On March 24, 2008, the San Francisco City Attorney, on behalf of the people of the State of California, brought suit against the National Arbitration Forum (“NAF”), FIA Card Services (“FIA”) and Columbia Credit Services (“Columbia”), alleging that the NAF acted in a biased, unfair and non-neutral manner in overwhelmingly favoring debt collectors in arbitration proceedings. The City Attorney alleged that FIA and Columbia participated by colluding with the NAF to reach favorable decisions. The causes of action include unfair and deceptive acts and practices, misleading and false advertising and violations of the California Arbitration Act, Rosenthal Act, and Judicial Council’s Ethics Standards for Neutral Arbitrators.

    The City Attorney’s complaint cites the NAF’s own statistics to show that, in NAF arbitrations involving claims by business entities against consumers that were disposed of by hearing in California, the NAF arbitrator decided in favor of the business entity and against the consumer 100% of the time. The suit also alleged that, to ensure favorable arbitration results, the NAF ceased using arbitrators who decided in favor of consumers. NAF also allegedly furthered the interest of its debt collector clients by unlawfully allowing inflated awards in their favor, such as by awarding attorneys’ fees not actually incurred and arbitration costs and fees that could not be legally shifted to consumers under California law.

    With regard to FIA and Columbia, the complaint alleged that these entities participated in and benefitted from NAF’s conduct in forcing consumers into NAF arbitration when they knew it to be biased in their favor. FIA and Columbia also allegedly failed to serve consumers with a notice of arbitration at their known addresses and sought to obtain and collect arbitration awards to which they were not entitled, which often included inflated attorneys fees and stale debts long past the statute of limitations period.

    Bank of America, which acquired FIA in 2006, contends that the lawsuit is barred by federal law, as the Office of the Comptroller of the Currency is assigned with exclusive authority to enforce federal and state laws against national banks. See FIA’s Response to Order to Show Cause re: Preliminary Injunction (filed Apr. 7, 2008). The court will need to decide whether the Supreme Court’s holding in Watters v. Wachovia, 127 S.Ct. 1559 (2007), would extend preemption to the state laws under which the claims are brought in this suit, or whether these state laws are of such general application and are not in conflict with the National Bank Act so as to permit this suit to proceed.

    Michael Tomkies