SUPREME COURT HOLDS STATE UNCONSCIONABILITY LAW PREEMPTED BY FAA IN AT&T v. CONCEPCION
On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.
Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.
Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)
This post written by John Black.
