Supreme Court Watch Does 'right to sue' mean there is right to arbitration? Cardholders sued credit company

By Kimberly Atkins

The Daily Record Newswire

BOSTON -- At oral arguments Tuesday, the justices of the U.S. Supreme Court expressed skepticism that a "right to sue" provision in a federal consumer credit statute prevents credit card companies from enforcing mandatory pre-dispute arbitration clauses with its customers.

The case of CompuCredit Corp. v. Greenwood stems from a federal lawsuit filed by consumers who applied for an Aspire credit card, a subprime credit card that advertised itself as a way for higher-risk applicants to "rebuild poor credit."

The offer promised a "no deposit" card with a guaranteed $300 credit limit. But consumers who received the card say the card company, CompuCredit, charged an immediate $29 finance fee, a $150 annual fee and a monthly $6.50 maintenance fee that accounted for $257 of the $300 limit.

The credit card application required applicants to agree to the "terms of offer," which stated that all disputes were subject to arbitration before the National Arbitration Forum, and that cardholders "will not have the right to go to court or have the dispute heard by a jury."

Still, the cardholders filed suit in federal court, alleging violation of the Credit Repair Organizations Act, which prohibits the waiver of certain consumer protections. The law also establishes certain consumer rights, including "a right to sue a credit repair organization that violates the [Act]."

The company moved to compel arbitration, but the district court denied the motion, citing the Act's prohibition of the waiver of consumers' right to sue. The 9th Circuit affirmed and the U.S. Supreme Court granted the company's petition for certiorari.

Does sue mean arbitrate?

At oral arguments, Michael W. McConnell, director of the Constitutional Law Center at Stanford Law School, argued for the credit card company that the law did not bar pre-dispute binding arbitration clauses.

The Act is not "sufficiently explicit to override the strong federal policy in favor of arbitrability expressed in the Federal Arbitration Act," McConnell said.

But Justice Ruth Bader Ginsburg noted that the consumer rights listed in the statutes were meant to be understood by consumers, not lawyers.

"An ordinary person not schooled in the law [who] read, 'you have a right to sue,' wouldn't they understand that to mean: 'I have a right to sue in court?'" Ginsburg asked.

McConnell said that the "right to sue" is synonymous with "cause of action" -- and that includes arbitration.

"[It] doesn't mean that it's exclusively a right to be in court," McConnell said. "It gives you rights which may be vindicated, and there are various ways in which they can be vindicated."

"These are take-it-or-leave-it contracts," Ginsburg said of the credit card agreement at issue. "So the consumer doesn't really elect arbitration. It's just presented as part of the terms that the consumer can take or leave and not negotiated."

"That is an argument against arbitration that this Court has rejected several times," McConnell said. "That is a policy question."

Procedural vs. substantive rights

But most of the justices seemed to question the position of Scott L. Nelson, an attorney at the Public Citizen Litigation Group in Washington who argued on the consumers' behalf.

"[ The Act] says that any right of the consumer under the statute is non-waivable," Nelson said.

Justice Antonin Scalia noted that the "right to sue" provision was included in a section of the law which simple states consumers' rights -- not the main substantive portion of the text.

"That's a very strange way for Congress to say 'no arbitration,'" Scalia said, "by putting the language in a section [of the law] that has nothing to do with the rights under the Act."

"I think it's not a strange way at all, but a very direct way in the [consumer] context here," Nelson said.

"[So] all of a sudden, simply because the statute uses normal language, procedural rights are elevated to the level of substantive rights and can't be waived?" Scalia asked. "That can't be right."

"[Congress said] any right under this statute is not subject to waiver," Nelson said. "That creates a very strong inference that Congress meant what it said."

"You agree, I take it, that you would lose if the statute said 'cause of action'" instead of "right to sue," asked Chief Justice John G Roberts.

"Yes, I don't think that 'cause of action' would do it for us," Nelson said.

On rebuttal, McConnell took on the issue of class actions at Justice Sonia Sotomayor's behest.

"Is it your position that you could seek a waiver of the class action even though this statute expressly contemplates class actions?" Sotomayor asked.

"The statute contemplates but doesn't require class actions," McConnell said. "It doesn't say there must be class actions. [So] my answer to you is that [class actions] are not a right to begin with, whether waivable or not."

A decision from the Court is expected later this term.

Published: Fri, Oct 14, 2011

Comments

  1. No comments
Sign in to post a comment »