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Pre-dispute arbitration contracts that bar class action claims are “unconscionable” under both California law and Nevada law, a California appellate court ruled Wednesday. The decision, in Mandel v. Household Bank (Nevada), C.D.O.S 190, is a blow to corporations, some of which have sought to shield themselves from class action suits by requiring customers to sign arbitration contracts that forbid joint claims. “Corporations can’t ban class actions,” said Los Angeles attorney Brian Strange, who represented the plaintiff. “If they want to have an arbitration agreement, that’s fine. But they can’t stop consumers from being able to file a class action if it’s appropriate.” The unanimous opinion, written by Justice William Rylaarsdam, is the second such ruling by California’s 4th District Court of Appeal. While the court deemed class action arbitration restrictions unconscionable in a 2002 opinion — in which Strange was also the plaintiffs’ attorney; Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1100-1102 — Wednesday’s opinion broadens it, by maintaining that the same analysis applies under Nevada law. The case involved a California woman suing her credit card issuer, the Household Bank (Nevada), National Association, as part of a multimillion-dollar class action. Under the terms of the credit card contract, any disputes were to be governed by Nevada law and subject to binding arbitration. The contract’s arbitration clause prohibited class action claims without the written consent of the plaintiff and defendant. Requiring the defendant’s consent is tantamount to a complete prohibition on class arbitration, the court held. “A party may not be forced to abide by contract terms that were obtained as a result of unfair bargaining power and are so one-sided and oppressive as to ‘shock the conscience,’” wrote Justice Rylaarsdam. And the fact that Nevada law governs the contract does not mean the contract can’t be judged unfair. According to Rylaarsdam, Nevada law mirrors California law in its analysis of unconscionability. “We assume the result in Szetela would be the same had Nevada law applied,” he wrote. While the court ruled that the provision prohibiting class actions must be removed from the contract, it found the overall arbitration contract still valid and enforceable.

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