Section 61 Class Actions

• Library: Arbitration and Mediation 2011

Court decisions on class action arbitrations have been volatile. The most recent United States Supreme Court decision at the time this publication was published is AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). The final phrase of 9 U.S.C. § 2 of the FAA permits arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” Concepcion, 131 S. Ct. 1740. Citing this provision, the Supreme Court stated that the question it faced was whether § 2 preempted California’s rule (the Discover Bank rule) classifying most collective arbitration waivers in consumer contracts as unconscionable. The Supreme Court held that class arbitration, to the extent it is manufactured by the Discover Bank rule rather than consensual, is inconsistent with the FAA and thus not enforceable. Id. at 1751.

In reaching this conclusion, the Concepcion, 131 S. Ct. 1740, Court emphasized the following points. First, class arbitrations sacrifice the principal advantage of arbitration, which is “informality,” and thus make “the process slower, more costly, and more likely to generate procedural morass than final judgment.” Id. at 1751. Second, the Court decided that class arbitration requires procedural formality, which is not facilitatively available in arbitration. Third, the Court concluded that class arbitration greatly increases risk to defendants. “Arbitration is poorly suited to the higher stakes of class litigation.” Id. at 1752. Thus, states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons. Id. at 1753.

Undoubtedly, Concepcion will spawn arguments whether it is to be broadly construed to preclude all class action arbitrations or more narrowly applied to preclude a defendant from being forced into an arbitration procedure to which it has not consented. The Supreme Court did not expressly rule that a class action arbitration could never occur. It did expressly rule, however, that a defendant cannot be forced into a class action arbitration. As a practical matter, the Supreme Court noted, a defendant is very unlikely to agree to a class action arbitration and give up the safeguards that exist in court. Thus, while class arbitration may be viable in theory, it is not likely to happen in practice.

The Eighth Circuit applied Concepcion, 131 S. Ct. 1740, in Green v. SuperShuttle International, Inc., No. 10‑3310, 2011 WL 3890326 (8^th Cir. Sept. 6, 2011), by...