Opinion ID: 2543212
Heading Depth: 2
Heading Rank: 1

Heading: AT & T v. Concepcion

Text: Determining the law established in Concepcion is complicated. Justice Scalia authored an opinion joined by Chief Justice Roberts and justices Kennedy, Alito and Thomas, but Justice Thomas also filed a concurring opinion in which he indicated that, although he concurred in Justice Scalia's opinion, he suggested a slightly different analysis than Justice Scalia. Concepcion, 131 S.Ct. at 1754 (Thomas, J., concurring). Justice Breyer filed a dissenting opinion, in which justices Ginsbug, Sotomayor and Kagan joined. As a result, Concepcion is best understood by considering Justice Scalia's majority opinion as further informed by Justice Thomas' concurrence. Both opinions, for slightly different reasons, stand for the proposition that the act generally does not permit a state to bar class action waivers by finding an arbitration agreement unconscionable on the basis of a class action waiver alone. The Scalia opinion does not state, however, that the federal act otherwise preempts traditional state law defenses to contract formation such as unconscionability, duress or fraud, and Justice Thomas is clear that he would apply those defenses. But Concepcion teaches these defenses cannot be used in a way that would hold otherwise valid arbitration agreements unenforceable for the sole reason that they bar class relief. That was what had happened in Concepcion. In Concepcion, the plaintiffs sued AT & T in federal district court alleging they improperly were charged sales tax on the retail value of cellular phones provided for free under the terms of their service contract. Id. at 1744. The plaintiffs' suit was consolidated with a class action alleging in part that AT & T had engaged in false advertising and fraud by charging sales tax on the phones it had advertised as free. Id. AT & T filed a motion to compel individual arbitration pursuant to its contract with the plaintiffs. The district court specifically found that the arbitration agreement was `quick, easy to use' and likely to `promp[t] full or ... even excess payment to the customer without the need to arbitrate or litigate.' Id. at 1745. The district court also found that the provision of a $7,500 premium in the event the consumer was awarded more than AT & T's final written settlement offer served as substantial inducement for the consumer to pursue individual arbitration as opposed to class arbitration. Id. Although individual arbitration was more beneficial to a consumer than class arbitration, the district court held that the arbitration provision was unconscionable under the California Supreme Court's decision in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005). Id. Given this factual context, the question framed by the Scalia opinion is whether § 2 [of the ACT] preempts California's [ Discover Bank ] rule classifying most collective-arbitration waivers in consumer contracts as unconscionable. Id. at 1746. Discover Bank held that a class action waiver in a consumer contract of adhesion is unconscionable when consumer claims against the defendant are predictably small and the plaintiff alleges a scheme to cheat consumers. Id. Notably absent from the formulation of the Discover Bank rule is any finding that the consumer is worse off under individual arbitration as opposed to class arbitration or that the individual terms of the arbitration agreement are otherwise onerous or unfair. Id. at 1750, 1753. The practical effect of the Discover Bank rule, therefore, is to invalidate class arbitration waivers in most consumer contracts even if traditional factors of unconscionability are absent. [1] The lack of any requirement of showing actual unconscionability meant that Discover Bank created an essentially categorical requirement of class arbitration, which resulted in class arbitration being manufactured by Discover Bank, rather than consensual. ... Id. at 1750. Requiring class arbitration under these circumstances sacrifices the federal act's goals of facilitating the prompt, informal resolution of disputes while also substantially disadvantaging defendants who did not consent to class arbitration in the first instance. Id. at 1751-52. [2] In addition to disadvantaging defendants, the Discover Bank rule can disadvantage consumers by requiring a court to find individual arbitration unconscionable even if, like the arbitration contract in Concepcion, the consumer is provided with favorable terms for individual arbitration. Id. at 1753. The net result of applying Discover Bank is that class arbitration waivers are rarely enforced. Instead, defendants are required to submit to procedures to which they did not consent, and consumers may be required to participate in class arbitration even if individual arbitration is more favorable to their interests. Consequently, the majority opinion held that the act preempted California's Discover Bank rule [b]ecause it `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. ...' Id. (citations omitted). Although the majority held that the Discover Bank rule was preempted by the federal act, it does not follow, as the title company contends, that all state law unconscionability defenses are preempted by the federal act in all cases. First, the expressly stated issue in Concepcion was whether California's Discover Bank rule was preempted, not whether all state law unconscionability defenses are preempted. The Discover Bank rule imposed a unique obstacle to arbitration because, in practice, it conditioned the enforceability of certain arbitration agreements on the availability of class wide arbitration procedures, Concepcion, 131 S.Ct. at 1744, even if the arbitration contract at issue provides a consumer with more favorable terms in individual arbitration than in class arbitration. Not all state law contract defenses require class wide arbitration to the detriment of both the defendant and the plaintiff consumer. Accordingly, consistent with the stated issue in Concepcion, the Supreme Court's holding was expressly limited to finding that California's Discover Bank rule is preempted by the act. Id. at 1753. Second, the majority specifically acknowledged that the § 2 saving clause permits agreements to arbitrate to be invalidated by `generally applicable contract defenses, such as fraud, duress, or unconscionability,' but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. Id. at 1746, (citing Doctor's Assoc's., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)). Holding that the § 2 saving clause preempts all state law unconscionability defenses would be inconsistent with both the saving clause and the majority's express recognition of unconscionability as one of the generally applicable contract defenses that retains vitality under the § 2 saving clause. Finally, the majority opinion discusses in detail the many ways in which the arbitration provisions at issue in Concepcion are fair and reasonable and do not lead to an unconscionable result. Id. at 1753. This discussion would be superfluous if the majority intended to establish a rule completely preempting all state law unconscionability defenses. Therefore, the Concepcion majority recognizes that a case-by-case approach provides the appropriate analytical framework for assessing the applicability of state law contract defenses pursuant to the § 2 saving clause. For these reasons, title company is incorrect in its assertion that the majority opinion compels the conclusion that the federal act requires state courts to replace the essentially categorical Discover Bank rule requiring class arbitration with another categorical rule requiring individual arbitration in every case, irrespective of the application of generally applicable contract defenses specifically retained by the § 2 saving clause. Instead, analysis of whether a particular state contract defense is preempted because it stand[s] as an obstacle to the accomplishment of the act's objectives depends on the factual posture of individual cases. In his concurring opinion, Justice Thomas agrees that the federal act preempts state law contract defenses rooted in public policy concerns regarding arbitration, even if the policy nominally applies to contracts generally. Id. at 1754 (Thomas, J., concurring). Like the majority opinion, Justice Thomas notes that state law contract defenses including fraud, duress, and unconscionability `may be applied to invalidate arbitration agreements without contravening § 2.' Id. at 1755, n. 1 (quoting Doctors Assoc's., Inc., 517 U.S. at 687, 116 S.Ct. 1652). But Justice Thomas focuses his analysis on the text of the § 2 saving clause. The saving clause refers only to defenses that result in revocation of a contract and omits any reference to the invalidation or nonenforcement of a contract. Id. at 1754. Justice Thomas reasons that the text of the saving clause suggests that the exception does not include all defenses applicable to any contract but rather some subset of those defenses. Id. In other words, the federal act requires enforcement of an agreement to arbitrate unless a party successfully asserts a defense concerning the formation of the agreement.... Id. at 1755 (emphasis added). Contract defenses that are unrelated to the making of the agreementsuch as public policyare not valid grounds for declining to enforce an arbitration agreement. Id. at 1755. Because the Discover Bank rule relies on a public policy rationale and does not concern the making of the arbitration agreement, Justice Thomas concludes that the act requires preemption of the Discover Bank rule and enforcement of the arbitration provision in AT & T's agreement. Id. at 1756. After setting out this discussion, Justice Thomas nonetheless concurs in Justice Scalia's opinion because the twin foundations of both analyses are the same. First, the federal act does not preempt state law contract defenses pertaining to the formation of a contract. Justice Thomas recognizes this point explicitly, while the majority does so inferentially. The majority holds that the federal act preempts Discover Bank because it stand[s] as an obstacle to the accomplishment and execution the full purposes and objectives of Congress.... Id. at 1753. Application of the Discover Bank rule has nothing to do with contract formation. Consequently, the Supreme Court's preemption of Discover Bank does not preempt all state law defenses to contract formation. The second and related proposition supported by both opinions is that the federal act preemption analysis requires a case-specific assessment of the arbitration contract at issue. The majority opinion holds that state law contract defenses, including unconscionability, are preempted only if the defense stand[s] as an obstacle to the accomplishment of the act's objectives. Id. at 1748. The question of whether a state law unconscionability defense stands as an obstacle to the accomplishment of the act's objectives requires analysis of the particular facts of the case. Likewise, Justice Thomas' focus on contract formation defenses such as fraud, duress, and unconscionability necessarily requires an analysis of the facts leading to the alleged formation of the contract at issue. Therefore, at a minimum, the rationales of both the majority opinion and Justice Thomas' concurrence permit state courts to apply state law defenses to the formation of the particular contract at issue. This interpretation is confirmed by the Supreme Court's holding in Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012). In Marmet, a state court held that the federal act does not preempt state public policy against pre-dispute arbitration agreements that apply to personal injury and wrongful death claims against nursing homes. 132 S.Ct. at 1203. Alternatively, the state court held that the arbitration agreements were unconscionable. 132 S.Ct. at 1203-04. The Supreme Court reversed the judgment because the state court's public policy rationale is the type of categorical rule prohibiting arbitration of a particular type of claim identified in Concepcion as contrary to the terms and coverage of the FAA. 132 S.Ct. at 1204. The Supreme Court remanded the case for consideration of whether, absent the public policy rationale, the arbitration clauses at issue are unenforceable under state common law principles that are not specific to arbitration and pre-empted by the FAA. 132 S.Ct. at 1204. The Supreme Court's remand for consideration of generally applicable state law contract defenses, such as unconscionability, confirms that Concepcion permits state courts to apply state law defenses to the formation of the particular contract at issue. For these reasonsand as this Court also holds in Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. banc 2012) (decided concurrently with this case) Concepcion permits state courts to apply state law defenses to the formation of the particular contract at issue on a case-by-case basis. Accordingly, this Court will analyze the issues in this appeal to determine if, under the factual record presented, Brewer has established a defense to the formation of the agreement's arbitration clause. Because no party has requested remand, and because, unlike in Robinson, here the trial court did reach other factual issues in determining that the arbitration clause was unconscionable, the record is sufficient in this case for this Court to determine the conscionability of the arbitration clause.