Discover Bank v. Superior Court

S113725. June 2005.] [No. Petitioner, BANK,

DISCOVER ANGELES, OF Respondent; COURT LOS SUPERIOR BOEHR, Interest. Real Party CHRISTOPHER Counsel Ellis,

Kirkland Davidson, & S. Richmond, Jeffrey Boldt, Rick C. Robert Wilkins, M. Jafek; Amy B. Stroock & Timothy Stroock & Lavan and Julia B. Strickland for Petitioner.

Morrison & Foerster and Maren E. Nelson for California Bankers Association as Amicus Curiae on behalf of Petitioner.

M. Jane Brady, Attorney General (Delaware); Severson & Werson and William L. Glen, Stern for Robert A. Delaware State Bank Commissioner as Amicus Curiae on behalf Petitioner.

Rintala, Smoot, Rees, Fraser; Wilmer, & Jaenicke G. Howden Cutler & and Pickering R. Association, for Christopher Lipsett American Bankers American Financial Services Association and Consumer Bankers Association as Amici on Curiae behalf of Petitioner.

Gibson, Crutcher, Dunn & Weber, Pasette; Mark E. Gabriel J. Stokes Lawrence, T. Kelly Services, Noonan and Bradford for Axel AT&T Wireless Inc., as Amicus Curiae on behalf of Petitioner. Mendelson, Lederman,

Littler D. M. Henry Marissa Y. Tirona James Wu for Ralphs Grocery as Amicus Company Curiae behalf of Petitioner. No appearance for Respondent. Justice,

Trial Bland, for Lawyers Jr., Public Quirk, F. Paul Michael J. Arthur H. Gordon; A. Bryant, Leslie Kate Bailey, & Strange Carpenter, Kramer and Barry Law Offices Carpenter; Brian R. Gretchen Strange, in Kramer for Real Interest. Party L. Barry

Bramson, Plutzik, M. and Robert Bramson Mahler & Birkhaeuser as Amicus Curiae on behalf Advocates National Association of Consumer Real in Interest. Party Anderson, Zuckerman, Schuster; Kemnitzer, Barron

Deborah M. Michael R. behalf of AARP as Amicus Curiae on and Mark F. Anderson for Ogilvie & Real Interest. Party Adler; Sturdevant; Firm, Michael C. Ian Herzog;

The Sturdevant Law James Esner; Kabateck; Rosen; Arkin; David A. B. Brian S. Sharon J. Stuart Tratten; Smith; Steven B. Stevens Christine D. Lea-Ann Spagnoli; Daniel U. California as Amicus Attorneys Consumer and Scott H. Z. Sumner for behalf of Real in Interest. Party Curiae on Wolfson, Ghalchi; Associates, Ahdoot & Tina Wolfson

Ghalchi & Kamran as Amici Curiae Ahdoot for Rebecca Shakib and Karen Bernard and Robert on behalf of Real Interest. Party

Opinion in an arbitra- MORENO, validity This case provision concerns J. forbidding Bank a credit cardholder tion between Discover cardholder, resident, that alleges credit a California classwide arbitration. The to cardholders that late payment Discover Bank had of representing practice date, a certain be assessed if was received payment fees would not after 1:00 if was received were assessed actuality they payment whereas date, individual that were small as to damages thereby leading p.m. claiming the Plaintiff filed complaint consumers but large aggregate. Bank successfully and Discover for this damages alleged practice, deceptive its arbitration with agreement moved to arbitration pursuant compel plaintiff. arbitration, is well seeks to a classwide

Plaintiff now pursue Court v. (See Keating Superior under California law. accepted overruled (Keating), 645 P.2d Cal.Rptr. Cal.3d 613-614 [183 (1984) 465 L.Ed.2d Corp. Keating in Southland U.S. on other grounds (Southland).) with agreement But arbitration plaintiff’s 104 S.Ct. 852] Moreover, classwide arbitration. Bank has a clause forbidding Discover Bank argues Discover a Delaware choice-of-law provision. has agreement remedies. to waive class action contracting parties that Delaware law allows The trial court ruled that the class arbitration waiver was unconscionable enforced the arbitration could seek agreement proviso classwide The arbitration. Court of without that such class Appeal, disputing arbitration waivers be unconscionable under law and without issue, addressing choice-of-law nonetheless held that Federal Arbitra- (9 (FAA) tion Act U.S.C. et1 the state law rule that preempts seq.) arbitration waivers unconscionable. below, that, circumstances,

As we conclude at least some explained under the law in California is that class action waivers in consumer contracts of unenforceable, adhesion are whether consumer is asked to being waive the right to class action litigation or to classwide right arbitration. We further conclude the Court of incorrect that FAA Appeal preempts California law in this we will remand the Court respect. Finally, of Appeal to decide the choice-of-law issue. Background

I. Factual and Procedural facts are drawn following undisputed largely from Court of Appeal opinion. Plaintiff Boehr obtained a card Christopher credit from defendant Discover Bank in 1986. The Discover April Bank cardholder agreement (agreement) governing credit card plaintiff’s account contained a choice-of- law clause for the providing Delaware federal application law. issued,

When credit card plaintiff’s was did not contain an arbitration clause. Discover Bank added subsequently clause in July to a pursuant change-of-terms in the provision agreement. Relying on the change-of-terms provision, Discover Bank added the arbitration clause to its sending existing cardholders (including notice that stated plaintiff) in relevant “NOTICE part: OF AMENDMENT ... ARE WE ADDING A NEW ARBITRATION SECTION WHICH THAT PROVIDES IN THE EVENT YOU OR WE ELECT TO RESOLVE ANY CLAIM OR DISPUTE ARBITRATION, BETWEEN BYUS NEITHER YOU NOR WE SHALL HAVE THE RIGHT TO THAT LITIGATE CLAIM IN COURT OR TO HAVE A JURY TRIAL ON THAT CLAIM. THIS ARBITRATION SECTION WELL NOT APPLY TO FILED THE LAWSUITS BEFORE EFFECTIVE DATE.” addition,

In the arbitration clause both sides from in precluded participating arbitration, claims, classwide or a consolidating claims as arbitrating repre- sentative or in a . . NEITHER private attorney “. YOU general capacity: NOR WE SHALL BE ENTITLED TO JOIN OR CONSOLIDATE CLAIMS IN ARBITRATION BY OR OTHER AGAINST CARDMEMBERS WITH ACCOUNTS, RESPECT TO OTHER OR ANY ARBITRATE CLAIM AS A IN A PRIVATE OR MEMBER OF A CLASS OR REPRESENTATIVE CAPACITY.” ATTORNEY GENERAL the FAA would the govern

The arbitration also stated that commerce, and this “Your Account involves interstate provision agreement: (FAA).” the Act “The arbitrator shall Federal Arbitration governed by shall the to the extent FAA and follow substantive law consistent applicable of recog- of limitations and shall honor claims privilege statutes applicable that did wish to at law.” were notified if not Existing they nized cardholders clause, their arbitration must Discover Bank of they notify new accept use of an account and cease their accounts. Their continued objections using the new did not be deemed to constitute terms. Plaintiff acceptance would or using to the arbitration clause cease objection Discover Bank notify any his account before the stated deadline. 15, 2001,

On Boehr filed class action August complaint putative causes alleged Discover Bank. Plaintiff two of action— against superior (Del. Fraud of contract and violation of Delaware Consumer Act breach Ann., 2511-2527). The latter act part Code tit. prohibits misrepresen- §§ intent that others such conceal- tations “of material fact with any rely upon sale, ment, lease or or omission in connection with advertise- suppression (Id., §2513.) He that Discover Bank alleged ment of merchandise.” agreement by its cardholder late fee approximately breached imposing date, that received due but after $29 on were payments payment also 1:00 “cut-off time.” Discover Bank p.m. Discover Bank’s undisclosed a grace finance allegedly periodic charge (thereby disallowing imposed due on new when were received on payments payment period) purchases date, that the contract with acknowledged but after 1:00 p.m. complaint and the contract was federal law “governed by Discover Bank provided however, “this of law law of Delaware.” Plaintiff choice alleged, claims not to other issues substantive only plaintiff’s provision applies contract, governed by related to contends other law.” applicable on an moved arbitration of claim

Discover Bank to compel plaintiff’s to the and to the class action pursuant individual basis dismiss action waiver. agreement’s motion, the class things other contending among

Plaintiff opposed under California law.1 waiver was unconscionable unenforceable action 1 was addition of the arbitration clause Plaintiff below that unilateral also contended (See Badie v. Bank America Cal.App.4th unconscionable under California law. 273].) was court and the Court Cal.Rptr.2d rejected That contention trial 779 [79 Accordingly, we do not address petition and the in the for review. Appeal, issue was raised Bank, hand,

Discover on the other that the FAA argued the enforce- requires clause, ment of the of an arbitration express class action provisions including FAA, waivers. Discover Bank contended that under section arbitra- tion agreements should be out for under singled status state laws suspect applicable only arbitration provisions.

The trial court initially granted Discover Bank’s motion in its entirety under Delaware law. After Discover Bank’s motion to arbitration was compel v. Discover Bank granted, the Fourth District Court of Szetela decided Appeal {Szetela), held, Cal.App.4th for Cal.Rptr.2d below, reasons that a explained identical class virtually action waiver was Szetela, Plaintiff, unconscionable. moved for citing reconsideration of that of the portion order the class action waiver. enforcing The lower court found Szetela constituted new and for controlling authority that, proposition under California an arbitration class action waiver is and, thus, unconscionable unenforceable. The trial court further conducted a choice-of-law analysis concluded that the class enforcing action waiver under Delaware law would violate a fundamental under Califor- public policy nia law as articulated in Szetela. it would Upon determining proper sever the class action waiver clause from the rest of the arbitration agreement, the trial court struck the class action waiver clause from the agreement, ordered plaintiff arbitrate his claims individually, left open possibility that plaintiff succeed in an certifying arbitration class under California law.

After the lower court reconsideration, granted motion for plaintiff’s Discover Bank filed a writ petition seeking reinstatement of the lower court’s order original enforcing arbitration clause in its entirety by compelling to arbitrate on an individual basis and him from precluding partici- pating litigation class arbitration. The Court of issued an Appeal order to show cause.

The Court of Discover Appeal granted Bank’s writ. It did not take issue with the unenforceable, that class premise action waivers are at least under circumstances, some under California law and that this rule could override held, Delaware choice-of-law But provision. Court of Appeal below, reasons elaborated rule class action prohibiting FAA, waivers was preempted by Szetela and that had failed to adequately analyze federal issue. It preemption therefore the Discover upheld Bank class action waiver. We granted review.

the issue and omit most of the discussion proceedings pertaining of the to the issue in the courts below from our statement of facts. 156

II. Discussion Action and Action Arbitration Class Lawsuits Class

A. case, Before the at in this we first consider the addressing issue questions class were set in for action lawsuits. These forth justifications justifications in Vasquez Superior Court Justice Mosk’s v. oft-quoted majority opinion 800, 796, (1971) 4 484 (Vasquez): Cal.3d 808 P.2d Cal.Rptr. 964] [94 to the dubious practice numerous consumers same “Frequently exposed as the same so of the of the to one by seller that proof prevalence practice Individual actions each of the consumer would all. provide proof of individual defrauded consumers often because the amount impracticable action; a an would be insufficient to thus recovery justify bringing separate benefits conduct. A class action wrongful seller retains the of its unscrupulous salutary including consumers several produces by-products, therapeutic in aid to indulge legitimate effect those sellers who fraudulent upon practices, business and avoidance to by curtailing illegitimate competition, enterprises of identical involving the the burden judicial multiple litigation process would, to and many claims. The benefit the courts in circum parties stances, be substantial.”

We much of the above with almost 30 later quoted language approval years 179, in Linder Oil v. Co. (2000) 23 Thrifty Cal.Rptr.2d Cal.4th 445 [97 {Linder). We 2 P.3d also with Justice Tobriner’s concur quoted approval Court Chip Superior in Blue (1976) 18 Cal.3d 387 Stamps ring opinion case, In the latter a class rejected P.2d this Cal.Rptr. [134 755]. had action certification against trading company allegedly stamp taxes, had tax collected to the given collected excess but over excess had and before the suit was filed. public treasury practice discontinued in Blue Chip Stamps utmost “Although majority significance placed (18 385-386), the small amount of individual Cal.3d potential recovery pp. clarified trial courts remain Justice Tobriner’s separate effectively opinion to ‘the role the class and deterring under consider action obligation Tobriner, (cone. J.).) (18 Cal.3d redressing wrongdoing.’ opn. ‘A which Invoking company settled Justice Tobriner principles, emphasized: will a dollar from each of millions customers reap exacts wrongfully to handsome action is often the effective halt only way class profit; arise redress such exploitation. problems [Citations.] do not a class action numerous small claims management involving justify of its that would the defendant retain benefits a judicial permit policy ” (Linder, continue that conduct wrongful impunity.’ conduct 445-446.) at pp. Cal.4th States These concerns were United acknowledged by Supreme same “ core class mechanism is to Court: ‘The at the of the action very policy overcome the that small recoveries do problem the incentive for provide individual a solo action bring his or her A prosecuting rights. action solves this problem by aggregating relatively paltry potential ” recoveries into worth something someone’s an (usually labor.’ attorney’s) Products, (Amchem Inc. v. Windsor 521 U.S. L.Ed.2d 689, 117 S.Ct. 2231].)

It is this role of important class action remedies in California law that led this court to devise the of hybrid procedure classwide arbitration in Keating, supra, case, 31 Cal.3d In 584. that 7-Eleven franchisors to sought invalidate an arbitration agreement between them and Southland Corporation with proceed class action litigation to redress Southland’s alleged systemic misconduct. This court held that the arbitration agreement was enforceable for most of the claims. In considering enforce impact ment of the claims, arbitration agreement would have on class action Keating court stated: “This court has repeatedly emphasized importance of the class action device for asserted vindicating rights of by large groups ‘ We have observed persons. that the class suit “both eliminates the possibil of ity repetitious litigation small provides claimants with a method of obtaining redress for claims which would otherwise be too small to warrant ’ individual litigation. Denial of a class [Citation.]” action in cases [Citation.] where it is appropriate have the effect may an allowing unscrupulous to wrongdoer the benefits of its conduct.’ wrongful ‘retain[] [Citation.] [Moreover,] involving widely ‘[controversies used contracts of adhesion ideal present uniform, cases for class adjudication; the contracts are the same contract, principles interpretation to each apply and all members of the class will share a common interest in the of an interpretation agreement ” which each is a (Keating, party.’ 31 Cal.3d at omitted.) fn.

The Keating recognized doubt a ordered judicially “[w]ithout classwide arbitration would entail a greater degree of judicial involvement ‘ than is arbitration, associated normally “a ideally complete proceeding, ’ without resort to court facilities.” The court would have to make [Citation.] initial class, determinations certification and regarding notice to the and if classwide arbitration it proceeds be called may exercise a measure of upon external in supervision order to safeguard the of absent rights class members to adequate representation and in the event of dismissal or settlement. A good care, deal of and ingenuity, would be to avoid required judicial intrusion upon the merits of the the conduct dispute, upon proceedings themselves costs, and to minimize complexity, or delay. An adhesion [Citation.] [f] however, contract is not a normal arbitration setting, and what is at stake is not some abstract institutional interest but the interests of the affected parties.” (Keating, 31 Cal.3d at Keating's endorsement of classwide arbitration has been echoed Court deci subsequent Appeal Kinko's, (See, e.g., Sanders v. sions. Inc. (2002) 99 1106 Cal.App.4th [121 766]; Blue v. Court (1998) Superior Cross Cal.Rptr.2d of California 779].) Cal.App.4th Cal.Rptr.2d [78 Class Action Waivers Enforceability

B. Keating classwide arbitration in a case authorized judicially did not was silent on the matter. It answer issue unenforceable as whether a class action waiver directly question Recent cases have addressed that or unconscionable. contrary policy public First, of a contractual the Court of discussed Appeal validity question. Online, Inc. class action waiver outside the arbitration context America Court Superior {America Cal.App.4th Cal.Rptr.2d 699] Online). had continued to Several former AOL subscribers AOL alleged after had debit their credit cards service fees their monthly subscriptions a class lawsuit 5.) alleging been canceled. at The filed action p. plaintiffs {Id. Code, (CLRA) (Civ. Remedies Act 1750 violation of the Consumers Legal § law et the Practices Act and several common causes Unfair Business seq.), selection and Virginia action. The contracts contained forum subscription law did not consumer class Virginia choice-of-law Because permit provisions. lawsuits, of a action those were the “functional waiver provisions equivalent” 5.) (90 of class action lawsuits. at Cal.App.4th p. The America Online court held the and choice-of-law forum selection “ latter, stated: ‘While to be unenforceable. As court

provisions law not have choice of against provision, “California does any public policy it is and “choice of law provisions where otherwise appropriate” [citation] . California courts . .” “an usually agreement designat- respected [citation] it strong law effect if would violate a given will not ing foreign] [a . ‘result an evasion of ... a statute of the California . . in policy public [or] ” ” Online, its forum citizens.’ protecting {America [Citation.]’ 13, Hall v. Court (1983) 150 Cal.App.3d Superior at Cal.App.4th p. quoting 411, Nedlloyd Lines B.V. Superior 757]; see also 416-417 Cal.Rptr. [197 330, Court 834 P.2d 3 Cal.4th Cal.Rptr.2d (Nedlloyd) between commercial arm’s choice-of-law length provision [an if it a fundamental California entities will not be enforced violates public state].) chosen and has interests than the materially greater policy The America Online court found in the CLRA a statute that overrode court that the statute contained an anti- choice-of-law noted provision. aby which states: waiver “Any waiver Civil Code section provision, and shall contrary this title is public policy consumer of the provisions Virginia law following be unenforceable and void.” The reasoned in of the fact that equivalent would result in a waiver of the CLRA light statute, the Protection Act of Consumer Virginia consumer Virginia protection Ann., (Va. Online, 59.1-196), Code was weaker. significantly {America 15-16.) supra, 90 at the most Cal.App.4th differences pp. Among important between the two statutes was the lack of a class action provision permitting relief in the Virginia {Id. statute. at After quoting passage Vasquez, supra, Cal.3d at page regarding of class importance actions in {ante, 156), consumer above vindicating rights at quoted court stated: “That this view has endured over the last 30 is of little years given surprise importance class action consumer has come to litigation in this state. In play we cannot light history, AOL’s assertion accept that the elimination of class actions for consumer remedies if the forum selection clause is enforced is a matter of insubstantial moment. The unavail- of class action relief in ability this context is sufficient itself to preclude Online, enforcement of the . . . forum selection clause.” {America 17-18, supra, 90 omitted.) fn. Cal.App.4th pp. Szetela,

In supra, 97 Cal.App.4th the court considered page a class arbitration waiver. Plaintiff was a member of a class of credit cardholders seeking action Discover against Bank for improperly charging fees their exceeding credit limits and other imposing He sued penalties. for breach contract, breach of the covenant of faith and fair good fraudulent dealing, or negligent misrepresentation, business deceptive The arbitra- practices. tion clause and class arbitration waiver were similar to those very at issue in case. present The trial court Discover granted Bank’s motion for arbitra- tion. $29 Plaintiff recovered in an individual arbitration and then appealed trial court order arbitration. compelling

The court held that the class arbitration waiver was unenforceable. It first recognized that was unconscionability one reason to refuse to enforce an arbitration {Szetela, waiver. 97 at It found Cal.App.4th p. procedural in the adhesive unconscionability nature of the contract. {Id. 1100.) The court also found substantive in the unconscionability imposition of a one-sided and class action waiver oppressive “This provision. provision is customers, meant clearly to prevent such as Szetela and those he seeks to from represent, seeking redress for small amounts of relatively such money, $29 as the Szetela. sought by aware that Fully few customers will togo time court, and trouble of in small suing claims Discover has instead sought to create for itself virtual immunity from class or actions representative merit, their despite while potential no suffering similar detriment to its own . . . The rights, clause is not harsh and unfair only [f] to Discover customers who be might owed small relatively sum of but it money, also serves as a disincentive for Discover to avoid the of conduct that type lead to class might action in the litigation customers, first place. By this clause on imposing its Discover has essentially granted itself a license to of push boundaries limits, good few, business to their practices furthest aware that fully relatively remedies, if any, customers will seek and that legal remedies obtained any 160 effect. estoppel to that customer without collateral only single

will pertain be small amounts The of customers to overcharged millions potential Therefore, an be without effective method of redress cannot ignored. fairness, This is only notions of . . . not violates fundamental provision [f] unconscionable, it violates Discover policy by granting substantively public consumer out of free’ card while compromising important rights.” ‘get jail 1101; (9th also AT&T Cir. (Szetela, see v. Ting 97 Cal.App.4th 1126, action in CLRA claim 2003) [concluding 319 F.3d 1151 class waivers Stores, Szetela); Ingle on v. Circuit City violated California relying part 1165, (9th 2003) [same].) 328 Inc. Cir. F.3d 1176 case, note a CLRA Turning plead to the we does present plaintiff he so not invoke antiwaiver nor does cause action and does its provision;2 as which a action under other California statute to class seek recovery (See Health Psychcare essential. v. Foundation remedy Armendariz Services, 745, (2000) 24 Cal.4th 100-101 P.3d Inc. Cal.Rptr.2d 669] [99 Rather, or (Armendariz).) contends that action contracts, contract, and in should be waivers consumer this particular under law. invalidated as unconscionable unconscionability, “To the doc briefly recapitulate principles ‘ element,” has the former trine “both a ‘substantive’ ‘procedural’ ” “ ” “ due focusing bargaining on or ‘oppression’ ‘surprise’ unequal ” “ “ ” harsh’ ‘one-sided’ results.’ latter ’or power, ‘overly [Citation.] element an contract takes generally unconscionable procedural ‘ adhesion, “which, form of a drafted party contract imposed relegates subscribing only strength, party superior bargaining contract it.” Substantively to adhere opportunity reject ’...[][] forms, but de terms take various may generally unconscionable (2003) v. 29 Cal.4th (Little scribed as Auto Inc. Stiegler, one-sided.” unfairly den. (Little), cert. sub nom. P.3d Cal.Rptr.2d [130 L.Ed.2d 124 S.Ct. Stiegler, Auto Inc. Little U.S. 83].) in are at least class action waivers consumer contracts

We some agree First, a is an under law. when consumer given unconscionable California form a “bill stuffer” that he amendment its cardholder in the of agreement to account, did his an element of be deemed to if he not close would accept at (Szetela, supra, 97 unconscionability present. Cal.App.4th procedural Moreover, 1100.) adhesive contracts are enforced generally although p. Scissor-Tail, 807, (1981) 28 817-818 (Graham Cal.Rptr. v. Inc. Cal.3d [171 2 argument plead did not a CLRA cause Plaintiff’s clarified at oral counsel class, and did not ultimately seeking certify to a national therefore action because he would be rely wish to on a California statute.

161 604, 165]), 623 P.2d class action found in contracts also be waivers such unconscionable inasmuch as as substantively they may effectively operate clauses that As stated in contrary contract are exculpatory public policy. Civil Code section 1668: “All which have their object, directly contracts for or his own or indirectly, exempt anyone responsibility fraud, from another, law, or violation injury to or person property willful (Italics whether willful or are the law.” negligent, against policy added.) not, abstract,

Class action arbitration waivers are in the exculpa because, above, tory clauses. But as discussed “ consumer damages in cases are often small and because exacts a dollar wrongfully company ‘[a] ” from each of millions of will (Linder, customers handsome reap profit’ “ 446), 23 Cal.4th at action ‘the class is often the effective only way ” Moreover, to halt (Ibid.) and redress such such class action or exploitation.’ waivers one-sided. as mutual indisputably “Although styled actions, it prohibition representative class is difficult envision the circumstances under which the provision might negatively Discover impact [Bank], because credit card do not sue their companies typically customers in (Szetela, action lawsuits.” 97 Such Cal.App.4th one-sided, adhesion, contracts in contract of exculpatory least to the extent they to insulate a from that otherwise operate party liability would be under imposed are generally unconscionable.

We that other acknowledge courts Some have disagree. courts viewed class actions or arbitrations as a waiver of merely right, the which is procedural (See, unconscionable. Strand v. U.S. Bank e.g., National Association ND 918, (2005) 2005 ND 68 N.W.2d (Strand); (5th v. [693 926] Blaz Belfer 2004) 504-505; Cir. 368 F.3d v. (3d Johnson West Suburban Bank Cir. 366, 369; 2000) Co., 225 F.3d (7th v. Champ Siegel Trading 1995) Inc. Cir. 269, 277; 55 F.3d but see (Ala. 2002) Leonard v. Terminex Intern. Co. L.P. So.2d action together waiver limitation damages [class clause in adhesive consumer arbitration of a plaintiffs deprives unconscionable]; and is “meaningful remedy” (2002) therefore State v. Berger 211 W.Va. S.E.2d [holding provision contract limiting unconscionable]; class action Powertel v. rights Bexley (Fla.Dist.Ct.App. 1999) 743 So.2d [same].) But as above cited cases of this court affirmed, are, have class actions arbitrations continually particularly context, the consumer often linked inextricably to the vindication of substan tive label rights. Affixing on such devices understates their “procedural” and is not importance resolving issue.3 helpful unconscionability 3 argues Discover Washington Superior Bank Bank Mutual Court Cal.4th Cal.Rptr.2d (Washington Bank) supports 15 P.3d Mutual the conclusion courts the the rationale stated some that by Nor are we persuaded the in arbitration or of fees to availability attorney prevailing party potential (Strand, such class action waivers. ameliorates the litigation problem posed Check 926; (4th Cashing Snowden v. Checkpoint Cir. at 693 N.W.2d p. these 638.) There no indication other than courts’ 2002) F.3d is that, the of recovery, attorney in case small individual assertions unsupported or mechanism. for the class action fees are an substitute adequate and that small dissenting do with the concurring opinion Nor we agree are or informal resolution claims government prosecution, adequate litigation, substitutes. all action are uncon necessarily

We do not hold that class waivers in a contract of adhesion scionable. But when the waiver is found consumer the contracting between predictably in a in setting disputes parties when it is that the with damages, alleged party involve small amounts of substantively a the of which is not procedural that class actions are mere device waiver disagree. Washington Mutual Bank. No class action waiver was at issue unconscionable. We Rather, to a class suit in which the attempt certify the involved an nationwide action case providing class members mortgage agreements defendant lender had entered into with was governed by jurisdiction property the law the in which the located. agreement would be of demonstrating predominance of common proponents action have burden of Because class issues, incorpo- in state law proponent we held that the must demonstrate that the variations swamp “will issues and defeat prospective rated into class members’ contracts not common Bank, 926.) (Washington p. arriving at In at predominance.” Mutual Cal.4th dealing with holding, rejected Appeal’s suggestion we “the of that California businesses Court as groups rely not be to choice-of-law clauses a means permitted mass of consumers should on “ 918.) (Id. avoiding action.” As we stated: ‘Class of involvement in a nationwide class only Altering to the substantive law to provided a means enforce substantive law. actions as goal sacrifice the be to with ends—to procedure accommodate would confuse means Consequently, otherwise enforceable choice-of-law going.’ for the an [Citations.] may a multistate or may disregarded merely prosecution not be because it hinder the from a California- action or in the exclusion of nonresident consumers nationwide class result (Ibid.) class based action.” varying law would precluded that the was from the state Our conclusion defendant not or prosecution of a multistate agreements “merely control its because it hinder way action waivers. It is long categorically approving class nationwide class action” from circumstances, and thing to unenforceable under certain one hold that class action waivers are agreements as chance optimize to their so to quite require companies another to structure to class certification. litigate against them will be able obtain nationwide that those who Moreover, class Washington possibility did foreclose the Mutual Bank court any on the express provision it. Nor did it views choice-of-law certification in the case before Laws, it, section affirming Second of Conflict of before the conclusion Restatement “ b, will such contracts contracts of adhesion ‘the forum scrutinize comment that in case of they if do so provision may contain apply care will refuse to choice-of-law ” Bank, (Washington supra, 24 Mutual injustice would in substantial the adherent.’ result interpreted suggest can be Nothing Washington Mutual Bank Cal.4th fn. view, other, enforceability action in contracts waivers way one adhesion.

163 has carried out a superior bargaining scheme to cheat power deliberately then, of large numbers consumers out of small sums of individually money, law, least to the extent the at issue is California obligation governed by waiver becomes in of the “from practice exemption party responsibility fraud, own or willful (Civ. to the or of another.” injury [its] person property Code, circumstances, 1668.) Under these such § waivers are unconscionable under California law and should not be enforced.

C. FAA Preemption Rules Class Action Waivers Against of California

1. The Court Appeal Opinion The Court of did not Appeal dispute conclusions of America Online that, circumstances, at least under some Szetela class action waiver would be unconscionable concluded, contrary The public policy. however, that when class action waivers are contained in arbitration agree- ments, California law such prohibiting waivers is 2 section preempted by (9 FAA 2). U.S.C. We conclude the Court § erred. Appeal

We begin by some reviewing basic to the principles pertaining enforcement of law, arbitration agreements. law, “California like federal favors enforcement of Thus, valid arbitration agreements. .... [Citation.] law, under both federal and valid, arbitration agreements are irrevocable, enforceable, save such upon grounds as exist at law or in for the equity revocation of (Armendariz, contract.” any 24 Cal.4th at 97-98, omitted; fn. pp. 2; see Proc., also 9 U.S.C. 1281.) Code Civ. In § § words, other although under federal and California arbitration agree (Volt ments are enforced “in accordance with their terms” Sciences v. Info. 468, Leland (1989) Jr. U. 488, U.S. 478 L.Ed.2d S.Ct. [103 Stanford (Volt)), such enforcement is limited certain general contract prin “ ” ‘at law or ciples for the revocation equity (Id. contract.’ 474.) discussion, At the outset of our we note that the FAA is silent on the matter Indeed, class actions and class action arbitration. is classwide only arbitration a recent relatively but class action development, litigation for was for damages the most unknown in part federal at the time jurisdictions the FAA 12, 1925, was enacted (Act in 1925. of Feb. ch. 883.)4 43 Stat. 4 “It promulgation was not until the original of the Rule 23 and the first Federal Rules of Civil Procedure in 1938 that law and equity merged were damages and class suits for in the United (1 States first became (4th available.” Conte Newberg, Newberg & on Class Actions ed. 1:9, 2002) original Even under the rule class actions did not come into their own. “[Mjodem (Ortiz practice emerged class action in the 1966 revision of Rule 23.” v. Fibreboard Corp. 527 U.S. 2295].) L.Ed.2d gave S.Ct. This revision be said to have that enacted the FAA therefore cannot Congress our the issues before us. conclusions contemplated Accordingly, respect from Court’s to FAA must come the United States Supreme preemption articulation of such general regarding preemption. principles conclusion, Perry the of cited v. Thomas

In of its Court support Appeal in the (Perry), L.Ed.2d 107 S.Ct. which U.S. 2 of the FAA United States Court concluded that section Supreme preempted the authorizes an action for California Labor Code section “ the existence of regard any private agree- collection of ‘without wages ” stated, Perry at As ment to 482 U.S. (Perry, supra, arbitrate.’ of FAA intent for the enforcement the “embodies Congress’ provide full the Clause. Its within the reach of Commerce agreements in that concern of Congress reflects general preeminent applicability ‘[t]he had the was to into which parties Act enforce passing private agreements in 2 of Act entered This clear federal policy places § that be unmistakable conflict with California’s 229 requirement litigants § Therefore, under the forum for resolving wage disputes. provided judicial Clause, at must U.S. way.” (Perry, supra, state statute Supremacy give 490-491.) pp. that in did not address Perry

The Court of observed the court Appeal unconscionable, had the contract because this issue not been whether was But the issue noting may addressed in the lower courts. while remand, FAA considered court clarified limits the Perry imposed on “We ... the choice-of-law issue unconscionability defense: note and unconscio- ‘standing’ arises when defenses such as so-called [plaintiff’s] these, the In such as text of asserted. instances nability arguments § and the the touchstone for between state-law choosing principles provides of federal law that statute: common envisioned principles passage enforceable, valid, irrevocable, as a An to arbitrate matter agreement is or [citation], federal such as exist at law in equity law ‘save upon grounds 2 ... . Thus state for the revocation of contract.’ 9 U.S.C. § that law arose to whether of is legislative judicial origin, applicable if revocability, and validity, enforceability issues govern concerning meaning A that takes its contracts state-law generally. precisely principle this arbitrate at issue does not comport from fact that contract to then, not, assessing rights 2. A court in requirement may [Citations.] agreement, agreement enforce an arbitration construe litigants damages authorizing designed to shape,” their “class actions for part actions “current affirmatively who elected to be judgments binding all members those secure save Products, Windsor, (Amchem 613-614.) Inc. v. pp. 521 U.S. excluded.” manner different from that in which it otherwise construes nonarbitration under state law. Nor a court on the of an agreements rely uniqueness to arbitrate as a basis for a state-law that enforcement holding unconscionable, would be for this would enable the court to effect what we {Perry, supra, hold the state cannot.” 482 U.S. at today legislature 492-493, added.) fn. italics omitted and The Court of pp. Appeal quoted the above language also noted similar in the seminal case of reasoning Southland, 465 U.S. in which the Court held that page Supreme a California statute arbitration of certain under claims prohibiting Franchise Investment Law was the FAA.5 preempted by above,

Based on the the Court of concluded: “While a state may Appeal remedies, the contractual prohibit waiver of consumer the statutory including action, to seek right relief in a class such fall the protections by wayside when the waiver is contained in a formed arbitration validly governed the FAA. by The antiwaiver in statutes such as section provisions of the 229 Labor Code ... are section 2 of the FAA. by preempted Similarly, we conclude the antiwaiver found in language judicial decisions such as and [America also has been section of the Szetela preempted by Online] FAA.”

The Court of conclusion is it Appeal’s because the puzzling, ignores critical distinction made Perry court between a “state-law by that principle takes its meaning from the fact that a precisely contract to arbitrate is at issue,” FAA, which is section 2 of the preempted by and a state law that “govem[s] issues concerning validity, and revocability, enforceability contracts (Perry, which is not. supra, generally,” 9.) 482 U.S. at fn. p. FAA, section 2 of the “[Under state court refuse to enforce an may defenses, arbitration agreement based on contract as ‘generally such applicable ” fraud, duress, or {Little, supra, unconscionability.’ 29 Cal.4th at p. Associates, Doctor’s Inc. v. Casarotto quoting 517 U.S. 1652].) case, L.Ed.2d 116 S.Ct. In the that class present principle are, circumstances, action waivers under certain unconscionable as unlawfully is a of California exculpatory law that does not to principle specifically apply words, arbitration agreements, but to contracts In other it generally. applies to equally class action in litigation waivers contracts without arbitration agreements as it does to class arbitration waivers in contracts with such 5 We note Keating Southland court overruled the although portion of our decision FAA, holding that the statute preempted by expressly was not it declined to rule on the Keating arbitrations, portion of the regarding decision concluding classwide the issue had not {Southland, supra, properly 17.) been raised below. at U.S. Online, (See America 17-18.) supra, In agreements. Cal.App.4th pp. from in it differs under consideration respect provision important as unenforceable. Perry, which out certain arbitration singled agreements Volt, supra, The Court of also relied statements found 489 U.S. Appeal Volt, under 468. In arbitrate parties agreed (See litigation while was permitted stay proceeding pending. Proc., 1281.2, (c).) have been Code Civ. subd. Such a would not stay Volt, 3, 4; (9 allowed under relevant FAA. U.S.C. parts §§ The Volt 2.) the federal 489 U.S. at 471-472 & fn. pp. rejected affirmed the to structure their arbitra- argument right preemption parties’ stated, tion to California rules. It quoted agreement according passage below, the Court of that the FAA’s purpose Appeal “primary [e]nsure [is to] their terms. to arbitrate are enforced agreements according private consent, coercion, under the matter of Arbitration Act is a parties as fit. Just as free structure their arbitration see generally agreements they [citation], limit contract the issues which will arbitrate so they may they will be too contract the rules under which that arbitration they specify by (Volt, conducted.” 489 U.S. that,

The Court of in the unlike in case concluded Appeal present Volt, class action arbitration a class action waiver in imposition despite the defeat because it arbitration would the FAA agreement purpose to its terms. We would not be the arbitration enforcing agreement according Volt’s dictum that the of the to FAA is disagree. primary purpose “ensur[e] that are their terms” to arbitrate enforced to agreements according private (Volt, 479) 489 U.S. at was intended to supra, why p. explain procedural enforced, be rather than agreements rules arbitration should provided (Volt, 478-479.) supra, the rules in the contained FAA. imposing pp. Volt, case, however, nor other Court that Nothing Supreme suggests even terms state courts are to enforce contractual terms if those obliged or under general found to unconscionable contrary public policy discussed, 2 of FAA and contract law As section cases principles. it make that state have no such obligation. Agree clear courts interpreting terms, used to conditions and may ments to arbitrate not be “harbor practices” (Little, 1079.) supra, undermine 29 Cal.4th public policy. p. of section 4 Discover Bank cites various cases holding requirement FAA, courts will do of the that federal district petitioned compel class action so “in accordance with the terms of the agreement,” precludes e.g., Champ (See, for it. arbitration when does not provide Co., Inc., 269, as Siegel Trading 277.) recognized, 55 F.3d But we have supra, Investments, (Cronus 4 does not section state proceedings. apply Services, Inc. v. LLC Cal.4th 388-389 Concierge v. Superior see Blue Cross 217]; 107 P.3d Cal.Rptr.3d of California Court, that neither 4 nor any supra, 62-64 [concluding Cal.App.4th that, arbitration].) from there other of the FAA classwide Aside part precludes 4 overrides the is no that the in section suggestion language principle quoted embodied in section 2 that state courts can refuse to enforce arbitration thereof contract As agreements general based portions principles. discussed, or related unconscionability the FAA does not federalize law of to the extent that it forbids the use of such defenses contract defenses except (See Perry, U.S. at to discriminate arbitration clauses. against 9.) fn. There is no such discrimination here with to Califor respect rule nia’s class action waivers. against

The Court of below also relied on shortcom- Appeal opinion supposed of arbitration to bolster its conclusion that a class action waiver ings enforceable under the FAA. As the court stated: California courts “Although arbitration, have consumer value of classwide recognized protection is not the sole rule consideration. Courts should also consider the ‘California of an arbitrator’s reweighing merits decision.’ prevents [Citation.] The FAA rule. of the does this As review preempt judicial [Citation.] merits of an arbitrator’s decision not be had under California multi-million dollar class arbitration award entered on more than nothing mere whim cannot be corrected under law.”

Far from that the holding invalidation of a class action waiver discrimi arbitration, nates the Court against below reasoned in effect that Appeal arbitration is an inferior forum and therefore cannot be entrusted classwide claims. The court’s conclusion of arbi regarding unsuitability reflects, tration to class actions as we stated in the context of another arbitration, limitation on “the mistrust of arbitration that has proposed very (Armendariz, been United by the States Court.” repudiated Supreme Moreover, below, Cal.4th at as there is to indicate nothing explained that class action and arbitration are inherently incompatible.

2. Gilmer Inter Lane v. state/Johnson Corp. Discover Bank and its amici curiae their on FAA also that argue position in Gilmer v. Interstate/Johnson Lane Corp. preemption by language supported (Gilmer). case, 500 U.S. 20 L.Ed.2d 111 S.Ct. In that court considered in Act of whether Discrimination Age Employment (ADEA; et of claims 1967 29 U.S.C. 621 arbitration seq.) precluded § under that act. The court made clear that the was into brought congres- inquiry arbitration, sional intent to through language, legislative discoverable preclude “an ‘inherent arbitration and the ADEA’s history, through conflict’ between (Gilmer, The Gilmer 26.) supra, 500 U.S. at underlying purposes.” p. of the inherent conflict because that there was such an the argument rejected York Stock mechanisms in the New collective action lack of supposed was being arbitration rules under which plaintiff’s arbitration Exchange for collective rules . . . court stated: “The NYSE provide conducted. As the as a could not forward go But ‘even if the arbitration proceedings. [Citation.] arbitrator, the fact that could not be granted by action or class relief action does a collective of bringing possibility provides [ADEA] intended to be at were individual conciliation attempts not mean that ” 32.) at (Gilmer, 500 U.S. p. barred.’ most, At Bank’s does not Discover position. The above support passage his or can still vindicate understood to mean that party Gilmer court can be is available. remedy ADEA even if no class action her under the rights individual in which large statute ADEA is an discrimination employment Carnahan, the Scarlet A (See (Aug. Removing are awards commonplace. Forbes, age award in employee that the median 2002) 78 [reporting p. classwide $269,000].) Under California discrimination suits is from the denial of would result when unfairness “gross is only justified Cal.3d at (Keating, supra, a classwide basis.” on opportunity proceed p.

Moreover, lack of a class to use the supposed in Gilmer the plaintiff sought In the entire arbitration agreement. a reason for invalidating action as remedy case, itself is not in the arbitration agreement enforceability the present determination action waiver. Gilmer's of the class enforcement only question, inherent conflict rise to an give action remedies does not that the lack of class not lend proposition the ADEA and the FAA does support between rules arbitration-neutral enforcing states from the FAA categorically precludes in some circumstances.6 class action waivers consumer prohibit 6 Gilmer, cases, enforcement of arbitration have held that relying part Several federal Lending inherently with the federal Truth did not conflict class actions prohibiting clauses Cashing, supra, Checkpoint Check (See Snowden (TILA; seq.) et Act 15 U.S.C. 638-639; (11th 2001) 244 F.3d Corp. Tree Fin. Randolph v. Green Cir. pp. F.3d at Bank, 369.) These courts 225 F.3d at Johnson v. West Suburban (Randolph); actions, reasoned, alia, other incentives “the statute contains even without class inter 818; (Randolph, supra, bringing TILA claims.” damages attorneys fees for statutory damages viola statutory $100 for TILA 1640(a)(2)(A) minimum [providing see 15 U.S.C. § arbitration, decisions, limits impliedly tions].) address whether federal statute These are arbitration waivers decides whether class binding on this court when it obviously discussed, Moreover, no reason to there is as principles. under state law unconscionable remedies, which the statutory damages in cases in attorney fee and minimal believe that actions for class slight, adequate are substitutes damages amount of individual deterring rights and misconduct. vindicating consumer

169 Financial v. Corp. 3. Green Tree Bazzle Bank that Green Tree Financial Corp. Discover argues Bazzle after {Bazzle), issued 123 S.Ct. U.S. L.Ed.2d that a state law the Court opinion, position of filing Appeal supports We disagree. class waivers is the FAA. rule arbitration against preempted Bazzle, (Green Tree), In several customers sued Green Tree Financial Corp. them informing that the failed to them with form provide alleging company to South lawyer agent, contrary their to name their own and insurance right certification, sought class and Green Tree to Carolina law. They sought arbitration to with the The agreements plaintiffs. arbitration compel pursuant court both a class action and entered an order compelling trial certified conducted, and in were both arbitration. Two class arbitration proceedings instances, awarded the several million dollars statutory arbitrators class {Bazzle, U.S. The confirmed the awards. trial court damages. 448-449.) Tree other challenged things, Green on pp. appeal, among of the The Carolina Court held that class arbitration. South legality Supreme arbitration were to classwide arbitration agreements silent with respect that, under would be and South Carolina silence construed permit such arbitration. at p. {Id.

The addressed a Tree disputed narrow Green question: Bazzle arbitration, arguing whether the arbitration clause was silent on classwide that the contract in fact As the court’s such arbitrations. language prohibited outset, at the framed the issue: must deal with argument plurality “[W]e on its holding for if it is then the South Carolina court’s is flawed own right, terms; that court nor it would authorized neither said have implied {Bazzle, had the arbitration arbitration forbidden it.” agreement parties’ J.).) Breyer, U.S. opn. (plur. issue, on this no A opinion. Even narrow majority produced Bazzle contract was in of four held whether the justices plurality question decide, for the remanded an fact silent arbitration was arbitrator to “In As the certain limited circum- arbitral determination. stated: plurality arbitrators, stances, courts, courts that the intended parties assume (in the decide a arbitration-related matter absence particular ‘clea[r] limited instances evidence to These contrary). unmistakabl[e]’ [Citation.] likely involve of a kind that would have ‘contracting parties matters typically matters, include certain gateway a court’ decide. They expected [Citation.] at all have a such as whether the valid parties to a certain type arbitration clause binding applies whether concededly here the contracts forbid whether controversy. question [Citations.] [f] into It concerns neither exception. class arbitration does not fall this narrow the of the arbitration validity clause nor its to the applicability underlying between {Bazzle, dispute parties.” 539 U.S. supra, p.

Justice Stevens filed a that stated in concurring dissenting opinion part: “The Court of South Carolina held Supreme has as matter of state law that class-action arbitrations if not permissible by prohibited applicable and that the agreement, agreement between these is silent parties on the issue. There is in the Federal Arbitration Act that nothing [Citation.] either of these precludes determinations Court of South Supreme Sciences, Carolina. See Volt Inc. v. Board Trustees Leland Information Univ., Junior U.S. [supra,] 489 475-476. Stanford “Arguably of the interpretation parties’ should have been agreement arbitrator, made in the first instance rather than the court. [Citation.] Because decision to conduct a class-action arbitration was correct as matter of and because has petitioner the merits of that merely challenged decisionmaker, decision without that it was made claiming by wrong there is no need to remand the case to correct that error. I possible Accordingly, [][] would affirm the simply judgment of the Court of South Carolina. Supreme case, however, Were I to adhere to my of the there preferred disposition would be no of the Court. In controlling judgment order to avoid that outcome, and because JUSTICE BREYER’s a view of the opinion expresses own, case close to I my {Bazzle, concur in the 539 U.S. at judgment.” supra, Stevens, (conc. 455-456 pp. J.).) & dis. opn. O’Connor,

Chief Justice also writing for Justices Rehnquist, Kennedy would have held that the whether the question is silent on agreement court, arbitrator, classwide arbitration is for the rather than the to decide. {Bazzle, (dis. 539 U.S. at 457-458 supra, The dissent viewed the pp. opn.).) choice of class arbitration as to the relating {Bazzle, choice of arbitrator U.S. at 456) and concluded that this choice “is as important of the to arbitrate component as is choice of what is to be merits, submitted 456-457.) On the the Chief pp. [for arbitration].” {Id. favor, Justice would have decided the contract in Green Tree’s interpretation i.e., that the contract forbade class action arbitration and that waiver such fully 458-459.) enforceable. at pp. {Id.

Justice Thomas adhered to his view that the FAA does not previous apply {Bazzle, state court (dis. 539 U.S. at proceedings. opn. Thomas, J.).)

Reading together Justice Stevens’s plurality opinion opinion, most that from might derived is a narrow that when the holding: Bazzle of whether a class action question arbitration is available on whether depends or forbids expressly not the is silent the matter agreement or arbitration arbitrator, court, arbitration, not to to the the class then it is up action is in fact silent. agreement determine whether the arbitration case, the is of holding, present More than purposes significant Bazzle’s can, what it did not decide. The not whether state court court did address FAA, of action in a contract consistent with the hold a class waiver appearing as of or to contrary public policy, part adhesion for arbitration unconscionable noted, As law all such waivers unenforceable. an arbitration-neutral that finds the Supreme the in issue stated “that South Carolina framing plurality [the nor that it would have authorized class arbitration neither said implied Court] (Bazzle, supra, U.S. at had the arbitration forbidden it.” 539 parties’ agreement law, discussed, J.).) as class Breyer, 450 of Under California (plur. p. opn. it, authorized, when a of forbids arbitration be even contract adhesion may because a be does may class waiver unconscionable. Bazzle contract general call into that state courts enforce question principle action rules class regarding preclude unconscionability public policy waivers. of

Nor did the court that determination address whether question was should made a court or an arbitrator. The court unconscionability by general courts should be left to decide certain agreement “gateway (Bazzle, J.)) matters” at 452 of or supra, U.S. opn. Breyer, 539 (plur. of “fundamental” matters such as the the arbitration validity scope (id. (dis. Under agreement J.)). 456—457 of C. pp. opn. Rehnquist, of the “grounds whether exist for revocation question Proc., (Code 1281.2) Civ. based as agreement” on “grounds § [arbitration] (id., exist for of to 1281) the revocation contract” is for the courts decide, Inc. v. Permanente Medical (See arbitrator. Engalla Group, not an 951, 843, (1997) 15 903].) Cal.4th This 973 938 P.2d Cal.Rptr.2d [64 includes the determination whether arbitration agreements of portions thereof to be to are deemed unconscionable or contrary policy. public Little, 1076; Inc. Ready, 29 Cal.4th Balandran v. Labor (See, e.g., uncon 124 1530 Cal.App.4th [question Cal.Rptr.3d [22 to be by of arbitration issue resolved scionability gateway Lambert, court]; Miller v. Drexel Burnham Inc. 1986) (11th Cir. F.2d Finance, 854; Inc. v. 2001) American General Branch (Ala. So.2d In MCI 743; Systems, re Arbitration Between Inc. & Teleserve Telecommunications Corp. 1997) 230 A.D.2d (N.Y.App.Div. 659].) N.Y.S.2d Nothing contrary. Bazzle

Amicus United Chamber Commerce curiae States argues of classwide arbitration undermines the of the FAA imposition purpose arbitrate, trans- drastically altering agreed rules parties forming arbitration into less efficient and less desirable mechanism resolution. lends no dispute to that On the support position. contrary, Bazzle could have although been if a had decided disposed easily majority Bazzle that arbitrations and class were actions and that inherently incompatible, action arbitration therefore could not be instituted without an agree- express ment, the court did not take that route. The fact that a majority looked to state law rules to determine whether class arbitration is authorized indicates its view that there is no such only justice incompatibility. issue, Stevens, comment on this Justice directly concluded that in the nothing FAA state courts from prohibits classwide arbitration in authorizing agree- ments silent on the (Bazzle, matter. U.S. at (cone, 454-455 pp. Stevens, J.).) opn.

Nor are we directed to concrete that anything would cause us to reconsider Keating’s over 20 holding that classwide years ago arbitrations work- able and (See in some cases. appropriate As Stemlight, Mandatory Binding Action, Arbitration Meets the Class Will the Class-action (2000) Survive? 1, 42 Wm. & L.Rev. 38-44 & Mary fns. 148-151 based on [reporting, of court surveys decisions and discussions with that class attorneys, viable, action arbitration is rare but with trial courts to resolve acting matters]; class issues and other collateral see also v. Green Tree Bazzle 349, (2002) Financial Corp. 351 S.C. S.E.2d & 360-361 fn. [569 22] the California to classwide [adopting arbitration and its approach affirming Hutton, Dickler workability]; v. Shearson Lehman Inc. 408 Pa.Super. A.2d arbitration]; classwide American [adopting 862-863] Assn., Arb. Rules for (Oct. 2003) Class Arbitrations Supplementary of June <http://www.adr.org/sp.asp?id=21936> [supplemental [as 2005] JAMS, arbitration]; rules for (Feb. classwide Class Arbitration Procedures 2005) of June <http://www.jamsadr.com/rules/class_action.asp> [as [same].)

We reiterate what this court said over 20 in years ago “Classwide Keating-. arbitration, evaluated, as Sir Winston Churchill said of must be democracy, not in relation to some ideal but in relation to its alternatives.” {Keating, 613.) Cal.3d at We continue to believe that the alternatives—either not arbitration enforcing agreements class action or requiring litigation, to be allowing agreements used as a means of inoculat- completely ing against class in the FAA parties liability—are Nothing nor unacceptable. in us to that reconsider assessment.7 requires Bazzle 7 Ralphs Grocery argues Amicus curiae Co. that section 5 of the FAA forbids enforcement of classwide parties. provides, arbitrations not consented-to Section 5 pertinent part: agreement provision naming “If in the be made for a method of appointing an (9 umpire, arbitrator or arbitrators or an such method shall be followed.” U.S.C. Amicus curiae imposition right contends that the of a class action is inconsistent with to choose a selecting method of arbitrators under section 5. desirable forum becomes a less be the that arbitration

It case be conducted in the arbitration must Bank’s if from Discover viewpoint an unconscio to enforce But that a court’s refusal manner. the fact classwide less desirable makes that agreement term of an arbitration agreement nable ******8 of its enforcement.* does not favor argue term imposing party Issue D. Choice-of-law from a California FAA does holding prohibit

Our does not waiver is unconscionable to enforce class action refusing Discover Bank and to this between a resolution case. bring Bank and Discover argues has a Delaware choice-of-law agreement enforceable. Because Delaware a class arbitration waiver is that under class arbitra- California rule against the Court of concluded Appeal FAA, it address the question waivers was did not tions preempted the enforcement of the Delaware choice-of-law whether provision requires the Court of arbitration waiver. It must do so on remand. For remand, these we offer comments. guidance Appeal’s as fol We have summarized California’s choice-of-law provisions9 . . fall within the “If the trial court finds that the . claims lows: issue] [at clause, it next the clause’s enforce of a choice-of-law must evaluate scope 187, section to the reflected in analytical ability pursuant approach (Restatement). (2) of the Restatement Second of Conflict of Laws subdivision ‘(1) that the court must first determine: whether chosen Under approach, transaction, a to the or their state has substantial relationship parties (2) choice of law. If whether there is other reasonable basis for the any parties’ met, and the court need neither of these tests is that is the end the inquiry, First, 5 to reject Ralphs Grocery argument. applies it is unclear whether section We Co.'s Volt, 477, 6; Great Western Fin. (See Rosenthal p. state courts. U.S. at fn. 489 875, 1061].) Corp. P.2d Securities 14 fn. 6 We Cal.Rptr.2d Cal.4th 926 here, noted, requires the FAA that need not resolve the issue however. As section 2 of 478.) (Volt, supra, agreements according p. be to their terms. at Section arbitration enforced merely specific application general procedures. a that rule selection provides for arbitrator such, reading together, a arbitrator- party’s providing As section and section 5 contract general under will be followed those rules are unenforceable selection rules unless otherwise above, against action waivers under some prohibition rules of contract. As discussed a general is one such rule of contract. circumstances 8 that, agree compelled, a classwide is Discover parties We note both in the event brought court. may waive the arbitration and have the matter Bank 9 itself, we provision appears apply would Because the Delaware choice-of-law (See Nedlloyd, supra, Delaware choice-of-law by reviewing principles. Cal.4th normally start case, 7.) choice-of-law rules present parties In the do not discuss Delaware fn. becomes one of California argue they question differ from California rules. The therefore nor (Ibid.) law. If, met, however, not enforce the choice of law. either test is parties’ next determine must whether chosen state’s law is to a fundamen contrary conflict, tal If is no the court California. there such shall enforce the policy If, however, choice of law. there is a conflict parties’ fundamental law, California then court must determine whether California has ‘materially greater interest than chosen state in determination of the issue . . (Rest., (2).) . .’ subd. California has a particular materially If state, enforced, interest than the chosen the choice of law shall not be greater for the obvious such reason that in circumstance we will decline to enforce ” Bank, (Washington Mutual law to this contrary state’s fundamental policy.’ 916-917, omitted.) 24 Cal.4th at fns. and italics pp. that

Assuming Discover Bank establishes the “substantial relationship” basis” “reasonable choice-of-law prongs analysis, assuming Delaware law class arbitration to California regarding contrary waivers law, the court must then whether resolve and to extent Delaware law what above, in America Online should As reviewed the court apply. concluded that a Virginia choice-of-law that would have waiver of the compelled provision a class action lawsuit the CLRA be plaintiff’s right bring under would not resident, against enforced California the CLRA class action concluding Online, furthered a state.” remedy public of this “strong policy {America supra, case differs from America Cal.App.4th present CLRA, Online in that is not invoking antiwaiver provision he an nor is to enforce the CLRA or seeking obligation other imposed Instead, California statute. he has under this action the Delaware brought Consumer Fraud Act and Delaware contract but seeks to enforce those Delaware laws in a court with a California rule unconscionability class action under against waivers is not found Delaware law. arguably he determined Whether do so remains to be on remand. Also to is addressed that class arbitration rules are plaintiffs’ argument procedural that rules California courts even the when substantive law apply Laws, (see contract another by dictated is from state Rest.2d Conf. of 122), as well as other choice-of-law raised. any arguments appropriately Disposition III. reversed,

The of the Court of and the is judgment cause Appeal remanded for consistent with this proceedings opinion. J., J., Kennard, L, and C. concurred.

George, Werdegar, BAXTER, J., in and I concur dissent Concurring Dissenting. part not compel I with the that law enforcement agree majority does part. federal they of contractual class action waivers because are contained in simply to use this determination the majority’s But I lament arbitration agreements. action on class the issue of policy a to resolve case as vehicle California’s not, that reasons, not, confront question and should we need For two waivers. here. solely by waiver

First, the instant the Court of Appeal upheld because court did California antiwaiver policy, of federal finding preemption address, on we do not Ordinarily, exists. decide whether such policy review, the Court of Appeal. not decided by issues that were action deem the class

Second, decision to the majority’s questionable determina- standards—a unconscionable by in this contract waiver California discussion, (see elsewhere authority the vast weight tion at odds with The reason- the circumstances. parties moot under particular post)—is simply their contractual all Delaware law would govern aspects ably agreed Thus, Delaware causes of action. only has asserted relationship, waivers, has a manifest on class California of California’s position regardless Because Dela- Delaware law alone. to evaluate the waiver under obligation waiver, ware, the California—the other would uphold like most jurisdictions, honor it. venue for this “nationwide” class action—must fortuitous the issues addressed by on reaching beyond If the insists majority one. and resolve the it should at least identify dispositive Court of Appeal, issue, Instead, deciding waiver avoids so bold on the majority, admonitions, the majority mild cautionary choice-of-law issue. some Despite waiver under free on remand to dishonor leaves the Court of Appeal law Delaware rule. contrary despite event, as well as reasonable contractual expectations, In that parties’ of its own law to this of Delaware itself in the interest strong application must, Moreover, issue, or may, if California courts would be frustrated. law governing that are valid under dishonor class action waivers perfectly themselves, takes a minority California—which now selected parties nation- for countless well become the magnet on this issue—might position I be maintained elsewhere. that could not wide consumer class lawsuits cannot such result. accept controversy. of this

I review what I deem pertinent aspects briefly case, Discover Bank this as modified at issue in cardholder arbitration, than litigation, rather that either choose may specifies party contract, obtain class and that neither party under the dispute concedes, will be it the agreement provides As treatment. plaintiff California, the law of federal law and of but by the law by governed, Delaware. of Discover Bank’s in view startling choice of Delaware law is hardly Indeed, credit requires revolving plan Delaware domicile. “[a]

Delaware 176

between a bank and an individual borrower shall be [Delaware-chartered] governed, Ann., (Del. 5, 956, the laws of Code tit. italics [Delaware].” § added.)

For all but one has purpose, embraced the choice Delaware law. He has asserted expressly intentionally Delaware causes of action. only At oral argument, his counsel that his is so framed in explained complaint law, deference to the agreement’s choice of and also in hopes certifying nationwide class subject uniform legal principles.

But treatment, Delaware permits agreements class preclude even if such are contained in standard-form provisions consumer contracts. Edelist v. MBNA America Bank (E.g., 1249, 2001) 790 A.2d (Del.Super.Ct. Bank, 1261; Lloyd v. America see MBNA N.A. (D.Del. also 2001) 2001 WL Services, 194300; Pick v. Discover Financial Inc. (D.Del. 2001) 2001 WL 1180278, Furthermore, *4-*5.)1 under of Delaware statu- specific provisions tory Discover Bank could insert such a in a provision preexisting contract, here, notice, as the bank did a unilateral by issuing under which inaction or plaintiff’s continued use of his credit card constituted acceptance. Ann., 5, (Del. Code tit. 1 decisions, position Delaware’s majority accord with the vast applying federal law states, or the law of other which hold that arbitration they clauses are not invalid either because specifically exclude class treatment or they preclude because such failing treatment Finance, expressly provide (E.g., Livingston (7th 2003) for it. v.Associates Inc. Cir. 339 F.3d 553, (Livingston) (TELA)]; Lending 559 Truth in Checkpoint Act Snowden [federal v. Check 631, (4th 2002) Cashing (Snowden) [same]; Cir. F.3d 290 638-639 Burden v. Check Into Cash 483, Kentucky, (6th 2001) (Burden) [same]; LLC Cir. 267 F.3d Randolph 492 v. Green Tree (11th 2001) 814, Corp.-Alabama [same]; Financial (Randolph) Cir. 244 F.3d 819 Johnson v. (3d 366, 2000) (Johnson) [same]; West Suburban Bank Cir. 225 F.3d Champ Siegel 370-378 v. Co., 269, 277; Services, Trading (7th 1995) Inc. Cir. 55 F.3d Shales v. Discover Card Inc. 2022596, (E.D.La. 2002) *2; 2002 WL Society Lomax v. Woodmen the World Ins. Life (N.D.Ga. 1360, 1365; 2002) (E.D.La. F.Supp.2d Vigil 2002) 228 v. Sears Nat. Bank 566, law]; F.Supp.2d 205 [applying McIntyre 572 federal and Arizona v. Household Bank 719, (N.D.Ill. 2002) [TELA]; Loans, F.Supp.2d Thompson (N.D.Ill. 216 724 v. Illinois Title Inc. 2000) [same]; (N.D.Ill. 1999) 2000 WL *4 Zawikowski v. National Bank Beneficial 35304, *2, WL & 2 [upholding compelled fn. clauses that precluded arbitration and Cars, litigation, declining but to decide if class proper]; arbitration was Med Center Inc. v. (Ala. 9, 20; 1998) Systems 2001) Smith 727 So.2d Rains v. Foundation Health (Colo.Ct.App. 1249, 1253-1254; Management (1996) 23 P.3d Brown v. KFC National Co. 82 Haw. 226 146, 166, SCIL, 23]; (2003) P.2d fn. Ill.App.3d [921 Rosen v. LLC N.E.2d [799 law]; (2005) 278 Ill.Dec. [applying Sovereign federal arbitration v. Walther Bank law]; 386 Md. 412 A.2d Maryland [872 Strand v. U.S. Bank Nat. 749-751] [federal 918]; (2005)

Ass'n ND Capital Corp. ND 68 N.W.2d Gras v. Associates First [693 886, 889-895]; Super. 2003) 346 N.J. A.2d Ranieri v. Bell Atlantic (App.Div. [786 Mobile 448, 449]; Corp. Leroy 2003) 304 A.D.2d 353 N.Y.S.2d (Tex.App. AutoNation USA 190, 199-200.) 105 S.W.3d

Thus, sweet, to take the bitter with the would now rather unwilling the contract. After California law to issue apply single governed by law, Delaware he agreeing one-on-one arbitration a contract choosing now seeks to as a nationwide class proceed representative persuading courts, law, of California to dishonor his through application contractual waiver of class treatment. As the itself states majority cogently matter, that, he and his counsel have a California in an selected forum so states, action Discover Bank cardholders from he can representing all 50 “enforce . . . . Delaware laws . . with a California rule unconscionability [but] ante, against action waivers.” at (Maj. opn., He should allowed to do so. The solution to this in a case lies straightforward of the choice-of-law test set forth in application Nedlloyd 330, Lines (1992) B.V. v. Court 3 Cal.4th Superior Cal.Rptr.2d [11 834 P.2d (Nedlloyd) and Bank Washington Mutual v. Court Superior 1148] (2001) 320, 24 Cal.4th 906 15 P.3d Cal.Rptr.2d (’Washington [103 1071] test, Mutual). Under that California will the law of contractual choice if apply (1) the chosen state has a substantial to the or their relationship parties (2) transaction or there is other reasonable basis for the choice of parties’ law, unless the chosen law state’s offends a “fundamental” California policy. conflict, Even where there is a “fundamental” the chosen state’s law will unless apply California has a interest than the chosen state materially greater Mutual, 916-917; resolving issue. particular (Washington pp. standards, Nedlloyd, 464-466.) these effort pp. By plaintiff’s Delaware’s, California class waiver apply to the extent it differs from fails. clearly

The first two considerations chosen state’s law favoring application Delaware, domiciled, satisfied here. easily where Bank Discover is has a substantial Moreover, to the and the transaction. relationship parties choice of Delaware’s law as to Discover Bank’s nation- uniformly applicable wide credit card business is entirely reasonable. to Delaware relationship substantial, becomes even more and the choice of its law even more reasonable, virtue of Delaware’s that its law express statutory requirement shall govern.

Furthermore, case, in the circumstances of this the contractual waiver is not so contrary “fundamental” California that California should invali policy date it despite Delaware law. The the waiver is contrary majority suggests unconscionable. But is matter of contract law—it unconscionability simply “ ” defenseQ’ constitutes ‘generally (Armendariz contract applicable Services, (2000) Foundation Health Psychcare Inc. 24 Cal.4th 114 [99 Associates, (Armendariz), 6 P.3d Cal.Rptr.2d Doctor’s quoting Inc. v. Casarotto 517 U.S. L.Ed.2d 116 S.Ct. 1652]) thereof, based on a claim that a or a term particular agreement, (See circumstances. Civ. under the to one party particular unfairly oppressive contract, Code, decline but to enforce unconscionable 1670.5 may § [court context].) may, to States after giving parties opportunity explain only course, an unconscionable their of what constitutes differ in conception Thus, seems “unconscionable” in an agreement pecu- contract term. what is in the decided under the law chosen by parties an issue to be liarly itself. agreement noted, their law to and construe govern chose Delaware

As these parties California, find contract might if its own Even agreement. applying unconscionable, reason to there is no “fundamental” certain class waivers reason- acting an in which parties, that defense impose upon defense where such a would chose the contract law of a ably, jurisdiction apply. certain substantive rights, also notes that California affords

The majority statute, (See, “unwaivable.” Civ. e.g., that are those specified by particularly Code, 1751, under Consumers to class action bring right §§ [unwaivable 83, Armendariz, 100-101.) Act]; 24 Cal.4th Remedies see also Legal concede, that has no application But as the is forced to majority principle here, such Califor- invoking any has avoided carefully where himself nia right. statutory contracts in standard consumer that class waivers majority suggests against “fundamental” statutory policy violate California’s

may arguably Code, (See In the clauses. Civ. direct or indirect “exculpatory” because, view, given have an effect such waivers may exculpatory majority’s claim against amount of each cardholder’s personal modest usually Bank, an individual basis is impractical or arbitration on Discover litigation and their that because cardholders and uneconomic. The majority posits them such claims except by aggregating have no incentive to attorneys pursue liability Discover Bank will escape punish- with other similar complaints, ment for its improper practices. outset, I cannot reasons. At the find several analysis

I this unpersuasive lack of a class remedy equivalent the facile accept premise forum, treatment, is a in whatever an Class alleged wrongdoer. exculpation invention, the resolution encourage designed recent relatively facilitate valuable leverage It may provide procedural of certain kinds of disputes. 906, Mutual, 24 Cal.4th we noted in Washington one side. But as ” “ law.’ a means to substantive as only actions provided ‘[c]lass enforce 12 Cal.3d 918, (1974) Court San Jose v. (Id., City Superior at p. quoting omitted, 797, added.) 447, 701], They fn. italics 525 P.2d Cal.Rptr. [115 if (Ibid.) Even law to be enforced. with the substantive must not be confused relief unavailability makes a of a plaintiff’s pursuit particular (Moses H. Cone v. Constr. claim “less convenient” Hospital Mercury Corp. (1983) 927]; see also Gilmer 460 U.S. L.Ed.2d 103 S.Ct. [74 Interstate/Johnson Lane Corp. 500 U.S. L.Ed.2d 1647]), 111 S.Ct. such claims nonetheless be on an individual pursued basis.

Moreover, majority exaggerates modest difficulty pursuing claims where class treatment is unavailable and overlooks the other many means which by Discover Bank could be called to account for the mischarges For plaintiff alleges. example:

(1) The cardholder contact the bank and may to resolve the matter attempt informally. Discover Bank’s cardholder agreement specifically provides 60-day period which to contact and company billing questions Plaintiff’s disputes. does not state that he complaint this avenue. pursued (Indeed, though asserts complaint widespread improper billing practices Bank, Discover it does not allege that the bank has ever mischarged himself. Plaintiff admitted in his that he does not deposition know whether Discover Bank has ever so.) done

(2) Pursuant to the agreement, cardholder one-on-one may pursue claims, arbitration of Delaware state law those under the Delaware including tit, Ann., Consumer (Del. Fraud Act Code 2511 et The seq.). agreement § includes several to make the provisions designed individual arbitration pro- terms, cess fair and accessible. Under the agreement’s Discover Bank will arbitrate in the federal Further, district judicial where the cardholder resides. the cardholder obtain an may advance of all forum costs and will never pay forum costs those he or exceeding she would have had to in court pay litigation.

(3) $5,000, For claims under the cardholder in small may proceed claims (See Proc., court. Code Civ. 116.210 et In the § cardholder seq.) agreement, Discover Bank that it “will not promises invoke to arbitrate an right [its] claim,” $5,000, individual less than which involving is in a pending only small claims court.2 The only of a small mandatory claims action is a expense modest fee the actual filing cost of mail service clerk. plus (Id., 116.230, (a), (c), 116.910.) subds. The claim is out a §§ pled by filling (Id., 116.310, standard (a), form. 116.320.) subd. No formal discovery §§ (id., 116.310, (b)), permitted subd. and neither § party may represented by 2 The not does eliminate the theoretical possibility might that Discover Bank seek court, However, to remove a small claims action to another then elect to arbitrate. a small claimant can suffer removal only another forum if the defendant files counterclaim $5,000 exceeding jurisdictional small claims unlikely development limit—an in cases like Proc., (Code plaintiff’s. 116.390.) Civ. § 116.530, (a)), assistance is (id., though advisory subd. free lawyer § (id., 116.260). available to the claimant § arbitrate,

(4) cardholder to the terms of cardholder pursuant (15 under as TELA. U.S.C. 1601 his such federal statutes agreement, rights § et disclosure con mandatory This statute imposes requirements seq.) transactions, card accounts. arising sumer those on credit As including credit latter, the terms on which the statute for detailed disclosure of provides extended, rates, credit annual methods of is being including percentage balances, and late grace finance fees. outstanding charges, computing periods, cardholder, (15 recover actual 1637.) The if he or she prevails, may U.S.C. § each twice the finance in connection with violative damages, charge imposed transaction, (Id., (3).) 1640(a)(1), (2)(A), costs. attorney fees and § Bank’s unfair competition If Discover conduct violates California’s Code, (Bus. & Prof. 17200 et seq.), broadly prohibit “any statutes § unlawful, 17200), (id., act or unfair or fraudulent business practice” (who are law enforcement officials designated General local Attorney behalf bound the cardholder sue on the may by agreement) People’s $2,500 for relief and for civil to each injunctive mandatory penalties up 17203, 17204, 17206). (id., violation The amount of a civil shall penalty §§ be relevant calculated in accordance with one more of the circum- “any stances . . . but not limited to ... nature and seriousness including, misconduct, violations, misconduct, the number of of the persistence occurred, willfulness of the of time over which the misconduct length liabilities, misconduct, assets, and the defendant’s net defendant’s and 17206, (Id., (b).) worth.” subd. § in the and credit other means highly banking industry, Finally, regulated at the behest and conduct are available sanctioning remediating illegal (See, (b) e.g., both federal and Delaware law. U.S.C. § [Federal orders issue Corporation may Insurance cease-and-desist

Deposit Ann., 5, restitution]; tit. order measures Del. Code including § corrective 3 clause, and thus does not Though the cardholder contains no forum selection courts, whether, bar arise to the choice-of-Zaw question pursuant suits in California any provision, obliged apply dispute claims court to Delaware law to the small would before it. 4 1, ante), (see addressing uniformly the issue have As indicated above fn. federal circuits pursuant agreement, held claims that arbitration that claimants must arbitrate TILA TELA, agreements containing express waivers of precludes class relief under that arbitration treatment, dispute, are not unconscionable with class even for small individual amounts that, actions, claims, contemplates it includes no respect although TELA to TILA Snowden, 559; (Livingston, supra, right class relief. 339 F.3d “unwaivable” Burden, 483, 492; 638-639; Randolph, supra, 244 F.3d supra, 267 F.3d 290 F.3d 819; Johnson, 366, 370-378.) supra, 225 F.3d

et and enforcement of Delaware [investigative State seq. powers Banking Ann., Commissioner]; Del. Code tit. and enforce- [investigative General].) ment of Delaware powers Attorney circumstances, that,

Under these it cannot be said cardhold- by upholding ers’ contractual waiver of a class under Delaware remedy we would Thus, absolve Discover Bank effectively of its conduct. there is objectionable no basis to conclude that enforcement of the class waiver to the pursuant choice of Delaware law would parties’ contravene fundamental California statutory against policy exculpatory agreements. even if the

Finally, of Delaware law application class waivers permitting would violate fundamental California I conclude that California public policy, has no interest in materially greater its own to this applying contro- policy is, sure, than versy does Delaware. California to be the home of this claim, individual with his modest plaintiff, and of personal monetary some of cardholders, other similarly situated Discover Bank modest similarly claims, individual he seeks to But to the extent represent. plaintiff proposes vindicate the of a rights nationwide class under Delaware consumer protec- laws, tion California has no greater interest than other jurisdiction, Delaware, in including protecting interests of its resident class members. Indeed, California, courts, its and its judicial resources will be negatively if, impacted its own liberal invoking antiwaiver rule in derogation contrary law chosen this state parties, attracts nationwide consumer class litigation of the sort seeks to maintain. Such an adverse affect on California detracts further from this state’s interest in its own law applying under such circumstances.

Moreover, factors in California’s favor are outweighed by Delaware’s far greater law, concern with the of primacy its own both contractual and regulatory, relations between Discover Bank and its nationwide cardhold- domicile, ers. Delaware is Discover Bank’s as well as the source of the substantive Glen, law plaintiff seeks to Robert expressly A. apply. Commissioner, Delaware State Bank in his amicus curiae explains brief that Delaware has a interest in the economic and paramount business regulation financial and institutions banking domiciled in that state. domicile,

As Discover Bank’s Delaware has interest specific regulatory its own laws and and applying to Discover policies, uniformly exclusively, Bank’s Delaware operations. thereby seeks to minimize Discover Bank’s laws, to the exposure and varying and possibly conflicting regulations, procedures 49 sister In jurisdictions. Delaware has particular, ample grounds concern that the of the terms standardized credit agreements banks, those terms governing including chartered locally entered its by no matter where the same meaning will have of customer disputes, resolution customers reside. the banks’ strives, observes, for the benefit Delaware also Glen

As Commissioner customers, customers, card nationwide credit their including the banks’ These in such institutions. and soundness financial stability, safety, promote of consumer litigation, the banks’ costs affected substantially by interests Commissioner Glen’s actions. In to consumer class their including exposure down because words, resolution the costs dispute helps keep “[arbitration If a bank has efficient, than litigation. and economical it more expeditious and, in litigation particular, in connection with substantial sums spend forces the and soundness and the bank’s safety that threatens litigation, action redounds to all of which increase the costs of operations, bank to customers, in states customers located including and detriment of the bank its Delaware.” outside of above, concerns, by as noted specifically evidenced its

Delaware has banks Delaware-chartered issued by that credit card agreements providing Ann., 5, 956.) tit. Commis- (Del. law. Code Delaware must be governed by is to ensure this purpose requirement sioner Glen explains “[t]he the uniform banks effectuating of Delaware safe and sound operation in accordance issued banks credit card agreements construction of [such] law, those concerning agreements where no matter disputes with Delaware arise.” might this controversy, has a substantial relationship

Because Delaware reasonable, interest in and Delaware’s was choice of Delaware law parties’ waivers—exceeds of class its law—including acceptance its own applying Under Delaware California’s, choice of law. must California uphold valid, them is between class treatment of disputes waiver of parties’ it. courts must enforce in Washington set forth principles that the choice-of-law Plaintiff suggests Cal.4th 459—as Mutual, Nedlloyd, supra, Cal.4th of Law of Conflicts the Restatement Second 187 of derived from section not of law but “procedure.” of “substantive” to matters (Restatement)—apply asserts, interest in state, applying has a always paramount The forum its own procedures. issue of “procedure,” we confront an deciding without

Assuming his for As support lacks merit. primary nonetheless argument plaintiff’s section and 125. The former sections 122 cites Restatement position, plaintiff rules even when litigation its own” the forum “usually applies states that law of another is jurisdiction for other The latter applied section purposes. declares that the forum’s law determines “who and who be may must . . . unless the substantial parties and duties of the rights would parties (Rest., be affected . . . .”5 [thereby] 125.) §

But Restatement, Restatement sections 122 and like most of the set forth for principles determining law to jurisdiction’s apply “[i]n absence of an effective choice of (Rest., law the by (2).) subd. parties.” § sections, thereto, in those Nothing or in the comments indicates a purpose Restatement section supersede 187 where the have parties contractually chosen the or to applicable a forum rule impose resolution dispute despite express contrary of an provisions agreement that the law specifies of a in which jurisdiction that choice is valid.

Indeed, the comments to both these Restatement sections demonstrate their here. For inapplicability example, comments to section 122 out that point administration, “in matters of judicial it would often be or difficult disruptive for the forum to the local apply law rules of another state [without repayment] by furtherance of the values that the application another state’s local law designed (Rest., a, promote.” com. 350.) §

Moreover, it is explained, “[pjarties do not usually give thought matters of judicial administration before enter into they legal transactions. do They not usually place reliance on the of the applicability rules of a state particular to issues that would arise if only litigation should become Accord- necessary. ingly, have parties eventualities, no as to such expectations and there is no danger unfairly their disappointing hopes by forum’s rules in applying a, such (Rest., matters.” com.

Here, the parties extensive gave and detailed contractual consideration to the “issues that would arise ... if litigation necessary.” They [became] specifically agreed resolved, would be disputes either upon party’s election, arbitration, by mandatory and that class treatment of the dispute Further, would not be permitted. they that their expressly provided would be governed which, law of Delaware—a jurisdiction for policy own, reasons of its allows contractual provisions requiring nonclass arbitra- tion and further demands that credit card agreements issued by Delaware- chartered banks be applied to that state’s law. according The reasonable expectations both Discover Bank and the State of Delaware would thus be 5 Restatement section 122 provides: “A usually applies its own local law rules prescribing litigation how shall be conducted even when it applies the local law rales of another state to resolve other issues in the provides: case.” Section 125 “The local law of the forum determines who and who parties proceeding must be to a unless the substantial rights and parties duties of the would affected the determination of this issue.” were class waivers banning rule if a California “unfairly disappointed” agreement. parties’ applied despite this California

Moreover, agreement respect, honoring parties’ by administration. of judicial in matters or confusion courts risk no disruption of another rules into procedural need to delve deeply There is no arbitration, and to class deny is to compel All that is required jurisdiction. certification, agreed. as the parties itself, text of that section like the to section the comments Similarly, not be applied will identity rules on the parties that the forum’s

make clear and duties of affect the rights substantially would “when application [such] Here, a, Bank’s 356.) rights Discover com. (Rest., the parties.” contrary it into a class proceeding affected were forced be substantially would term of its contract plaintiff. to a specific concede, Bank v. Discover neither must majority as

Finally, Szetela Online, 862], Inc. v. nor America (2002) Cal.Rptr.2d Cal.App.4th [118 (America Cal.Rptr.2d 699] Cal.App.4th Court Superior law. In in this case of Delaware effect Online) undermines the dispositive issues had Szetela, choice-of-law that because the Court of concluded Appeal fn. briefed, (Szetela, supra, were waived. they not been state, the under a law of this brought involved a suit America Online Act, bring grants right which specifically Remedies Legal Consumers unwaivable by the statute the rights granted action and makes above, Code, 1751, 1781, (a).) As noted subd. (Civ. contract. §§ law. this on Delaware substantive his claims solely case bases hints, refuse to enforce If, parties’ California would majority as the demands, the legitimate Delaware law arbitration as for individual agreement resolu- efficient dispute inexpensive, of that agreement—uniform, purpose courts, state how other many No matter frustrated. entirely tion—will be terms, if California to its federal, according enforce the would so, of choice for putative become a forum will simply declines to do this state single to find a only necessary this one. It will class suits like nationwide sue in a California and to plaintiff, to act as a representative cardholder such to countenance willingness the majority’s court. I cannot join a result. governed expressly to their agreement,

I hold parties would arising arbitration of disputes for individual which calls Delaware affirm the I would Accordingly, and its cardholders. Discover Bank between of a directed the issuance petition of the Court Appeal, judgment plaintiff’s the trial court to compel mandate requiring of class treatment. (2) reinstate the waiver complaint J., Brown, J., Chin, concurred.

Case Details

Case Name: Discover Bank v. Superior Court

Court Name: California Supreme Court

Date Published: Jun 27, 2005

Citation: 30 Cal. Rptr. 3d 76

Docket Number: S113725

Court Abbreviation: Cal.