On October 11, 2011 the Supreme Court heard argument in CompuCredit Corp. v. Greenwood, No. 10-948, confronting the intricacies of application of pre-dispute arbitration agreements, supported by strong federal policy favoring arbitration, and federal statutes containing non-waiver of “rights” provisions in the consumer arena. Specifically, the Question Presented was:
Whether claims arising under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. (“CROA”), are subject to arbitration pursuant to a valid arbitration agreement.
The Court’s recent cases applying the Federal Arbitration Act, 9 U.S.C. § 2 (“FAA”) represent an unbroken string of enforcement of arbitration agreements in a variety of contexts. None of the federal statutes previously considered were specific enough to overcome presumptive arbitrability under the FAA.
The CompuCredit Case and the CROA
Respondents, who acquired credit cards through CompuCredit, successfully persuaded the District Court and the Ninth Circuit Court of Appeals that the CROA provides consumers with a non-waivable right to litigate their disputes in court. Greenwood v. CompuCredit Corp., 617 F. Supp.2d 980, 988 (N.D. Cal. 2009)(denying motion to compel arbitration despite strong federal policy favoring arbitration) aff’d 615 F.3d 1204, 1205 (9th Cir. 2010). The Ninth Circuit’s holding created a conflict with the Third and Eleventh Circuits, both favoring compulsory arbitration of CROA claims.
CompuCredit marketed a sub-prime credit card to consumers with impaired credit, advertising that the card could improve a consumer’s credit rating, although the credit limit on the cards typically was a mere $300. However, the issuing bank would charge fees totaling $180 against the $300 credit limit. The pre-approved acceptance certificate enclosed “terms of the offer” and a “summary of credit terms” with a pre-dispute arbitration provision. CompuCredit principally relied on the argument that the CROA nowhere mandates judicial resolution of any “rights” or “causes of action” asserted by consumers. A “right to sue” does not mean a “right to sue in court”. CompuCredit’s position was supported by amicus briefs by DRI and the Consumer Data Industry Association.
Respondents filed a class action alleging violations of substantive provisions of the CROA for deceitful marketing. In 1996, Congress enacted the CROA to ensure sufficient disclosures to permit consumers to make informed decisions when dealing with credit repair companies and prohibit predatory practices. Respondents alleged that CompuCredit omitted the necessary disclosures altogether or failed to present them with the required detail. Respondents relied on a reading of the obligation of credit firms to disclose consumers’ “right to sue” and a cross reference to a separate section providing that “[a]ny waiver by any consumer of any protection ***or any right” is void. 15 U.S.C. § 1679f(a). They also argued, in reliance on language in AT&T Mobility v. Concepcion, 563 U.S. ___ (2011), that class arbitration is inadequate to protect consumers’ interests. Respondents, also, were supported by amicus briefs, including one by the AARP and the NSCLC.
Issues for the Supreme Court
Broadly considered, the decision may resolve whether consumer contracts’ pre-dispute arbitration agreements are enforceable and afford sufficient protections for consumers outside of court processes, whether in class actions or not. More narrowly considered, the result may be limited solely to the specific “right to sue” language of the CROA. Alternatively, the decision may have limited life if the Consumer Financial Protection Bureau, authorized by §1028 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, exercises its authority to abolish pre-dispute arbitration agreements in consumer contracts. Ironically, however, Congress’ provision of the specific authority to do so demonstrates Congress can plainly state its’ intent to bar arbitration and cuts against Respondents’ “plain language” arguments in CompuCredit.
Clues from Oral Argument?
If one hoped for a partisan duel between liberal and conservative Justices, the oral argument will be a disappointment. While Justices Sotomayor, Kagan, and Ginsburg at times seemed very concerned with how the ordinary person would construe the phrase “right to sue”, the significance of the disclosure requirement in the CROA, and the one-sided nature of non-bargained for consumer contracts, their questions disclosed concerns with Respondents’ position as well in light of the court’s precedent and the necessity to distinguish post dispute arbitration agreements and pre-dispute arbitration waivers. Chief Justice Roberts remarked that the term “lawsuit” does not typically refer to arbitration. Justice Kennedy queried whether the act of requesting the waiver caused a breach of the CROA. Presumably, this would fit an argument to construe the statute to avoid absurd results. Yet, the argument covered a litany of other federal statutes containing non-waiver provisions that courts frequently refer to arbitration, including antitrust, RICO, ADEA, and Truth in Lending Act claims. None of them use the same language as the CROA. Justice Scalia took interest in the argument that the “right to sue” language was not included in the substantive, versus procedural, rights in the CROA.
CompuCredit will resolve the circuit conflict and will continue the trend of enforcement of arbitration provisions by the Supreme Court. The interesting point will be to see how broadly or narrowly the Court will address the issues, which will turn on how a divided Court will align on the majority analysis used to address the case. A future update will follow when the decision is entered.