In Clark v. First Union Securities, Inc., ___ Cal.App.4th ___ (Aug. 10, 2007), the Court of Appeal (Second Appellate District, Division Three) interpreted the arbitration rules in the Code of Arbitration Procedure of the National Association of Securities Dealers ("NASD"). Those rules expressly make class action and representative claims inarbitrable:
Subdivision (d) of Rule 10301 is entitled “Class Action Claims.” It makes ineligible for arbitration class actions claims submitted as a class action and claims filed by members of a putative or certified class action “if the claim is encompassed by a putative or certified class action filed in federal or state court, or is ordered by a court to an arbitral forum . . . .” (Rule 10301(d)(1)(2).) A party or class member may be compelled to arbitrate if class certification is denied, the class is decertified, the party or class member is excluded from the class by the court or the party or class member elects “not to participate in the putative or certified class action, or, if applicable, has complied with any conditions for withdrawing from the class prescribed by the court.” (Rule 10301(d)(2)(3).)
Pursuant to Rule 10301(d)(2) the arbitration panel may decide if a dispute is “encompassed by a putative or certified class action.” However, “[e]ither party may elect instead to petition the court” to resolve such disputes. Any such petition to the court must be filed within ten business days of receipt of notice that the Director of Arbitration is referring the dispute to a panel of arbitrators.” This rule also prohibits submission of class claims to “an arbitral forum sponsored by a self-regulatory organization for classwide arbitration.”
Slip op. at 3-4 (emphasis in original). The plaintiff argued that the arbitration provisions were unconscionable, but the Court of Appeal did not need to reach that issue because it held, instead, that the arbitration rules, while banning classwide arbitrations, did not make the class and representative claims inarbitrable in any forum. Rather, they could be brought in state court. Slip op. at 18-21, passim. "Simply put, there was no agreement between the parties, nor an intent by the SEC through its Code, that putative and class claims would have no forum for resolution." Id. at 21. Notably, this case involved a pre-Prop. 64 UCL representative cause of action. See id. at 14 n.11.