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By John E. Porter and Ronald M. Oster
In AT&T Mobility LLC v.
Concepcion (2011), a divided U.S. Supreme Court ruled that the FAA preempted
CA's Discover Bank rule, which held waivers of class arbitration in consumer
contracts unconscionable and unenforceable. The FAA prohibits states from
conditioning the enforceability of arbitration agreements on the availability
of classwide arbitration procedures. As a result, companies are likely to
perceive an advantage to class arbitration.
Introduction. On April 27, 2011, in AT&T Mobility LLC v.
Concepcion, 2011 U.S. LEXIS 3367 (Apr. 27, 2011) [an enhanced version of this opinion is available to lexis.com
subscribers / unenhanced version available from lexisONE Free Case Law],
a sharply divided U.S. Supreme Court ruled that the Federal Arbitration Act
(FAA) preempted California's judicially created Discover Bank rule,
which found waivers of class arbitration in most consumer contracts to be
unconscionable and therefore unenforceable. Specifically, the Supreme Court
held that the FAA prohibits states from conditioning the enforceability of
certain arbitration agreements on the availability of classwide arbitration
The AT&T Mobility decision was foreshadowed by the Supreme Court's
2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010
U.S. LEXIS 3672 (Apr. 27, 2011) [enhanced version / unenhanced version], in which the Court held that when an
arbitration agreement is silent on the question of whether class action
proceedings are authorized, the parties' consent to class arbitration may not
be inferred absent evidence of the parties' intent or a governing rule of law
authorizing that inference. Taken together, Stolt-Nielsen and AT&T
Mobility may lead to the effective demise of class arbitrations unless
those decisions are abrogated by federal legislation or subsequent Supreme
The AT&T Lawsuit. Vincent and Liza Concepcion (the
"Concepcions") purchased cellular phone service from AT&T
Mobility ("AT&T"), which advertised that it would provide a free
cellular phone to consumers who agreed to a two-year contract term. Although
AT&T did not charge the Concepcions for the cell phones, it did charge them
$32.22 in sales tax based on the phones' retail value. The Concepcions filed
suit against AT&T in the Southern District of California, alleging that the
practice of charging sales tax on a cell phone advertised as "free"
was fraudulent and constituted false advertising. Later, the district court
consolidated the Concepcion's action with a putative class action making the
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John Porter is a
partner with Paul, Hastings, Janofsky & Walker LLP in its Tokyo office. In
his 27 years of practice, Mr. Porter has specialized in representing Asian
companies in intellectual property, commercial, and technology-related
disputes. Mr. Porter graduated from Stanford Law School in 1983. Mr. Porter was
a member of the Stanford Law School Board of Visitors from 1990 to 1994 and
from 2003 to 2005. Since October 2007, Mr. Porter has served on the California
Judicial Council's Advisory Committee on Civil Jury Instructions.
Ronald Oster is a partner with Paul, Hastings, Janofsky & Walker LLP
in its Los Angeles office. He is a former Chair of the firm's Litigation
Department, and for over 30 years his practice has emphasized complex business
trials and appeals. He is a member of the LexisNexis California Advisory Board.
Mr. Oster graduated from Stanford Law School in 1973. He is married to Diana
Wheatley, Judge of the Los Angeles Superior Court.
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