Arbitration Provision TKOs Class Action Lawsuit by Online Viewer of Mayweather/McGregor FightBoxing fan Victor Mallh, attempting to take a class action swing at Showtime Networks for failures in its livestream broadcast of the Mayweather/McGregor fight in August of this year, will have to pursue his claim in arbitration, the U.S. District Court for the Southern District of New York ruled last week (Mallh v. Showtime Networks, Inc., 2017 WL 5157247 (S.D.N.Y. Nov. 7, 2017)). While Mallh’s fight – unlike McGregor’s against Mayweather – hasn’t been stopped, it will apparently now be confined to a single-plaintiff arbitration against the entertainment company.

Mallh signed up to view the boxing match via livestream on Showtime’s website, paying $99.95 on the day of the fight. The website’s purchase page required purchasers to agree to Showtime’s Terms of Use (TOU), Privacy Policy and Video Services Policy, each of which were hyperlinked to the page. The TOU in turn contained an express arbitration provision and class action waiver, whereby purchasers agreed in the event of a dispute to either an individual action in small claims court or an individual arbitration proceeding administered by the AAA.  Purchasers also agreed to waive the right to trial by jury and the right to participate in a class action.

Mallh claimed that Showtime rabbit-punched him during the livestream, logging him out for a substantial portion of the fight, and then hit him below the belt by delaying or making incomplete various parts of the coverage. When his request for a refund was refused, he complained to the referee, but not the referee actually in charge of the fight. Ignoring the arbitration provision, Mallh filed a putative class action against Showtime in federal court, asserting contract, unfair practices and unjust enrichment claims. Showtime counterpunched by moving to compel arbitration pursuant to the TOU, or in the alternative to dismiss or strike the complaint’s class allegations.

The court granted Showtime’s motion to compel, sounding the final bell on Mallh’s quest for a class action jury trial. Acknowledging Second Circuit and other precedent, the court first recognized that an electronic click can sufficiently manifest assent to a contract, in the context of both “clickwrap” and “browsewrap” electronic agreements. (The former requires users to affirmatively click an “I agree” box after being presented with terms of use; the latter – as Showtime’s was – generally posts detailed terms of use via hyperlink and does not require the user to click an “I agree” box.) The court found that the Showtime website required Mallh to acknowledge that he had read and agreed to the TOU; the only remaining question was whether Mallh received adequate notice via the website and links that he was agreeing to individual arbitration.

The judge scored all rounds decisively for Showtime. Contrary to Mallh’s arguments, the court held that the website was not “cluttered” and the arbitration provision and class waiver were not “buried,” but instead were reasonably conspicuous. On this point the court held that there was nothing inherently wrong with the TOU being made available only via hyperlink.  Relying on Second Circuit authority, the court found it unobjectionable that the consumer is “prompted to examine the terms of sale . . . located somewhere else.” Given that Mallh did not deny that he clicked on a box agreeing to the TOU, thus manifesting his assent, the court granted the motion to compel arbitration, and left Mallh’s class action aspirations lying on the canvas.

CFPB’s Effort to Axe Class Waivers Gets Axed by the SenateBy the hair of its chinny chin chin, the Senate voted on Tuesday to nullify the CFPB’s previously announced final rule that would have prohibited banks, credit card companies, and other financial service entities from utilizing arbitration agreements to block or limit class action suits by consumers.

The vote took place pursuant to the Congressional Review Act, 5 U.S.C. § 801 et seq., which allows Congress to invalidate regulations promulgated by executive agencies within 60 legislative days of publication by a simple majority vote in both the House and Senate. After a long, heart-felt debate on the Senate floor, all Democrats and two Republicans (Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana) voted against nullification, but the resulting 50-50 tie was broken by Vice President Mike Pence.

The House had already voted overwhelmingly in favor of nullifying the rule in July. The only remaining piece of the puzzle for complete nullification is the blessing of President Trump. Given the Trump administration’s views on regulation and the president’s continued praise for those opposing this rule, the likelihood of the president disapproving this nullification appears extremely small.

Under the Congressional Review Act, the nullification not only kills this version of the rule, but also prohibits the issuance of “a new rule that is substantially the same … unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” As such, there is little chance that any type of rule limiting arbitration clauses will be issued in the foreseeable future.

Arbitration clauses with class waivers have been an effective tool for avoiding class litigation thanks to cases such as AT&T v. Concepcion, which held that the Federal Arbitration Act generally preempted state rules that classified arbitration clauses with class waivers in consumer contracts as unconscionable (563 U.S. 333, 340 (2011)). Thanks to the Senate’s vote on Tuesday, companies can continue relying on these types of holdings, utilizing arbitration clauses, and limiting a consumer’s ability to join or initiate a class action lawsuit.

The Senate’s vote also avoids potential constitutional challenges to the CFPB’s rule. As such arbitration agreements are made generally enforceable under the Federal Arbitration Act, the CFPB’s rule prohibiting a certain class of such agreements could be challenged as a revision to the FAA that only Congress could accomplish through the normal legislative process — and therefore could not delegate to the CFPB to decide. In addition, the CFPB’s structure has been challenged as unconstitutional in a case pending before the D.C. Circuit en banc, and the U.S. Chamber of Commerce had just filed suit to enjoin the rule as being inconsistent with the limitations imposed by the Dodd-Frank Act.

While the full extent of political backlash to Congress’ action remains to be seen, several groups and individuals immediately spoke out on each side of this Congressional decision. CFPB Director Richard Cordray stated minutes after the vote, “Wall Street won and ordinary people lost.” Similarly, Sen. Elizabeth Warren (D-Mass.) turned her attention directly toward President Trump, asking him to follow through on his promises of standing up to Wall Street. Conversely, Keith A. Noreika, Acting Comptroller of the Currency, released a statement praising the Senate for the vote, stating that the rule would have increased the cost of credit for hardworking Americans and had a detrimental impact on small community banks. In the coming days, there will undoubtedly be vigorous rhetoric on both sides of this decision, but the fact remains that the rule has likely been stopped in its tracks.

Will the Future Bring a Surge of Class Actions against Banks and Credit Card Companies?On July 10, 2017, the Consumer Financial Protection Bureau formally issued its long-anticipated final rule banning class waivers in future arbitration agreements for banks, lenders, debt counselors, credit card issuers, certain types of automobile leasing businesses, and many other financial institutions. The CFPB’s rule will take effect March 18, 2018, unless nullified by Congress in the next few weeks, or enjoined by a court in the next few months. The ban on class waivers would apply generally to pre-dispute arbitration agreements entered into after that date by many categories of financial service providers, such as banks, lenders, debt collectors and credit card companies.

The proposed rule would essentially forbid a covered financial product or service provider sued in a class action lawsuit from relying “in any way” on a pre-dispute arbitration agreement that does not explicitly allow the consumer to choose between class arbitration and class litigation, unless and until the presiding court has ruled that the case may not proceed as a class action and any interlocutory appeals of that ruling have been exhausted. The ban on reliance applies to “any aspect” of the class litigation related to a covered product or service.

The proposed rule would also require every pre-dispute arbitration agreement entered into after the effective date of the rule to include specific language acknowledging the consumer’s right to sue using the class action device and to participate in any class action filed by someone else despite the arbitration agreement. And both for individual arbitrations and for arbitrations commenced by any party to a class action after the denial of class certification, the CFPB will require companies with covered agreements to publicly file with the CFPB  various documents and data related to the arbitration proceeding, including, among other things, the claim documents and the arbitral award.

Congress has a filibuster-proof way to nullify the rule under the Congressional Review Act, 5 U.S.C. §801, et seq. While the House has already voted to nullify, it is unclear whether 51 Republican votes for nullification can be mustered in the Senate. Financial service providers who prefer individual arbitration to class litigation should be voicing that opinion to the Senate loudly and soon, because the Congressional Review Act allows only 60 legislative days for nullification, and that clock runs out in early November.

If that nullification effort fails, then efforts to nullify the rule will likely turn to the courts. Efforts to declare the CFPB unconstitutional are already pending (see, e.g., PHH Corporation v. Consumer Financial Protection Bureau839 F.3d 1, 2016 WL 5898801 (D.C. Cir. 2016); opinion vacated, rehearing en banc granted Feb. 16, 2017). And just days ago, the U.S. Chamber of Commerce, the American Bankers Association, and others filed suit in Texas federal court seeking to block the rule on the theory that the CFPB’s pre-rule arbitration study mandated by the Dodd-Frank Act was statutorily insufficient and does not support the rule actually promulgated, violating both Dodd-Frank’s limits on CFPB rulemaking regarding arbitration and the Administrative Procedures Act.

Those in the business of lending, storing, collecting or moving money should also be preparing for the effective date of the rule, just in case. First, they would need to consider whether, after the effective date, new arbitration agreements are desirable at all following the effective date of the rule. By definition, this rule would mean that such arbitration clauses will have no application to the largest and most costly cases—those brought as class actions. Worse yet, it would create implicit incentives for plaintiffs to bring as purported class actions claims that would otherwise have been brought individually, simply to avoid arbitration while utilizing the specter of class discovery as leverage for settlement. Indeed, the mandated language that now must be included in a post-effective date arbitration agreement all but invites class allegations as a means of avoiding arbitration. In the smaller individual cases in which arbitration clauses would still have potential effect, efficiencies once available through arbitration will now be undermined by a new layer of regulatory reporting and compliance costs, the requirement that litigation proceed through denial of class certification and exhaustion of interlocutory appeal, and the elimination of the confidentiality that businesses are accustomed to enjoying from arbitration.

Businesses that decide to continue using arbitration clauses anyway would need to start planning for the new regime sooner rather than later. This will involve not only drafting new pre-dispute arbitration agreements that comply with the new rule and contain the required language, but also hiring or training personnel to fulfill the new reporting obligations created by the rule and determining which product and service offerings are and are not subject to the new rule.

Most importantly, covered providers would need to prepare for an increase in class action litigation if the rule goes into effect. There is no other way to spin it—if this rule goes into effect, class action filings against covered companies will go up. This will affect litigation legal budgets, in-house legal and compliance staffing needs, and the bottom line of covered companies’ financial statements.