Class Action Waivers After Concepcion: The Emergence Of A Circuit Split Over The Decision's Impact On Federal Claims Has Prompted A Return To The Supreme Court

A year-and-a-half ago, the United States Supreme Court handed down its ruling in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), which enforced a contractual waiver of class arbitration in an arbitration clause under the Federal Arbitration Act (FAA) in the face of an unconscionability challenge based on state law. Since then, the lower federal courts have digested the ruling's impact in several cases. The arbitration clause in Concepcion had several "consumer-friendly" provisions, prompting some commentators to question whether the Court's ruling was limited to clauses containing such provisions. The consensus in the lower courts is that the answer is no, at least with respect to claims under state law. However, a circuit split has emerged regarding the impact of Concepcion when the plaintiff's claim is based on federal statutory law, and the Supreme Court is poised to resolve this split.

The Supreme Court's Decision in Concepcion

In Concepcion, the plaintiffs brought claims under state law against AT&T, alleging that AT&T charged them sales tax for the purchase of phones that AT&T had advertised as free of charge. The contract that the Concepcions entered into with AT&T provided for arbitration of all disputes between the parties and required that all claims be brought in an "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." The arbitration clause included several consumer-friendly provisions, including provisions that required AT&T to pay for the costs of all non-frivolous claims that proceeded to arbitration and to pay a minimum amount of $7,500.00 plus twice the amount of the claimant's attorney's fees in the event that the claimant were to win an award larger than AT&T's final written settlement offer.

AT&T moved to compel arbitration, but the district court denied AT&T's motion, relying on the California Supreme Court's decision in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), to refuse to enforce the class arbitration waiver in the AT&T contract. The so-called Discover Bank rule invalidates such waivers in consumer contracts where the defendant is alleged to have cheated large numbers of consumers out of small amounts of money. The Ninth Circuit Court of Appeals affirmed.

The United States Supreme Court reversed, holding that the Discover Bank rule is pre-empted by the Federal Arbitration Act (FAA). The Supreme Court stated that the FAA requires courts to enforce agreements to arbitrate except where the agreement to arbitrate is subject to "generally applicable contract defenses, such as fraud, duress, or unconscionability." 131 S. Ct. at 1746. The Supreme Court noted that this exception was not intended "to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." Id. at 1748. The Supreme Court concluded that California's Discover Bank rule was such a rule because it sacrificed enforcement of individual arbitration for the sake of class procedures the Court deemed "inconsistent with the FAA." Id. Thus, the Court concluded, the Discover Bank rule is preempted by the FAA.

At the end of the opinion, the Supreme Court noted that the "dissent claims that class...