By Correy Stephenson
The Daily Record Newswire
BOSTON — The U.S. Supreme Court solidified its pro-arbitration stance in a recent decision interpreting the Credit Repair Organizations Act.
In CompuCredit v. Greenwood, the justices said the CROA was silent on whether claims can proceed in arbitration — despite a prohibition on waivers of a consumer’s rights and a disclosure provision that informed consumers of a “right to sue” — and therefore, the Federal Arbitration Act mandated enforcement of an arbitration clause.
Consumer advocates decried the decision for its impact on plaintiffs under the Act and described it as an affirmation of the Court’s ongoing support of arbitration.
“This is a statute that has been interpreted by other courts as not permitting binding, mandatory arbitration and yet the Court took pains to push forward arbitration,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center in Boston.
Scott L. Nelson, an attorney at Public Citizen Litigation Group in Washington, D.C. who argued the case on behalf of the consumers, agreed.
“The majority was so wedded to its view of the FAA and what it considers to be an overriding pro-arbitration policy, they did not see [the CROA] as any different from any other statute,” he said.
Michael W. McConnell, director of the Constitutional Law Center at Stanford Law School who argued the case on behalf of CompuCredit, said the Court’s decision “was a perfectly straightforward interpretation of the statute.”
Business proponents said the decision demonstrated the Supreme Court’s continuing support of arbitration.
“The CompuCredit decision shows yet again that this Court is serious about enforcing arbitration agreements,” said Linda T. Coberly, a partner at Winston & Strawn in Chicago who authored an amicus brief on behalf of DRI.
A group of consumers brought suit in federal court against CompuCredit, a company that marketed a credit card purported to help rebuild poor credit.
Pursuant to an arbitration agreement listed in the “summary of credit terms” in the credit card agreement, the company moved to compel arbitration.
A U.S. District Court in California concluded that the arbitration clause in the agreement was void given the CROA’s prohibition on waivers of a consumer’s right to sue in court, and denied the motion to compel. The 9th Circuit affirmed.
The U.S. Supreme Court granted certiorari and heard oral arguments in October.
Writing for an 8-1 Court, Justice Antonin Scalia reversed the denial of the motion to compel.
Despite the consumers’ argument that the Act’s disclosure and nonwaiver provisions give consumers a “right to sue,” the justices said that they do not.
“Rather, [the Act] imposes an obligation on credit repair organizations to supply consumers with a specific statement set forth … in the statute. The only consumer right it creates is the right to receive the statement, which is meant to describe the consumer protections that the law elsewhere provides,” the Court said.
Had Congress intended to prohibit CROA disputes from being arbitrated, “it would have done so in a manner less obtuse,” the justices concluded.
Therefore, given the liberal federal policy favoring arbitration agreements, the FAA requires the agreement to be enforced according to its terms, the Court said.
Justice Sonia Sotomayor authored a concurring opinion, which was joined by Justice Elena Kagan.
Justice Ruth Bader Ginsburg filed a dissenting opinion in which she emphasized that the intent of the CROA was to protect consumers who would not understand that the disclosure’s “right to sue” referenced arbitration.
“I believe Congress meant what an ordinary reader of the disclosure requirement would likely comprehend: A credit repair organization that engages in deceptive practices may be sued in court,” she wrote. “The Court today holds that credit repair organizations can escape suit by providing in their take-it-or-leave-it contracts that arbitration will serve as the parties’ sole dispute-resolution mechanism.”
The Court’s decision reflects Congress’ adoption of a strong policy favoring arbitration, noted Coberly.
“For situations where it prefers not to allow arbitration, Congress has made its intention clear,” she said. “But simply using words like ‘action’ and ‘court’ and ‘right to sue’ is commonplace when a statute creates a legal right. Terms like those don’t override Congress’s decision to foster arbitration.”
McConnell said the case provides insight into the Court’s stance on arbitration generally. “Eight justices did not even [take the] trouble to address the policy arguments in Justice Ginsburg’s dissent,” he said, and instead engaged in an analysis of statutory construction.
The perspective of the “vulnerable consumers” who brought suit — as urged by Justice Ginsburg — should not be the focus of analysis, McConnell said, because “Congress wrote the statute and it means what it means,” regardless of whom it applies to.
In addition to reinforcing the Court’s pro-arbitration stance, Nelson said the decision highlights what a right of action that isn’t subject to arbitration might look like.
To overcome the Court’s pro-arbitration stance, a law must explicitly state that consumers’ rights are not just “not waivable, but that pre-dispute arbitration agreements may not be applied to a claim under this statute,” Nelson said.
He argued that the majority used the current Congress’s greater consciousness of arbitration against the Congress of 20 years ago when the CROA was enacted, which wasn’t “quite as focused on how to write a statute that targeted arbitration that specifically.”
Gary M. Paul, president of the American Association of Justice, bemoaned the impact of the decision in a statement.
“With this ruling, the U.S. Supreme Court has given corporations a way to escape accountability by forcing consumers into a rigged and biased forced arbitration process, even when Congress expressly provides a remedy in a court of law,” he said, adding that the FAA doesn’t work for consumers and employees, who are left “with high fees and no opportunity for justice or accountability.”
McConnell disagreed.
“Although trial lawyers are convinced that arbitration is not good for consumers with small claims, it has a very good track record for being quick, cheap and convenient, all things you would never say about full-court lawsuits,” he said. “Obviously it’s in the interests of trial lawyers to go to court, but that doesn’t mean it is in the interest of consumers.”
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