All alone in arbitration: AT&T Mobility v. Concepcion and the substantive impact of class action waivers.

AuthorBlechschmidt, Frank

INTRODUCTION I. A REVIEW OF THE FEDERAL ARBITRATION ACT A. The Text and History of the FAA B. Case Law Interpreting the FAA II. THE UNCONSCIONABILITY OF CLASS ACTION WAIVERS IN STATE AND FEDERAL COURTS A. Unconscionability in the Lower Courts B. Pre-Concepcion Commentary and the Procedure/Substance Divide III. AT&T MOBILITY V. CONCEPCION: THE FAA AND THE CALIFORNIA COURTS COLLIDE A. Background of the Case B. The Concepcion Opinions C. An Initial Critique of the Reasoning in Concepcion IV. CLASS ACTION POLICY IN THE WAKE OF CONCEPCION AND SHADY GROVE A. Shady Grove and the "Incidental Effects" on Substantive Rights B. Reconciling Shady Grove with the FAA Cases ... or Not V. FURTHER DEVELOPMENTS AND THE PATH TO REFORM A. The Evolving Scope of the Concepcion Opinion B. Reform Efforts CONCLUSION INTRODUCTION

On April 27, 2011, the Supreme Court announced its decision in AT&T Mobility LLC v. Concepcion, (1) one of the most closely watched cases of the 2010 Term. In Concepcion, the Court considered whether states may condition the enforceability of arbitration agreements on the availability of class-wide arbitration proceedings. (2) While the subject of class arbitration is rarely viewed as a headline-grabbing legal topic, Concepcion attracted the attention of many consumer advocates, corporate counsel, and procedural scholars because of its far-reaching implications for consumer and employment contracts and class action policy. (3) Ultimately, the Court held that the Federal Arbitration Act (FAA) preempts states from invalidating class action waivers in arbitration agreements because these invalidations stand as an obstacle to the purposes behind the FAA. (4)

Was this result surprising? Not in the least. Indeed, given the increasingly predictable road the Court had taken in previous FAA cases, (5) a contrary ruling exhibiting deference to a state's views on arbitration would have represented an abrupt tug on the FAA steering wheel. But leaving the Court's track record aside, was the Court's decision to limit the role of states in shaping class action policy a legally sound and principled conclusion? In this Comment, I argue that it was not. Because class actions are so intimately linked to the vindication of substantive rights, the Court should not have unilaterally made a policy decision as to when the use of class proceedings is appropriate.

Though class action policy discussions typically focus on the efficacy of class action litigation (6) or the inner workings of Rule 23 of the Federal Rules of Civil Procedure, (7) Concepcion did not directly involve either of these topics. Instead, Concepcion centered on the class action's close cousin, class arbitration (8)--proceedings involving similarly situated litigants that occur before an arbitrator, rather than before a judge or jury in court. While the development of class arbitration was still in its embryonic stages, several judges and businesses adopted the view that this method of dispute resolution was antithetical to the whole point of arbitrating in the first place, (9) which is to provide a speedy and efficient alternative to litigation. (10) Eventually, with the addition of more claimants and in light of the uncertainty surrounding this new form of aggregate procedure, class arbitration became what was described as "a lose-lose proposition" to which "no rational business [would] agree." (11)

As a solution, defendant businesses turned to their contracts for protection. By inserting class action waivers into their arbitration agreements--agreements that were themselves part of larger contracts with consumers, employees, and other actors in the marketplace--businesses attempted to narrowly circumscribe the procedures available to their adversaries. (12) In essence, once an opposing party agreed to arbitrate any future claims and also to waive his right to bring proceedings as a class, the only remaining option was bilateral arbitration: arbitration between two individual parties.

It was only matter of time before this solution was attacked in court. In particular, consumers pleaded that class action waivers were exculpatory provisions in the small claims setting because the inclusion of these waivers in arbitration agreements effectively relieved businesses from liability. (13) Without class proceedings, no individual consumer in the small claims setting had an incentive to file a claim. (14) In some states, such arguments were initially met with favorable responses. For example, an early opinion on the matter in California held that such class action waivers supplied defendants with a "'get out of jail free' card." (15) These waivers were also considered troublesome because they were almost always found in contracts of adhesion, or on a "take it or leave it" basis. (16)

But the businesses in these suits were not without a strong defense. Virtually all of the arbitration agreements in dispute were governed by the FAA, (17) a federal statute that the Supreme Court has consistently held to proclaim a "liberal federal policy favoring arbitration agreements." (18) Thus, the common argument defendants raised in motions to compel arbitration was that the FAA required courts to enforce the arbitration agreements, and with them, the class action waivers. (19) Under this theory, the FAA, by way of the Supremacy Clause, would preempt state rules relating to arbitration. On this point, however, state and circuit courts divided. For example, some states and circuits ruled that the class action waiver was enforceable on its face or that the FAA preempted state policies to the contrary. (20) But other decisions--including the California Supreme Court's leading opinion in Discover Bank v. Superior Court--held that [section] 2 of the FAA, known as the savings clause, enabled states to strike down class action waivers in the small claims setting on unconscionability grounds. (21) Further complicating the analysis in some cases were additional clauses that ostensibly altered the cost equation for litigants, such as clauses providing for the reimbursement of arbitration costs or the payment of attorneys' fees. (22)

Concepcion took the Discover Bank rule head on, with the majority ultimately siding in favor of preemption. (23) In doing so, the Court limited states' latitude to strike down class action waivers and effectively forced upon the states its own views regarding the pros and cons of certain aggregation policies (i.e., policies relating to the aggregation of claimants in a class action or collective action). It is here, I will argue, that the Court erred. Aggregation policies should not be a topic solely for our nation's highest court. As several commentators have recently argued, the availability of class proceedings is often deeply rooted in substantive regulatory policies, including state policies on the resolution of consumer disputes. (24) In light of this inseparable connection to substantive law, it should be the state's prerogative to determine whether the availability of class proceedings in arbitration would help further its substantive policies. In support of this argument, I will highlight the inconsistencies within the Concepcion opinion, as well as the doctrinal confusion between the Court's treatment of one aggregation mechanism, class arbitration, in Concepcion and the treatment of another aggregation mechanism, the class action, in a recent Rules Enabling Act challenge, Shad), Grove Orthopedic Associates, P.A. v. Allstate Insurance Co. (25)

In Part I of this Comment, I will analyze both the history of the FAA and the Supreme Court's interpretation of this statute in relation to class arbitration. Part II will briefly discuss lower courts' use of unconscionability as a bulwark against class action waivers, while Part III will analyze the Concepcion case itself. Part IV will juxtapose the FAA decisions with Shady Grove. In Part V, I will examine several questions that remain unanswered after Concepcion and discuss avenues for reform. These avenues include a potential amendment to the FAA, administrative regulations that could target class action waivers, and most importantly, a change in the way the Court approaches class actions in future cases, which should involve a greater appreciation for the role class actions play in the enforcement of substantive law.


    The question of whether states may mandate that class proceedings be available in arbitration, notwithstanding an express contractual agreement to the contrary, ultimately turns on courts' interpretation of the FAA. Over the years, the Supreme Court has interpreted the FAA broadly and has in turn exhibited a considerable amount of deference to the black-and-white terms of the arbitration agreements at issue. (26) But much of the FAA jurisprudence is constructed upon a foundation of assumptions about the intent of the FAA's framers--assumptions that are still being questioned today. This Part will briefly analyze the history and text of the FAA and describe the FAA case law leading up to Concepcion.

    1. The Text and History of the FAA

      The key language of the FAA appears in [section] 2, which states in pertinent part that agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (27) This latter clause, which provides courts with room to invalidate arbitration agreements on generally applicable contract defenses, is commonly referred to as the FAA's "savings clause." (28)

      An idea that has persisted throughout the FAA line of cases is that Congress enacted this language in 1925 in response to hostility from the state courts toward the use of arbitration. (29) The thought goes that the Act endeavored to put arbitration agreements on an "equal footing with other contracts." (30) In Concepcion, both the majority opinion and Justice Breyer's dissenting...

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