Opinion

Alison Frankel

Stanford professor: State qui tam actions could be answer to Concepcion

By Alison Frankel
May 31, 2013

Janet Cooper Alexander, a professor at Stanford Law and a scholar of civil procedure and class actions, is not a fan of the U.S. Supreme Court’s 2011 ruling in AT&T Mobility v. Concepcion. In an upcoming paper for the University of Michigan Journal of Law Reform, Alexander discusses why, in her view, the high court majority “fundamentally misread” legislative history and congressional intent when it used the Federal Arbitration Act “to advance an agenda that is hostile to consumer litigation and classwide procedures.” Alexander argues that Concepcion‘s overarching endorsement of mandatory arbitration clauses has had a dire impact on the ability of consumers and employees to litigate small claims, since they’re “subject to unilaterally imposed arbitration provisions that overwhelmingly contain class waivers.”

“(Concepcion) may lead to the virtual death of the class action in employment cases and consumer contracts involving the sale of goods and services – any small-dollar transaction that can be governed by shrinkwrap, clickwrap, claim check, or other form of contract,” Alexander wrote.

Like I said, not a fan of the ruling. The professor thinks it’s highly unlikely that the current Congress will pass federal legislation to roll back Concepcion, and though she believes executive-branch agencies have the power to issue regulations restricting mandatory arbitration clauses, “such regulations, of course, could only govern contracts within the agency’s sphere of authority and could not apply broadly to all consumer contracts,” she wrote. And since Concepcion dealt specifically with a state attempt to preclude a purportedly unconscionable arbitration clause, employees and consumers can’t rely on statewide regulation to reopen the courthouse doors for their claims.

But all hope is not lost for Concepcion detractors. Alexander suggests that state legislatures could use California’s Private Attorneys General Act (PAGA) of 2004 as a model to enact laws that give employees and consumers the right to pursue aggregated small claims on behalf of the state. “Rather than trying to prevent corporations from requiring consumers and employees to resolve their claims for contractual monetary remedies in bilateral arbitration, a state could create an alternative means for private enforcement of the substantive law,” Alexander writes. “That is, rather than looking for a way for consumers and employees to bring their individual claims for compensatory damages in an aggregate proceeding in order to preserve the public benefits of holding violators liable, the state could simply provide a means for private litigants to enforce the substantive law directly, without the necessity to amass individual damages claims. Specifically, a state could enact a statutory penalty for consumer fraud or violation of state labor laws and provide for private enforcement through a qui tam or private attorney general action.”

According to Alexander, if the laws are drafted well, private AG actions would be insulated from mandatory arbitration clauses, even after Concepcion, because the qui tam plaintiff is suing for statutory damages on the state’s behalf, not for individual compensatory damages. “Because the suit does not attempt to adjudicate the legal interests of absent parties, the due process concerns familiar in class action litigation are not implicated,” the professor argues. And even if the case were deemed to require arbitration, she says, it could still be prosecuted on a classwide basis. “Assuming that an arbitration provision could require a relator to pursue the action in arbitration rather than in court, it could not bar the relator from seeking a recovery based on a large number of violations because the suit would not seek to adjudicate individual claims, but rather to enforce the state’s right to penalties for unlawful conduct against a group,” the paper says.

As Alexander discusses, the California private AG law – enacted to permit employees to sue on the state’s behalf for violations of the labor code, after budget cuts diminished the labor department’s ability to enforce the code on its own – has had mixed success as a Concepcion workaround. The California Supreme Court let stand a post-Concepcion holding that the Federal Arbitration Act does not pre-empt the state’s private AG law, but, Alexander concedes, “a number of federal court decisions, by contrast, have held that ‘a PAGA claim is a state-law claim, and states may not exempt claims from the FAA.’ Thus the fate of PAGA under Concepcion is not clearly established.” Indeed, the professor said, California employers have wised up, and now widely include waivers of the right to proceed in a private AG action in their mandatory arbitration clauses.

Alexander says, however, that other states could tweak the California law to clarify that private AG cases are not subject to mandatory arbitration under Concepcion. The California statute, for instance, gives employees, as a group, 25 percent of any recovery (as well as attorneys’ fees and costs – a not-incidental benefit). If laws were drafted instead to resemble qui tam actions, in which the original plaintiff receives a share of recovery as a reward for bringing the case to the attention of the government, Alexander believes they’d be likelier to withstand compulsory arbitration. She also recommends legislative language that specifies private AG actions are being brought on behalf of the state, not on behalf of employees or consumers.

For counterarguments, I reached out to Andrew Pincus of Mayer Brown, who argued and won the Concepcion case at the Supreme Court for AT&T Mobility. Pincus often represents the U.S. Chamber of Commerce and is a staunch believer that consumers can fare better in arbitration than in class actions, so you won’t be surprised to hear that he told me Alexander is wrong about private AG actions as a matter of both law and policy. After declining to review the state case cited by Alexander, Pincus said, the California Supreme Court now has before it another case, Iskanian v. CLS Transportation, raising the issue of whether private AG cases must be litigated or can be compelled to arbitration under employee arbitration clauses. Pincus, who submitted an amicus brief last week in the case on behalf of the U.S. Chamber, said that several lower courts have held that private AG claims are, in fact, arbitrable. “You can’t get around Concepcion by giving a one-time-only state deputy badge to the person bringing the claim,” Pincus said. Moreover, California’s law doesn’t give the state any real control over the cases, so it’s not clear why they should be considered state actions.

And as a policy matter, Pincus said, private AG actions simply incentivize plaintiffs – or more likely, plaintiffs’ lawyers – to bring potentially lucrative cases. The prosecutorial discretion you’d expect from state regulators is absent, Pincus said, as are the safeguards Congress built into the False Claims Act to squelch unsubstantiated suits. “This just seems like a way to attract litigation bounty hunters,” the Mayer Brown lawyer said.

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