AT&T Mobility LLC v. Concepcion:
Class Arbitration Waiver Held Enforceable By Supreme Court
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A recent decision by the United States Supreme Court in AT&T Mobility LLC v. Concepcion et. al. 131 S. Ct. 140; 179 L.Ed. 2d 742; 2011 U.S. Lexis 3367 (April 27, 2011) upheld waiver of class arbitration in a cellular phone sale and servicing agreement. The issue before the Supreme Court was whether or not the California law holding some waivers of class arbitration unconscionable was preempted by the Federal Arbitration Act ("FAA").
The provision in the agreement provides that arbitration must be brought by parties in an "individual capacity, and not as a plaintiff or class member in any purposed class or representative proceeding." Id. at 1744. The provision further clarifies this waiver of class representation by stating that "the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of a representative or class proceeding." Id. at FN 2.
Under California law, as set forth in Discover Bank v. Superior Court, 36 Cal. 4th 148 (Cal. 2005), a class action waiver is unenforceable if it is: (A) found in a contract of adhesion; (B) involves small amount of damages; and (C) when it is alleged that a scheme existed to cheat a large number of consumers out of individually small sums of money. Id. at 162-163. The Ninth Circuit, in the case underlying Concepcion, upheld the Discovery Bank rule and held that the FAA does not preempt the rule.
The Supreme Court, in a 5-4 decision authored by Justice Scalia, overturned the Ninth Circuit and held that the FAA preempts the Discover Bank rule. The majority opinion in Concepcion reasoned that the Discover Bank rule "stands as an obstacle to the accomplishment and execution of the pull purposes and objectives of Congress." Concepcion, 131 S.Ct. at 1753. The primary purpose of the FAA, as stated by the majority, "is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings." Id. at 1748. Furthermore, the majority held that class arbitration, in so far as it may be forced to be allowed under the Discover Bank rule, interferes with fundamental attributes of arbitration. Id. at Syllabus (d). It "sacrifices arbitration's informality and makes the process slower, more costly, and more likely to generate procedural morass than final judgment[, and] greatly increases risks to defendants." Id.
The majority recognized that class waivers are subject to the FAA's savings clause, which requires a case-by-case analysis of the contract to determine if it is subject to void or voidable pursuant to "grounds as exist at law or in equity for the revocation of any contract." Id. at 1745. Therefore, while the Court ultimately leaves the question of enforceability of class action waivers in arbitrations provisions up to the states, it held that such state laws and procedures cannot interfere with the FAA's primary purpose of enforcement of arbitration provisions.
This decision will significantly limit the ability of consumers to group together to seek redress for damages where individual arbitration is not cost-effective. Accordingly, any contract containing a dispute resolution provision should be reviewed for any such class waivers. Furthermore, all businesses should evaluate whether or not a waiver of class arbitration should be contained within its agreements.
If you would like more information on integrating class action arbitration waivers in your documents, or if you would like a document reviewed for such waivers, please consult with your attorney.
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