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Brushing aside an earlier Orange County court of appeal decision as “wrongly decided,” a Los Angeles appellate court ruled that federal law prevents states from revising arbitration contracts it deems unconscionable. The unanimous opinion, written by 2nd District Court of Appeal Justice Reuben Ortega, upholds credit card issuer Discover Bank’s right to prohibit class action claims in its pre-dispute arbitration contracts. In Discover Bank v. Boehr, B161305, the court held that the 1925 Federal Arbitration Act requires that valid arbitration contracts be upheld. “Where there is a valid arbitration agreement governed by the FAA, California’s public policy regarding class action waivers has been pre-empted by section 2 of the FAA,” Ortega wrote. The 25-page opinion is in direct conflict to a pair of related decisions, one published last week, by the 4th District Court of Appeal. In Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1100-1102 (Szetela) and Mandel v. Household Bank (Nevada) 03 C.D.O.S. 190, the court found that class action waivers in arbitration contracts were “unconscionable” under California law. But the 2nd District did not mince words in stating its disagreement with these decisions. “ Szetela erred in focusing on procedural unconscionability rather than on federal pre-emption,” Judge Ortega wrote. Brian Strange, a Los Angeles attorney who represented the plaintiffs in all of the cases, called Tuesday’s decision politically motivated. “It’s worth billions of dollars to the credit card industry,” Strange said, adding that he hasn’t decided whether to appeal the 2nd District decision. Rick Richmond and C. Robert Boldt, partners at Kirkland & Ellis who represented Discover, declined to comment.

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