Another Court Compelling Arbitration Based on AT&T Mobility; Extending the Supreme Court’s Analysis yet Further?

Another Court Compelling Arbitration Based on AT&T Mobility; Extending the Supreme Court’s Analysis yet Further?


By Louis M. Solomon


Kaltwasser v. AT&T Mobility LLC, Case No. C 07-00411 (N.D. Cal. Sept. 2011) [enhanced version available to subscribers], involves claims similar to those that the Supreme Court addressed in its significant decision of earlier this year, AT&T MobilityLLC (ATTM) v. Conception, 131 S.Ct. 1740 (2011) [enhanced version  / unenhanced version available from lexisONE Free Case Law], which we discussed in the context of our frequent discussion, crucial in the international litigation context, pitting freedom of contract against public policy principles.  The current District Court case also involved claims of false advertising, unfair competition, and other state law causes of action arising from AT&T's  "fewest dropped calls" promotion.  The contract at issue, like the one in addressed by the Supreme Court, was a "take-it-or-leave-it form contract[] requiring arbitration but that preclude[d] ATTM's customers from bringing any 'purported class or representative proceeding'".

The issues of note discussed by the District Court bear on international practice in the following ways:

First, the District Court followed Concepcion by finding that California law invalidating the no-class-action provision was preempted by federal law favoring arbitration of disputes.  In doing so, however, the Court stated that Concepcion did not leave room for a court to perform an "individualized case-by-case analysis of whether binding a particular plaintiff to bilateral arbitration would preclude that plaintiff from vindicating his rights".  Acknowledging that such an analysis may still be permitted when the underlying claim is based on federal law - though not explaining why the out might depend on what law provided the rule of decision - the Court flatly concluded that "Concepcion forecloses plaintiffs from objecting to class-action waivers in arbitration agreements on the basis of the potential cost of proving a claim exceed potential individual damages".   

Second, the District Court suggested that Concepcion effectively overruled or significantly narrowed the Supreme Court's decision in Green Tree Financial Corp Alabama v. Randolph, 531 U.S. 79 (2000) [enhanced version  / unenhanced version ], where in the context of a federal claim the Supreme Court stated that where "a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs".   The District Court noted that the Second Circuit in In re American Express Merchants' Litigation, No. 06-1871 (2d Cir. Aug. 1, 2011) [enhanced version  / unenhanced version ], had sua sponte issued an order staying the case while it considered the impact of Concepcion on its holding that, in the federal law context, Green Tree applied to invalidate a class-action waiver in an arbitration agreement.  See our discussion of American Express and of a subsequent Southern District of New York (Magistrate Judge) decision coming to the same conclusion, again in a case involving underlying federal rights.

Third, in finding that AT&T had not waived its right to seek arbitration, the District Court ruled that reliance on the pre-Concepcion rule (which would have rendered the arbitration clause unenforceable) was appropriate and precluded a finding of waiver.  The state of the law rendered any effort to arbitrate futile.  The District Court did not appear to require AT&T to make any showing that it in fact relied on its view of the pre-Concepcion law as a predicate to avoid a finding of waiver.

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