Judicial Arbitration and Mediation Services (“JAMS”) recently revised its class action procedure to make clear that it will enforce a class action waiver provision, or its equivalent, contained in an arbitration agreement unless a court orders the matter or claim to arbitration as a class action. This revision is a reversal of JAMS’ prior policy, which was to decide the enforceability of class action waivers on a case-by-case basis in each jurisdiction.

This is not the first time that JAMS has revised is policy regarding the enforcement of class action waivers. In 2004, JAMS announced that it would (i) not enforce a class action waiver when a party to arbitration sought class action relief and (ii) sever a class action waiver from the remainder of an arbitration provision. JAMS indicated that, in setting its policy in November of 2004, it had anticipated that courts would move in the direction of finding class action waiver clauses unconscionable. However, it revised this policy in 2005, citing concern that it had “deviated from its core value of neutrality” and confusion over how the policy would be applied, and implemented the “case-by-case” enforcement policy.

The recently revised JAMS policy does provide, however, that the arbitrator must follow the law applicable to the validity of the arbitration clause, or any court order applicable to the matter, to decide the existence of a valid class action waiver. Courts are presently divided on the enforceability (or unconscionability) of class action wavier clauses and the U.S. Supreme Court has yet to weigh in. In some jurisdictions, enforceability (or unconscionability) may turn on whether a court will recognize and apply a choice of law provision. See, e.g., Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005). In 2003, the U.S. Supreme Court ruled that an arbitrator, not a court, should decide whether class action relief is available if an arbitration clause is silent on the matter. See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003).

Following the November 2004 policy change, many creditors removed JAMS as a potential arbitrator from their arbitration provisions. Creditors might once again consider JAMS as a potential arbitration administrator for arbitration clauses with class action waivers as a result of JAMS’ latest policy move.

We routinely advise clients on best practices for arbitration agreements. The selection and number of potential arbitration administrators is simply one consideration in drafting arbitration clauses or considering their adoption. If you are considering adopting or updating an arbitration clause or need assistance in drafting or revising an arbitration agreement, we would be happy to assist.

  • Mike Tomkies