The U.S. Supreme Court has made clear that arbitration clauses and class action waivers are fully enforceable, but the plaintiff class action bar has sought to avoid this result by using individuals who opted out of such agreements to bring claims on behalf of larger classes of individuals who did not.
A recent decision from the Eastern District of New York shows that even this tactic can be unenforceable because a plaintiff who has elected to opt out of an arbitration clause and class action waiver cannot represent a broader class of individuals that may be subject to those agreements.
According to the court, this decision is only one of two district court decisions to address this important issue.
The ruling highlights the importance of arbitration clauses and class action waivers in defending putative class actions even against those consumers who have opted out of such clauses and elect to pursue a claim in court.
It is notable that the arbitration clause was used as a defense to class certification even when the enforceability of the clause had not yet been adjudicated.
In Jensen v. Cablevision Sys. Corp.,the named plaintiff sued Cablevision Systems Corporation (“Cablevision”) and its parent company, Altice N.V., alleging violations of section 349(a) of New York’s General Business Law.
The plaintiff, a subscriber to Cablevision’s private residential Wi-Fi service, Optimum Online, alleged that Cablevision unlawfully used his wireless router—which he leased free of charge from Cablevision—to broadcast a public Wi-Fi network without his consent.
The plaintiff alleged that his wireless router—along with Cablevision routers leased free of charge to other customers—served as components for Optimum’s larger public Wi-Fi network, which was accessible to any active Optimum subscriber and was not password protected.
The plaintiff further alleged that he and other customers were not able to detect or monitor any of the individuals who used their wireless router to access the public Wi-Fi. As a result, the plaintiff claimed he suffered anxiety and distress from the invasion of his privacy, and damages in the form of slower internet speeds and higher electricity costs.
The court noted that during installation of the residential Wi-Fi service, Cablevision provided the plaintiff and customers with paper or electronic copies of Cablevision’s General Terms of Service, which contained an arbitration provision and a class action waiver.
Plaintiff Was Among 1 Percent
The General Terms of Service referred to additional Terms of Service found on Cablevision’s website that referenced Optimum’s public Wi-Fi and contained another arbitration clause and class action waiver.
Although the plaintiff was one of approximately one percent of Cablevision customers (i.e., one of 150 customers) who had opted out of the arbitration clauses, he nevertheless sought to represent a putative class of 928,974 of New Yorkers who had subscribed to the residential Wi-Fi and leased a Cablevision router during the relevant class period.
The court declined to certify the class, finding that the plaintiff could not satisfy the typicality and adequacy requirements of Rule 23(a)(3)-(4). The court found that, because the named plaintiff was just one of a handful of customers who had opted out of the arbitration clause, his claims and Cablevision’s defenses were atypical of the remaining ninety-nine percent of absent class members who were potentially subject to the clause.
Notably, the court had not yet considered the enforceability of the arbitration provisions and class action waivers against the remaining ninety-nine percent of the putative class because the defendants had not moved to compel arbitration.
Nevertheless, the court held that the “mere potential” that the arbitration provisions were valid was sufficient to preclude the named plaintiff from representing a class largely made up of individuals that may have been subject to the arbitration agreement.
After separately excluding portions of the named plaintiff’s two expert opinions, the court also found that the plaintiff could not demonstrate injury on a class-wide basis, or that common issues predominated over individual issues.
The unique issues and defenses raised by plaintiffs who have opted out can defeat larger class actions and limit their representation to only those who are truly similarly situated (assuming such a smaller class would satisfy Rule 23’s requirement).
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
David Lender is co-chair of Weil’s global Litigation Department and a member of the Firm’s Management Committee. He is based in the firm’s New York office and has 25 years of experience trying and litigating complex international commercial disputes in state and federal courts around the country, as well as in arbitration proceedings.
Eric Hochstadt is a partner in Weil’s Litigation Department, based in the New York office. His practice focuses on civil antitrust, class action, and other complex and sports-related litigation, as well as criminal cartel investigations and antitrust counseling.
Luna Barrington is a senior associate in Weil’s Litigation Department, based in the New York office. She has represented clients in consumer class actions, privacy litigation, antitrust litigation, copyright litigation, commercial contract disputes and multi-district litigation.