California Court Upholds Delaware Choice of Law Provision Prohibiting Class-Wide Arbitration
Question: Assume that a California resident signs a cardholder agreement with a Delaware bank that includes an arbitration clause prohibiting class-wide arbitration. If the California resident sues the bank in a putative nationwide class action, can the bank enforce the agreement and compel arbitration on an individual basis?
Answer: Yes, according to the Second District Court of Appeal in Discover Bank v. Superior Court, 05 C.D.O.S. 10291 Dec. 7, 2005).
Earlier in this same case, the California Supreme Court held that under certain circumstances, California law prohibits enforcement of class action waivers. (See Discover Bank v. Superior Court (2005) 36 Cal.4th 148.) It remanded, however, to determine whether the enforceability of the waiver should be determined under California or Delaware law pursuant to the Delaware choice of law provision in the agreement.
On remand, the Court of Appeal upheld the class action waiver, finding that California had not demonstrated a "materially greater interest" than Delaware in determining this issue and the waiver was not unconscionable under Delaware law. And, while California does have a strong interest in protecting its consumers, the plaintiff in this case was attempting "to sue clients on behalf of every states' consumers, not just California's, and is attempting to place the burden of that litigation on California courts."
Query, however, what would have happened if the plaintiff had asserted a class comprised only of California customers.
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