A Rhode Island federal district court recently refused to enforce a stand-alone class action waiver in the consumer plaintiff’s automobile lease agreement on the ground that it violates state public policy.  The court in Metcalfe v. Grieco Hyundai LLC held that the class action waiver contravened Section 6-13.1-5.2 of Rhode Island’s Deceptive Trade Practices Act (DTPA), which provides that consumers “may … bring an action on behalf of themselves and other similarly injured and situated persons to recover damages.”  Accordingly, the court denied the defendant’s motion to strike or dismiss the class action claims in the plaintiff’s complaint.

The case arose out of the plaintiff’s lease of a car from the defendant.  Claiming that the residual value of the car at the end of the lease term was about $2,000 more than she had agreed to pay, the plaintiff brought a class action alleging breach of contract, violation of the federal Consumer Leasing Act and the DTPA, tortious interference with contract and unjust enrichment.  The lease agreement provided that “TO THE EXTENT PERMITTED BY APPLICABLE LAW, YOU HEREBY WAIVE ANY RIGHT YOU MAY HAVE TO BRING OR PARTICIPATE IN A CLASS ACTION RELATING TO THIS LEASE.”  The court’s ruling permits the plaintiff to continue to pursue her claims on a class-wide basis notwithstanding this class action waiver.

In its landmark decision in AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court held that under the Federal Arbitration Act (FAA), class action waivers contained in consumer arbitration clauses are valid and enforceable, even if such waivers would be found unenforceable as a matter of public policy under applicable state law.  That is because the FAA requires arbitration clauses to be enforced according to their terms and preempts inconsistent state law.  By contrast, a “stand-alone” class action waiver is a contractual provision that is not contained within an arbitration clause. 

In Metcalfe, the court held that because the class action waiver was not part of an arbitration clause, the FAA “is not implicated here.”  It concluded that the stand-alone class action waiver was unenforceable as a matter of Rhode Island public policy, observing that:

Statutes passed by the Legislature are the state’s declaration of public policy. Thus, acting in contravention of those laws, [a defendant] violates public policy ….  Because the DTPA explicitly allows collective actions, the class action waiver provision in the Leasing Agreement is unenforceable as against public policy in Rhode Island.

This conclusion is questionable, to say the least.  The U.S. Supreme Court has cautioned courts against giving public policy defenses too wide a berth when construing parties’ contracts:

[I]t must not be forgotten that the right of private contract is no small part of the liberty of the citizen, and that the usual and most important function of courts of justice is rather to maintain and enforce contracts, than to enable parties thereto to escape from their obligation on the pretext of public policy, unless it clearly appears that they contravene public right or the public welfare …. It was well said … in Printing &  Numerical Registering Co. v. Sampason …: “It must not be forgotten that you are not to extend arbitrarily those rules which say that a given contract is void as being against public policy, because if there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice.  Therefore, you have this paramount public policy to consider—that you are not lightly to interfere with this freedom of contract.”

It is hard to fathom how the class action waiver in the parties’ lease agreement contravenes public policy.  Section 6-13.1-5.2 of the DTPA permits an aggrieved plaintiff to pursue either “private” or “class action” relief.  It provides:

(a)   Any person who purchases or leases goods or services primarily for personal, family, or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a method, act, or practice declared unlawful by § 6-13.1-2, may bring an action under the rules of civil procedure … to recover actual damages or five hundred dollars ($500), whichever is greater ….

(b)  Persons entitled to bring an action under subsection (a) of this section may, if the unlawful method, act, or practice has caused similar injury to numerous other persons similarly situated and if they adequately represent the similarly situated persons, bring an action on behalf of themselves and other similarly injured and situated persons to recover damages as provided for in subsection (a) of this section ….

The right to bring a class action conferred by Section 6-13.1-5.2(b) is purely permissive: a plaintiff with a private claim under Section 6-13.1-5.2(a) “may”—but is not required to—seek class action relief if the stated criteria for doing so are satisfied.  If a plaintiff alleging a DTPA violation decides to pursue that claim privately, not as a class action—as the statute expressly allows—that would not contravene Section 6-13.1-5.2(b), so why would that plaintiff’s contractual agreement to waive the right to bring a class action do so?  In short, there is no “public right” to have a class action brought under Section 6-13.1-5.2(b).  The decision to pursue class claims belongs to, and is within the sole discretion of, the plaintiff, who is free to pursue “private” relief under Section 6-13.1-5.2(a) to vindicate his or her rights under the DTPA even in the absence of a class action.

Moreover, although Section 6-13.1-5.2(b) is, as the Metcalfe court observed, a “[s]tatute[] passed by the Legislature,” the class action that it makes available is (as one Rhode Island trial court put it) “a procedural device of litigation.”  Section 6-13.1-5.2(a) permits a plaintiff to bring a private action “under the rules of civil procedure” (emphasis added), and it is in that action that the plaintiff, pursuant to Section 6-13.1-5.2(b), may seek class relief if the criteria for doing so are met.  Thus, the right to pursue a class action is rooted in Rhode Island Rule of Civil Procedure 23, which governs state court class actions and is also permissive in nature: “One (1) or more members of a class may sue …  as representative parties on behalf of all ….”  (emphasis added).  Rhode Island Rule 23 is patterned after Federal Rule of Civil Procedure 23.  The courts have uniformly held that Federal Rule 23 is just procedural in nature and does not create a substantive right to bring a class action.  The U.S. Supreme Court confirmed in American Express Co. v. Italian Colors Restaurants (2013) that Congress’s approval of Rule 23 did not establish an entitlement to class proceedings for the vindication of statutory rights.

There is nothing in Section 6-13.1-5.2(b) that purports to make the right to a class action non-waivable or that precludes a plaintiff from effectively waiving the right to bring a class action by pursuing a private action to vindicate his or her statutory rights under Section 6-13.1-5.2(a).  On the contrary, as shown above, plaintiffs alleging DTPA violations may sue either privately or on behalf of a class.  It should also be noted that Rhode Island permits parties to waive the constitutional right to a jury trial (R.I. Const. § 15) in both civil and criminal cases.  See R. Civ. P. 38; Gen. L. § 12-17-3.  If public policy is not offended by the waiver of an important right that the Rhode Island Constitution makes “inviolate,” surely it is not offended by a class action waiver in a private contract, particularly where the statutory right to bring a class action is purely permissive in any event.

In further support of its holding, the Metcalfe court stated that “class action waivers in similar circumstances have been found to violate public policy in various other jurisdictions as well.”  However, as argued in the defendant’s reply brief in Metcalfe, those cases are inapposite for a multitude of reasons and do not support the conclusion that a class action waiver contravenes Rhode Island public policy as reflected in Section 6-13.1-5.2(b).

Importantly, moreover, the Metcalfe opinion made no mention of the fact that many courts have concluded that stand-alone class action waivers are valid and enforceable.  For example, in Deluca v. Royal Caribbean Cruises LTD, a Florida federal district court upheld the class action waiver in a passenger’s cruise ticket contract, holding that “class action waivers are enforceable outside the context of consumer arbitration …. The class action waiver does not affect Plaintiff’s substantive right to bring a claim against Royal Caribbean and it does not limit Royal Caribbean’s liability.”  Courts have also upheld stand-alone class action waivers contained in employment application agreements, commercial financing contracts and franchise agreements.

In addition, under Utah Code § 70C-3-104, a creditor may contract with the debtor of a closed-end consumer contract for a waiver by the debtor of the right to initiate or participate in a class action related to the closed-end consumer contract, even if the class action waiver is not contained in an arbitration clause.  We were instrumental in getting this statute enacted years before Concepcion upheld the validity of class action waivers in consumer arbitration agreements under the FAA.

To be sure, since Concepcion is the law of the land and is applicable in both federal and state courts, it is easier to enforce a class action waiver in a consumer contract if it is contained in an arbitration clause governed by the FAA.  However, as the foregoing discussion demonstrates, there can be circumstances in which a stand-alone waiver is enforceable depending on the facts, the applicable law and/or the jurisdiction involved.  Moreover, the law in this area continues to evolve.  There is no time like the present to seek counsel, since consumer advocates are at this very moment urging the CFPB to implement a rule that would prohibit the use of pre-dispute arbitration agreements in consumer contracts, and the CFPB very quickly agreed to open a docket and invite public comment on the issue.