Opinion ID: 3046724
Heading Depth: 2
Heading Rank: 2

Heading: supreme court’s concepcion decision

Text: In Concepcion, the Supreme Court confronted facts similar to those before us now: a putative class action brought by wireless telephone customers, a motion to compel arbitration pursuant to the parties’ service agreement, and a contention 5 We review a district court’s order compelling arbitration de novo. Dale v. Comcast Corp., 498 F.3d 1216, 1219 (11th Cir. 2007). 13 that the agreement’s class action waiver was unconscionable. See Concepcion, 131 S. Ct. at 1744–45. The Supreme Court concluded that the FAA preempted California’s state law that rendered most collective action waivers in consumer contracts unconscionable. Id. at 1753. Preemption was required because the California law required the availability of classwide arbitration, which “interfere[d] with fundamental attributes of arbitration and thus create[d] a scheme inconsistent with the FAA.” Id. at 1748. In Concepcion, plaintiffs Vincent and Liza Concepcion entered into a wireless telephone contract with AT&T. The contract “provided for arbitration of all disputes between the parties, but required that claims be brought in the parties’ ‘individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.’” Id. at 1744. The Concepcions sued AT&T in federal district court, alleging they were charged sales tax on phones advertised to be free. The Concepcions’ complaint was consolidated with a putative class action. Id. AT&T moved to compel arbitration, and the Concepcions argued that the class action waiver in their arbitration agreement was unconscionable under California law. Id. at 1744–45. The district court denied AT&T’s motion to compel arbitration, and the Ninth Circuit affirmed, concluding that (1) the class 14 action waiver in the arbitration agreement was unconscionable under California law as announced in Discover Bank v. Superior Court, 113 P.3d 1100 (2005), and (2) the FAA did not preempt California’s Discover Bank rule.6 Concepcion, 131 S. Ct. at 1745. The Supreme Court granted certiorari on the FAA preemption issue and reversed. Id. at 1745, 1753. Enforcing the arbitration agreement, the Supreme Court observed that the FAA was enacted “in response to widespread judicial hostility to arbitration agreements” and § 2 of the FAA (its primary substantive provision) reflects a “liberal federal policy favoring arbitration.” Id. at 1745 (quotation marks omitted).7 Thus, “courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.” Id. (citation 6 The Discover Bank rule declared class action waivers in arbitration agreements unconscionable, and thus unenforceable, if (1) the waiver is “found in a consumer contract of adhesion,” (2) it is foreseeable that disputes between the parties will involve small amounts of damages, and (3) the consumer alleges that the defendant corporation “has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” Concepcion, 131 S. Ct. at 1746 (quoting Discover Bank, 113 P.3d at 1110). 7 FAA § 2 provides: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2. 15 omitted). The Supreme Court stated, “The question in this case is whether § 2 preempts California’s [Discover Bank] rule classifying most collective-arbitration waivers in consumer contracts as unconscionable.” Id. at 1746. The final phrase of the FAA’s § 2, known as the “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. (emphasis added) (quotation marks and citations omitted). The Supreme Court noted that when a state law prohibits outright the arbitration of a particular type of claim, the state rule is preempted by the FAA. Id. at 1747. The more difficult issue is “when a doctrine normally thought to be generally applicable, such as . . . unconscionability, is alleged to have been applied in a fashion that disfavors arbitration.” Id. In such cases, the FAA can still preempt state law, for “a court may not rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what [] the state legislature cannot.” Id. (quotation marks and citation omitted). 16 In Concepcion, the Supreme Court concluded that the Discover Bank rule was preempted by the FAA because it “interferes with fundamental attributes of arbitration”: The overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA. Id. at 1748 (emphasis added). The Supreme Court reasoned that: (1) the FAA’s principal purpose is to ensure the enforcement of private arbitration agreements according to their terms; (2) the Supreme Court previously had held the parties may agree to limit, inter alia, the issues to be arbitrated, the rules under which arbitration would proceed, and with whom they choose to arbitrate; and (3) the reason for allowing parties such discretion is to permit efficient, streamlined procedures. Id. at 1748–49. The Discover Bank rule interferes with arbitration because, although it “does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post.” Id. at 1750. That the switch to class-wide arbitration is a fundamental change, the Concepcion Court stated, is “obvious” because class-wide arbitration “includes absent parties, necessitating additional and different procedures and involving 17 higher stakes,” confidentiality is difficult to maintain, and it is hard to find an arbitrator with expertise in class action procedural issues. Id. From this, the Supreme Court stated, “[t]he conclusion follows that class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA.” Id. at 1750–51. The Supreme Court explained that: (1) “the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment”; (2) “class arbitration requires procedural formality”; (3) “class arbitration greatly increases risks to defendants”; and (4) “[a]rbitration is poorly suited to the higher stakes of class litigation.” Id. at 1751–52. The Supreme Court added, “We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.” Id. at 1752. The Supreme Court concluded, “It is not reasonably deniable that requiring consumer disputes to be arbitrated on a classwide basis will have a substantial deterrent effect on incentives to arbitrate.” Id. at 1752 n.8. The Supreme Court acknowledged that parties could mutually agree to classwide arbitration, despite its disadvantages. “But what the parties . . . would 18 have agreed to is not arbitration as envisioned by the FAA, lacks the benefits, and therefore may not be required by state law.” Id. at 1753.8 The Supreme Court concluded, “Because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, California’s Discover Bank rule is preempted by the FAA.” Id. (quotation marks and citation omitted).