New Jersey Consumer Class Claims to Proceed Despite Waiver in Arbitration Clause

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A class-arbitration waiver agreed to by holders of the American Express “Blue Cash” credit card would be invalid against “low-value” claims asserted on behalf of New Jersey cardholders in a class complaint under the state’s Consumer Fraud Act, the U.S. Court of Appeals in Philadelphia has ruled.

American Express allegedly violated the Act by misrepresenting its cash rewards program in promoting the card and by failing to award the promised amounts of cash back.

Federal Arbitration Act

The waiver of class claims was contained in an arbitration clause in the “Blue Cash” cardmember agreement. The Federal Arbitration Act provides that written arbitration agreements are enforceable unless grounds exist for revocation of the contract. The U.S. Supreme Court has held that state law may be applied in order to resolve questions of enforceability.

Choice of Law

The cardmember agreement contained a Utah choice-of-law provision. A Utah statute expressly allowed class action waivers in consumer credit agreements.

The Utah statute conflicted with a fundamental policy of New Jersey, the court found. The New Jersey Supreme Court, in Muhammad v. County Bank of Rehoboth Beach, Del., 912 A.2d 88 (N.J. 2006), held unconscionable a class-arbitration waiver in a consumer contract between a customer and a bank that gave out “pay day loans.”

American Express contended that Utah law should be applied because the cards were issued by its bank subsidiary located in Utah. The court disagreed, finding that New Jersey had the most significant contacts with the litigation, as the only claims asserted were violations of the state’s Consumer Fraud Act.

The court decided that, under Muhammad, if the claims of individual cardholders are for small sums, both the Utah choice-of-law provision and the class-arbitration waiver are unenforceable. Dismissal of the class complaint was reversed, and the case was remanded for further proceedings.

The February 24, 2009, opinion in Homa v. American Express Co. will be reported in CCH Advertising Law Guide and CCH State Unfair Trade Practices Law.