A Way Around the Prohibition on Class Proceedings
Chané Buck
Posted Monday, May 8, 2017

The Federal Arbitration Act (FAA) provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” As a result, individuals bound by an arbitration clause must present claims to an arbitrator and cannot bring suit themselves or on behalf of others in court unless they can prove that “grounds as exist at law or in equity” justify revocation of the contract. If the contract also contains a class action waiver an individual is forced to pursue claims in arbitration on an individual basis.

The combination of an arbitration clause and a class action waiver clause operate as a complete bar to individuals pursuing claims on a collective basis. The arbitration clause forces individuals into arbitration and the class action waiver requires that the plaintiffs pursue arbitration on an individual basis. As a result, Myriam Gilles and Gary Friedman argue “that many – indeed, most – of the companies that touch consumers’ day-to-day lives can and will now place themselves beyond the reach of aggregate litigation.” Class action waivers, along with other developments in the law, bar private plaintiffs “from bringing many of the cases that most broadly affect US consumers.” Moreover, a number of courts interpret Concepcion “to deprive them of the power to annual class-arbitration waivers even ‘when such waivers preclude effective vindication of statutory rights.’” Individual arbitration clauses in consumer contracts “bar people from joining together in class-action lawsuits, realistically the only tool citizens have to fight illegal or deceitful business practices.” However, CrowdSuit has discovered a way around the prohibition on class proceedings.

CrowdSuit is a company that is attempting to essentially bring class proceedings against cellphone companies. Many cellphone service contracts contain an arbitration clause as well as a class action waiver, forcing customers to address any claims in arbitration on an individual basis. As a result, CrowdSuit argues that cellphone companies are able to charge consumers small fees in violation of their contracts and consumers do not sue because it is not economical to attempt to recover damages on an individual basis. CrowdSuit explains that since consumers cannot pursue claims on a class basis, they cannot hold these companies accountable. To address this issue, CrowdSuit found a way to bring multiple claims against these companies in one proceeding.

CrowdSuit attempts to get around the class action prohibition by asking individuals to assign their claims against cellphone companies to it. CrowdSuit then files a lawsuit against the defendant and consolidates the claims. Part I of this paper will address the history of the prohibition on class action suits. Part II will discuss CrowdSuit’s method of getting around the prohibition. Part III will discuss limitations on CrowdSuit’s method. Part IV will conclude.