Arbitration Clause of a Loan Agreement Containing a Class Action Waiver – Not Void as Being Against Public Policy

Baldwin v. Regions Financial Corp., — So.3d —-, 2012 WL 4094147 (Fla. 3d DCA 2012)

On September 19, 2012, the District Court of Appeal of the Third District of Florida held that an arbitration clause of a loan agreement containing a class action waiver was not void as being against public policy despite the argument that the clause defeated the remedial provisions of the Florida Consumer Collection Practices Act (FCCPA), Florida Statute section 559.77(2).  Baldwin v. Regions Financial Corp., — So.3d —-, 2012 WL 4094147 (Fla. 3d DCA 2012).

In this case, Bruce Baldwin (“Baldwin”) appealed a non-final order granting Regions Financial Corporation’s (“Regions”) amended motion to compel arbitration, which the Court ultimately affirmed.  Baldwin had obtained a vehicle loan from Regions containing an arbitration clause which provided that either party could choose to arbitrate any dispute between them, and if a dispute is arbitrated, Baldwin waived his class action rights.  In the initial action, Baldwin filed a putative class action suit alleging that Regions violated Florida Statutes section 559.72(16) by sending him and other debtors of Regions envelopes with the words “Consumer Collections” printed on the outside. Baldwin asserted that the envelopes were meant to embarrass the debtors. Florida Statute section 559.72(16) states that a person attempting to collect a consumer debt cannot mail communications to a debtor in an envelope with any words on the outside calculated to embarrass the debtor. Fla. Stat. § 559.72(16) (2010).  Pursuant to the vehicle loan, Regions made a motion to compel arbitration.

At the hearing on the motion, Baldwin alleged that the arbitration clause waiving the right to a class action was in violation of the remedial provisions of the FCCPA, Florida Statute section 559.77(2), not that the clause was unconscionable. Baldwin argued that this section of the FCCPA allowed for twice the amount ($2,000 cap) of statutory damages if a claim was brought as a class action as opposed to an individual action ($1,000 cap). Baldwin also argued that the allowance for punitive damages and other equitable relief under the same section was greater for a class action claim than for an individual claim.

The Court disagreed with both arguments.  Florida Statute section 559.77(2) provides that, if an action is filed on an individual basis, a prevailing plaintiff may recover “additional statutory damages” not exceeding $1,000. § 559.72(2). Similarly, if an action is filed as a class action, and the class prevails, the named plaintiff can receive “additional statutory damages of up to $1,000” and all remaining class members may receive “an aggregate award of additional statutory damages up to the lesser of $500,000 or 1 percent of the defendant’s net worth,” but “the aggregate award may not provide an individual class member with additional damages in excess of $1,000.”  Baldwin’s argument failed due to this final statement.  The Court held that the statute applies uniformly to actions brought either as a class action or as an individual action.

 To read the entire opinion, click here.

A choice-of-law clause in a contract is a provision that designates the law that will govern any disputes between the contracting parties.  Including a choice-of-law clause in a contract where parties are located in different states, or even different countries, can minimize the uncertainty associated with any potential litigation with respect to the contract, and the substantive law governing the parties.

In Florida, a choice-of-law provision in a contract selecting the substantive law of another jurisdiction is presumed valid until it is proved invalid; the party who seeks to prove such a provision invalid bears the burden of proof.   Generally, Florida courts will enforce choice-of-law provisions unless the law of the chosen forum contravenes strong public policy. This rule is premised on the presumption that choice-of-law provisions are valid unless the party seeking to avoid enforcement of them sufficiently carries the burden of showing that the foreign law contravenes strong public policy of the forum jurisdiction.  The term “strong public policy” means that the public policy must be sufficiently important that it outweighs the policy protecting freedom of contract.  Thus, routine policy considerations are insufficient to invalidate choice-of-law provisions in a contract.  The countervailing public policy must be fundamental and strong enough to outweigh the policy protecting the expectations of contracting parties. 

Choice-of-law clauses can often be deemed applicable to tort claims; when determining whether or not a choice-of-law provision in a contract also governs such tort claims between the contracting parties, a court must examine the scope of the provision itself.  A choice-of-law provision that is narrow relates only to the agreement and will not encompass tort related claims.  For example, a provision providing that an agreement shall be governed and construed in accordance with the laws of a certain jurisdiction will be construed narrowly as it purports to govern only that agreement.  On the other hand, a choice-of-law provision that is broad in its wording can encompass certain tort claims.  For example, a clause indicating that all disputes arising out of or in connection with the agreement are to be construed in accordance with the laws of a certain jurisdiction would be deemed sufficiently broad to encompass tort claims between the contracting parties. 

Finally, it is important to note that a choice-of-law provision will not apply to actions that arose prior to the date of the agreement containing the choice-of-law provision. 

Choice-of-law analysis is crucial to any case where the contract contains a provision selecting the substantive law of another state, and such a clause can have a great effect on the substantive aspects of the case.   Choice-of-law analysis is burdened with several nuances and intricacies that require the skill and expertise akin to those of one of our experienced attorneys at Schecter Law.