One of the most important issues to consider in evaluating a potential class action is whether the consumer contract includes a clause requiring any dispute to be submitted to binding arbitration and prohibiting arbitration on a classwide basis. An arbitration requirement is a matter of contract. So, if there is no arbitration requirement in the contract, or if the consumer did not assent to the provision, and the defendant cannot take advantage of another entity’s binding arbitration requirement, then arbitration should not be a concern. On the other hand, if there is an arbitration requirement that prohibits class actions, this will complicate any effort to maintain a class action.
As described in § 126.96.36.199, infra, there are many grounds to challenge an arbitration requirement, depending on the nature of the case and the arbitration agreement. Moreover, do not assume that all contracts include arbitration clauses. While arbitration clauses are widespread in some industries, they are less so in others. Also, some defendants in class actions have not even entered into contracts with consumers, and thus have no opportunity to impose an arbitration requirement. For example, this is generally the situation with respect to acts or omissions by a consumer reporting agency that violate a consumer’s rights.
Nevertheless, in many consumer contracts there is an arbitration requirement. This leaves the plaintiff’s attorney with two options. One is to try to pursue the class action within the arbitration proceeding. Such a class will face several hurdles, which may be insurmountable in many cases, but successful certification typically puts the class in a stronger position than a certified class in a court proceeding. This option is discussed at § 188.8.131.52, infra.
The other option is to challenge the enforceability of the arbitration requirement. While § 184.108.40.206, infra, lists a number of such challenges, depending on the arbitration clause and the transaction such challenges may not be successful and may involve extensive litigation, including appeals. This option is summarized in § 220.127.116.11, infra, but far more detail on this subject is found in NCLC’s Consumer Arbitration Agreements.39