Ballard Spahr Obtains Ruling that FAA Preempts PA Unconscionability Law on Class Action Waivers

In the first opinion to address the issue following the U.S. Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion, a Pennsylvania federal district court has held that the Federal Arbitration Act (FAA) preempts Pennsylvania law, refusing to enforce class action waivers in consumer arbitration agreements.

The decision—issued August 12, 2011, by Judge Norma L. Shapiro of the U.S. District Court for the Eastern District of Pennsylvania—in Alfeche v. Cash America International, Inc., et al., holds that borrowers’ state law usury and consumer protection act claims must be arbitrated on an individual basis and cannot be pursued as a class action in court.

Ballard Spahr represents the defendants in Alfeche.

Judge Shapiro held that the FAA preempts Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa. Super. Ct. 2006), in which the Pennsylvania Superior Court found that class action waivers are unconscionable under Pennsylvania law and contrary to Pennsylvania public policy. Judge Shapiro concluded that “[t]he case for FAA preemption may be even stronger with Thibodeau compared to Discover Bank” (the California case repudiated by the Supreme Court in Concepcion) because Pennsylvania has a longstanding policy favoring classwide arbitration and “[a] policy favoring classwide arbitration is the policy the Supreme Court [in Concepcion] identified as undermining FAA objectives.”

A federal court of appeals panel had previously decided in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), that the FAA preempts Thibodeau, but later Third Circuit panels had characterized that ruling as dictum. Alfeche is the first Pennsylvania decision following Concepcion to address the effect of Concepcion on Pennsylvania law.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs), its guidance in structuring and documenting new consumer financial services products, and its experience with the full range of federal and state consumer credit laws throughout the country. For further information, please contact Alan S. Kaplinsky, Group Chair, at 215.864.8544 or; Jeremy T. Rosenblum, Group Vice Chair, at 215.864.8505 or; Mark J. Levin, 215.864.8235 or; or Martin C. Bryce, Jr., 215.864.8238 or