In Puleo v Chase Bank USA NA, (3d Cir. May 10, 2010), the plaintiffs brought a class action suit challenging retroactive interest-rate increases to the account balances of their Chase Bank credit cards. The member agreement governing their cards contained an arbitration agreement expressly barring class actions, but the plaintiffs argued that the bar was unconscionable. When Chase moved to compel arbitration, the plaintiffs urged the district court to order the parties to arbitrate their class claims in order for the arbitrator to determine whether or not class action waiver was unconscionable.

The district court rejected the plaintiffs' arguments, concluding that whether the class action waiver was unconscionable was a question of arbitrability for the court to decide, and that in this case it was not unconscionable.

The Third Circuit held that the district court properly exercised its responsibility to decide issues of arbitrability and affirmed the decision. The Court explained that although arbitration is generally favored under US law as a way to lighten judicial case loads and promote efficiency, the arbitrability question is a matter for judges to decide unless the parties expressly stipulate otherwise. Once the court determines the arbitrability question, all other matters are determined by the arbitrator.

A four-judge dissent argued that this case did not raise an arbitrability question because the plaintiffs agreed to arbitrate. The dissent pointed out that this case varied from the usual situation in which a plaintiff raises an unconscionability argument in order to invalidate the arbitration agreement as a whole. The dissent contended that the case should be decided according to the parties' expectations and intentions under the Supreme Court's recent holding in Stolt-Nielsen SA, et al. v AnimalFeeds Int'l Corp., (Apr. 27, 2010).

This decision is a victory for companies that use arbitration clauses to control litigation costs. However, if Congress goes forward and creates a new consumer financial protection regulatory agency that will have the power to impose conditions or limitations on the use of arbitration agreements in the financial services industry, as is being discussed, arbitration in the financial services industry could become less common and the impact of this decision would be muted.