At&T Mobility LLC v. Concepcion
179 L. Ed. 2d 742 · Supreme Court of the United States · 2011
Facts
In February 2002, Vincent and Liza Concepcion entered into an agreement with AT&T Mobility LLC for cellular telephone sale and servicing. The contract included an arbitration provision requiring claims to be brought in an individual capacity, not as part of a class action. AT&T later revised this agreement, detailing a process for individual dispute resolution, including AT&T covering costs for nonfrivolous claims and offering a minimum recovery if a customer's award exceeded AT&T's settlement offer. The Concepcions purchased AT&T service, advertised with free phones, but were charged $30.22 in sales tax based on the phones' retail value. In March 2006, they filed a complaint against AT&T, which was consolidated with a putative class action alleging false advertising and fraud regarding the sales tax on the "free" phones.
Issue
The Court considered whether Section 2 of the Federal Arbitration Act (FAA) prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures. Specifically, the question was whether the FAA pre-empts California’s Discover Bank rule, which classifies most collective-arbitration waivers in consumer contracts as unconscionable.
Holding
The Supreme Court held that California’s Discover Bank rule is pre-empted by the FAA because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The judgment of the Ninth Circuit was reversed, and the case was remanded for further proceedings.
Rule
Section 2 of the FAA makes arbitration agreements valid and enforceable, allowing invalidation only by generally applicable contract defenses like fraud or unconscionability, but not by defenses unique to arbitration. State laws that conflict with the FAA's objectives, such as ensuring the enforcement of arbitration agreements according to their terms to facilitate streamlined proceedings, are pre-empted. The Court reasoned that requiring classwide arbitration interferes with the fundamental attributes of arbitration, sacrificing its informality, increasing costs and delays, and necessitating procedural formality akin to litigation. Class arbitration also significantly increases risks to defendants due to higher stakes and limited judicial review, making it inconsistent with the FAA's design. Therefore, state rules that classify class-arbitration waivers as unconscionable are pre-empted by the FAA.
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