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Anti-class-action clause was unconscionable
June 27, 2005 by Ross Runkel at LawMemo

It's not clear what effect Discover Bank v. Superior Court (California 06/27/2005) will have on anti-class-action clauses in employment arbitration agreements.

For consumer-cardholders suing banks for $29 each, such clauses are unconscionable under California law.

But the decision was quite limited:

We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party “from responsibility for [its] own fraud, or willful injury to the person or property of another.” (Civ. Code, § 1668.) Under these circumstances, such waivers are unconscionable under California law and should not be enforced.

For more details, see Arbitration Blog.

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