Ninth Circuit Holds FAA Preempts Montana's Public Policy Against Enforcing Contracts of Adhesion

Arbitration U.S. Supreme Court Privacy/Cyber Risk & Data Security

On July 15, the U.S. Court of Appeals for the Ninth Circuit held that the Federal Arbitration Act (FAA) preempts Montana’s public policy invalidating adhesive agreements running contrary to the reasonable expectations of a party. Mortensen v. Bresnan Comms. LLC, No. 11-35823, 2013 WL 3491415 (9th Cir. Jul. 15, 2013). In this case, the plaintiffs filed a putative class action against an internet service provider (ISP) that participated in a trial program in which the ISP’s customer’s personal information allegedly was passed on to an advertising company in violation of the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, and state privacy and property laws. The ISP moved to compel arbitration, arguing that the welcome kit’s its service technicians delivered included mandatory arbitration provisions that required application of New York law to any disputes. The court vacated a trial court’s order declining to enforce arbitration, holding that AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), requires that the FAA preempt Montana’s reasonable expectations/fundamental rights rule, despite the state’s interest in protecting its consumers from unfair agreements, because that rule has a disproportionate impact on arbitration agreements. As a result, the court also held that the district court erred in not applying New York law because a state’s preempted public policy was an impermissible basis on which to reject the parties’ choice-of-law selection. The court vacated the district court’s order declining to enforce the arbitration clause and choice-of-law clause and remanded with instructions to apply New York law to the arbitration agreement.