Last week, the Massachusetts Supreme Judicial Court issued two long-awaited decisions concerning the enforceability of class action waivers in arbitration agreements. Feeney v. Dell, Inc. (Feeney II) was the Court’s post-Concepcion decision in a consumer class action that the Court, pre-Concepcion, had held must go forward despite a class action waiver because the waiver violated Massachusetts public policy. Confronted with the Supreme Court’s controversial decision, the SJC held that “Concepcion precludes the invalidation of class waiver provisions in arbitration clauses in consumer contracts, such as the one at issue here, where the reason for invalidation is that such waivers are contrary to the fundamental public policy of the Commonwealth.” However, the Court also held that “a court is not foreclosed from invalidating an arbitration agreement that includes a class action waiver where a plaintiff can demonstrate that he or she effectively cannot pursue a claim against the defendant in individual arbitration according to the terms of the agreement, thus rendering his or her claim nonremediable.” Because the court found that plaintiffs had met their burden of establishing, on the facts of the case, that the combination of the complexity of the claims and the modest amounts of their individual damages meant that they could not pursue their claims in individual arbitration, Concepcion did not preclude the class action waiver’s invalidation.
Machado v. System4 LLC, in contrast, involved claims under the Massachusetts Wage Act brought on behalf of individuals who had entered into “local franchise agreements” with defendants to provide commercial janitorial services to third parties, and who contended that they had been misclassified as independent contractors and wrongfully denied pay under the Act. The Court applied its holding in Feeney II, but on these facts found that the plaintiffs had not met their burden of establishing that the class action waiver rendered their claims unremediable. The Court distinguished Feeney II because the consumer case involved individual damages claims of $13.65 and $215.55, while the Wage Act case involved individual damages claims of four and five figures. In addition, the Court relied on the Wage Act’s provisions mandating awards of treble damages, attorneys’ fees and costs for successful plaintiffs.
As the trial court had in Feeney II, the SJC relied in part on the absence of the kinds of safeguards that were present in the Concepcion arbitration agreement which made arbitration of the individual claims feasible. Those safeguards included a requirement that AT&T pay claimants a minimum of $7,500 and twice their attorneys’ fees if they obtain an arbitration award greater than AT&T’s last settlement offer.
Authored by Justice Cordy, Feeney II and Machado are carefully-reasoned and well-written decisions. Although their precedential value may be limited to putative class actions pending in Massachusetts state court, which are relatively few in our post-CAFA world, their sheer craftsmanship will likely give them persuasive authority beyond state boundaries. Whatever one thinks of the policies behind these decisions, their faithfulness to Concepcion remains in doubt, and the outcome of any further review that might take place in the United States Supreme Court is not at all clear. Unless and until the Supreme Court overrules them, either directly or by further clarification in other cases, companies wishing to avoid class litigation in Massachusetts would do well to imbue their class action waivers with safeguards at least as strong as those in the AT&T arbitration agreement upheld in Concepcion.
Written by former litigation partner, Donald R. Frederico.