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Courts weigh in on class action bans in arbitration.

Article Excerpt
Mandatory arbitration clauses are common in all types of consumer agreements, and many also contain bans on class actions. But if people with small-value claims are forced to go to arbitration and are denied class-based treatment there, they are left with no real recourse, consumer advocates say.

Some courts are beginning to agree. In April, the First Circuit struck down a class action ban in an arbitration agreement but upheld the agreement itself. As a matter of first impression, the court held that the ban prevented the plaintiffs from vindicating their statutory rights against cable TV giant Comcast Corp.

"If the class mechanism prohibition here is enforced, Comcast will be essentially shielded from private consumer antitrust enforcement liability, even in cases where it has violated the law," Circuit Judge Kermit Lipez wrote for the three-judge panel. (Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006).)

A group of Comcast subscribers sued the company for charging them inflated prices for cable service, arguing that its anticompetitive practices violated antitrust laws. The plaintiffs said that certain provisions in their contracts, including those barring the use of class mechanisms and the recovery of treble damages, prevented them from vindicating their statutory rights under federal and state law.

The court concluded that these provisions were invalid and severable from the agreement--and that they conflicted with the Federal Rules of Civil Procedure, which provide for class actions. Because the agreement "creates a mandatory arbitration regime, a ban on class arbitration effectively forecloses the use of any class-based mechanism,"...

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