A new FAA cert petition was filed earlier this week. Geneva-Roth Ventures, Inc. v. Kelker, No. 13-97 (U.S. July 24, 2013). The case involves a dispute between a consumer and an online lender in connection with a $600 payday loan with an interest rate of 780%, and the consumer filed a lawsuit alleging unfair business practices. The Montana Supreme Court had invalidated the arbitration agreement between the consumer and lender because under Montana law, the consumer had not knowingly and voluntarily waived the right to a jury trial. The lender is now asking the Supreme Court to grant cert and to hold that under Concepcion, the FAA preempts this Montana law requiring heightened consent.
This case raises the same issues as a recent Ninth Circuit case I blogged about, Mortensen v. Bresnan Communications, No. 11-35823 (9th Cir. July 15, 2013). (Click here to see prior blog post.) The Ninth Circuit easily found that under the broad (and in my opinion, vague) preemption analysis from Concepcion, the FAA preempted this Montana law because the law had a “disproportionate effect on arbitration.”
This would be a great case for the Supreme Court, especially with its new makeup, to address the validity of its 1984 decision in Southland v. Keating, where the Supreme Court held that section 2 of the FAA is substantive law binding in state court. The Southland decision has been described as one of the greatest errors the Supreme Court has ever made. The FAA was never intended to apply in state court; the statute was intended to be applicable solely in federal court. Also, the voluntary and knowing consent standard applied by Montana is more consistent with the history behind the FAA. As I explain in my new book, Outsourcing Justice, the FAA was designed for simple contract disputes between merchants. During a Congressional sub-committee hearing in January 1923, a Senator raised concerns about enforcing arbitration clauses presented by a party with stronger bargaining power on a “take-it-or-leave-it” basis, such as a standard contract from an insurance company or a shipping contract from a railroad company. The Senator explained that such contracts are “not really voluntary contracts,” and a lawyer from the American Bar Association testifying in favor of the FAA agreed with the Senator. The lawyer explained that FAA should not cover such take-it-or-leave-it contracts, and the purpose of the pending bills that would become the FAA was to cover commercial disputes between merchants.
Looking at the history behind the FAA, the consumer here should not be bound by the arbitration agreement. However, the Supreme Court has ignored the rich history behind the Federal Arbitration Act and twisted the intent behind the FAA to create a powerful docket-clearing tool for both state and federal courts. Former Justice Sandra Day O’Connor has stated that the “Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.” Similarly, former Justice John Paul Stevens has criticized his colleagues on the Court as “playing ostrich” with the history that demonstrates the statute was intended to cover routine contract disputes between merchants, not employment or consumer disputes.