The U.S. Supreme Court has agreed to review a case that will decide whether the Federal Arbitration Act (FAA) preempts state court decisions holding that a class action waiver in a consumer arbitration agreement is unconscionable or otherwise violates state law.

In AT&T Mobility LLC v. Concepcion, No. 09-982 (cert. granted May 24, 2010), the U.S. Court of Appeals for the Ninth Circuit affirmed the district court's denial of AT&T’s motion to compel arbitration. The Ninth Circuit agreed with the district court's conclusion that AT&T's arbitration agreement was unconscionable under California law because it required customers to arbitrate small-dollar consumer claims on an individual basis. It also rejected AT&T's argument that California's unconscionability law was expressly or impliedly preempted by the FAA.

This action by the Supreme Court follows its ruling on April 27, 2010, in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 08-1198, that the FAA prohibits class procedures from being imposed on parties whose arbitration agreement is silent on that issue. (Click here to read our legal alert on the decision.) It also closely follows the Court’s May 3, 2010, order (No. 08-1473) granting certiorari in In re American Express Merchants Litigation, 554 F.3d 300 (2d. Cir. 2009), vacating the Second Circuit opinion, which invalidated a class action waiver under the federal antitrust laws, and remanding the case to the Second Circuit for reconsideration in light of Stolt-Nielsen.

Federal and state courts throughout the country are sharply divided with respect to the validity of class action waivers. (Click here to read our "Scorecard on where Federal and State Appellate Courts and Statutes Stand on Enforcing Class Action Waivers in Pre-Dispute Consumer Arbitration Agreements.") Notably, AT&T’s petition for certiorari quoted Ballard Spahr partners Alan S. Kaplinsky and Mark J. Levin on the importance of the issue involved:

"[T]here is broad agreement that 'the enforceability of an express class action waiver in a consumer arbitration agreement' is '[o]ne of the most important arbitration questions that has yet to be definitively resolved by the U.S. Supreme Court.' Alan S. Kaplinsky and Mark J. Levin, Consensus or Conflict? Most (But Not All) Courts Enforce Express Class Action Waivers in Consumer Arbitration Agreements, 60 BUS. LAW. 775, 775 (2005)."