A US Case Note

In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state laws that condition the enforceability of arbitration agreements on the availability of class-wide arbitration.  The dispute at issue in Concepcion involved an arbitration agreement that disallowed class-wide procedures.  Id. at 1744-45.  One party to the agreement filed suit in federal district court; the other party sought to compel arbitration.  Id.  The district court denied the motion to compel because the arbitration provision was unconscionable under California law, as there was no indication that bilateral arbitration adequately substituted for class actions.  Id. at 1745.  The Ninth Circuit affirmed and held that California law was not preempted by the FAA because the rule “was simply ‘a refinement of the unconscionability analysis applicable to contracts generally in California.’”  Id. at 1745 (quoting Ninth Circuit).   The Supreme Court reversed.

The Court’s analysis focused on the liberal policy favoring arbitration.  Section 2 of the FAA provides that contracts to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  Id. at 1745 (quoting FAA § 2).  The plaintiffs argued that a ground “exist[ing] at law or in equity” in California prohibited the enforcement of the arbitration agreement because California law disallowed contracts with class-action waivers because they were unconscionable.  Id. at 1745-46.  The Court disagreed: “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates scheme inconsistent with the FAA.”  Id. at 1748.  The Court reasoned that, in this instance, the FAA should preempt California law because class procedures would increase the complexity of arbitration, which, in turn, would discourage arbitration in contravention of federal policy.  Id. at 1750-53.  Justices Breyer, Ginsburg, Sotomayor, and Kagan dissented because California law was not inconsistent with the FAA, and “the Court is wrong to hold that the federal Act pre-empts the rule of state law.”  Id. at 1756 (Breyer, J., dissenting).  The dissent also expressed concern regarding the Court’s refusal to treat arbitration contracts like other contracts, as the FAA required.  Id. at 1761-62.