Banking Law

For fans of class action litigation, a recent client alert from Ballard Spahr is a definite "must read." The firm discusses a bill working its way through the Maryland state legislature (passed by the House and being considered by the Senate tomorrow) that "would deprive consumers, employees, and businesses of the opportunity to use arbitration as a forum for resolving disputes."

House Bill 729 would render unenforceable any written agreement made before a dispute arises that waives or has ?the practical effect of waiving the rights of a party to that agreement to resolve the dispute by obtaining relief as a representative or as a member of a class of similarly situated persons.?

As Ballard Spahr notes, while some states have adopted laws that invalidate class action waivers in arbitration agreements, no state or federal law invalidates class action waivers in all agreements. Maryland appellate courts have issued rulings that validate such waivers in arbitration agreements, and apparently this new law is aimed at overturning common law. However, it would have broad application beyond arbitration agreements.

[The bill would cover] all types of arbitration agreements with class action waivers, including contracts between (1) businesses and consumers, (2) employers and employees, and (3) businesses and businesses, such as franchise agreements. Even negotiated contracts are covered.  The Bill provides that the ban is to be retroactive and applied to any written agreement in existence on or after the date the law takes effect.

While the bill faces serious constitutional challenges if enacted (which challenges are discussed in the alert), and may never have much impact other than causing some temporary inconvenience before it is quickly overturned by the courts ("quickly" being a relative term), you have to wonder what evidence there is for the need for such a wide-ranging prohibition on class action waivers in the first place. Who is harmed by permitting private parties to agree to ban class action lawsuits and to use arbitration as an alternative to class action litigation, and who benefits from such a ban? That was easy: class action plaintiffs' attorneys. If even sophisticated commercial parties can't privately contract to outlaw class actions, then plaintiffs' counsel can open up the litigation spigots and buy all of their babies a new pair of shoes.

One thing you have to admit about trial lawyers: when it comes to political contributions, they make their money count.