Please ensure Javascript is enabled for purposes of website accessibility

Class Arbitration at the Supreme Court: Does the FAA Preempt State Laws Banning Waivers? (Web)

The U.S. Supreme Court this morning took another class arbitration case, AT&T Mobility v. Concepcion, No. 09-893.

This time, the Court will review whether a California state law on unconscionability is barred by the Federal Arbitration Act, 9 U. S. C. §1 et seq.

The case will be argued in the 2010-2011 term, which begins in October.

The question posed to Court is "[w]hether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures—here, class-wide arbitration—when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims."

AT&T’s FAA claim lost in the Ninth U.S. Circuit Court of Appeals last fall.  The opinion is available here.

The plaintiffs charged that the company’s free telephone offer was a sham because AT&T also charged a “subscriber sales tax” on the agreements.

The sales contracts’ arbitration clause required arbitration, but banned class arbitration.

The plaintiffs said California law made both the arbitration clause and the class action waiver unconscionable.

The company countered that a “premium payment” in the arbitration clause insulated it from an unconcionability charge.  Under the premium payment clause, the customer gets an additional $7,500 if an “arbitrator awards the customer an amount greater than the phone company’s last written settlement offer made before selection of an arbitrator,” according to the Ninth Circuit.

AT&T claimed that the premium payment ensured that it was not  “immune from individual claims.” .

But the Ninth Circuit, in the opinion by Circuit Judge Carlos T. Bea, who was joined by Circuit Judges Mary M. Schroeder and Stephen Reinhardt, held that despite the premium payment, the arbitration clause was unconscionable under California law.  It also struck AT&T Mobility’s claim that the FAA preempts California unconscionability law.

In addition to links to the Ninth Circuit opinion and the Court’s page, Scotusblog also has the cert petition; three briefs; and four amicus briefs all urging the Court to take the case, at this page.

Class arbitration is a red hot issue for the Court.  Last month, it ruled that class arbitration cannot be imposed on parties who have not authorized the process, and doing so is inconsistent with the FAA.  Stolt-Nielsen S.A. et al. v. AnimalFeeds International Corp., No. 08-1198 (analysis, and links to opinion and history, are available here).

The Court also already has an arbitration unconscionability case before it this term.  A decision is expected before the Court adjourns for the summer next month in Rent-A-Center, West Inc. v. Jackson, No. 09-497.

In that case, a loan company and furnishings retailer that leases furniture, appliances and electronic equipment asked the Court to decide whether a federal district court is “in all cases required to determine claims that an arbitration agreement subject to the Federal Arbitration Act . . . is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this ‘gateway’ issue to the arbitrator for decision.”

Scotublog’s Wiki on the matter can be found here.

In addition, an opinion is pending this term in Granite Rock Co. v. Int’l Brotherhood of Teamsters, 08-1214.  It’s a labor case that could address the scope of an arbitrator's jurisdiction and the tribunal’s role in determining issues concerning contract formation, as well as the limits of an arbitration clause.  More coverage and links here.

 --Russ Bleemer, Editor, Alternatives