Supreme Court vacates Ninth Circuit judgment dismissing motion to compel arbitration

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate) and Daniel Hickman (Associate), White & Case LLP

The United States Supreme Court has vacated a Ninth Circuit Court of Appeals decision that upheld a District Court’s dismissal of a motion to compel arbitration, finding no statutory intent to override the Federal Arbitrational Act.

In CompuCredit Corp. v Greenwood, 2012 WL 43514 (Jan. 10, 2012) (www.practicallaw.com/8-517-7004), consumers brought a class action suit against CompuCredit, a marketer of credit cards, alleging misrepresentations in violation of the Credit Repair Organizations Act (CROA). CompuCredit responded with a motion to compel arbitration based on an arbitration clause in the consumers' credit card application. The United States District Court for the Northern District of California denied the motion, concluding that Congress intended for claims under the CROA to be non-arbitrable. The Ninth Circuit affirmed, and the Supreme Court granted certiorari.

The Supreme Court began by explaining that the Federal Arbitration Act (FAA) requires courts to enforce arbitration agreements - even when claims at issue are federal statutory claims - unless Congress overrides the FAA mandate. The Ninth Circuit found clear congressional intent to override the FAA in a provision of the CROA requiring credit repair organisations to provide consumers with a disclosure that the consumers have a "right to sue".

The Supreme Court disagreed and found that the "right to sue" disclosure did not create a right to bring the action in court. The court reasoned that the disclosure was only meant to inform consumers in a straightforward way of their right to seek damages when organisations violate the CROA. The court noted that arbitration clauses are common and Congress would have explicitly stated its intent to override the FAA if it intended to, as it has done elsewhere. Ultimately, the Supreme Court concluded that because the CROA was silent on whether claims under the Act could proceed in an arbitral forum, the FAA required enforcement of the arbitration agreement.

Justices Sotomayor and Kagan concurred because they found both parties’ interpretations of the statute reasonable, the party opposing arbitration had the burden of demonstrating congressional intent to disallow arbitration and, given the underlying federal preference for arbitration of disputes, doubts are resolved in favour of arbitration. Justice Ginsburg, in dissent, argued that Congress intended to provide vulnerable consumers with a right to litigate in court, and to consumers the "right to sue" means the right to bring an action in court.

This case demonstrates that the federal policy favouring arbitration requires arbitration of even federal statutory claims, unless the FAA's mandate has been expressly overridden by the statute.

 
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