Supreme Court decision
In the recent case of AT&T Mobility LLC v Concepcion,(1) the US Supreme Court decided that the Federal Arbitration Act preempted a California state law that prohibited most class arbitration waivers in consumer contracts.(2) Although AT&T Mobility concerned a US domestic arbitration, the decision is relevant for international arbitration practitioners because it reinforces the recent trend by US courts of enforcing arbitration agreements as they are written and limiting the bases upon which arbitration agreements may be invalidated.
The court in AT&T Mobility considered whether the Federal Arbitration Act prevents state laws from making the enforceability of certain arbitration agreements conditional upon the availability of class-wide arbitration procedures. In AT&T Mobility, mobile phone customers sued AT&T Mobility LLC in a US federal court for allegedly breaching AT&T's standard mobile phone customer contract. That contract included an arbitration clause that required customers to submit all disputes with AT&T to arbitration, but also precluded customers from asserting any collective or class action claims.(3)
Despite the arbitration clause and its prohibition against class action claims, certain aggrieved customers sued AT&T in federal court and sought to have a class of aggrieved customers certified. The courts accepted the customers' claims and permitted them to proceed against AT&T as a class.
Relying on the arbitration clause in the customers' contracts, AT&T moved to compel the class members to arbitrate their claims individually. A federal trial court denied AT&T's motion to compel on grounds that Californian law, which was the governing law of the contracts, forbids class-action waivers in consumer contract arbitration agreements.(4) AT&T appealed that decision to a federal appellate court which upheld the trial court's decision on the grounds that the arbitration agreement in AT&T's customer contract was unenforceable under Californian law.
AT&T then petitioned the US Supreme Court for review. Upon review, the Supreme Court reversed the decisions of the lower courts and effectively compelled the customers to arbitrate their claims individually.
In keeping with a recent series of pro-arbitration decisions, the Supreme Court held that class-action waiver clauses in arbitration agreements are enforceable because Section 2 of the Federal Arbitration Act makes all arbitration agreements "valid, irrevocable, and enforceable", unless general contract defences apply. The Supreme Court further concluded that while generally applicable contract defences, such as unconscionability, can be employed to invalidate an arbitration agreement, the act strongly favours enforcing arbitration agreements as they are written. Consequently, the Supreme Court appears to have reiterated in AT&T Mobility that parties which agree to arbitrate disputes will be held strictly to the benefit of their bargain.
AT&T Mobility is significant for international arbitration practitioners because it shows a continuing effort by the US Supreme Court to enforce the express terms of private arbitration agreements. Following the trend established by the Stolt-Nielsen, American Express and Rent-a-Center decisions, the Supreme Court has once again affirmed that parties can expect US courts to employ the Federal Arbitration Act to enforce arbitration agreements as they are written in the absence of exceptional circumstances.(5) International arbitration practitioners can therefore anticipate that international arbitration agreements subject to Chapter 2 of the act, which embodies the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), will be similarly enforced.
AT&T Mobility further solidifies the Supreme Court's trend towards strictly enforcing arbitration agreements in the absence of exceptional circumstances. Therefore, the decision reinforces the increasingly pro-arbitration position that US courts have adopted.
For further information on this topic please contact JP Duffy or Leon C Skornicki at DLA Piper by telephone (+1 212 335 4500) or by fax (+1 212 335 4501) or by email ([email protected] or [email protected]).
(1) US 131 S Ct 1740, 179 L Ed 2d 742 (2011)
(2) See AT&T Mobility LLC v Concepcion, US 131 S Ct 1740, 179 L Ed 2d 742 (2011)
(3) See id slip op, at 1 (citations omitted)
(4) Under California law, the so-called Discover Bank rule classified as unconscionable all waivers to class-wide proceedings that were: (i) made in consumer contracts of adhesion; (ii) for disputes involving small amounts of damages; and (iii) where there is an allegation that the waiver was meant to cheat the consumer from obtaining their money. See Discover Bank v Superior Court, 36 Cal 4th 148, 113 P 3d 1100 (Cal Sup Ct 2005) (announcing the common-law rule of Discover Bank).
(5) See Stolt Nielsen, 130 S Ct 1758 (2010), slip op, at 20; See Am Exp Co v Italian Colors Restaurant, 130 S Ct 2401 (2010); See Rent-A-Center, West Inc v Jackson, 561 US (2010). For a detailed discussion of Stolt-Nielsen, see James P Duffy IV & Ian Mahoney, Stolt-Nielsen v Animalfeeds International: Supreme Court raises the hurdle for class action arbitration, DLA Piper Class Action Arbitration Alert (3 May 2010). For a detailed discussion of Am Exp Co, see James P Duffy IV & Rana Bahri, US Court of Appeal refuses to enforce express class arbitration waiver provisions, DLA Piper International Arbitration Newsletter (15 June 2011). For a detailed discussion of Rent-A-Center, see James P Duffy IV, US Supreme Court decision confirms arbitrators' jurisdiction to decide questions of arbitrability, DLA Piper International Arbitration Newsletter (18 August 2010).