In a recent 2-to-1 split decision, a majority of a Ninth Circuit panel reversed a district court decision so that an arbitration clause in a contract for voice-over-internet-protocol service could be enforced. See Merkin v. Vonage America, Inc., No. 14-55397 (9th Cir. Feb. 29, 2016) (click here for a copy of the decision).
The clause at issue had exempted certain categories of claims from arbitration. These exempted claims, such as claims for overdue payments and intellectual property violations, were claims that the corporate party Vonage would likely bring against its customers. Because this carve-out was overly one-sided and favored the corporate defendant Vonage, the district court had refused to enforce the arbitration clause as unconscionable.
A majority of the Ninth Circuit panel found that under the Supreme Court’s Concepcion decision, the FAA preempted this defense or application of the unconscionability doctrine since this defense was arbitration-specific. A dissenting judge, however, found that the unconscionability defense as applied by the district court was not arbitration specific: “The unfairness of a provision that greatly favors the party with all the bargaining power is not unique to arbitration, and the FAA does not require its enforcement.”
I previously published an article, More than Class Action Killers: The Impact of Concepcion and American Express on Employment Arbitration, 35 Berkeley J. Emp. & Lab. L. 31 (2014) (click here for a copy of the article), explaining that Concepcion has an impact beyond the class action context. A direct impact of Concepcion, of course, is on the enforceability of class action waivers, but Concepcion’s preemption standard is so broad and vague that this standard is causing conflicting decisions and uncertainty beyond the scope of the enforceability of class action waivers. Under Concepcion’s broad preemption standard, some judges can easily find that a defense to an arbitration clause is preempted because the defense has a vague, undefined “disproportionate impact” on arbitration agreements or is too arbitration-specific. The split decision from the Ninth Circuit in this new Vonage case demonstrates how judges can easily differ in the application of Concepcion’s preemption language since the preemption standard is so vague. This confusion is unfortunately destabilizing arbitration law, and confusion and uncertainty about the enforceability of arbitration agreements undermine the potential value of arbitration.