Comcast Class Action Defense Cases-Anderson v. Comcast: First Circuit Upholds Comcast Arbitration Clause But Severs Class Action Waiver and Holds Severability of Class Action Waiver Saves Arbitration Agreement from Unconscionability Claim

Nov 1, 2007 | By: Michael J. Hassen

First Circuit Leaves Validity of Class Action Waiver in Arbitration Clause to Arbitrator, Holds Bar on Multiple Damages Invalid and Severs from Arbitration Agreement, Holds Bar on Recovery of Attorney Fees Invalid and Severs from Agreement, and Invalidates One-Year Limitations Period on Claims Against Comcast and Severs from Agreement

Plaintiff filed a putative class action lawsuit in Massachusetts state court against his telecommunications provider, Comcast, for violations of the state’s unfair business practices statute and other tort claims based on the allegation that it charged customers a monthly to lease a cable converter box and remote control for television service even if the customer already owned a cable-ready television. Anderson v. Comcast Corp., 500 F.3d 66, 68(1st Cir. 2007). Defense attorneys removed the class action to federal court based on diversity jurisdiction, and then moved to compel arbitration under an arbitration clause the prohibited class actions as well as “multiple or punitive damages,” id., at 69. Among the arbitration provisions central to the appeal were the following: (1) a class action waiver provision, (2) a requirement that any claims against Comcast be brought within one year, (3) a requirement that consumers pay their own costs of arbitration, including attorney’s fees, (4) a bar on any award in arbitration of multiple or punitive damages, and (5) a severance clause. Id. The district court agreed with defense attorneys that plaintiff must arbitrate his claims but held that he could pursue a class action in arbitration, and while the district court granted the motion to compel arbitration and dismissed the class action complaint, id., at 69-70, it severed several other portions of the arbitration agreement, such as the requirement that each side bear its own costs – including attorney and expert fees, id., at 69 n.5. The First Circuit largely upheld the district court’s order, holding in part that the validity of the class action waiver provision must be addressed first by the arbitrator.

Plaintiff’s class action complaint alleged that Comcast violated the Massachusetts Consumer Protection Act and various common law torts. Anderson, at 68. The class action also sought treble damages, punitive damages and attorney fees, id., at 69. Defense attorneys moved to compel arbitration under provisions of its standard agreement with subscribers entitled, “Notice to Customers Regarding Policies, Complaint Procedures & Dispute Resolution.” Id., at 68 n.1. The district court applied the First Circuit’s recent decision in Kristian v. Comcast, Corp., 446 F.3d 25 (1st Cir. 2006) – summarizedhere – and granted the motion to compel, but “only after severing provisions in the arbitration agreement prohibiting attorney’s fees, double or treble damages and a class action remedy in the arbitral forum.” Anderson, at 68. The district court also ruled that “the arbitrator will have the power to determine the validity and applicability of the agreement’s one-year statute of limitations.” Id. Both plaintiff and defense appealed the district court’s ruling.

The First Circuit began its analysis by observing that it considered the appeal “against the backdrop of a strong pro-arbitration policy expressed by Congress and repeatedly upheld by the courts.” Anderson, at 70. With respect to the class action bar, the Circuit Court held that there was no conflict between Massachusetts state law and the class action waiver provision, id., at 71. The First Circuit distinguished its holding in Kristian, which invalidated a Comcast class action wavier in an arbitration clause, because it found a conflict between such a waiver and the “nature and purposes of antitrust law”; here, by contrast, the class action bar, by its terms, applies “unless your state’s laws provide otherwise,” and the consumer law statute in question expressly permits class action lawsuits be filed to enforce it. Id., at 72. The Court did not hold that the exception to class action litigation applied, however, concluding that the question of arbitrability must be addressed first by the arbitrator, id.

Turning to the bar on multiple damages, the First Circuit again analyzed its opinion in Kristian, which had ruled that, despite a purported bar on multiple damages, the plaintiffs could recover treble damages as permitted by antitrust laws. Anderson, at 72-73. But the Circuit Court held that whether the class action complaint entitled class members to recover “double or treble damages” as permitted by state law presents a significantly different question than the one presented in Kristian because “it requires multiple damages only if a fact-finder determines that a ‘willful or knowing violation’ occurred.” Id., at 74. The Court agreed with defense attorneys that this conflict does not affect arbitrability because (1) the arbitrator must decide in the first instance whether the multiple damages provision is waivable, and (2) until the arbitrator’s factual findings are known, it is not possible to determine “whether a conflict between the agreement and the statute will arise in this particular case,” id., at 74-75. Thus, the First Circuit stated at page 75:

In summary, despite the direct conflicts between the multiple damages provision of the statute and the multiple damages prohibition in the arbitration agreement, these conflicts do not pose a question of arbitrability because: (1) the conflict between the mandatory portion of the statute and the agreement will only arise if the arbitrator makes a factual finding (a willful or knowing violation) that relates to the merits of the dispute; and (2) if the arbitrator finds a violation of the statute that is not willful or knowing, the discretionary award of multiple damages may or may not be waivable under Massachusetts law. In the absence of a question of arbitrability, the district court erred in ordering that the multiple damages provision be severed from the arbitration agreement.

As to the conflict between the one-year period for claims in the arbitration clause and the four-year statute of limitations applicable under the Massachusetts consumer fraud statute, the First Circuit began its analysis by rejecting a defense claim that the limitation is simply a “notice” provision and not an actual bar on claims. Anderson, at 75 n.8. Defense counsel also argued that the question of the statutory time period should be left to the arbitrator; the Circuit Court found that because plaintiff terminated service in 2002 but did not file the class action complaint until 2005, the complaint “can only be read as an acknowledgment that he did not comply with the arbitration agreement’s one-year notice of claim provision.” Id. Thus, a direct conflict presently exists between the arbitration clause and the statute, id. The First Circuit then held that the four-year limitation in the state statute was not waivable, thus rendering the one-year limitation arbitration provision invalid, id., at 75-77. However, because the arbitration agreement included a provision for severance of any part found invalid, the Circuit Court held that the arbitration agreement was unenforceable but that the one-year limit must be stricken, id., at 77. As the Court explained at page 77, “Severing the one-year limitation provision – as the agreement allows us to do – preserves the viability of the arbitral forum.”

With respect to plaintiff’s cross-appeal, wherein plaintiff argued that the class action waiver and arbitration provision was unconscionable, the First Circuit observed that the thrust of plaintiff’s argument is that because “numerous provisions” of the arbitration provision conflict with Massachusetts state law, the agreement is “one-sided” and “extinguish[es] the procedural and substantive rights of [the] customers.” Anderson, at 77. The Circuit Court explained that this argument fails because only the four-year statute of limitations for consumer claims directly conflicts with the arbitration clause, and that once severed – as provided for in the agreement in anticipation of any possible conflict – the arbitration may proceed. Id., at 77-78. Moreover, because the defense did not appeal that portion of the district court’s order declaring unenforceable the bar on an award of attorney fees, there was “no basis for finding the arbitration agreement unconscionable.” Id., at 78.

In the end, then, the First Circuit (1) vacated the district court’s order to the extent that it invalidated the class action waiver and severed it from the arbitration agreement, (2) vacated the district court’s order to the extent that it invalidated the multiple damages provision of the arbitration agreement invalid and severed it from the agreement, (3) vacated the order to the extent that it required the arbitrator to decide the enforceability of the arbitration agreement’s one-year limitation provision, and (4) affirmed the district court order compelling arbitration. Anderson, at 78.

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