AT&T Mobility LLC v. Concepcion
179 L. Ed. 2d 742, 2011 U.S. LEXIS 3367, 563 U.S. 333 (2011)
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Rule of Law:
The Federal Arbitration Act (FAA) preempts state laws that condition the enforceability of an arbitration agreement on the availability of class-wide arbitration procedures. Such laws stand as an obstacle to the accomplishment of the FAA's objectives to enforce arbitration agreements according to their terms.
Facts:
- In February 2002, Vincent and Liza Concepcion entered into a cellular telephone service contract with AT&T Mobility LLC.
- The contract contained a clause requiring that all disputes be resolved through arbitration and that claims be brought only in an individual capacity, not as part of a class action.
- The Concepcions received phones advertised as free but were charged $30.22 in sales tax based on the phones' retail value.
- The arbitration agreement provided that AT&T would pay all arbitration costs for non-frivolous claims and would pay a minimum of $7,500 and double the attorney's fees if the customer received an award greater than AT&T's last settlement offer.
Procedural Posture:
- Vincent and Liza Concepcion filed a complaint against AT&T in the U.S. District Court for the Southern District of California, which was consolidated with a putative class action.
- AT&T, the defendant, moved to compel arbitration on an individual basis.
- The District Court denied AT&T's motion, finding the class-action waiver in the arbitration clause unconscionable under California's 'Discover Bank' rule.
- AT&T, as the appellant, appealed the decision to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit, with the Concepcions as appellees, affirmed the District Court's ruling, holding that the state rule was not preempted by the FAA.
- The U.S. Supreme Court granted certiorari to review the Ninth Circuit's decision.
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Issue:
Does the Federal Arbitration Act (FAA) preempt a state law rule that classifies most collective-arbitration waivers in consumer contracts as unconscionable?
Opinions:
Majority - Justice Scalia
Yes, the Federal Arbitration Act preempts California's rule. State laws that stand as an obstacle to the purposes and objectives of the FAA are displaced. The principal purpose of the FAA is to ensure that private arbitration agreements are enforced according to their terms to facilitate streamlined proceedings. Requiring the availability of class-wide arbitration fundamentally changes the nature of arbitration by making it slower, more formal, and more costly, thus interfering with the fundamental attributes of arbitration that the FAA seeks to protect. The California rule, by invalidating agreements that disallow class-wide proceedings, is therefore inconsistent with and preempted by the FAA.
Dissenting - Justice Breyer
No, the Federal Arbitration Act does not preempt California's rule. The rule falls within the FAA's saving clause, which preserves generally applicable contract defenses like unconscionability. California's rule treats arbitration agreements the same as other contracts with class-action waivers, placing them on an 'equal footing' as intended by Congress. The majority incorrectly prioritizes the perceived efficiency of arbitration over the FAA's plain text, which allows states to refuse to enforce unconscionable contract terms. This decision will make it impossible for consumers to pursue small-dollar claims, effectively allowing companies to immunize themselves from liability for widespread, low-value wrongdoing.
Concurring - Justice Thomas
Yes, the rule is preempted. The FAA's saving clause, which permits invalidation on 'grounds as exist at law or in equity for the revocation of any contract,' should be interpreted textually to apply only to defenses concerning contract formation, such as fraud or duress. California's Discover Bank rule is based on public policy against exculpatory clauses, not on a defect in the making of the agreement. Therefore, it is not a ground for 'revocation' permitted by the FAA's saving clause. While I reluctantly join the majority's different reasoning to provide a clear precedent, this textual interpretation is the more sound basis for the decision.
Analysis:
This landmark decision significantly strengthened the preemptive power of the Federal Arbitration Act over state consumer protection laws. It effectively validated the use of class-action waiver clauses in arbitration agreements for consumer and employment contracts nationwide. The ruling makes it far more difficult for individuals to bring class-action lawsuits against companies if their contract includes such a waiver, forcing them into bilateral arbitration instead. This has had a profound impact on consumer and employment litigation, as many small-dollar claims are not economically viable to pursue on an individual basis, potentially shielding companies from liability for conduct affecting a large number of people.
