IN THE DISTRICT COURT OF APPEALFOR THE FOURTH DISTRICT OF FLORIDA

Case Nos. 4D08-493 & 4D08-494

MCKENZIE CHECK ADVANCE OF FLORIDA, LLCSTEVE A. MCKENZIE, and BRENDA G. LAWSON,

Appellants,

v.

WENDY BETTS, DONNA REUTER, et al.,

Appellees.

On Review from the Fifteenth Judicial Circuit CourtIn and For Palm Beach County, Florida

BRIEF AMICUS CURIAE OF AARP IN SUPPORT OF APPELLEES

On the brief:Deborah Zuckerman James Kowalski, Jr. (852740)AARP Foundation Litigation Counsel of Record601 E Street, NW Law Offices of James A. Kowalski, Jr., PLWashington, DC 20049 12627 San Jose Blvd., Suite 203(202) 434-6045 (ph) Jacksonville, FL 32223(202) 434-6424 (fax) (904) 268-1146 (ph)

(904) 268-1342 (fax)

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TABLE OF CONTENTS

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

STATEMENT OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

I. CLASS ACTION BANS THAT EXCULPATE CORPORATIONSFROM LIABILITY SHOULD NOT BE ENFORCED . . . . . . . . . . . . . . . . . . . 3

A. Class Actions Provide the Only Meaningful Legal Recourse forConsumers With Small Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. Courts Have Refused to Enforce Class Action Bans inArbitration Clauses When They Prevent Consumers FromEffectively Vindicating Their Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ii

TABLE OF AUTHORITIES

CASES

Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . 5

BankWest, Inc. v. Baker, Att’y Gen., 446 F.3d 1358 (11th Cir. 2006) . . . . . . . . . . . . . . . 1

Coady v. Cross Country Bank, 729 N.W.2d 732 (Wis. Ct. App. 2007) . . . . . . . . . . . . . 9

Cooper v. QC Fin. Servs., Inc., 503 F. Supp. 2d 1266 (D. Ariz. 2007) . . . . . . . . . . . . . 17

Creighton v. Blockbuster, Inc., No. 05-482-KI, 2007 WL 1560626(D. Or. May 25, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326 (1980) . . . . . . . . . . . . . . . . . . . . . 4, 5

Discover Bank v. Shea, 827 A.2d 358 (N.J. Super. Ct. Law Div. 2001) . . . . . . . . . . . . 13

Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005) . . . . . . . . . . . . . . 3, 10, 14

Dix v. ICT Group, Inc., 161 P.3d 1016 (Wash. 2007) . . . . . . . . . . . . . . . . . . . . . . . . 8, 9

Doerhoff v. Gen. Growth Props., No. 06-04099-CV-C-SOW, 2006 WL 3210502 (W.D. Mo. Nov. 6, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . 16

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) . . . . . . . . . . . . . . . . . . . 12

In re Prudential Ins. Co. of Am. Sales Practice Litig.,148 F.3d 283 (3d Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

King v. Advance America, C.A. 07-cv-237(E.D. Pa. Compl. filed Jan. 18, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250 (Ill. 2006) . . . . . . . . . . . . . . . . . . . 10

Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) . . . . . . . . . . . . . . . . . . . . . . . . 14

Lake v. First Nationwide Bank, 156 F.R.D. 615 (E.D. Pa. 1994) . . . . . . . . . . . . . . . . . . 6

iii

Lowden v. T-Mobile, USA, Inc., No. C05-1482P, 2006 WL 1009279(W.D. Wash. Apr. 13, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Luna v. Household Fin. Corp. III, 236 F. Supp. 2d 1166 (W.D. Wash. 2002) . . . . . . . 18

Macarz v. Transworld Sys., Inc., 193 F.R.D. 46 (D. Conn. 2000) . . . . . . . . . . . . . . . . . . 7

Maffei v. Alert Cable TV, 342 S.E.2d 867 (N.C. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . 5

McKenzie Check Advance of Fla., LLC v. Betts, 928 So. 2d 1204 (Fla. 2006) . . . . . . . . 1

Muhammad v. County Bank of Rehoboth Beach, Del.,912 A.2d 88 (N.J. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 12, 13

Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Powertel, Inc. v. Bexley, 743 So. 2d 570 (Fla. 1st DCA 1999) . . . . . . . . . . . . . . . . . . . 15

Purdie v. ACE Cash Express, Inc., Civ. A. No. 301CV1754L,2003 WL 22976611 (N.D. Tex. Dec. 11, 2003) . . . . . . . . . . . . . . . . . . . . . . . . 2

Riensche v. Cingular Wireless, LLC, No. C06-1325Z, 2006 WL 3827477(W.D. Wash. Dec. 27, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 18

Rollins, Inc. v. Garrett, 176 Fed. App’x 968, 2006 WL 1024166 (11th Cir. Apr. 19, 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Rollins, Inc. v. Garrett, No. 6:05-CV-671-PCF-KRS, 2005 WL 2149293(M.D. Fla. Sept. 6, 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007) . . . . . . . . . . . . . . . . . . . . . . 3, 8

State ex rel. Dunlap v. Berger, 567 S.E.2d 265 (W. Va. 2002) . . . . . . . . . . . . . . . . 5, 12

Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Ct. App. 2002) . . . . . . . . . . . . . . 10, 11

Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa. Super. Ct. 2006) . . . . . . . . . . . . . . . . 13

iv

Ting v. AT&T, 182 F. Supp. 2d 902 (N.D. Cal. 2002),aff’d in relevant part, 319 F.3d 1126 (9th Cir. 2003), cert. denied,540 U.S. 811 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 14

U.S. Parole Comm’n v. Geraghty, 445 U.S. 388 (1980) . . . . . . . . . . . . . . . . . . . . . . . . 4

Vasquez v. Superior Court of San Joaquin County, 484 P.2d 964 (Cal. 1971) . . . . . . . . 5

Vasquez-Lopez v. Beneficial Oregon, Inc. 152 P.3d 940 (Or. Ct. App. 2007) . . . . . . . . 16

Whitney v. Alltel Commc’ns, Inc., 173 S.W.3d 300 (Mo. Ct. App. 2005) . . . . . . . . . . . 11

OTHER

Alba Conte and Herbert B. Newberg, 6 Newberg on Class Actions(4th ed. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

STATEMENT OF INTEREST

AARP is a non-partisan, non-profit organization with nearly 40 million members,

approximately 3 million of whom live in Florida. As the leading organization representing

the interests of people aged 50 and older, AARP has a keen interest in stopping the many

unfair and deceptive consumer lending practices that have a disproportionate impact on

older people. AARP is particularly concerned about high-cost lenders that target low- and

moderate-income consumers, those on fixed incomes, including people dependent on

Social Security benefits, and those with impaired credit who cannot access traditional

sources of credit. These lenders, often referred to as the “fringe banking” industry, take

advantage of borrowers already in financial distress by imposing exploitative terms such as

astronomical annual percentage rates (APRs) and extreme default penalties. Payday loans,

such as those made by Appellants, are among the key products marketed by an industry

that targets necessitous borrowers, the very people for whose benefit usury and other

interest rate limits exist.

Because these loans are so exploitative, AARP has assisted in state legislative

efforts to enact protections for borrowers and has filed amicus curiae briefs in many cases,

including a prior appeal in this case, urging courts to enforce these protections. See, e.g.,

McKenzie Check Advance of Fla., LLC v. Betts, 928 So. 2d 1204 (Fla. 2006); BankWest,

Inc. v. Baker, Att’y Gen., 446 F.3d 1358 (11th Cir. 2006). In addition, AARP attorneys

represent a class of consumers alleging that a payday lender that charges in excess of

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700% APR is violating Pennsylvania’s usury and consumer protection statutes. King v.

Advance America, C.A. 07-cv-237 (E.D. Pa. compl. filed Jan. 18, 2007). See also Purdie

v. ACE Cash Express, Inc., Civ. A. No. 301CV1754L, 2003 WL 22976611 (N.D. Tex.

Dec. 11, 2003) (counsel for class alleging payday lender’s practices violated federal and

state laws).

The contracts of payday and other fringe lenders invariably include arbitration

clauses that place significant restrictions, such as class action bans, on borrowers’ ability to

seek redress. This has the untoward effect of exculpating corporations from liability for

their exploitative practices. These clauses are not limited to fringe banking products and,

in fact, are found in contracts for numerous other products and services. AARP is

concerned about the many deceptive and unfair corporate practices that affect older people

in connection with these other products and services. While many of these people lose

large amounts of money to such practices, many others lose relatively small amounts or are

subjected to statutory violations with low damage claims. These losses nevertheless are

significant to these individuals, as is their ability to obtain adequate relief through private

litigation. Yet, access to justice is being severely curtailed by corporations that impose

binding arbitration and do not merely prevent individual consumers from bringing court

suits, but also preclude class action lawsuits and class-wide arbitration. This makes it

virtually impossible for many consumers to seek relief and effectively immunizes

corporations from liability. AARP has filed amicus briefs in numerous cases challenging

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these bans and in other cases seeking to preserve class actions. See, e.g., Ting. v. AT&T,

319 F.3d 1126 (9th Cir. 2002), cert. denied, 540 U.S. 811 (2003); Scott v. Cingular

Wireless, 161 P.3d 1000 (Wash. 2007); Discover Bank v. Superior Court, 113 P.3d 1100

(Cal. 2005).

AARP is interested in the Court’s ruling because of the impact it will have if

Florida consumers, particularly those with small claims, are forced to forfeit the option of

bringing class actions and thus effectively forgo any remedy. AARP is concerned that this

would allow corporations such as Appellant to continue making loans at illegal interest

rates without fear of liability. AARP likewise is interested in the ruling’s implications for

older consumers, including its members, throughout Florida who may be victimized by

other corporate practices and for whom class actions represent the only realistic way to

obtain legal redress.

ARGUMENT

I. CLASS ACTION BANS THAT EXCULPATE CORPORATIONSFROM LIABILITY SHOULD NOT BE ENFORCED.

A. Class Actions Provide the Only Meaningful Legal Recourse forConsumers With Small Claims.

Class actions often are the only effective way to stop corporate wrongdoing and

obtain relief for victims. While many individuals are harmed by the same corporation in

identical ways, many corporations essentially are immune from individual suits because

recoveries will be too small to justify litigation. Thus, corporations escape scrutiny, keep

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the profits from their wrongdoing, and have little, if any, reason to change their unlawful

practices. Class actions are particularly appropriate in consumer cases where individual

damages or amounts in dispute are small but which, in the aggregate, involve substantial

amounts, often many millions of dollars. Beyond obtaining compensation for victims of

corporate wrongdoing, class counsel and class representatives fulfill the important role of

serving as private attorneys general to vindicate cumulative wrongs and obtain significant

injunctive relief and disgorgement of unlawfully obtained profits. See, e.g., Deposit Guar.

Nat’l Bank v. Roper, 445 U.S. 326, 338 (1980) (noting “the financial incentive that class

actions offer to the legal profession is a natural outgrowth of the increasing reliance on the

‘private attorney general’ for the vindication of legal rights . . . .”); U.S. Parole Comm’n v.

Geraghty, 445 U.S. 388, 403 (1980) (recognizing that “the right to have a class certified if

the requirements of the Rules are met . . . is more analogous to the private attorney general

concept . . . .”). See also Alba Conte & Herbert B. Newberg, 6 Newberg on Class

Actions § 21:30 (4th ed. 2002) (“The desirability of providing recourse for the injured

consumer who would otherwise be financially incapable of bringing suit and the deterrent

value of class litigation clearly render the class action a viable and important mechanism in

challenging fraud on the public.”).

The U.S. Supreme Court repeatedly has recognized this value, stating:

The use of the class-action procedure for litigation ofindividual claims may offer substantial advantages for namedplaintiffs; it may motivate them to bring cases that for

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economic reasons might not be brought otherwise. . . . Whereit is not economically feasible to obtain relief within thetraditional framework of a multiplicity of small individual suitsfor damages, aggrieved persons may be without any effectiveredress unless they may employ the class-action device.

Deposit Guar. Nat’l Bank, 445 U.S. at 338-39 (footnote omitted). See also Amchem

Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997); Phillips Petroleum Co. v. Shutts, 472

U.S. 797, 809 (1985).

Many state courts have likewise noted the importance of class actions. For

example, the North Carolina Supreme Court stated: “We recognize that one of the basic

purposes of class actions is to provide a forum whereby claims which might not be

economically pursued individually can be aggregated in an efficient and economically

reasonable manner.” Maffei v. Alert Cable TV, 342 S.E.2d 867, 871 (N.C. 1981).

According to the New Jersey Supreme Court, “the merits of the class-action procedure

have been acknowledged many times in the context of court litigation. ‘By permitting

claimants to band together, class actions equalize adversaries and provide a procedure to

remedy a wrong that might otherwise go unredressed.’” Muhammad v. County Bank of

Rehoboth Beach, Del., 912 A.2d 88, 97 (N.J. 2006) (citation omitted). Similarly, West

Virginia’s highest court recognized that “[c]lass action relief . . . is often at the core of the

effective prosecution of consumer, employment, housing, environmental, and similar

cases.” State ex rel. Dunlap v. Berger, 567 S.E.2d 265, 278 (W. Va. 2002). See also

Vasquez v. Superior Court of San Joaquin County, 484 P.2d 964, 968-69 (Cal. 1971)

6

(stating that “[i]ndividual actions by each of the defrauded consumers is often

impracticable because the amount of individual recovery would be insufficient to justify

bringing a separate action; thus an unscrupulous seller retains the benefits of its wrongful

conduct.”) (citations omitted).

Federal courts similarly have recognized the important role played by class actions.

The Third Circuit affirmed that a class action was superior to other means of handling

litigation, where the trial court had “examined the relatively modest size of individual

claims and the sheer volume of those claims in the aggregate, and concluded a class action

presented the ‘only rational avenue of redress for many class members.’” In re Prudential

Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 316 (3d Cir. 1998) (quoting 962 F.

Supp. 450, 523 (D.N.J. 1997)). Finding that plaintiffs met the superiority requirement for

class certification, a Pennsylvania federal court stated:

Given the relatively small amount recoverable by eachpotential litigant, it is unlikely that, absent the class actionmechanism, any one individual would pursue his claim oreven be able to retain an attorney willing to bring the action. . .. The public interest in seeing that the rights of consumers arevindicated favors the disposition of the instant claims in a classaction form.

Lake v. First Nationwide Bank, 156 F.R.D. 615, 626 (E.D. Pa. 1994).

Connecticut’s federal court found a class action the superior means of adjudicating

Fair Debt Collection Practices Act claims, rejecting defendant’s argument that 15,000

individual actions

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would somehow provide for greater fairness and efficiencythan the streamlined procedure of a class action. Defendantwould no doubt benefit from such a result, as the vastmajority, if not all, of those potential plaintiffs would fail topursue what this Court has already determined are meritoriousclaims. But defendant’s desire to limit its exposure indamages cannot be a criteria for assessing the appropriatenessof a class action. . . . If only those recipients of the[collection] letter with significant damages, and thus incentiveto sue, brought actions to challenge its legality, the FDCPAwould not have the deterrent and curative effect of eliminatingabusive collection practices intended by Congress.

Macarz v. Transworld Sys., Inc., 193 F.R.D. 46, 55 (D. Conn. 2000) (citations omitted).

Given these and many other iterations of the importance of class actions, the trend

among courts to invalidate class action bans in arbitration clauses as substantively

unconscionable or against public policy is not surprising.

B. Courts Have Refused to Enforce Class Action Bans inArbitration Clauses When They Prevent Consumers FromEffectively Vindicating Their Rights.

Numerous courts have applied generally applicable state contract law to the

context of particular cases to find class action bans in arbitration clauses substantively

unconscionable or against public policy and unenforceable. Many of these courts note that

these bans have the effect of depriving injured consumers, employees, and others of any

forum in which to vindicate their claims, and thus serve as exculpatory clauses that allow

corporations to violate the law without fear of liability. Several recent decisions are

illustrative. The Supreme Court of Washington refused to enforce an arbitration clause’s

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class action waiver in a cellular phone service contract, finding it violated public policy

and was substantively unconscionable. Scott v. Cingular Wireless, 161 P.3d 1000 (Wash.

2007). The subscribers alleged the company overcharged them between $1 and $45 per

month, and the court found the waiver deprived them of “a forum to vindicate the

consumer protections guaranteed by Washington law and effectively exculpates its drafter

from liability . . . . Where many customers of the same company have the same or similar

complaint and each is damaged a small amount, class action litigation or arbitration is the

only practical remedy available.” Id. at 1009. The court noted that “on its face, the class

action waiver does not exculpate Cingular from anything; it merely channels dispute

resolution into individual arbitration proceedings or small claims court. But in effect, this

exculpates Cingular from legal liability for any wrong where the cost of pursuit outweighs

the potential amount of recovery.” Id. at 1007.

In another cased decided the same day, the Washington Supreme Court refused to

enforce a forum selection clause that designated Virginia, which does not allow class

actions for consumer protection lawsuits such as the one at issue. Dix v. ICT Group, Inc.,

161 P.3d 1016 (Wash. 2007). The underlying lawsuit alleged that individual class

members suffered damages ranging from $23.90 to less than $250.00, and the court found

that “a forum selection clause that seriously impairs the plaintiff’s ability to go forward on

a claim of small value by eliminating class suits in circumstances where there is no feasible

alternative for seeking relief violated public policy and is unenforceable.” Id. at 1022.

9

This policy was not undercut by the fact the consumer protection law did not contain an

express class action antiwaiver provision.

It is clear that the legislature’s addition of the private right ofaction to enforce [the Consumer Protection Act] was intendedto encourage individuals to enforce the act and fight restraintsof trade, unfair competition, and unfair, deceptive, andfraudulent acts or practices. This public policy is violatedwhen a citizen’s ability to assert a private right of action issignificantly impaired by a forum selection clause thatprecludes class actions in circumstances where it is otherwiseeconomically unfeasible for individual consumers to bringtheir small-value claims.

Id. at 1024.

In a class action challenging a bank’s debt collection practices, a Wisconsin court

affirmed that “the arbitration clause was substantively unconscionable because it prevents

the plaintiffs from obtaining any of the relief they seek . . . and because it unfairly prohibits

class-wide relief.” Coady v. Cross Country Bank, 729 N.W.2d 732, 745 (Wis. Ct. App.

2007). The court noted the growing number of courts to find that a

waiver of class-wide relief is a significant factor (and in at leastone instance a determinative factor) in invalidating anarbitration provision as unconscionable. These courts haverecognized that the availability of class-wide relief is often theonly means of vindicating consumer rights. . . . In addition,the prospect of class-wide relief “ordinarily has some deterrenteffect on a manufacturer or service provider,” . . . but any sucheffect is eviscerated by arbitration clauses like CrossCountry’s.

Id. at 746-47 (citations and footnotes omitted).

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The Illinois Supreme Court made a similar ruling in a case alleging that a $150

early termination fee was an illegal penalty. The class action waiver was substantively

unconscionable where Cingular used it “to insulate itself from liability to a potential class

of customers . . . where the cost of vindicating the claim is so high that the plaintiff’s only

reasonable, cost-effective means of obtaining a complete remedy is as either the

representative or a member of a class.” Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250,

274-75 (Ill. 2006). In a similar vein, California’s Supreme Court held that a credit card

issuer’s contractual waiver of class actions was an unconscionable exculpatory clause.

Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005). Such waivers “are not, in

the abstract, exculpatory clauses,” but can be in effect because “damages in consumer

cases are often small and because ‘“[a] company which wrongfully exacts a dollar from

each of millions of customers will reap a handsome profit . . . the class action is often the

only effective way to halt and redress such exploitation.”’” Id. at 1108-09 (citation

omitted). While “‘styled as a mutual prohibition,’” the waiver was “indisputably one-

sided.” Id. at 1109 (quoting Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Ct.

App. 2002)). The Szetela court expressed this concern more forcefully:

It is the manner of arbitration, specifically, prohibiting class orrepresentative actions, we take exception to here. The clauseis not only harsh and unfair to Discover customers who mightbe owed a relatively small sum of money, but it also serves asa disincentive for Discover to avoid the type of conduct thatmight lead to class action litigation in the first place. . . . Discover has essentially granted itself a license to push the

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boundaries of good business practices to their furthest limits,fully aware that relatively few, if any, customers will seeklegal remedies, and that any remedies obtained will onlypertain to that single customer without collateral estoppeleffect. The potential for millions of customers to beovercharged small amounts without an effective method ofredress cannot be ignored.

118 Cal. Rptr. 2d at 868.

In Missouri, wireless phone customers sought class certification of claims that their

provider violated state law by deceptively implying that a monthly charge was

governmentally mandated. An appeals court affirmed that a class action prohibition

rendered an arbitration clause substantively unconscionable. Whitney v. Alltel Commc’ns,

Inc., 173 S.W.3d 300 (Mo. Ct. App. 2005). Any customers

wishing to challenge the eighty-eight cent charge would facethe same economic hurdle. Yet because of the manycustomers affected, Alltel would be entitled to retain millionsand millions of dollars from what were allegedly improper anddeceptive charges. Moreover, since no single customer couldundertake a case against Alltel, the company could continue itsimproper and deceptive charges ad infinitum since none of itscustomers would have a practical remedy to bring a stop to theconduct.

Id. at 314.

West Virginia’s highest court ruled that prohibitions on class actions and punitive

damages made an arbitration clause unconscionable and unenforceable in a case involving

modest damages.

A pre-dispute agreement to use arbitration as an alternative to

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litigation in court may be enforced pursuant to the FAA onlywhen arbitration, although a different forum with somewhatdifferent and simplified rules, is nonetheless one in which thearbitral mechanisms for obtaining justice permit a party to fullyand effectively vindicate their rights.

State ex rel. Dunlap v. Berger, 567 S.E.2d 265, 272 (W. Va. 2002) (citing Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991)).

The small insurance charges ($8.46) at issue are “precisely the sort of small-

dollar/high volume (alleged) illegality that class action claims and remedies are effective at

addressing. In many cases, the availability of class action relief is a sine qua non to permit

the adequate vindication of consumer rights.” Id. at 278. Thus, in adhesive contracts “so

commonly involved in consumer and employment transactions, permitting the proponent

of such a contract to include a provision that prevents an aggrieved party from pursuing

class action relief would go a long way toward allowing those who commit illegal activity

to go unpunished, undeterred, and unaccountable.” Id. at 278-79.

New Jersey’s highest court found a class action ban unconscionable in a case

challenging payday loans in which the alleged damages “are small on an individual-by-

individual basis, but are substantial when aggregated into a class claim.” Muhammad v.

County Bank of Rehoboth Beach, Del., 912 A.2d 88, 91 (N.J. 2006) The ban had the

effect of acting as an exculpatory clause where permitting “the defendants to contest

liability with each claimant in a single, separate suit, would, in many cases give defendants

an advantage which would be almost equivalent to closing the door of justice to all small

13

claimants.” Id. at 99. This was similar to an earlier New Jersey court ruling striking a

bank’s arbitration clause as unconscionable where “the only purpose of the provision

purporting to prevent class-wide litigation is to effectively remove the only legitimate

remedy for cardholders with small claims.” Discover Bank v. Shea, 827 A.2d 358, 365

(N.J. Super. Ct. Law Div. 2001).

While Discover can use the provision to preclude classactions and therefore, effectively immunize itself completelyfrom small claims, individual cardholders gain nothing, and infact, are effectively deprived of their small individual claims. Discover can completely avoid accountability whenever theharm to each class member is small enough. . . . This type ofpower cannot be the purpose of arbitration. . . .

Id. at 366-67. See also Thibodeau v. Comcast Corp., 912 A.2d 874, 885-86 (Pa. Super.

Ct. 2006) (applying general principles of state contract law to find an arbitration clause that

mandated individual arbitration and precluded class actions and classwide arbitration was

unconscionable and unenforceable. “Should the law require consumers to litigate or

arbitrate individually, defendant corporations are effectively immunized from redress of

grievances. . . . It is clearly contrary to public policy to immunize large corporations from

liability by allowing them to preclude all class action litigation or [] arbitration.”).

A long line of federal courts have made similar rulings. One of the earliest was the

Ninth Circuit’s affirmance of a lower court’s finding that the class action ban in an

arbitration provision violated California’s contract law relating to unconscionability. The

trial court said:

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It would not have been economically feasible to pursue theclaims in these cases on an individual basis, whether the casewas brought in court or in arbitration. . . . The actual damagessought by the named plaintiffs are relatively insubstantial. [T]he prohibition on class action litigation functions as aneffective deterrent to litigating many types of claims . . . and,ultimately, would serve to shield AT&T from liability even incases where it has violated the law.

Ting v. AT&T, 182 F. Supp. 2d 902, 918 (N.D. Cal. 2002), aff’d in relevant part, 319 F.3d

1126, 1150 (9th Cir. 2003), cert denied, 540 U.S. 811 (2003).

More recently, the First Circuit held that a class arbitration ban was invalid because

it prevented consumers from vindicating their statutory rights. Kristian v. Comcast Corp.,

446 F.3d 25 (1st Cir. 2006). “The bar on class arbitration threatens the premise that

arbitration can be ‘a fair and adequate mechanism for enforcing statutory rights.’” Id. at 54

(citation omitted). The Court emphasized the need to look at the ban’s real world effect of

making it difficult, if not impossible, to challenge widespread practices. “‘[C]lass actions

and arbitrations are, particularly in the consumer context, often inextricably linked to the

vindication of substantive rights.” Id. at 60 (quoting Discover Bank, 113 P.2d at 1109).

Further, “[i]f the class action mechanism prohibition here is enforced, Comcast will be

essentially shielded from private consumer antitrust enforcement liability, even where it

has violated the law. Plaintiffs will be unable to vindicate their statutory rights.” Id. at 61.

Similarly, the Eleventh Circuit held that under Florida law “a consumer contract

that prohibits class arbitration is unconscionable because it ‘preclude[s] the possibility that

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a group of . . . customers might join together to seek relief that would be impractical for

any of them to obtain alone.’” Rollins, Inc. v. Garrett, 176 Fed. App’x 968, 968-69, 2006

WL 1024166, at *1 (11th Cir. Apr. 19, 2006) (quoting Powertel, Inc. v. Bexley, 743 So. 2d

570, 576 (Fla. 1st DCA 1999)). The lower court had found that Florida law would

support classwide arbitration due to “important public policy considerations, namely, the

advantage a large corporate defendant would have against diffuse individuals and the

substantive unfairness of forcing hundreds of individuals to assert claims involving

common issues of fact and law against a sole party . . . .” Rollins, Inc. v. Garrett, No.

6:05-CV-671-PCF-KRS, 2005 WL 2149293, at *4 (M.D. Fla. Sept. 6, 2005).

In Powertel, the court found an arbitration clause unconscionable and

unenforceable where it

effectively removes Powertel’s exposure to any remedy thatcould be pursued on behalf of a class of consumers. . . . Thepotential claims are too small to litigate individually, butcollectively they might amount to a large sum of money. Theprospect of class litigation ordinarily has some deterrent effecton a manufacturer or service provider, but that is absent here. By requiring arbitration of all claims, Powertel has precludedthe possibility that a group of its customers might jointogether to seek relief that would be impractical for any ofthem to obtain alone.

743 So. 2d at 576 (citation omitted).

Oregon’s federal court recently found an arbitration clause that banned class

actions in arbitration and court substantively unconscionable in a case involving statutory

The Vasquez court rejected defendant’s argument that the ban applied equally to1/

both parties stating: “Although the arbitration rider with majestic equality forbidslenders as well as borrowers from bringing class actions, the likelihood of thelender seeking to do so against its own customers is as likely as the rich seeking tosleep under bridges.” 152 P.3d at 950.

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penalties of $200 per class member. The court considered “the small recoveries at issue,

and the resulting disincentive to litigate individual claims” to find that the ban “‘gives

defendant a virtual license to commit, with impunity, millions of dollars’ worth of small-

scale fraud.’” Creighton v. Blockbuster, Inc., No. 05-482-KI, 2007 WL 1560626, at *3

(D. Or. May 25, 2007) (quoting Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940,

951 (Or. Ct. App. 2007)). A Missouri federal court similarly declared a class action ban1/

substantively unconscionable in a case involving $2.00 monthly service fees charged on

gift cards. The gift card agreement “forces customers to individually arbitrate claims that

only amount to a few dollars and pay the accompanying fees. Few plaintiffs would likely

undertake such a scheme if not allowed to join in a class action.” Doerhoff v. Gen.

Growth Props., No. 06-04099-CV-C-SOW, 2006 WL 3210502, at *6 (W.D. Mo. Nov. 6,

2006). The court noted that neither the Federal Arbitration Act nor any policy favoring

arbitration gives “a party carte blanche to eliminate the ability of consumers to challenge

provisions of an unconscionable contract.” Id. at *7.

In another case challenging payday loans made at annual percentage rates in excess

of 400%, Arizona’s federal court held that a class action ban in an arbitration clause was

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against public policy and substantively unconscionable. “Arizona recognizes that

consumer protection statutes are necessary ‘to counteract the disproportionate bargaining

power which is typically present in consumer transactions.’” Cooper v. QC Fin. Servs.,

Inc., 503 F. Supp. 2d 1266, 1286 (D. Ariz. 2007) (citation omitted). Arizona courts also

recognize “that when individual recoveries are relatively small, a class action is the only

possible device which would afford relief to numerous plaintiffs with such claims.” Id.

Moreover, “[i]ndividualizing each claim absolutely and completely insulates and

immunizes Defendant from scrutiny and accountability for its business practices and ‘“also

serves as a disincentive for [Defendant] . . . to avoid the type of conduct that might lead to

class action litigation in the first place.”’” Id. at 1288 (citations omitted).

A Washington federal court likewise declared that a class action ban was

“unilateral and excessively favors Cingular, and is therefore substantively

unconscionable.” Riensche v. Cingular Wireless, LLC, No. C06-1325Z, 2006 WL

3827477, at *12 (W.D. Wash. Dec. 27, 2006). The ban “effectively prevents consumers

from seeking redress whenever the monetary value of the claim is so small that it is not

worth the time or money to pursue in small claims court or arbitration, while allowing

Cingular to allegedly ‘cheat large numbers of consumers out of individually small sums of

money.’” (citation omitted). The ban “does not affect Cingular because there is no

circumstance under which Cingular would bring a class action against consumers. But it

deprives consumers of an important means for enforcing their rights under the [Consumer

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Protection Act].” Id. The court relied on its prior decision in Luna v. Household Fin.

Corp. III, 236 F. Supp. 2d 1166, 1179 (W.D. Wash. 2002), where it found an arbitration

clause banning class actions was substantively unconscionable “because it was being used

‘as a sword to strike down access to justice instead of a shield against prohibitive costs.’”

(citation omitted). See also Lowden v. T-Mobile, USA, Inc., No. C05-1482P, 2006 WL

1009279, at *6 (W.D. Wash. Apr. 13, 2006) (finding class action ban “deprive[d] Plaintiffs

of the means to effectively vindicate their rights under the [Consumer Protection Act],”

and was “effectively one-sided because there is no conceivable set of facts under which T-

Mobile would bring a class action against its customers.”).

This is a small sample of the increasing number of courts holding class action bans

in arbitration clauses unenforceable. The lower court’s decision is consistent with this

persuasive analysis and reasoning.

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CONCLUSION

Amicus curiae AARP respectfully urges the Court to affirm the lower court and

find Appellants’ class action ban void.

Dated: April 25, 2008 Respectfully submitted,

On the brief: Deborah Zuckerman James Kowalski, Jr. (852740)AARP Foundation Counsel of Record601 E Street, NW Law Offices of James A. Kowalski, Jr., PLWashington, DC 20049 12627 San Jose Blvd., Suite 203(202) 434-6045 (ph) Jacksonville, FL 32223(202) 434-6424 (fax) (904) 268-1146 (ph)dzuckerman@aarp.org (904) 268-1342 (fax)

kowalski.law@mac.com

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CERTIFICATE OF SERVICE

I certify that a copy of the foregoing brief amicus curiae was served on counsellisted below by Federal Express next day on April 25, 2008.

Virginia B. Townes Claudia CallawayAkerman Senterfitt Manatt, Phelps & Phillips420 S. Orange Ave., Suite 1200 700 12 Street, NW, Suite 1100th

Orlando, FL 32802 Washington, DC 20005Attorney for Defendant Attorney for Defendants

Lawrence P. Rochefort Theodore J. LeopoldAkerman Senterfitt Ricci-Leopold, P.A.Esperante Bldg. - 4 Fl. 2925 PGA Blvd., Suite 200th

222 Lakeview Avenue, Suite 400 Palm Beach Gardens, FL 33410West Palm Beach, FL 33401 Attorney for PlaintiffsAttorney for Defendant

Richard A. FisherChristopher C. Casper Richard Fisher Law OfficeJames, Hoyer, Newcomer 1510 Stuart Road, Suite 210 & Smiljanich, PA Cleveland, TN 37312One Urban Centre, Suite 550 Attorney for Plaintiffs4830 W. Kennedy Blvd.Tampa, FL 33609 F. Paul Bland, Jr.Attorney for Plaintiffs Public Justice, P.C.

1825 K Street, NW, Suite 200E. Clayton Yates Washington, DC 20006Yates & Mancini, LLC Attorney for Plaintiffs311 S. Second Street, Suite 102Fort Pierce, FL 34950Attorney for Plaintiffs

James Kowalski, Jr. (852740)Counsel of Record for Amicus Curiae AARPLaw Office of James A. Kowalski, Jr., PL12627 San Jose Blvd., Suite 203Jacksonville, FL 32223(904) 268-1146 (ph)(904) 268-1342 (fax)

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CERTIFICATE OF COMPLIANCE

I hereby certify that the foregoing brief amicus curiae has been prepared in Times

New Roman 14 point font and complies with Fla. R. App. P. 9.210(a)(2).

James Kowalski, Jr. (852740)