In re Checking Account Overdraft Litigation, MDL No. 2036 (S. D. Fla. Sept. 2011), decides renewed motions to compel arbitration of nationwide class-action litigation consolidated for multidistrict litigation purposes in South Florida.  The Court denies again the motions to compel arbitration.  The international litigation issues in the case are similar to those in Cruz, et al. v. Cingular Wireless, LLC, No. 08-16080 (11th Cir. Aug. 2011),which is among the first Court of Appeals decisions since the U.S. Supreme Court’s decision in AT&T Mobility LLC (ATTM) v. Conception, 131 S.Ct. 1740 (2011), which addressed the issue whether a state law imposing limits on a contracting party’s ability to prevent class actions in arbitration was preempted by federal law.  We have posted on these topics (Conception here, and Cruz here).

The claims in the current MDL litigation raise claims under the laws of four states:  North Carolina, South Carolina, Maryland, and Georgia.  The Court understood the issue before it to be whether the Savings Clause in the Federal Arbitration Act permitted it to find the arbitration provisions unconscionable under state law and hence not enforceable.   In analyzing AT&T and Cruz, the Court found that the agreements in those two cases were identical to each other but were substantively and, in the Court’s view, dispositively different from the agreements before it.  In the Supreme Court and Eleventh Circuit cases, said the District Court, the arbitration agreements were “extremely consumer-friendly” and “aggrieved customers who filed claims would be essentially guaranteed to be made whole”.   Relevant to the Courts in the other cases was that the Company was not permitted to seek or was restricted with respect to seeking attorneys’ fees, and the claimant could proceed in his own county, could proceed by telephone or based solely on submissions, and the arbitrator could afford any form of individual relief.

In the case before it, however, the Court addressed the kind of different facts, which we adverted to in our recent posting on possible limits to federal policy favoring arbitration (i.e., freedom of contract philosophies) preempting state law consumer protection doctrines.  The MDL Court found that the controlling cases “did not completely do away with unconscionability as a defense to the enforcement of arbitration agreements under the FAA” but instead read the Savings Clause to permit invalidation by generally applicable defenses but not “defenses that apply only to arbitration or that dervice their meaning from the fact that an agreement to arbitrate is at issue” (quoting Conception).  In the four agreements at issue in the MDL litigation, the Court found that provisions permitting the prevailing party to recover attorneys’ fees — either mutual provisions or one-way (in favor of the bank) — were the single provision relied upon for the finding of unconscionability.   The District Court, however, did not determine that any contract with such a provision would be unconscionable.  Did the controlling precedent require it to do so?  Is the reason the fee shifting provision was dispositively bad here because it was in the context of an arbitration?  Was reliance on this provision effectively reliance precisely on a “defense[] that appl[ied] only to arbitration or that derive[d] their meaning from the fact that an agreement to arbitrate is at issue”? 

Finally, each of the four agreements included severability clauses that specifically gave the Court the right to sever provisions (such as the fee-shifting agreement) if found unenforceable.  The MDL Court found that the defendants had waived the right to rely on the severability provision by not raising it in their initial motion papers.