In the first Wisconsin state case decided since the United States Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the District III Court of Appeals held that a binding arbitration provision that barred a Wisconsin consumer from pursuing a class-action lawsuit against a payday loan lender is enforceable. Under this ruling, Wisconsin consumers cannot challenge similar arbitration provisions – calling into question whether Concepcion and the cases following it will mark the beginning of the end for most consumer class actions in Wisconsin state courts.

In Cottonwood Financial Ltd. v. Estes (Cottonwood II), 2009AP760 (Dec. 20, 2011), a Wisconsin consumer took out numerous loans from a payday lender, Cottonwood Financial Ltd.  Each loan agreement had a provision governing potential disputes between the parties. With the exception of small claims matters, all such disputes were to be resolved through binding arbitration. 

When the consumer defaulted on the loans, Cottonwood sued her in small claims court to collect the debt. The matter was removed by the consumer to circuit court where she counterclaimed by arguing, among other things, that Cottonwood’s loan agreements violated the Wisconsin Consumer Act because the arbitration provisions barred her from pursuing a class action lawsuit against Cottonwood. Cottonwood moved to compel arbitration under the arbitration provision and the circuit court granted the motion. In so doing, the circuit court rejected the consumer’s argument that the arbitration provisions were unconscionable and unenforceable. The parties went through arbitration; the consumer lost, and ultimately appealed the arbitration award against her.

In the pre-Concepcion case of Cottonwood Financial Ltd. v. Estes (Cottonwood I), 784 N.W.2d 726 (Wis. Ct. App. 2010), the same appeals court reversed the arbitration award against the consumer and found Cottonwood’s arbitration provision was unconscionable because it barred the consumer from filing a class action.Concepcion was then decided and a majority of the U.S. Supreme Court (5-4) ruled that the Federal Arbitration Act preempts state laws – like the Wisconsin Consumer Act – that classify these arbitration provisions as unconscionable. After Concepcion, the Wisconsin Supreme Court vacated Cottonwood I and told the court of appeals to reconsider. In Cottonwood II, the appeals court found that, “[i]n light of Concepcion,” the class wide arbitration waiver at issue “is enforceable and is not substantively unconscionable.”

While it is true that many consumer claims arise from transactions that do not involve written agreements, and therefore would not be governed by Concepcion and now Cottonwood II, there can be no doubt that these decisions have made it more difficult for consumers to bring class actions in the state of Wisconsin.