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Bucking the trend of recent decisions both in Ohio and across the country, an Ohio Court of Appeals recently enforced a class action waiver in a consumer arbitration agreement. The decision has important implications for all lenders and other businesses that use arbitration agreements in consumer transactions.

Alexander v. Wells Fargo Financial Ohio 1, Inc. was a consumer class action seeking to recover the $250 statutory award provided by R.C. 5301.36 when a lender fails to release a residential mortgage within 90 days of payoff. The class representative, Alexander, had signed an arbitration agreement requiring arbitration before the American Arbitration Association. The arbitration agreement specifically provided that Alexander could not serve as a class representative in court, and that there would be no class action arbitration, effectively precluding the class action.

The trial court held that the waiver was enforceable and dismissed the class action. During its first review of the case, the Ohio Eighth Appellate District reversed, holding that the arbitration agreement did not apply to disputes involving statutory claims such as the damages award provided by R.C. 5301.36. The Ohio Supreme Court accepted jurisdiction over the case and reversed the Court of Appeals, holding that an agreement to arbitrate all disputes "arising out of" the loan contract included statutory claims. The Supreme Court then sent the case back to the Court of Appeals to decide the enforceability of the agreement, including the class action waiver.

On remand, the Court of Appeals found the class action waiver to be enforceable. The Court of Appeals first analyzed whether there were any procedural problems in obtaining Alexander's signature on the arbitration agreement. The Court of Appeals rejected the notion that the use of a standard form agreement was inherently problematic. The Court of Appeals also found that the agreement was freestanding, and that there was "a place at the bottom for the signature, and not simply the initials of the borrower. The clause printed is in normal size type, and the portion discussing the limitations of the borrower's rights pursuant to the clause are specifically listed directly above the signature line, in all upper case bold print type." The Court of Appeals also noted that there was no evidence showing that the consumer, as a result of age, lack of education or other circumstances, was forced to sign the arbitration agreement.

The Court of Appeals next reviewed the substantive provisions of the arbitration agreement. While the court noted that other Ohio courts of appeal had refused to enforce class action waivers, there were other aspects of the transactions in those cases that rendered the arbitration agreements either procedurally or substantively unfair. In Alexander, however, there were no other facets of substantive or procedural unconscionability. The Court of Appeals was unwilling to find that the class action waiver, by itself, rendered the agreement unenforceable.

Finally, the Court of Appeals considered the issue of whether public policy favors class action litigation over arbitration. The court found that there was no such public policy and ordered the case to proceed to arbitration, effectively ending the class action.

Federal and state courts across the country have split over whether class action waivers in arbitration agreements are enforceable. Alexandershows that, given the appropriate language and procedures for an arbitration agreement, Ohio courts will enforce the agreements, including the consumer's waiver of the right to serve as a named representative in a class action.

For More Information

Please contact Kip T. Bollin, Scott A. King, or Russell J. Rogers or any member of our Business Litigation or Product Liability Litigation practice groups for more information.

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