Skip to Content

Class Arbitration Waivers Upheld; Science Article Shielded From Liability

July 8, 2013 in  News

New York Law Journal

In my June 17 column1, I reported on the U.S. Supreme Court’s June 10 decision in Oxford Health Plans v. Sutter,2 upholding an arbitrator’s decision to allow class arbitration, but only because the parties there agreed that the arbitrator should decide whether their contract authorized class arbitration. The defendant’s decision to challenge “arbitrability” of the issue in court came too late. Thus, even though the underlying agreement was “silent” on whether the parties had intended to permit class arbitration, the arbitrator’s construction “holds, however good, bad or ugly.”

Since contracts that are “silent” regarding class arbitration have a measure of frailty in this regard—indeed, the court in Oxford said in footnote 2: “this Court has not yet decided whether the availability of class arbitration is a question of arbitrability”—my column advised those firms electing to arbitrate disputes to incorporate “class action waivers” in their contractual arbitration clauses. Such waivers were upheld by the U.S. Supreme Court in the Concepcion decision in 2011,3 a ruling this column has analyzed extensively.4

Despite a post-Concepcion trend to uphold class waivers, some courts spurn the ruling. A recent example is the Massachusetts Supreme Judicial Court’s lengthy decision issued on June 12 holding a class action waiver provision in an arbitration clause unenforceable in a claim based on that state’s consumer fraud statute. The case, called Feeney v. Dell,5 involved plaintiffs who complained of being charged sales tax on their purchase of optional service contracts on computers they bought. They declared the arbitration class waiver provision in their contracts to be “unconscionable” and, thus, unenforceable.

Following protracted litigation, the Massachusetts court ruled that, where a court determines that class proceedings are the only way for a consumer plaintiff to bring a claim against a defendant, as may be the case when claims are complex, the damages small, and the arbitration agreement “does not feature the safeguards found in the Concepcion agreement, a court may still invalidate a class waiver.” In such circumstances, the class waiver may be declared invalid “not because the clause violates a public policy favoring class actions…but because it violates the public policy against agreements that immunize business defendants from private civil liability for consumer injuries.”6

As the saying goes, however, sometimes timing is everything. On June 20, just eight days after the Massachusetts Feeney ruling, the U.S. Supreme Court issued its blockbuster decision in American Express v. Italian Colors Restaurant,7 holding that the Federal Arbitration Act (FAA) does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. The Amex decision, as it is popularly called, involved federal antitrust class action claims by merchants alleging Amex violated the Sherman and the Clayton Acts by forcing merchants to accept its credit cards at rates some 30 percent higher than fees for competing credit cards. Amex fought the court class action proceedings by moving to compel individual arbitration in accordance with the class waiver provision.

‘Concepcion’ Confirmed

In resisting Amex’s motion, the plaintiffs submitted an economist’s declaration that estimated the costs of an expert’s analysis needed to prove the individual antitrust claims would be at least several hundred thousand dollars, and “might exceed $1 million.” Compared to the individual plaintiff’s maximum antitrust recovery of some $12,850 (or $38,549 when trebled), such costs were deemed “prohibitive.” The district court, nonetheless, granted the defense motion to compel individual arbitration, but the Second Circuit reversed holding that the class waiver was unenforceable since Concepcion involved FAA preemption of a state statute. In Amex, however, the federal statutes were not intended to be preempted. A petition for rehearing en banc was denied with five judges dissenting.

The Supreme Court’s 5-4 decision in Amex is emphatic confirmation of Concepcion’s strength. The court held that the FAA does not permit courts to invalidate a contractual class action waiver on the ground that a plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. The expense of litigation is not a determinative factor: “[T]he antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”8 Here the plaintiffs further argued that “effective vindication” of their statutory rights was prevented and, therefore, this should be a “public policy” exception to upholding the class action waiver.

The court rejected this approach. There is no blockage of “effective vindication” of statutory rights since the class action waiver “merely limits arbitration to the two contracting parties.”9 The fact that “it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

Justice Antonin Scalia, writing for the five-justice majority, confirmed the vitality of Concepcion pithily: “Truth to tell, our decision in AT&T Mobility all but resolves this case. There we invalidated a law conditioning enforcement of arbitration on the availability of class procedure because that law ‘interfere[d] with fundamental attributes of arbitration.'” Class arbitration “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” And, in its footnote 5, the court reminds us that “the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low-value claims.”

The approach accepted by the circuit court would require—before a plaintiff can be held to contractually agreed bilateral arbitration—that a federal court determine (and the parties litigate) the legal requirements for success on the merits “claim-by-claim and theory-by-theory, the evidence necessary to meet those requirements, the cost of developing that evidence, and the damages that would be recovered in the event of success.” Such a “preliminary litigation hurdle” would undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure. “The FAA does not sanction such a judicially created superstructure.” Given the “one-two punch” of Concepcion and, now, Amex, the Massachusetts decision in Feeney issued only eight days before Amex seems severely weakened, if not doomed.

Scientific Articles

On June 26, the U.S. Court of Appeals for the Second Circuit decided ONY v. Cornerstone Therapeutics,10 answering the question “when a statement in a scientific article reporting research results can give rise to claims of false advertising under the Lanham Act, deceptive practices under New York General Business Law §349, and the common-law torts of injurious falsehood and interference with prospective economic advantage.” Writings can have explosive impact today because of the Internet. Particularly where commercial or business-oriented speech is involved, certain anti-injury norms of reasonable behavior are expected. So, for example, knowingly false, deceptive or fraudulent statements that cause loss can be actionable. The First Amendment is not a free pass to commit torts despite a public policy generally favoring freedom of expression.

The ONY case, however, presented issues not so clear-cut. The offending writing was a scientific article alleged by plaintiff to contain falsehoods and distortions. The facts, in a nutshell, were as follows: Plaintiff ONY produces “surfactants,” biological substances that line the surface of human lungs, that are critical to lung function and that are crucial to prematurely born infants who often produce inadequate surfactant levels. Infants with the deficiency are at a higher risk for lung collapse and Respiratory Distress Syndrome (RDS). ONY produces its surfactant product, called “Infasurf,” from bovine lung surfactant. Defendant Chiesi, an Italian pharmaceutical firm, is a competitor producing a product called “Curosurf” made from porcine lung mince. Both products are FDA-approved. Defendant Cornerstone is Chiesi’s distributor and marketer in the United States.

The parties vigorously contest the relative effectiveness of their products “in the marketplace, in the scientific literature, and in the instant lawsuit.” The parties agree, however, that two variables are particularly relevant to the comparison: mortality rate and length of stay. Mortality rate refers to the percentage of infants treated with a particular surfactant who does not survive. Length of stay refers to the amount of time an infant remains in the hospital for treatment. These variables can be interdependent. Thus, in some cases length of stay is shortened by death, which is reflected in the mortality rate. Some of the same causes of increased mortality rate (low birth weight, shorter gestational period) also cause shorter lengths of stay. Conversely, infants with shorter hospitalization might have had less serious conditions from the beginning, independent of treatment variables. Thus, a particularly effective surfactant may both reduce mortality and shorten length of stay.11

In 2006 defendant Chiesi, seeking to promote and sell Curosurf, hired a firm to create a database and conduct a study; and hired some doctors (the physician defendants) to present findings from the database at a number of medical conferences. The latter published some of the same findings in an article in the leading, peer-reviewed Journal of Perinatology in 2011. ONY claimed that the article contained five distinct incorrect statements of fact regarding the relative effectiveness of the competing surfactant products. Thus, for example, the article said that ONY’s Infasurf “was associated with a 49.6% greater likelihood of death than” Curosurf. Further, the Curosurf treatment for RDS was associated with a “significantly reduced likelihood of death when compared with” Infasurf, and so on. The article concluded that the study found “lower mortality” among Curosurf-treated infants compared with Infasurf and another product, “even after adjusting for patient characteristics” such as gestational age and birth weight, and after accounting for hospital characteristics.

Plaintiff also criticized the “unusual” circumstances surrounding the peer review and publication in the prestigious journal. Thus, two of the defendant physicians hired by Chiesi were, respectively, an associate editor and a member of the journal’s editorial board. Plaintiff alleged that one of the two peer reviewers actually objected to the article. The editor-in-chief then broke the tie. The article was published in “open access” format, allowing it to be viewed electronically by the general public without paying a fee or ordering a subscription. Chiesi and its U.S. distributor Cornerstone paid the fees associated with such publication. After the article was published, the two firms issued a press release touting the study’s conclusions and distributed promotional materials citing the article’s findings.

Methodology Questioned

Plaintiff’s primary objection to the article’s methodology was that the authors omitted any length-of-stay data, despite presentation of that data at the earlier medical conferences. This was intentional, claimed ONY. Had it been included, it would be obvious to readers that the differences in results were attributable to “differences in the groups of patients treated, not of any differences in the effect of the particular lung surfactant administered.” Plaintiff also objected to the authors’ failure to cite articles with “different primary conclusions, although such contradictory authority was known to them” and to the use of retrospective data they subjected to “selective distortion.”

Defendants filed a motion to dismiss which the district court granted. The Second Circuit affirmed. While the Lanham Act generally prohibits false advertising, courts have been “especially careful” when it comes to applying causes of action to academic works because academic freedom is “a special concern of the First Amendment.” Generally, statements of “pure opinion”—that is, statements incapable of being proven false—are protected. “But the line between fact and opinion is not always a clear one.” To illustrate, the court cited a U.S. Supreme Court decision called Milkovich12 where the court showed that a statement of fact could be phrased as a statement of opinion. Thus, stating that “in my opinion, John Jones is a liar” is no different from merely asserting that John Jones is a liar.13

In this case, plaintiff claimed that the article made statements about scientific findings that were intentionally deceptive and misleading, thereby constituting false advertising. Such statements can be defamatory or false if known to be false when made. ONY argued that they were not mere statements of opinion as the district court had concluded. The circuit court observed that “scientific academic discourse” poses problems for the fact-opinion paradigm of First Amendment jurisprudence. Science does indeed engage in empirically verifiable facts. At the same time, however, conclusions of empirical research are tentative and subject to revision. Such conclusions are presented in publications directed to the scientific community. Others in the field can respond by replicating the experiments, conducting their own experiments or analyzing or refuting the soundness or validity of the published work product. Indeed, there may be controversy and rigorous debate by qualified experts. Courts are “ill-equipped to undertake to referee such controversies.” Here the contents of the article were considered to be non-actionable scientific conclusions.

In general, the battle between scientific inferences and conclusions to be drawn from verifiable data that withstand falsifiability challenges belongs to science and science journals. Nevertheless, that battle inevitably creeps into the courtroom (for example, in drug, toxic tort and product liability litigation) when expert witnesses spar over scientific data, findings, and conclusions presented in articles they only read but never researched or wrote. I commented on that phenomenon as well as recognized weaknesses in peer review procedures in a number of my articles dealing with a trend toward “trial by literature.”14 The facts in ONY regarding the publication of the article and arguable criticism of its scientific conclusions again remind us to be alert when experts rely heavily on science articles written by others.

Michael Hoenig is a member of Herzfeld & Rubin.


  1.  Hoenig, “U.S. Supreme Court Issues Incomplete Clarification on Class Arbitration,” New York Law Journal, June 17, 2013, p. 3.
  2.  No. 12-—135, 2013 U.S. LEXIS 4358 (U.S. Sup. Ct. June 10, 2013).
  3.  AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).
  4.  See Hoenig, “Developments Regarding Arbitration and Class Action Waivers,” NYLJ, Feb. 11, 2013, p. 3; “Arbitration Clauses Displace Consumer and Class Lawsuits,” NYLJ, April 9, 2012, p. 3.
  5.  2013 Mass. LEXIS 462 (Sup. Jud. Ct. June 12, 2013).
  6.  Feeney v. Dell, 2013 Mass. LEXIS 462, at *62—*63.
  7.  No. 12—133, 2013 U.S. LEXIS 4700 (U.S. Sup. Ct. June 20, 2013).
  8.  Amex, Id., LEXIS at *8—*9.
  9.  Amex, Id., LEXIS at *13. The class waiver is distinguishable from provisions such as “a provision in the arbitration agreement forbidding the assertion of certain statutory rights.” Similarly, were “filing and administrative fees attached to arbitration…so high as to make access to the forum impracticable,” that perhaps could create an “effective vindication” exception. Id.
  10.  2013 U.S. App. LEXIS 13067 (2d Cir. June 26, 2013). A front page story on the ONY decision is found in the NYLJ, July 1, 2013.
  11.  ONY, Id., LEXIS at *4—*5.
  12.  Milkovich v. Lorain Journal, 497 U.S. 1, 19—20 (1990).
  13.  ONY, LEXIS at *13.
  14.  Hoenig, “Testifying Experts and Scientific Articles: Reliability Concerns,” NYLJ, Sept. 16, 2011, p. 3; “Gatekeeping of Experts and Unreliable Literature,” NYLJ, Sept. 12, 2005, p. 3; “Questions About Experts and ‘Reliable’ Hearsay,” NYLJ, July 8, 2002, p. 3.