Yesterday, the U.S. Supreme Court ruled in a 5-4 decision in AT&T Mobility LLC. v. Concepcion that the Federal Arbitration Act (“FAA”) preempts state laws that condition the enforceability of an entire class of arbitration agreements on whether or not they allow for classwide arbitration.
The issue in the case was whether AT&T’s customer arbitration agreement, which required customers to arbitrate any and all claims and prohibited customers from bringing classwide claims, was unconscionable and thus unenforceable under California state law. The U.S. Supreme Court ruled that AT&T’s arbitration agreement was enforceable. According to the Court, state unconscionability laws cannot violate the “overarching purpose” of the FAA, which is to “ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.”
The Court in AT&T Mobility did not conclude that all mandatory arbitration agreements must now be enforced. To the contrary, the Court left open the possibility that a particularly oppressive or one-sided arbitration agreement could be struck down in the future. However, California could not create a blanket rule that all arbitration agreements are unconscionable as a matter of law if they contain a waiver of class action remedies. Such a blanket rule that effectively requires classwide arbitration “interferes with the fundamental attributes of arbitration,” wrote Justice Scalia, because it “sacrifices arbitration’s informality and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” In addition, class arbitration “greatly increases risks” to companies.
You can read the Court’s opinion here.
The Court’s decision in AT&T Mobility is considered a big victory of big business. But does it spell the end of the class action in California? How will California Supreme Court cases like Sonic Calabasas, Inc. v. Moreno hold up in light of this U.S. Supreme Court decision in AT&T Mobility? Stay tuned!