And Because Montana Law Was Preempted, Choice of Law Principles Required Application Of New York Law To Consumer Transaction
Wild Goose Goose Island Overlook at National Glacier Park, Montana. Author: rmhermen. GNU Free Documentation License.
After plaintiffs, who resided in Montana, sued their former Internet services provider Bresnan Communications, for enabling an advertiser to get customer information used to target advertising to Bresnan’s customers, Bresnan sought to enforce an arbitration provision in its customer contracts. Relying upon Montana’s public policy invalidating adhesive agreements running contrary to the reasonable expectations of a party (such as adhesive consumer contract arbitration provisions), the Montana district court judge declined to enforce the arbitration clause and a New York choice-of-law provision. Bresnan appealed, arguing that Montana’s public policy was preempted by the FAA and AT&T Mobility v. Concepcion, __ U.S. __, 131 S.Ct. 1740 (2011), and that a New York choice-of-law provision applied to the contract. Mortensen v. Bresnan Communications, LLC, No. 11-35823 (9th Cir. July 15, 2013) (published) (Gould, author 3:0).
The Ninth Circuit panel held that the FAA preempted Montana’s public policy invalidating adhesive agreements running contrary to the reasonable expectations of a party. In so holding, the panel read the Supreme Court’s ruling in Concepcion broadly: “Any general state-law contract defense, based in unconscionability or otherwise, that has a disproportionate effect on arbitration is displaced by the FAA.”
The Ninth Circuit agreed with plaintiffs that Montana had a materially greater interest than New York in the dispute, based on Montana’s reasonable expectations/fundamental rights rule. But that since Montana law was preempted, the New York choice-of-law provision in the contract had to be applied.
Thus, if protecting consumers from unfair agreements has a disproportionate impact on arbitration agreements, too bad for the consumers, who will be compelled to arbitrate under the preemption principle.
I note that the Montana district court judge did not find the arbitration provision to be “unconscionable.” Under this Ninth Circuit panel’s analysis, such a finding would have made no difference, as the panel’s opinion hinges on whether the state-law contract defense “has a disproportionate effect on arbitration.” Still, the facts would have been different, possibly opening the door for a different analysis regarding the viability of traditional state law contractual defenses under the FAA’s “savings clause.” (The Concepcion court stated that the FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as . . . unconscionability.’” Concepcion, supra, ___ U.S. at p. __, 131 S.Ct. at 1746 (2011)).
Comments