A pay day loan company’s lawyer argued this week that the Florida Supreme Court must uphold a contract provision prohibiting customers from banding together in class action arbitration cases against the firm because of a 2011 U.S. Supreme Court decision.
The state justices’ decision will affect similar clauses widely used to require customers to sign away their right to sue in exchange for case-by-case arbitration to resolve potential allegations that businesses have violated usury, deceptive practices or other consumer protection laws. The clauses are designed to avoid costly lawsuits and often include confidentiality provisions to keep the results from becoming public.
The state’s 4th District Court of Appeal affirmed a trial judge’s invalidation of the class action ban that’s in McKenzie Check Advance’s loan contracts. The appellate court ruled borrowers in Palm Beach County were unable to seek justice because they couldn’t find lawyers willing to pursue individual claims for relatively small amounts of money in cases involving complex legal issues.
Circuit Judge Elizabeth Maass ruled the clause was “unconscionable.”
The appellate court also certified a question of great public important to the Supreme Court: Whether the class action waivers violate public policy by preventing consumers from obtaining competent counsel.
The U.S. Supreme Court, though, subsequently struck down a California law that outlawed arbitration clauses with similar class action bans.
The 5-4 opinion in the case of AT&T Mobility LLC. v. Concepcion says the state statute conflicted with a federal law that encourages arbitration. Federal laws trump conflicting state laws under the U.S. Constitution’s supremacy clause.
“At this point it’s not an issue of whether arbitration’s good or bad, but it’s an issue of the supremacy clause,” said Jamie Bianchi, a lawyer for McKenzie.
Justice Barbara Pariente acknowledged Bianchi had a strong argument.
“It would seem — and maybe this is sort of a friendly question for you — that Concepcion really takes the certified question and really obviates it,” Pariente said. “Right or wrong, we’re bound to follow the U.S. Supreme Court.”
“We agree with that, your honor,” Bianchi replied.
Pariente later added, “So much for state’s rights, huh?”
F. Paul Bland, a lawyer representing Wendy Betts and other McKenzie customers, argued the Concepcion ruling does not prevent the state justices from affirming the 4th District’s ruling.
Bland said the decision did not invalidate prior U.S. Supreme Court rulings saying consumers must be able to effectively vindicate their rights.
“A procedure that ends up gutting the rights effectively is enough to render the clause unenforceable,” Bland said.
Pariente, though, asked how he could argue “with a straight face” that the U.S. Supreme Court would void the class action ban simply on the basis of testimony from three consumer advocate lawyers who said they wouldn’t take the McKenzie cases.
Bland argued they included a legal aid lawyer who offered broader evidence of being unable to find lawyers willing to take a large number of cases, some involving military members.
The high court did not indicate when it would rule.
The case is McKenzie Check Advance of Florida LLC, et al. v. Wendy Betts, et al., SC11-514.