Wednesday, April 27, 2011

Supremes Uphold Arbitral Class-Action Waivers

Wrong The U.S. Supreme Court today issued AT&T Mobility, LLC v. Concepcion, which upholds arbitral class-action waivers.  Scalia writes for the 5-4 majority, Thomas concurs, and Breyer writes for the dissent.  I believe the decision is exactly wrong.

The Concepcions purchased a cell-phone contract from AT&T.  The contract contained an arbitration provision requiring that claims be brought in the party's "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding."  The cell-phone contract came with a "free" phone, but AT&T nonetheless billed the Concepcions for $30.22 in tax for the retail value of the phone.  The Concepcions brought a class action.  AT&T moved to compel arbitration.  The district court denied the motion, and the 9th Circuit affirmed, both on the basis of the California Supreme Court's ruling in Discover Bank v. Superior Court that class-action waivers are unconscionable if, among other things, bilateral dispute resolution would not substitute for the deterrent effect of a class action.

Section 2 of the Federal Arbitration Act provides that arbitration agreements are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."  The Supreme Court has consistently, until today, interpreted this to mean that arbitration agreements must be treated the same as other contracts; if state law imposes a restriction on arbitration agreements but not on other contracts, that restriction is preempted by the FAA.

The Discover Bank rule would have been valid under that test, because the rule forbade unconscionable consumer class-action waivers not only in arbitration agreements, but in any agreements, whether the agreements contained an arbitration clause or not.  The majority, however, found that the Discover Bank rule has the effect of discouraging arbitration by increasing the complexity of the dispute-resolution process and thereby making arbitration less attractive to the AT&Ts of the world.  The problem with this argument, as the dissent points out, is that it is inconsistent with the text of the statute.  It is also boundaryless.  What happens when AT&T puts a provision in its arbitration agreement forbidding arbitral discovery?  A provision limiting remedies in employment cases to the lesser of actual damages or $500?  Striking these clauses would "discourage" arbitration by increasing the complexity of arbitration and making arbitration less attractive to BigBusiness.  Are we on the road to laissez-faire arbitration?

The majority also stated that "Requiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."  As the dissent correctly points out, however, there is nothing anywhere that says that proceeding as an individual is a "fundamental attribute of class actions."  The majority makes this up out of thin air.  Nor does the majority explain its assumption that the only possible alternative to individually arbitrated claims in this case was classwide arbitration.  A third -- and more just -- result would have been for the Court to strike the lopsided arbitration clause in its entirety and allow the case to be litigated as a consumer class action.

This case itself illustrates the unjustness of the rule adopted by the majority today.  No lawyer in his or her right mind is going to represent the Concepcions in an individual claim -- whether arbitrated or litigated -- for $30.22.  The Concepcions get redress from AT&T, if at all, only through a class proceeding.  The AT&Ts of the world know this, and will soon be falling over themselves drafting class-action-waiver arbitration clauses.  But these are not really "arbitration" clauses, because few of these claims will ever go to arbitration.  These clauses are more accurately described as "liability-waiver clauses", because they permit large companies to escape liability entirely.

The Court's willingness to pervert a plain-reading interpretation of the statute in order to buttress its strong policy preference for arbitration, at the expense of consumers (and employees) and for the profit of BigBusiness, is appalling.


Arbitration | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference Supremes Uphold Arbitral Class-Action Waivers:


Maybe this will be what finally prompts a legislative fix. Not this Congress, but I hope another one soon.

Posted by: Joseph Slater | Apr 27, 2011 12:09:15 PM

There should be some reasonable middle ground between the effects of this decision (which are bad, if statutorily justifiable under the FAA), and judicial activism which would largely provide for the enrichment of commercial class-action attorneys (not that I'm opposed to enriching attorneys generally).

The appropriate remedy here lies with Congress, not the courts.

Posted by: James Young | Apr 27, 2011 12:28:01 PM

I couldn't agree more with this analysis. The intellectual dishonesty of the Supreme Court in Citizens United, Ledbetter and now this, Concepcion, shows that Lady Justice is anything but blind in the US.

Posted by: Eugene Lee | Apr 27, 2011 7:44:23 PM

Post a comment