A Tool for Class Action Prevention

May 3, 2011
Legal Alert

A growing number of window manufacturers have fallen prey to lawsuits which include allegations that an individual homeowner claim is being brought on behalf of a much larger “class” of consumers. Even the risk of certification allowing a case to proceed as a class action can create a very serious situation. The tools for managing this risk have been elusive.

However, the United States Supreme Court ruled in a 5-4 vote on April 27 that in a contract setting the existence of a full and fair arbitration process which includes a waiver by the consumer of the right to serve as a class representative is enforceable. This presents the potential for control of the class action risk, especially for those manufacturers and re-sellers who reach a contract with the consumer.

In AT&T Mobility LLC v. Concepcion, AT&T customers challenged the arbitration provision in AT&T’s cellular phone contract that disallowed class-wide proceedings. The Supreme Court reversed the Ninth Circuit Court of Appeals which had found this provision to be unconscionable, and therefore unenforceable, under California state law. The decision confirms preemption of the Federal Arbitration Act over California law and allows AT&T to deal with customer claims individually, not in a class action setting. (The claims involved the requirement to pay tax on a phone represented to be “free.”) The federal policy behind the FAA includes promotion of the fair and speedy resolution of claims and recognition of the right of contract.

Volume manufacturers and sellers that deal directly with consumers and are willing to participate in a full and fair arbitration of customers' claims should consider inclusion of a similar provision in consumer contracts. The decision does not address the question of whether a similar arbitration provision would be upheld in the context of a warranty, which is an extension of contract law. That important question also calls for a close analysis.

This Legal Alert is presented by Paul Gary, an attorney at the Gary Law Group based in Portland, Ore. The firm specializes in legal services for the window and door industry. More information is available at www.prgarylaw.com.  Contact Gary at paul@prgarylaw.com for further information or to receive the firm's "Risk in the Fenestration Industry” quarterly newsletter.