposed settlement fell apart due to misrepresentations made by defense counsel, and Amex moved to compel arbitration. The Court of Appeal defined the issue as, “May a party lose its contractual right to compel arbitration if, when negotiating and seeking approval of a class action settlement, it misrepresents the benefits of the proposed settlement to the court, opposing counsel and others?” _Id._, at 1. The court summarized the trial court order and its holding at page 1 as follows: “Here the trial court refused to approve a class action settlement when it concluded that counsel for [Amex] misled plaintiffs in the course of negotiations by offering to make significant modifications to its travel insurance program that, unbeknownst to the plaintiffs, it had already made for reasons unrelated to the lawsuit. We hold the court did not err in ruling that due to its misleading conduct, Amex lost its right to compel arbitration.”

The class action complaint alleged that Amex offered cardholders flight and baggage insurance programs at a cost of $4-$14 per flight automatically charged to their American Express card. The class action alleged that cardholders believed Amex would charge them for this insurance only if they actually flew, and would receive refunds if flights were canceled or the airline tickets were not used. Instead, “Amex engaged in a scheme to cheat and defraud its cardholders by assessing premiums for trips it knew were never taken; intentionally designed its billing practices, procedures and computer programs to bill customers for services they did not receive or use and to double-bill for the same service; and intentionally failed to issue refunds or credits on cancelled flights or unused tickets.” Aviation, at 2.

Arbitration Class Action Court Decisions Uncategorized

Arbitration Class Action Defense Case-DiFiore v. American Airlines: Federal Court Rejects Defense Effort To Compel Arbitration With Class Action Plaintiffs Based On Agreement With Co-Defendant

Defense Attempt to Compel Arbitration of Class Action Claims Based on Arbitration Clause in Employment Agreement Between Plaintiffs and Co-Defendant Warranted Only “Passing Attention” and was Rejected by Massachusetts Federal Court Skycaps filed a class action lawsuit against American Airlines and against their direct employer, G2 Secure Staff, LLC, which employs skycaps for airlines, alleging that American Airlines violated the Massachusetts Tips Law by imposing a $2 per bag service charge for passenger luggage checked at curbside.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Hollins v. Debt Relief: Nebraska Federal Court Denies Defense Motion To Compel Arbitration Of RICO Class Action Holding Arbitration Clause Unenforceable

Class Action Defense Effort to Compel Arbitration Based on Provision in Contract Executed by Plaintiff Rejected by District Court because Arbitration Clause Held to be Unconscionable

Plaintiffs filed a putative class action against Debt Relief of America (DRA) in Nebraska federal court alleging that DRA – a company that offers “to help consumers eliminate their debt by negotiating reduced payoffs in settlement of the debts” – engaged in acts of fraud and charged excessive and undisclosed fees in violation of Racketeer Influenced and Corrupt Organizations Act (RICO) and Nebraska’s Consumer Protection Act and Deceptive Trade Practices Act. Hollins v. Debt Relief of Am., 479 F.Supp.2d 1099, 1103 (D. Neb. 2007). Defense attorneys moved to compel arbitration under a Client Negotiation Agreement executed by plaintiff in Nebraska; the Agreement includes an arbitration clause and a Texas choice-of-law provision. Id. The district court denied the defense motion, holding that the arbitration clause was procedurally and substantively unconscionable.

Plaintiff responded to an advertisement by DRA to assist in reducing debt; he admits signing the Agreement but claims that he did not notice the arbitration clause, that it was “buried in the fine print of an illegible fax,” and that DRA did not point out the arbitration provision before he executed the Agreement. Hollins, at 1103. The class action complaint alleged that plaintiff paid DRA almost $5000 based on its “promise[] to manage his debts,” but that the company “never took any action to assist [him] or contact his creditors.” Id. The complaint further alleged DRA advised him to “ignore[] his creditors,” that his accounts were sent to collection, and that “he filed bankruptcy because of DRA’s alleged misrepresentations.” Id. Plaintiff’s purported class action seeks to represent “all Nebraska residents who paid any amount for DRA’s debt relief services,” id.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Berenson v. National Financial: First Circuit Dismisses Interlocutory Appeal In Class Action For Lack Of Jurisdiction

Federal Arbitration Act (FAA) Provision Allowing Appeals from Orders Denying Petitions to Compel Arbitration Inapplicable Where District Court Granted Defense Motions Dismissing Class Action Allegations in Putative Class Action Complaint and then Granted Defense Motion Compelling Arbitration

Plaintiffs filed a putative class action in the District of Columbia federal court against their broker, National Financial Services and Fidelity Brokerage Services (both subsidiaries of Fidelity Investments), alleging violations of the federal Electronic Funds Transfer Act (EFTA) and various state laws arising out of Fidelity’s failure to pay customers interest on the “float” of their funds from date they requested electronic transfer of funds to the date the funds were in fact transferred. Berenson v. National Fin. Servs. LLC, 485 F.3d 35, 36 (1st Cir. 2007). The class action complaint alleged that plaintiffs opened an account with Fidelity in the 1980s, id. The Fidelity account agreement contained an arbitration clause requiring arbitration of “all controversies” but forbidding either party in a putative class action from seeking to compel arbitration unless (1) class action treatment is denied, (2) the class action is decertified, or (3) the court excludes the customer from participating in the class action, id., at 37-38. After the class action complaint was transferred to the Massachusetts federal court, id., at 37 n.3, defense attorneys filed a series of motions attacking the pleadings and the class action allegations but “reserved the right to compel arbitration if class certification is denied,” id., at 38. Ultimately defense attorneys succeeded in defeating the class action allegations and moved to compel arbitration of the plaintiffs’ non-class claims. After the district court compelled arbitration, Fidelity sought appellate review of the court’s order granting summary judgment; the First Circuit dismissed the interlocutory appeal for lack of jurisdiction.

Plaintiffs began using the company’s electronic bill payment service in the mid-1980s, but after a period of time Fidelity contracted out this service and in 2000 entered into an agreement with CheckFree to handle the bill payment service using the “good funds” method, which the First Circuit summarized at page 37 as follows:

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Sanford v. MemberWorks: Ninth Circuit Holds District Court Erred In Failing To Determine Existence of Membership Contract Prior To Compelling Arbitration But Correctly Dismissed Class Action Complaint Against Co-Defendants

District Court must Resolve Issues Regarding Existence of Contract before Compelling Arbitration and Dismissing Class Action Allegations, but Class Action Complaint Against Co-Defendant Properly Dismissed Ninth Circuit Holds

Plaintiff filed a putative class action in federal court against MemberWorks and West Telemarketing alleging she was charged a membership fee for joining the “Essentials program” – a service that, for an annual fee, offers members a 20% discount at certain retailers – in violation of 39 U.S.C. § 3009 (prohibiting mailing unordered merchandise) and various state laws because she had not heard of, and did not join, the program. Sanford v. MemberWorks, 483 F.3d 956, 958-59 (9th Cir. 2007). Defense attorneys for MemberWorks moved to compel arbitration based on a clause in the membership agreement and to strike the class action allegations; defense attorneys for West joined in the motion to compel arbitration. Id., at 959. Plaintiff objected to the arbitration demand on the ground that she never enrolled in the Essentials program, id. The district court granted the motion to compel arbitration as to MemberWorks, holding that a determination as to the enforceability of the contract as a whole must be made by the arbitrator; but the court denied the motion as to West because it was not in privity with plaintiff, and instead dismissed the class action complaint as to West because West had not mailed plaintiff any merchandise that she had not ordered and because the court refused to exercise supplemental jurisdiction over the state law class action claims – namely, conversion, unjust enrichment and fraud – against West. Id. The Ninth Circuit affirmed the dismissal of the class action complaint as against West, but reversed the district court order compelling arbitration and reinstated the class action allegations as against MemberWorks.

Plaintiff purchased by telephone Tae-Bo fitness tapes through West Telemarketing. Sanford, at 958. Sales agents were instructed to read purchasers a script at the conclusion of the transaction stating that, with the purchaser’s consent, they would be sent a “risk-free 30-day membership” in the Essentials program, and that the $72 annual fee would be billed to their credit card if membership was not canceled within 30 days. Id. Plaintiff denied hearing the script or agreeing to the trial membership; MemberWorks’ records showed that plaintiff enrolled in the program and received a membership kit that included a membership agreement containing an arbitration clause. Id., at 958-59. Plaintiff did not cancel the membership so a $72 fee was charged to her card, and the next year a renewal fee of $84 was billed to her card. Id., at 959. Plaintiff disputed the renewal fee and MemberWorks reversed the charge, id. Plaintiff then filed her putative class action against MemberWorks and West.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Lee v. Southern California: Class Action Plaintiff In Putative CLRA/UCL Class Action Not Bound By Arbitration Agreements Signed By Class Members California Court Holds

California Appellate Court Holds that Class Action Plaintiff cannot be Compelled to Arbitrate Claims Simply Because Class Members Signed Arbitration Agreements, as that Fact is not Relevant Until Motion to Certify Class Action, and in any Event Injunctive Relief Claims were not Subject to Arbitration

Plaintiff filed a putative class action against Southern California University for Professional Studies (SCUPS) alleging violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) for failing to refund prepaid tuitions to its students. Lee v. Southern Cal. Univ. for Prof. Studies, 148 Cal.App.4th 782, 784 (Cal.App. 2007). Defense attorneys moved to compel arbitration, arguing that even though the class action representative was not directly subject to arbitration, 408 of the 519 putative class members had signed enrollment agreements with arbitration clauses and plaintiff, as their representative, was therefore bound to arbitrate her claims. Id., at 785. The trial court disagreed, denying the defense motion to compel arbitration of the putative class action. SCUPS appealed, and the appellate court affirmed.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Davis v. O’Melveny & Myers: Ninth Circuit Reverses Order Dismissing Labor Law Class Action And Compelling Arbitration Holding Arbitration Clause Unconscionable

District Court Erred in Dismissing Employment Class Action and Compelling Arbitration Because “Take it or Leave it” Option was Procedurally Unconscionable Despite 3-Months’ Notice of Arbitration Clause and Limitations Period for Asserting Claims Against Employer was Substantively Unconscionable Ninth Circuit Holds

In February 2004, plaintiff, a paralegal at O’Melveny & Myers until July 2003, filed a class action against her former employer alleging violations of the federal Fair Labor Standards Act (FLSA) and California state laws for failing to pay overtime and failing to provide meal and rest periods. Davis v. O’Melveny & Myers, ___ F.3d ___ (9th Cir. May 14, 2007) [Slip Opn., at 5605-07]. The district court granted the defense motion to dismiss the class action and compel arbitration based on a Dispute Resolution Program that had been distributed to employees via interoffice mail and via the office intranet site. _Id._, at 5606. The class action alleged, in part, that the DRP was unconscionable and enforceable, _id._, at 5607. On appeal, the Ninth Circuit stated that whether the class action claims fell within the scope of the DRP was not in dispute; the issue, rather, was whether the arbitration provision was enforceable. _Id._, at 5608.

Preliminarily, the Ninth Circuit held that “the question of whether O’Melveny’s arbitration agreement is unconscionable is for a court to decide” rather than an arbitrator. Davis, at 5610 (citations omitted). It then addressed whether the arbitration clause was procedurally and substantively unconscionable, as required under California law, id., at 5611 (citations omitted). The Court of Appeals had little difficulty finding the provision procedurally unconscionable, holding that it was prepared by a “sophisticated employer – a national and international law firm, no less” and that, even though the arbitration clause was not hidden and employees were not taken by surprise, “in a very real sense the DRP was ‘take it or leave it.’” Id., at 5611-12. The only way for an employee to “opt out” of the arbitration provision was to leave the company, and California and Ninth Circuit decisional law disapproves of such provisions in employment agreements. Id., at 5612-13 (citations omitted).

Arbitration Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases-Omstead v. Dell: California Federal Court Grants Defense Motion To Stay Class Action Litigation And Compel Arbitration Where Arbitration Clause Contains Class Action Waiver

In Putative Class Action Against Computer Manufacturer, California Federal Court Holds that Texas Choice of Law Provision in Computer Sales Agreement is Valid and Arbitration Clause Containing Class Action Waiver is Enforceable

Plaintiffs filed a class action against Dell alleging defects in its notebook computers. Omstead v. Dell, 473 F.Supp.2d 1018, 1021 (N.D. Cal. 2007). Defense attorneys moved to stay the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), id., at 1020. The arbitration clause contained a class action waiver, prohibiting customers from initiating or participating in class action litigation with Dell, id., at 1022. The district court granted the defense motion, holding that the class action waiver did not invalidate the arbitration clause.

Plaintiffs propose to litigate a class action on behalf of purchasers of Dell notebook computers alleging that they were “manufactured with three defects – inadequate cooling systems, a power supply that prematurely fails when used as intended, and motherboards that prematurely fail when used as intended.” Omstead, at 1021. The defense moved to stay the class action and compel arbitration based on the sales agreement provided to its computer purchasers; that agreement states that Texas law shall apply to any dispute arising out of the purchase of the computer and contains an arbitration clause governed by the FAA. Id. Further, all sales confirmations advised purchasers that the “Conditions and Terms of Sale” contain “a dispute resolution clause.” Id. Plaintiffs did not dispute receiving the sales agreement; rather, they argued that California law governed whether the arbitration clause therein was enforceable, not Texas law, and that under California law the class action waiver provision was unenforceable. Omstead, at 1022.

Arbitration Class Action Court Decisions Uncategorized

American Express Class Action Defense Case—Berry v. American Express: As Matter Of First Impression California Court Holds Issuance Of Credit Card Falls Outside Scope Of Consumer Legal Remedies Act (CLRA)

Act of Extending Credit “Separate and Apart from any Sale or Lease of Goods or Services” Falls Outside the Scope of California’s Consumer Legal Remedies Act (CLRA) California Court Holds

Plaintiff filed a putative class action against various American Express entities seeking injunctive relief under California’s Consumer Legal Remedies Act (CLRA) in connection with arbitration clause contained in his American Express cardholder agreement. Berry v. American Express Publishing, Inc., 147 Cal.App.4th 224, 54 Cal.Rptr.3d 91, 92 (Cal.App. 2007). Defense attorneys demurred to the complaint, arguing that issuing a credit card does not fall within the scope of the CLRA. The trial court agreed with the defense arguments and sustained the demurrer to the class action complaint without leave to amend. The appellate court affirmed, concluding that “the extension of credit, such as issuing a credit card, separate and apart from the sale or lease of any specific goods or services, does not fall within the scope of the act.” Id.

After plaintiff began receiving an Amex publication called “Travel + Leisure” and noticed a $43 charge on his credit card statement for the magazine, he telephoned American Express Centurion Bank and American Express Publishing, the subscription was canceled, and the charge was reversed. Berry, at 93. Plaintiff then filed a putative class action against various American Express entities alleging that defendants charged customers for magazines that they never ordered. Id. Ultimately, the class action complaint was amended to contain but a single cause of action for declaratory relief “which alleged the arbitration clause and class action waiver in the cardholder agreement violated CLRA.” Id. Thus, the complaint sought solely to prohibit enforcement of the arbitration clause in the cardholder agreement. Defense attorneys demurred and the trial court sustained the demurrer without leave to amend, dismissing the class action complaint with prejudice. Id.

Arbitration Class Action Court Decisions Uncategorized

Jenkens & Gilchrist Class Action Defense Case-Olson v. Jenkens & Gilchrist: Illinois Federal Court Grants Defense Motion To Compel Arbitration Of Claims Against Law Firm/Lawyers Involved In Tax Shelter Ultimately Held Illegal By IRS

In Multifaceted Action Against Several Defendants, Illinois Court Grants Ernst & Young’s Defense Motion to Dismiss, Grants Timmis Law Firm/Lawyers Defense Motion to Compel Arbitration, and Grants Deutsche Bank Defense Motion for Stay

Plaintiffs filed a putative class action in Illinois state court against various lawyers, accountants, and bankers with whom they had consulted in connection with minimizing tax liability arising from the sale of their respective companies because the IRS subsequently determined that the tax saving strategy recommended to plaintiffs was “illegal” and they “ended up losing hundreds of thousands of dollars in the transactions.” Olson v. Jenkens & Gilchrist, 461 F.Supp.2d 710, 714 (N.D. Ill. 2006). Defense attorneys removed the action to federal court. Certain defendants then moved to dismiss the class action complaint, and other defendants moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA), and still other defendants moved for a stay of proceedings, id. The district court granted the defense motions.

The tax strategy recommended to plaintiffs involved digital option contracts, sometimes called Currency Options Bring Reward Alternatives (COBRA). Olson, at 714-15. We do not summarize here the convoluted and complicated fact pattern underlying the class action complaint. Suffice it to say that plaintiffs were persuaded by some of the law firm defendants to use digital options as a tax shelter in connection with the sale of their companies, the IRS subsequently determined such tax shelters to be illegal, and that plaintiffs suffered substantial damages as a result. The law firm defendants also allegedly advised plaintiffs not to participate in an IRS amnesty program and, even after the IRS determination, defendants failed to “retract, modify, or qualify their advice that the tax strategy was legal.” Id., at 716.

Ernst & Young moved to dismiss the 10 claims against it, which included claims for fraud, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Illinois Consumer Fraud Act), conspiracy, declaratory relief, and breach of the duty of good faith and fair dealing. The district court granted the motion finding that the class action complaint alleged only that Ernst & Young was involved “in the initial creation of the COBRA tax strategy in 1999”: plaintiffs “[did] not allege that [Ernst & Young] provided any professional services to Plaintiffs; received any fees from Plaintiffs directly or as a result of any transaction Plaintiffs engaged in; communicated with Plaintiffs in any way; or had any relationship with Plaintiffs whatsoever. While the Complaint does allege that [Ernst & Young] had a relationship with Jenkens and Deutsche Bank, Plaintiffs do not allege that relationship led to any damages to Plaintiffs.” Olson, at 718. Accordingly, the district court dismissed the class action claims against Ernst & Young, but did so without prejudice. Id.

Arbitration Class Action Court Decisions Uncategorized