The men and women aboard Carnival Cruise Line’s Triumph finally disembarked last week after an engine fire left the ship and its occupants stranded at sea for five harrowing days. For their troubles, Carnival has offered each passenger a compensation package which includes a ticket refund, $500, a flight home and a voucher good for one luxury Carnival cruise.
For many of the ship’s 4,200 passengers, however, this package will be inadequate. As these passengers begin to contact attorneys throughout South Florida to assess whether they can seek additional compensation from Carnival, an apparent conflict between the U.S. Court of Appeals for the Eleventh Circuit and the U.S. Supreme Court on the issue of waivers of class status could determine the practicality of these customer’s claims.
South Florida is the international hub of luxury cruising and home to many of the world’s largest cruise lines. While maritime litigation neither starts nor stops with the Triumph, the potential problems faced by its passengers is illustrative of a challenge many maritime plaintiffs will face when seeking redress against cruise lines for monetarily low, ship-wide damages. Namely, how the combination of arbitration clauses and class-action waivers in passenger contracts may prevent plaintiffs from recovering against even the most negligent cruise lines.
Carnival, like many cruise lines operating out of South Florida, includes in its tickets provisions requiring passengers to both submit to binding arbitration for all non-personal injury claims, and to waive their right to class status. For passengers whose damages, though individually low, were experienced by thousands, the inability to bring suit as a member of a class may effectively bar recovery and shield cruise lines from liability.
As a general matter, the U.S. Supreme Court has upheld the enforceability of arbitration provisions and class action waivers, holding that the Federal Arbitration Act allows such agreements. For attorneys representing passengers, however, the operative question becomes whether state common-law grounds, such as unconscionability, may be used to invalidate a class waiver when enforcement would act to preclude low-damage claimants from remedy.
The Eleventh Circuit, in Pendergast v. Sprint Nextel Corp., has taken the position that all state grounds for invalidating a waiver of class status are pre-empted by the FAA, and that it is of no consequence whether the waiver’s provision would be deemed unconscionable under state law or if enforcement of the class waiver would leave a claimant without any means of recovery. Citing to the U.S. Supreme Court’s AT&T Mobility, LLC v. Concepcion, the circuit court held that the enforceability of a class waiver need not turn on whether such a provision is invalid under Florida law, "because, to the extent it [is], it would be preempted by the FAA."
Under a reading of the Eleventh Circuit’s Pendergast opinion, it would appear that class waivers of the type used by Carnival and other cruise lines are impenetrable against claims of unconscionability. A close reading of the Supreme Court’s Concepcion case, as well as its 2012 Marmet Health Care Center Inc. v. Brown opinion, suggests otherwise.
In Concepcion, the Supreme Court enforced a class waiver, holding that the "Discover Bank rule," a California state law that nullified class waiver provisions in adhesive consumer contracts, was pre-empted by the FAA and contrary to the FAA’s goals of streamlining the dispute resolution process.
The Concepcion court did not, however, hold all state contractual defenses pre-empted by the FAA. In its opinion, in fact, the court went out of its way to detail how the provision in dispute contained protections that ensured consumers could obtain a meaningful recovery as an individualized claimant. This suggests that whether a class waiver is enforceable or not under state law requires an individualized determination and that a provision that practically bars recovery may not be upheld in the same manner as the Concepcion provision.
Such a reading of Concepcion is consistent with the language of the FAA, which states that arbitration provisions "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."
The Supreme Court seems to have also endorsed this interpretation in Mermet Health, in which the court gave remand directions to the West Virginia Supreme Court to consider whether certain arbitration clauses were "unenforceable under state common law principles that are not specific to arbitration and preempted by the F.A.A."
The Eleventh Circuit appears to be at odds with the U.S. Supreme Court on this matter. Therefore, it seems likely that the Eleventh Circuit will need to be reversed or will need to reverse its decision in Pendergast and will adopt a ruling in line with the Supreme Court’s Marmet Health opinion. This would leave open the possibility that low-damage claimants could invalidate their class waivers when, under state law, the class waiver would unconscionably bar recovery, allowing them to seek redress for their damages as a class member.