Life After Concepcion: Two Courts Reach Different Results

What is one to make of the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, – U.S. – ,131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), and what are courts taking from that decision in making subsequent rulings? Two cases decided after remand by the Supreme Court following Concepcion come out in opposite directions, and leave companies that want their waiver-of-class-arbitration clauses to come within Concepcion and not fall outside its protection without predictability as to the enforceability of those clauses.

Concepcion held that § 2 of the Federal Arbitration Act requires enforcement of an arbitration agreement "save upon such grounds as exist at law or in equity for the revocation of any contract," and does not "preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." 131 S.Ct. 1748. The Concepcions had purchased AT&T cell phone service that was advertised to include free phones. Upon being charged sales tax on the phones, they commenced a putative class action against AT&T. Id.at 1744. AT&T then moved to compel arbitration under the customer agreement, which "provided for arbitration of all disputes between the parties, but required that claims be brought in the parties' individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." Id.

The district court specifically found that the arbitration agreement "was 'quick, easy to use' and likely to 'promp[t] full or . . . even excess payment to the customer without the need to arbitrate or litigate.'" Id. at 1745. The district court also found that the provision of $7,500 premium in the event the consumer was awarded more than AT&T's final written settlement offer served as "substantial inducement" for the consumer to pursue individual as opposed to class-wide arbitration. Id.

Nonetheless, the district court ruled that the outcome was governed by the California Supreme Court's decision in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), which held that class arbitration waivers in consumer adhesion contracts were unconscionable and contrary to public policy when the "disputes between the contracting parties involved small amounts of damages, and when it is alleged that the party with the superior bargaining power has . . . deliberately cheat[ed] large numbers of consumers out of individually small sums of money." 30 Cal.Rptr. 3d at 87, 113 P.3d at 1110. The Ninth Circuit affirmed, holding that the Discover Bank rule was not preempted by the FAA because it was simply "a refinement of the unconscionability analysis applicable to contracts generally." Concepcion, 131 S.Ct. at 1745.

The Supreme Court held otherwise, ruling that "[r]equiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA." Id. at 1748. The Supreme Court continued that requiring class actions to be available was inconsistent with the principal purpose of the FAA, namely to ensure that private arbitration agreements are enforced "according to their terms." Id. It further held that state rules that required the availability of class-wide arbitration were inconsistent with the FAA's objective of "affording parties discretion" in designing arbitration processes to allow for efficient, streamlined, tailored...