Employment, Consumer Class Actions Endangered by Supreme Court

The US Supreme Court’s April 27, 2011 decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. _ is just the latest in a disturbing slide of the high court away from individual rights and liberties towards ever increasing corporate impunity.
With its Concepcion decision, the Court further rolls back one of the lasting achievements of the civil rights and environmental movements, class actions.

Class arbitration waivers are at the heart of the US Supreme Court’s decision in Concepcion. At issue in the case was a rule,
established by the California Supreme Court in a 2005 opinion, Discover Bank v. Superior Court (2005) 36 Cal.4th 148, that class arbitration waivers in mandatory pre-dispute arbitration agreements are per se unconscionable,
meaning that even if someone signed such an agreement, a court would not enforce it.

The plaintiffs in Concepcion had been charged $30.22 in sales tax after being provided a supposedly free phone from AT&T. They filed a class action against AT&T for false advertising and fraud by charging sales tax on phones it advertised as free.

AT&T sought to move the class action into arbitration on the basis of a mandatory pre-dispute arbitration agreement requiring that claims be brought in the parties’ individual capacities, prohibiting class proceedings. Both the trial court and the Ninth Circuit held that, based on the California Supreme Court’s Discover Bank decision, the arbitration agreement was unconscionable, meaning that they would not enforce it, allowing the class action to proceed through the court system.

In its opinion, authored by Justice Scalia, the Supreme Court overturned the lower courts’ decisions.  The Court held that California’s Discover Bank rule refusing to enforce class arbitration waivers in mandatory pre-dispute arbitration agreements was preempted by the Federal Arbitration Act.

States can still hold class waivers in arbitration agreements unconscionable, and thereby unenforceable, if they go through the normal steps required in an unconscionability analysis of contracts. While this is more burdensome than the blanket Discovery Bank rule overturned by Concepcion, it can be done. The California Supreme Court, in its Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83
decision, articulated several factors that go into how a court is to determine unconscionability beyond traditional unconscionability analysis, including (1) neutral arbitrators; (2) more than minimal discovery; (3) a written decision by the arbitrator; (4) all types of relief otherwise available in court; and (5) not requiring employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration process.

Have you signed an arbitration agreement? We recommend consulting a lawyer to determine how any arbitration agreements may affect your claim. Contact us for a consultation. For more information, please consult our article on mandatory pre-dispute arbitration agreements and the Concepcion case here.

Darin Ranahan
July 6, 2011

Contact Information