U.S. High Court Hears Arguments On Enforcing Arbitration Agreements

WASHINGTON, D.C. - An attorney representing AT&T Mobility LLC today presented arguments before the U.S. Supreme Court challenging an appeals court ruling that a class action waiver is unconscionable under the standard established in Discover Bank v. Superior Court (AT & T Mobility LLC v. Vincent Concepcion, et ux., No. No. 09-893, U.S. Sup.).

 "But - but I think, as I have discussed, the problem here it has the label 'unconscionability' on it, but the test that is applied has nothing to do with the test that is applied in every other context," Andrew J. Pincus of Mayer Brown in Washington, D.C., argued on behalf of AT&T.  "So it's an easy case to decide.  Going back to my statutory example, this is an unconscionability - this is a test that may have the label on it, but everything that the court looks at to find unconscionability or to find this impermissible are things that are not looked at in the other context.  And in the other context, indeed as the district court said, this contract is more than fair under our general unconscionability standard, because it - the people before the court are better off than they would be in a class action."

On March 27, 2006, Vincent and Liza Concepcion filed a class action lawsuit in federal court against AT&T, alleging that the company fraudulently charged sales tax on a cellular phone that had been advertised as "free."  U.S. Judge Dana M. Sabraw of the Southern District of California consolidated the Concepcions' case with a similar class action lawsuit filed by Jennifer L. Laster.

AT&T's wireless service contract contains an arbitration clause by which all disputes are required to be submitted to arbitration.  In addition, the contract contains a class action waiver clause that requires all disputes to be brought in an individual capacity.

The panel found that the class action waiver is unconscionable under the standard established in Discover Bank v. Superior Court (113 P.3d 1100 [Cal. 2005]).  The panel held that the suit involved "predictably small amounts of damages," allegations the defendant "carried out a scheme to deliberately cheat large numbers of consumers out of small sums of money" and a standardized contract that doesn't permit the consumer to negotiate the terms.

AT&T petitioned the high court.

On behalf of the respondents, Deepak Gupta of Public Citizen Litigation Group in Washington argued that "the Discover Bank application of State unconscionability law we believe is an ex ante analysis.  It looks at whether the contract is fair or exculpatory at the time that the contract is made; and indeed there is - the two arguments that Mr. Pincus made about California unconscionability law are somewhat at war with themselves.  He said that the - the doctrine looks to third parties and that that's illegitimate; and he said that the doctrine is ex post and that's illegitimate.  But in fact, from the perspective of a consumer that's entering into this contract, from the perspective of any AT&T consumer, they don't know whether they are going to be among the very few consumers who detect fraud, recognize a legal claim, or hire a lawyer to do so, and come forward and seek compensation.  And so the Concepcions are situated just like any other AT&T customer, and that is the point at which fairness is assessed."

"But one thing that is very clear, we think, is that it can't mean - 'any contract' can't mean any dispute resolution contract, because that is the gerrymandered category that most presents the risk of discrimination," Pincus said in his rebuttal.  "And if the Court holds that that category is impermissible to justify a rule, it deals with all of the hypotheticals that are being discussed because they are all jury waivers, discovery, evidence; those are all rules that, as the Court has propagated as hypotheticals, are rules that apply to all dispute resolution clauses, and they are focused on dispute resolution clauses.  So we think that disposes of the argument that Discover Bank can be applied, simply because it applies to litigation contracts and arbitration contracts."

[Editor's Note:  Full coverage will be in the Nov. 19 issue of Mealey's Litigation Report: Class Actions.  In the meantime, the oral arguments transcript is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #43-101119-001T.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Bajeerah LaCava at 215-9887731, or e-mail her at bajeerah.lacava@lexisnexis.com.