AT&T Mobility v. Concepcion, No. 09-893, Argued
November 9, 2010 – Decided April 27, 2011.
Summary
On Wednesday April 27, 2011, the Supreme Court,
by a 5-4 decision, overturned California’s refusal to
enforce waivers of class action rights in consumer
arbitration agreements, holding that the Federal
Arbitration Act (“FAA”) preempted California’s
rule. The Court’s holding calls into question state
rules finding arbitration provisions unconscionable
based on the purported unfairness to claimants of
contractual arbitration procedures. The decision
further underscores the strong federal policy in favor
of arbitration agreements and indicates consumers
(and likely other groups) will be less able to avoid
contractual arbitration provisions resulting in the
survival of far fewer class actions.
Background of the Case
In AT&T Mobility, plaintiffs filed a putative class action
in the Southern District of California alleging false
advertising and fraud based on AT&T charging sales
tax on cellular telephones that were advertised as
“free.” After the suit had been filed, AT&T amended
the Wireless Services Agreement (“WSA”) it had with
customers to include a payment by AT&T of $7,500
should the customer prevail in an arbitration at an
amount greater that AT&T’s last written settlement
offer before the arbitration had commenced. After
this amendment, AT&T moved to compel the plaintiffs
to submit their claims to individual arbitration under
the revised WSA, which contained a waiver of rights to
proceed by class action.
Litigation Alert: U.S. Supreme Court Enforces Class
Action Waivers in Consumer Arbitration Agreements
Although noting the generally consumer-friendly
terms of the arbitration provision at issue, the
district court denied AT&T’s motion to compel
arbitration, citing Discover Bank v. Superior Court,
26 Cal.App. 4th 148 (2005). The so-called Discover
Bank rule had held that class action waivers
in most consumer arbitration agreements are
unconscionable (and therefore not preempted by the
FAA).
The Ninth Circuit affirmed the district court’s
opinion. Considering whether the FAA expressly
or impliedly preempts California’s Discover Bank
rule, the Ninth Circuit followed its prior decision
in Shroyer v. New Cingular Wireless Services, Inc.,
498 F.3d 976 (9th Cir. 2007). Shroyer held that
invalidating arbitration agreements banning class
actions would not contradict the FAA’s dual policies
of (1) reversing judicial hostility to arbitration
agreements by placing them on the same footing as
any other contract, and (2) promoting the efficient
and expeditious resolution of claims. The Ninth
Circuit also interpreted the holding in Discover Bank
to create a three-part test to determine whether
a class action waiver in a consumer contract is
unconscionable: (1) is the agreement a contract
of adhesion; (2) are disputes between the parties
likely to involve small amounts of damages; and (3)
is it alleged that the party with superior bargaining
power carried out a plan to deliberately “cheat
large numbers of consumers out of individually
small sums of money.” Id. at 983. While the Court
recognized that AT&T’s addition of the $7,500
premium payment in the revised WSA added a “new
April 28, 2011
laurence pulgram, marybeth milionis, guinevere jobson
litigation newsletter www.fenwick.com
