The Supreme Court's Decision on Unconscionability, the Purpose of the Federal Arbitration Act, and Banning Class Arbitration: Dr. John E. Murray, Jr. on AT&T Mobility LLC v. Concepcion

Under Federal Arbitration Act § 2, an arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." California law set forth certain circumstances in which "class action waivers" in any contract were unenforceable. In a 5-4 decision, the Supreme Court held that the FAA preempts California law.

Excerpt:

Numerous cases have dealt with the enforceability of a prohibition of class actions in an arbitration agreement. A claim that a bar to class arbitration is irreconcilable with a statute requires a determination of whether individual arbitration will provide a fair and adequate mechanism for enforcing statutory rights. (See Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) [an enhanced version of this opinion is available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], recognizing that four other circuits found such arbitration agreements reconcilable with the goals of the Truth-in-Lending Act and the Electronic Funds Transfer Act, but distinguished those cases from reconcilability with antitrust statutes). Prohibition of class arbitrations has also been challenged on the ground of unconscionability under state law. While the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) (lexis.com subscribers) strongly supports the validity and enforceability of arbitration agreements as written, a savings clause of § 2 permits such challenges: "save upon such grounds as exist at law or equity for the revocation of any contract."

Where an arbitration provision was silent concerning class arbitration, the United States Supreme Court held that arbitration was a matter of contract and an arbitration panel's decision to permit class arbitration violated the terms of the arbitration agreement. Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010) [enhanced version / unenhanced version]. While Stolt-Nielsen held that a party cannot be forced to engage in class arbitration unless it has agreed to do so, the Court did not hold that a clause barring class arbitration is enforceable per se. National Supermarkets Assn. v. Am. Exp. Travel Related Servs. Co., 634 F.3d 187, 193 (2d Cir. 2011) [enhanced version / unenhanced version]. A case approaching that issue, however, was already in process.

 Procedural History

AT&T Mobility LLC v. Concepcion, 2011 U.S. LEXIS 3367 [enhanced version / unenhanced version], involved a cellular telephone contract between AT&T and the Concepcions. The contract allowed customers to initiate dispute proceedings by filing a one-page form that would activate AT&T's right to offer a settlement. Absent such an offer, or, if no settlement was reached within 30 days, the customer could initiate arbitration in the county of the customer. AT&T would pay all costs for nonfrivolous claims. For claims under $10,000, the customer could choose arbitration in person, by telephone, or by submissions. The arbitration award could provide any form of relief, including injunctions and punitive damages. Either party could proceed in a small claims court in lieu of arbitration. If a customer received an arbitration award greater than AT&T's offer of settlement, AT&T was required to pay a minimum $7,500 recovery and twice the amount of the claimant's attorney's fees. Under no circumstances was AT&T entitled to reimbursement for attorney's fees. Arbitration, however, was limited to claims brought by parties in their individual capacities and not as a class member in any purported class or representative proceeding.

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