454 Mass. 192 | Mass. | 2009
We decide in this case whether a statutory right to participate in class action lawsuits can permissibly be foreclosed by a provision in a consumer contract compelling individual arbitration. The plaintiffs, John A. Feeney and Ded-ham Health and Athletic Complex (Dedham Health), appeal from an order of a judge in the Superior Court compelling arbitration of their claims — brought as a putative class action — alleging that Dell improperly collected Massachusetts sales tax on the purchase of optional service contracts sold in connection with the purchase of Dell computers when (according to the plaintiffs) no such tax was due, and that the collection of such tax violated the Massachusetts consumer protection act, G. L. c. 93 A. We conclude that the provision compelling individual arbitration in the plaintiffs’ consumer contracts is not enforceable because it is contrary to the fundamental public policy of the Commonwealth favoring consumer class actions under G. L. c. 93A. We also conclude, however, for reasons we shall explain, that because the plaintiffs’ complaint does not contain sufficient allegations to make out a claim under G. L. c. 93A, it should be dismissed without prejudice. We reverse the order compelling arbitration and remand for further proceedings.
1. Factual background. We summarize the relevant facts from
The “Dell Terms and Conditions of Sale”
The terms also include a choice-of-law provision that provides: “This agreement and any sales thereunder shall be governed by the laws of the State of Texas, without regard to conflicts of laws rules.”
b. Arbitration. Unable to appeal from the decision of the single justice, see Ashford v. Massachusetts Bay Transp. Auth., 421 Mass. 563, 566-567 (1995), Feeney and Dedham Health each filed a claim of arbitration “under protest” in November, 2004.
c. Postarbitration. In February, 2008, the plaintiffs moved in the Superior Court to vacate the arbitration award and to reconsider the orders allowing the defendants’ motion to compel arbitration. The defendants responded by moving to confirm the arbitration award and to dismiss the case. A different judge denied the plaintiffs’ motions, allowed the defendants’ motion,
3. Jurisdiction and standard of review. The defendants argue that because the arbitrator declined the plaintiffs’ request to certify a class, that decision may not now be reviewed. We reject the argument. Although the plaintiffs disagree with the arbitrator’s decision declining to certify a class, their challenge here is to the order compelling arbitration in the first instance, and the plaintiffs thus present a “gateway dispute about whether the
We review the decision on the motion to compel arbitration de novo. Commonwealth v. Philip Morris, Inc., 448 Mass. 836, 844 (2007), citing Miller v. Cotter, 448 Mass. 671, 676 (2007). See Kristian v. Comcast Corp., 446 F.3d 25, 31 (1st Cir. 2006) (evaluating District Court’s denial of motion to compel arbitration de novo).
4. Public policy. The plaintiffs argue that the class action prohibition in Dell’s terms “contravenes Massachusetts public policy.”
Here, expressions of three branches of Massachusetts government indicate that the pubhc pohcy of the Commonwealth strongly favors G. L. c. 93A class actions. First, the Legislature has expressly provided for such mechanisms, G. L. c. 93A, §§ 9 (2) & 11, and, as we discuss infra, the legislative history of those enactments demonstrates that the Legislature specifically intended to provide for the vindication of small-value claims. We have, in turn, recognized that G. L. c. 93A, and in particular, the class action provision in § 9 (2), “was designed to meet a pressing need for an effective private remedy,” Baldassari v. Public Fin. Trust, 369 Mass. 33, 40-41 (1975). This court has cautioned that a judge deciding a request for class certification under § 9 (2) “must” bear in mind this “pressing need,” and that “traditional technicalities are not to be read into the statute in such a way as
The legislative history of G. L. c. 93A further demonstrates that its class action provisions evidence a strong public policy in favor of the aggregation of small consumer protection claims. When originally enacted in 1967, G. L. c. 93A contained no provision for private remedies; only the Attorney General was empowered to bring enforcement proceedings. Slaney v. Westwood Auto, Inc., 366 Mass. 688, 697-698 (1975). As a result of the number of complaints lodged with the Attorney General, “it became clear that private remedies were needed.” Id. at 699. As a result, G. L. c. 93A was amended in 1969, see St. 1969, c. 690, to provide for an “effective private remedy.” Slaney v. Westwood Auto, Inc., supra at 699-700. Recognizing that “causes for which advocates cannot be obtained are, in effect, not adjudicadle,” id. at 699, quoting Eovaldi, Justice for Consumers: The Mechanisms of Redress, 66 Nw. U.L. Rev. 281, 286 (1971), the 1969 amendments to G. L. c. 93A included provisions for a minimum recovery, attorney’s fees, treble damages in certain cases, and most relevant to this case, class actions.
The right to a class action in a consumer protection case is of particular importance where, as here, aggregation of small claims is likely the only realistic option for pursuing a claim. See Leardi v. Brown, 394 Mass. 151, 164 (1985), quoting Rice, supra at 316 (“one of the basic purposes” of G. L. c. 93A was to provide “a device for vindicating claims which, taken individually, are too small to justify legal action but which are of significant size if taken as a group”). See also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997), quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997) (“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s [usually an attorney’s] labor”). Dell’s class action prohibition undermines this policy and, in so doing, defeats “the presumption” that arbitration provides “a fair and adequate mechanism for enforcing statutory rights.” Kristian v. Comcast Corp., 446 F.3d 25, 54 (1st Cir. 2006), quoting Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 14 (1st Cir. 1999). See Kristian v. Comcast Corp., supra at 54-55, quoting Gilíes, Opting out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 Mich. L. Rev. 373, 407 (2005) (“The class mechanism ban — ‘particularly its implicit ban on spreading across multiple plaintiffs the costs of experts, depositions, neutrals’ fees, and other disbursements’ — forces the putative class member ‘to assume financial burdens so prohibitive as to deter
Permitting Dell to prohibit class actions against it through its contracts with its customers would be counter to our public policy for two additional reasons. First, it undermines the public interest in deterring wrongdoing. See Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 371-372 (2008), quoting 2 A. Conte & H.B. Newberg, Class Actions § 4.36, at 314 (4th ed. 2002) (“Class actions were designed not only to compensate victimized group members, but also to deter violations of the law, especially when small individual claims are involved”); In re Am. Express Merchants’ Litig., 554 F.3d 300, 320 (2d Cir. 2009) (allowing enforcement of class action waiver in credit card acceptance agreement would grant corporation “de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery”); Dale v. Comcast Corp., 498 F.3d 1216, 1224 (11th Cir. 2007) (“Corporations should not be permitted to use class action waivers as a means to exculpate themselves from liability for small-value claims”). Second, the loss of an individual consumer’s right to bring a class action negatively affects the rights of those unnamed class members on whose behalf the class action would proceed. In this sense, the right to participate in a class action under G. L. c. 93A is a public — not merely a private — right: it protects the rights of consumers as a whole. See Muhammad v. County Bank, 189 N.J. 1, 20 (2006) (“without the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged”).
The defendants argue that Feeney and Dedham Health have not made a sufficient showing that the class action mechanism is necessary for them to obtain relief for their statutory rights under G. L. c. 93A. They point out, with some force, that there
We decline to enforce a prohibition on class actions in a consumer contract where to do so would in effect sanction a waiver of the right to proceed in a class action under G. L. c. 93A. Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy.
The defendants’ argument that a class action prohibition is not contrary to “any Massachusetts policy” because such a prohibition is “inherent” in an agreement to arbitrate is misplaced. First, the argument’s premise, that arbitration and class actions are incompatible, is undermined by the reality — which defendants acknowledge — that class arbitrations do in fact occur. See In re Am. Express Merchants’Litig., supra at 310 n.7, quoting Clancy, An Uninvited Guest: Class Arbitration and the Federal Arbitration Act’s Legislative History, 63 Bus. Law. 55, 56 (2007) (“It is apparent that ‘[c]lass arbitration is a swiftly growing phenomenon’ ”); McKee v. AT&T Corp., 164 Wash. 2d 372, 395 (2008) (“Class actions are often arbitrated”). Moreover, a majority of the Justices of the United States Supreme Court has, at least implicitly, indorsed class arbitrations as consistent with the FAA. See Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 992 (9th Cir. 2007), citing Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 454 (2003). Second, the defendants’ claim that “[cjlass proceedings in arbitration are highly problematic” is the sort of “singling out” of arbitration for “suspect status” that the United States Supreme Court has rejected. Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). See Discover Bank v. Superior Court, supra at 167, quoting Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal. 4th 83, 120 (2000) (lower court’s “conclusion regarding the unsuitability of arbitration to class actions reflects . . . ‘the very mistrust of arbitration that has been repudiated by the United States Supreme Court’ ”).
Our decision is not based on any judgment about the merits of a particular forum for class action adjudication — arbitration
5. Choice of law. Dell’s terms include a provision specifying that Texas law applies to “[t]his agreement and any sales thereunder . . . .” Because Texas law would appear to allow a prohibition on class actions, see AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 199-200 (Tex. Ct. App. 2003), we must decide whether Texas or Massachusetts law applies.
Where State policies differ, “we look to our established ‘functional’ choice of law principles and to the Restatement (Second) of Conflict of Laws,.with which those principles generally are in accord.” Hodas v. Morin, 442 Mass. 544, 549 (2004), quoting Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 631-632 (1985). Where parties have specifically expressed an intent as to the governing law, we respect that intent unless the result would be contrary to our public policy. Hodas v. Morin, supra at 549-550, quoting Steranko v. Inforex, Inc., 5 Mass. App. Ct. 253, 260 (1977). See Jacobson v. Mailboxes Etc. U.S.A., Inc., 419 Mass. 572, 575 (1995) (applying law of State designated in contract “in the absence of any substantial Massachusetts public policy reason to the contrary”). Applying the “two-tiered analysis” of the Restatement (Second) of Conflicts of Laws § 187 (1971), Hodas v. Morin, supra at 550, we inquire first whether the State chosen by the parties has a “substantial relationship” to the transaction and, second, whether “ ‘application of the law of the chosen state [here, Texas] would be contrary to a fundamental policy of a state [here, Massachusetts] which has a materially greater interest than the chosen state’ and is the State whose law would apply ... ‘in the absence of an effective choice of law by the parties.’ ” Id., quoting Restatement (Second) of Conflicts of Laws, supra.
The plaintiffs do not contest that the chosen State, Texas, has a “substantial relationship” to the transaction.
We have no trouble concluding that the strong public policy in favor of class actions for small value claims under G. L. c. 93A is a “fundamental policy” contemplated by § 187 of the Restatement (Second) of Conflict of Laws. See Fiser v. Dell Computer Corp., 144 N.M. 464, 468 (2008) (fundamental New Mexico policy to ensure that consumers have “an opportunity to redress their harm”); McKee v. AT&T Corp., supra at 386 (“Washington’s strong Consumer Protection Act policy favoring class adjudication of small-dollar claims is a ‘fundamental policy’ ”). See also Restatement (Second) of Conflict of Laws, supra at § 187 comment g (“The forum will- apply its own legal principles in determining whether a given policy is a fundamental one within the meaning of the present rule and whether the other state has a materially greater interest”; “a fundamental policy may be embodied in a statute . . . which is designed to protect a person against the oppressive use of superior bargaining power”). We likewise have little trouble concluding that the interest embodied in this policy — the protection of large classes of consumers and the deterring of corporate wrongdoing — is materially greater than Texas’s interest, which the defendants identify as “minimizing its companies’ legal expense.” See Canal Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369, 378 (1990) (“we ordinarily would not effectuate a consumer’s waiver of rights under c. 93A,” [emphasis in original]); Spence v. Reeder, 382 Mass. 398, 413 (1981) (“courts have long refused to give effect to purported waivers of statutory rights where enforcement of the particular waiver would do violence to the public policy underlying the legislative enactment”). See also Homa v. American Express Co., 558 F.3d 225, 232-233 (3d Cir. 2009) (concluding that Supreme Court of New Jersey would apply New Jersey
6. Federal preemption. The defendants argue that, even if Massachusetts rather than Texas law applies, the FAA preempts any defense based on State public policy.
Because the tenet that a contract may be invalidated on grounds that it violates public policy is a principle of State contract law that “arose to govern issues concerning the validity, revocability, and enforceability of contracts generally,” see Perry v. Thomas, 482 U.S. 483, 492-493 n.9 (1987), our conclusion that the class action prohibition is unenforceable on those grounds is not preempted by the FAA. See Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976, 990 (9th Cir. 2007), quoting Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 19 (2006) (FAA “does not require state courts, when applying state law to a question of the enforceability of a particular contract, to necessarily reach an outcome that encourages individual arbitration”); Kinkel v. Cingular Wireless LLC, supra at 20 (“the FAA neither expressly nor impliedly preempts a state court from holding that an arbitration clause or a specific provision within an arbitration clause is unenforceable; it merely frames the issue by requiring that a state court examine the disputed provision in the same manner that it would examine any contract”).
While the defendants are correct that the FAA prohibits courts from “singling out arbitration provisions for suspect status,” quoting Doctor’s Assocs., Inc. v. Casarotto, supra at 687, our conclusion does not selectively target arbitration. The problem inherent in Dell’s terms is not that they compel arbitration but that, by mandating individual arbitration, they compel a procedure for resolving claims that effectively eviscerates the c. 93A right to participate in a class action. See Leardi v. Brown, 394 Mass. 151, 164 (1985). Simply put, a prohibition on class actions “has nothing to do with a valid agreement to arbitrate.” McKee v. AT&T Corp., supra at 395. E is the effective ban on class actions — not the mandating of arbitration — that is repugnant to the public policy of the Commonwealth. Our decision is not, as the defend
7. Severability. The contracts at issue here do not contain a severability or savings clause. We agree with the Supreme Court of New Mexico, which held that a similar class action waiver was not severable because the class action bar was “part of the arbitration provision” and “central to the mechanism for resolving the dispute between the parties.” Fiser v. Dell Computer Corp., 144 N.M. 464, 471 (2008). Cf. Kristian v. Comcast Corp., 446 F.3d 25, 62 (1st Cir. 2006) (concluding that class arbitration bar was severable where arbitration agreement contained savings clause, but noting that courts typically prefer “declaring an arbitration agreement unenforceable rather than using severance as a remedy when fundamental elements of the arbitration regime are at issue,” and that severing class arbitration bar would be “difficult to justify” absent savings clause).
8. Failure to state a claim. The defendants argue that, even if arbitration should not have been compelled, the complaint should be dismissed for failure to state a claim on which relief can be granted. Mass. R. Civ. R 12 (b) (6), 365 Mass. 754 (1974). Specifically, they claim that the plaintiffs’ allegation that Dell erroneously collected sales tax attributable to the purchase of computer service contracts falls outside “the conduct of trade or commerce” as those terms are used in G. L. c. 93A, § 2 (a). The defendants did not move for dismissal on this basis in the trial court. However, as the prevailing party, they are “entitled to argue on appeal that the judge was right for the wrong reason, even relying on a principle of law not argued below.” Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 734-735 (1992). Moreover, we may consider any ground apparent on the record that supports the result reached in the trial court. Gabbidon v. King, 414 Mass. 685, 686 (1993), citing Aetna Cas. & Sur. Co. v. Continental Cas. Co., supra; St. Germaine v. Pendergast, 411 Mass. 615, 619 n.9 (1992); North Shore Corp. v. Selectmen of Topsfield, 322 Mass. 413, 416 (1948); and Rosenfeld v. Board of Health of Chilmark, 27 Mass. App. Ct. 621, 626 n.10 (1989). Here, the result reached by the judge in the Superior Court was a dismissal of the plaintiffs’ lawsuit. Looking, as we must, to the allegations of the complaint, we may determine whether the plaintiffs have failed to state a claim. See, e.g., Eigerman v. Putnam Invs., Inc., 450 Mass. 281, 285 n.6 (2007) (“The only facts appropriate for consideration in deciding a motion to dismiss are, as has been noted, those drawn from factual allegations contained within the complaint or within attached exhibits”). Cf. Aetna Cas. & Sur. Co. v. Continental Cas. Co., supra at 735 (we “cannot” accept “new” argument on appeal that “depends on facts not established in the record”). If the allegations are insufficient, the complaint fails and must be dismissed.
The defendants argue that the plaintiffs fail to state a claim for two reasons. First, the defendants assert that G. L. c. 93A does not apply “by its terms.” Second, they urge us to hold that the application of G. L. c. 93A “would improperly displace the tax code.” We agree with the defendants on the first point, and we therefore need not reach the second.
Although the plaintiffs claim that no tax was due on the optional service contracts under any State statute, they do not allege — nor do they argue here — that Dell did not remit the tax it collected to the Commonwealth.
It is the case that the plaintiffs have variously implied (without alleging any such facts) that, notwithstanding the defendants’ remittance of taxes to the Commonwealth, profit might be the motive behind the defendants’ collection of the tax on the sale of its optional service contracts. In their “statement of facts” in their initial brief to this court, the plaintiffs suggest that the defendants collected tax in connection with the sales of service contracts as part of an attempt to transfer the tax burden on repair parts for
9. Conclusion. For the foregoing reasons, we conclude that the arbitration clause is unenforceable but that plaintiffs failed to state a claim under G. L. c. 93A. The decision of the judge in the Superior Court compelling arbitration is reversed. On remand, the case is to be dismissed without prejudice.
So ordered.
We acknowledge the amicus briefs filed by the Commonwealth and Professor
The parties variously state that Feeney purchased one service contract. The Feeney invoice, however, indicates that Feeney purchased two service contracts, and the complaint refers to “contracts.” The number of contracts is germane only to the issue of the amount of tax charged on service contracts, and accordingly the amount of damages. The discrepancy appears not to be a dispute among the parties at present.
Dell claims, and the plaintiffs have not alleged and do not otherwise contend, that it remitted all sales tax collected on the purchase of optional service contracts by the plaintiffs to the Commonwealth.
The terms and conditions of sale (terms) specify that “Dell” refers to “the Dell entity named on the invoice.”
The terms in effect at the time of Feeney’s purchase provide, in part: “This Agreement contains the terms and conditions that apply to purchases by Home, Home Office, and Small Business customers from the Dell entity named on the invoice (‘Dell’) that will be provided to you (‘Customer’) on orders for computer systems, related products, and/or services and support sold by Dell in the United States. By accepting delivery of the computer systems, other products, and/or services and support described on that invoice, Customer agrees to be bound by and accepts these terms and conditions.” The corresponding section of the terms applicable to Dedham Health’s purchases contains slight differences not germane to this appeal. See note 12, infra.
Although the plaintiffs argued in the Superior Court that they did not “knowingly consent” to the Dell terms, and argued to the single justice of the Appeals Court that Dell’s “one-sided adhesion contract” was not “valid” in part because it contained no “affirmative manifestation” of their agreement, the plaintiffs do not renew those arguments here, and we do not consider them.
The paragraph titled “Binding Arbitration” in the terms applicable to Feeney provides in full: “ANY CLAIM, DISPUTE, OR CONTROVERSY (WHETHER IN CONTRACT, TORT, OR OTHERWISE, WHETHER PREEXISTING, PRESENT OR FUTURE, AND INCLUDING STATUTORY, COMMON LAW, INTENTIONAL TORT, AND EQUITABLE CLAIMS) AGAINST DELL, its agents, employees, successors, assigns, or affiliates (collectively for purposes of this paragraph ‘Dell’), arising from or relating to this Agreement, its interpretation, or the breach, termination, or validity thereof, the relationships which result from this Agreement (including, to the full extent permitted by applicable law, relationships with third parties who are not signatories to this Agreement), Dell’s advertising, or any related purchase SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF) under its Code of Procedure then in effect.... The arbitration will be limited solely to the dispute or controversy between Customer and Dell. Any award of the arbitrator(s) shall be final and binding on each of the parties and may be entered as a judgment in any court of competent jurisdiction. Information may be obtained and claims may be filed with the NAF . . . .” The corresponding paragraph in the terms applicable to Dedham Health includes a provision concerning warranty claims that is not relevant to this appeal.
Although the “Binding Arbitration” provision of the terms, see note 10, supra, limiting arbitration “solely to the dispute or controversy between Customer and Dell” does not expressly prohibit all class actions, all parties assume that the effect of the provision is to foreclose customer class actions against Dell, and we see no reason to conclude otherwise.
Although the terms in effect at the time of Feeney’s purchase differ slightly from those in effect at the time of some of Dedham Health’s purchases, see note 10, supra, the pertinent provisions of the arbitration and choice-of-law clauses are identical.
The original complaint named Feeney as the sole plaintiff; Dedham Health was added as a plaintiff in the first amended complaint. Dell Computer Corporation was named as the sole defendant in the original complaint; Dell Catalog, Dell Marketing, QualxServ, and BancTec were later added as defendants.
The complaint also alleged that Dell improperly collected sales tax on shipping and handling charges for the delivery of computers and computer products. That allegation is not before us.
General Laws c. 93A, § 2, provides in pertinent part: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”
General Laws c. 93A, § 9 (2), provides in pertinent part: “Any persons entitled to bring such action may, if the use or employment of the unfair or deceptive act or practice has caused similar injury to numerous other persons similarly situated and if the court finds in a preliminary hearing that he adequately and fairly represents such other persons, bring the action on behalf of himself and such other similarly injured and situated persons . . . .”
General Laws c. 93A, § 11, applicable to persons engaged in business, provides in pertinent part: “Any persons entitled to bring such action may, if the use or employment of the unfair method of competition or the unfair or deceptive act or practice has caused similar injury to numerous other persons similarly situated and if the court finds in a preliminary hearing that he adequately and fairly represents such other persons, bring the action on behalf of himself and such other similarly injured and situated persons . . . .”
The Federal Arbitration Act (FAA) provides that a party “aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court... for an order directing that such arbitration proceed in the manner provided for in such agreement” (emphasis added). 9 U.S.C. § 4 (2000). In their opposition to Dell’s motion to compel arbitration, the plaintiffs argued that this section of the FAA “has no application to proceedings in state courts” and that it therefore did not provide the Superior Court with the authority to compel arbitration. The judge in the Superior Court did not address the argument. In affirming the allowance of Dell’s motion, the single justice of the Appeals Court stated that it was not “meaningful” whether Dell Computer “properly proceeded, and the judge properly acted” under 9 U.S.C. § 4 because the order “could have been entered” pursuant to the analogous section of the Massachusetts Uniform Arbitration Act, G. L. c. 251, § 2 (a). That section provides that a party may apply “to the superior court” for an order compelling arbitration. The plaintiffs do not renew their procedural argument on appeal, and we do not address it
The single justice concluded that the plaintiffs had “agreed to the Terms and Conditions of Sale, including the arbitration and choice-of-law provisions, by accepting delivery of the products or services.” The single justice also determined that it was “unclear” whether a waiver of a right to bring a class action was valid in Massachusetts, and requested additional briefing on the matter. After supplemental briefing, the single justice denied the plaintiffs’ petition, concluding that, although the “effect” of the binding arbitration provision was “to preclude all class action claims with respect to the purchases to which the agreement relates,” the right to commence class actions under G. L. c. 93A was not a “substantiál public policy concern” requiring denial of the enforcement of an arbitration provision.
After the single justice ruled, Dell Catalog, Dell Marketing, Qualxserv, and BancTec filed a motion to stay proceedings and to compel arbitration on June 25, 2004. A judge in the Superior Court allowed that motion, concluding that the additional defendants could invoke the terms’ arbitration provision “based on agency law, equitable estoppel, and third-party beneficiary principles.”
Subsequently, Feeney and Dedham Health each requested that the National Arbitration Forum (NAF) decline to arbitrate their respective disputes. In February, 2005, NAF’s director denied those requests.
The arbitrator concluded that “[bjased on the written agreement that Texas law will apply to their transactions, the [plaintiffs] are not able to maintain their cause of action under [G. L. c. 93A].” Even if G. L. c. 93A applied, the arbitrator found that none of the defendants “committed unfair or deceptive acts or practices . . . engaged in dishonesty, fraud, deceit or misrepresentation” or “engaged in any unconscionable conduct toward the [plaintiffs].”
The judge denied the motion for reconsideration “for reasons stated in opposition.” In the memorandum and order on the motion to vacate the arbitration award, the judge concluded that it was “not necessary to decide” whether the arbitrator erred in ruling that Texas law applied because the arbitrator found, in the alterative, that no violation of G. L. c. 93A had been shown. The judge also rejected the plaintiffs’ claim of a per se violation of G. L. c. 93A, concluded that it was “moot” whether the arbitrator’s refusal to certify a class action was error (because the arbitrator had found for the defendants on the c. 93A claim), and, finding no evidence that the arbitrator had a conflict of interest, declined to weigh the evidence in order to overturn the arbitrator’s findings of fact.
Although this appeal came after the plaintiffs’ motions to vacate the arbitrator’s award and to reconsider the order allowing the motion to compel arbitration were denied, because the plaintiffs’ argument on appeal is that their claims should not have been sent to arbitration in the first instance, we review the order allowing the motion to compel arbitration.
The plaintiffs also argue that the class action prohibition is “unconscionable” and violates the Federal law of arbitrability. Because we conclude that the prohibition is unenforceable as against public policy, we need not address these arguments. The plaintiffs have not argued that their G. L. c. 93A claims are otherwise not arbitrable. See Hannon v. Original Gunite Aquatech Pools, Inc., 385 Mass. 813, 816 (1982).
Other courts that have rejected class action prohibitions in consumer contracts as unenforceable have tended to base their decisions on grounds of unconscionability or on the Federal substantive law of arbitrability rather than on public policy grounds. However, the reasoning of those courts have often overlapped and incorporated public policy rationales. See, e.g., Kristian v. Comcast Corp., 446 F.3d 25, 60 & n.22 (1st Cir. 2006) (declining to enforce class action bar under Federal arbitration law; similar decisions based on State law unconscionability grounds “contain reasoning that mirrors our own”; both analyses emphasize “frustration of the right to pursue claims granted by
Three years later, the Legislature enacted G. L. c. 93A, § 11, which included a class action provision for business plaintiffs. St. 1972, c. 614, § 2.
The author, David A. Rice, was the principal draftsman of the 1969 amendments to G. L. c. 93A. See Slaney v. Westwood Auto, Inc., 366 Mass. 688, 698 n.13 (1975).
It is therefore not dispositive whether, as the defendants claim, the plaintiffs did not present the motion judge in the Superior Court with proof that their claims were not individually viable.
In its amicus brief, the Commonwealth states that, because “[t]he need to supplement public enforcement measures with private consumer actions has not diminished,” it “cannot pursue all meritorious and worthwhile claims of Massachusetts consumers.”
Dell Computer, Dell Catalog, Dell Marketing, and BancTec were each headquartered in Texas when the complaint was filed.
The defendants’ contention that the plaintiffs have waived the “materially greater interest” point lacks merit. While the plaintiffs may not have specifically used the “materially greater interest” language, that point is subsumed with their argument that “the fundamental public policy favoring class actions for Chapter 93A claims in Massachusetts would prevail over Texas law.”
The Federal Arbitration Act (FAA) applies to maritime transactions and to transactions involving interstate commerce. See 9 U.S.C. §§ 1 & 2. As the products purchased in this case were shipped to Massachusetts from either Tennessee or Texas, there is no dispute that the transactions involved interstate commerce.
In their response to the plaintiffs’ claim of arbitration, the defendants argued to the arbitrator that the plaintiffs could not arbitrate as a class because the National Arbitration Forum Code of Procedure — which, according to Dell’s terms, governs the dispute between the parties — does not provide for class action arbitration absent the consent of all parties — and the defendants did not so consent. Where the possibility for class arbitration is thus apparently foreclosed, severing the ban on class actions but leaving the arbitration clause intact would appear to lead to the same result, elimination of the statutory right to proceed on a class basis, which we have determined is contrary to our public policy.
General Laws c. 64H, § 2, imposes a sales tax and provides that such tax “shall be paid by the vendor to the commissioner [of revenue],” while G. L. c. 64H, § 3 (a), in turn provides that “reimbursement for the tax hereby imposed shall be paid by the purchaser to the vendor, and each vendor in the commonwealth shall add to the sales price and shall collect from the purchaser the full amount of the tax imposed by this chapter.” See G. L. c. 64H, § 23 (prohibiting vendors from advertising that they will assume or absorb sales tax).
The basis of the plaintiffs’ claim is a two-step analysis: (1) that only tangible personal property and telecommunications services are subject to sales or use tax in the Commonwealth, citing G. L. c. 64H, § 2, and G. L. c. 641, § 2; and (2) that the optional service contracts sold by Dell are neither tangible property nor telecommunication services and therefore not subject to a sales or use tax. For their part, the defendants maintain that their collection of sales tax on optional service contracts was in line with guidance Dell had received from the Department of Revenue.
Of course, if a retailer deceptively collects a charge that the retailer terms a “sales tax” and keeps the proceeds of the “tax” for the retailer’s own enrichment rather than remit them to the Commonwealth, a different result would obtain. In such a circumstance, the collection of the “tax” would be motivated by business reasons, not by a legislative mandate, and would constitute a “deceptive practice” under G. L. c. 93A. There is no such allegation here.
The defendants vigorously challenge any such implication, maintaining that their decisions regarding the taxability of service contracts had “nothing to do with any potential use tax liability on repair parts.” The arbitrator ruled in favor of the defendants on this issue, stating, “I find no credible evidence to suggest that Dell and BancTec conspired to avoid the payment of use tax on parts by charging consumers, including [the plaintiffs], sales tax on optional service contracts.”
The second amended complaint characterizes as “unfair or deceptive” the collection of a “purported ‘tax’ on the purchase of optional extended warranty service contracts,” but contains no allegation concerning any conspiracy on Dell’s part to shift the burden of taxes for repair parts to the customers. In their reply brief responding to the defendants’ argument that G. L. c. 93A does not apply to the collection of sales tax, the plaintiffs’ argument is brief; they dismiss the defendants’ argument on this point as a “MacGuffin,” and claim merely that defendants charged more “ ‘tax’ than is lawfully due.” The reply brief makes no mention of the profit-seeking scheme suggested by the plaintiffs in the fact section of their initial brief.
