Massachusetts Supreme Judicial Court Reverses Decades-Old Arbitration Prohibition

Over thirty years ago the Massachusetts Supreme Judicial Court (“SJC”) declared that the Massachusetts consumer protection act, Chapter 93A, prohibited compelling a consumer plaintiff to arbitrate a Chapter 93A claim. Hannon v. Original Gunite Aquatech Pools, Inc., 385 Mass. 813 (1982). At last presented with an opportunity to do so, the SJC, on August 12, brought Massachusetts jurisprudence in line with intervening United States Supreme Court case authority that makes abundantly clear that states may not single out arbitration agreements for unfavorable treatment. In McInnes v. LPL Financial, LLC, 2013 WL 4034378, the SJC confirmed that Hannon is no longer good law as to arbitration agreements governed by the Federal Arbitration Act (“FAA”).¹

Plaintiff Jane McInnes brought various sales practice related claims, including a Chapter 93A claim, in Superior Court against LPL Financial LLC and her LPL registered representative. Two Superior Court judges denied LPL’s motions to compel arbitration of Ms. McInnes’s claims. The first decision was based on Hannon; the second was based on what the court found to be material issues of fact as to the existence and enforceability of an arbitration agreement. The first decision also held that Ms. McGinnis’s claims other than those under Chapter 93A could not be compelled to arbitration because they were “inexorably [sic] intertwined” with her Chapter 93A claim.

The SJC held that the Chapter 93A provision it construed in Hannon to preclude a court from compelling arbitration of a consumer claim under Chapter 93A “could not apply to any arbitration agreement governed by the FAA” because it “would be in conflict with and displaced by the FAA.” 2013 WL 4034378, at *5. This conclusion is compelled by a line of Supreme Court cases holding that, “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747 (2011).

The SJC reserved for another day deciding whether arbitration of Chapter 93A consumer claims can be compelled in cases governed only by the Massachusetts Arbitration Act (cases where interstate commerce is not involved). 2013 WL 4034378, at *5 & n.9.

As to the second trial court decision, the one finding material issues of fact precluding decision of the motion to compel arbitration, the SJC noted that, if in fact there were material issues of fact that needed to be resolved to decide the motion, the trial court should have conducted an expedited evidentiary hearing. However, the SJC found that such a hearing was unnecessary—according to the SJC, the lower court should have allowed the motion to compel arbitration, based on the undisputed evidence before the judge. The court’s decision on this point rests largely on the facts that (1) the defendant registered representative submitted an affidavit setting forth the terms and circumstances of the parties’ arbitration agreements, and (2) “[t]he plaintiff’s complaint was not verified, and the plaintiff did not submit an affidavit in opposition to the motion [to compel arbitration] or any other evidence.” 2013 WL 4034378, at *6.

The SJC’s questions during oral argument of this case included some attention to the issue of whether the arbitration agreement before it was an unconscionable contract of adhesion. The court provided some guidance on this issue at the end of its opinion: “[T]he most that can be inferred from the complaint is that the arbitration provision was a contract of adhesion, but this alone is insufficient to render an arbitration agreement invalid. ‘[C]ontracts [of adhesion] are enforceable unless they are unconscionable, offend public policy, or are shown to be unfair in the particular circumstances.’” Id.² The court noted recent Supreme Court guidance on circumstances in which an adhesion contract to arbitrate might be unenforceable: “Certainly, an adhesion contract to arbitrate that contains a ‘prospective waiver of a party’s right to pursue statutory remedies’ could be unenforceable as unconscionable or against public policy . . . . And an adhesion contract that imposes ‘filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable’ may also be unenforceable.” 2013 WL 4034378, at *6, quoting American Express Co. v. Italian Colors Restaurant, ___ U.S. ___, 133 S. Ct. 2304, 2310-11 (2013).

Conclusion

The McInnes decision comes hard on the heels of the SJC’s recent decision in Feeney v. Dell Inc., 466 Mass. 1001, 2013 WL 3929051 (Aug. 1, 2103)(“Feeney III”). In Feeney III the SJC recognized that recent Supreme Court precedent invalidated the vindication of statutory rights ground for declining to enforce a class action waiver in an arbitration agreement. See Massachusetts Supreme Judicial Court Reconsiders, Reverses Course on Class Action Waivers in Arbitration Agreements (Aug. 5, 2013). The McInnes and Feeney III decisions should not be construed to reflect a newfound affection for compelled arbitration on the part of the SJC. Parties using arbitration agreements should be sure that the agreement does not purport to waive prospectively a party’s right to pursue statutory remedies, and that administrative and other fees imposed by the arbitral forum cannot be viewed as making access to arbitration impracticable for aggrieved parties.

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¹ The authors of this alert filed an amicus curiae brief in the McInnes appeal on behalf of the American Financial Services Association.

² Quoting Miller v. Cotter, 448 Mass. 671, 684 n.16 (2007).