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The U.S. Supreme Court issued an opinion on Jan. 10 ruling in favor of a credit card company that sought to enforce a mandatory arbitration provision in its agreement with a class of consumers that sued the company for making misleading statements and charging excessive fees.
The class of consumers who sued, called respondents in the Supreme Court opinion, are individuals who obtained Aspire Visa credit cards marketed by CompuCredit Corp. The cards were issued by Columbus Bank and Trust, now a division of Synovus Bank. Both companies petitioned the Supreme Court to hear the case.
In 2008, the respondents filed a class-action complaint against CompuCredit and Synovus in U.S. District Court for the Northern District of California alleging violations of the Credit Repair Organizations Act, or CROA.
The respondents alleged that the petitioners made misleading statements to the effect that the Aspire Visa credit cards could be used to rebuild poor credit. In addition, they said the petitioners had assessed multiple fees as soon as the accounts were open that substantially reduced the advertised credit limit.
Because the credit card agreement between CompuCredit and the card holders contains a mandatory arbitration clause, the petitioners moved in the district court to dismiss the case in favor of arbitration.
The arbitration clause in the credit card agreement states in part that, "Any claim, dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to your Account, any transferred balances or this Agreement (collectively, 'Claims'), upon the election of you or us, will be resolved by binding arbitration.”
Despite the clause, the district court denied CompuCredit’s motion. The court held that the CROA rendered the respondents claims non-arbitrable because the CROA states that consumers have the right to sue.
After the 9th U.S. Circuit of Appeals affirmed the district court, CompuCredit and Synovus petitioned for certiorari to the Supreme Court, which reversed.
The majority opinion, written by Justice Antonin Scalia, was joined by Chief Justice Roberts, and Justices Kennedy, Thomas, Breyer, and Alito. Justice Sotomayor wrote an opinion concurring in the judgment, in which she was joined by Justice Kagan. Justice Ginsburg dissented.
The majority opinion said the matter was primarily controlled not by the CROA, but by the Federal Arbitration Act, or FAA, which expresses a liberal federal policy in favor of arbitration.
Consumers need to bear in mind that, whether signing a credit card agreement or a contract with a stockbroker, the arbitration provision buried in the fine print is almost always legally enforceable.
The respondents contended before the Supreme Court that their claims were non-arbitrable because of the disclosure provision of the CROA. The provision requires credit repair organizations to provide consumers with a statement advising them of their rights. That statement that includes the sentence, “ ‘You have a right to sue a credit repair organization,’ ” that violates the CROA.
In addition, another section of the CROA prohibits the waiver of any right consumers have under its provisions. Given this statutory language, the respondents argued that the mandatory arbitration clause was unenforceable.
The Supreme Court did not see things their way, stating that the arbitration clause in the credit card agreement comes under the purview of the FAA, enacted in 1925 as a response to judicial hostility to arbitration. The FAA states that written provisions in contracts dictating that disputes are to be settled by arbitration. “ ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ ”
Moreover, the FAA applies even when the claims are grounded in federal statutes, unless Congress has expressly stated otherwise. Among other cases, the Supreme Court’s majority opinion cited the 1987 case Shearson/American Express Inc. v. McMahon, which stated the FAA can only be overridden by “ ‘a contrary congressional command.’ ”
The respondents contended that the CROA contains such a command, pointing to the statement in the disclosure provision that consumers have the right to sue. The Supreme Court said the respondents -- and the courts below that agreed with them -- were misunderstanding the function of a disclosure provision.
The only right embodied in the disclosure provision is a right to be informed, the Supreme Court opinion said. All other rights mentions in the provision are found in other statutes. Therefore, that provision of the CROA which states that no right bestowed by the CROA can be waived does not apply to the right to sue in a court of law.
“Interpreting the ‘right to sue’ language in [the CROA] to ‘create’ a right to sue in court not only renders it strikingly out of place in a section that is otherwise devoted to giving the consumer notice of rights created elsewhere; it also renders the creation of the ‘right to sue’ elsewhere superfluous,” the opinion said.
The Supreme Court also stated that it has repeatedly recognized contractually required arbitration of claims as “satisfying the statutory prescription of civil liability in court,” citing Shearson/American Express again, as well as the 1985 case Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., among others.
Finally, the court said that at the time the CROA was enacted in 1996, arbitration clauses were hardly rare. In fact, by the early 1990s the inclusion of arbitration clauses in consumer contracts had exploded, particularly in financial services contracts.
Given this, if Congress had meant to prohibit arbitration provisions in the CROA, it would have simply done so, without the cobbling together of provisions required by the respondents’ interpretation.
“When [Congress] has restricted the use of arbitration in other contexts, it has done so with a clarity that far exceeds the claimed indications in the CROA …” the opinion said. “That Congress would have sought to achieve the same result in the CROA through combination of the nonwaiver provision with the ‘right to sue’ phrase in the disclosure provision ... is unlikely.”
If you have been the victim of securities fraud and you are required to arbitrate your claim, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Firm, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. The Guiliano Law Firm has arbitrated numerous claims before the Financial Industry Regulatory Authority. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
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