Opinion ID: 2541602
Heading Depth: 2
Heading Rank: 2

Heading: Concepcion

Text: In Concepcion, the United States Supreme Court held that the FAA preempts California's  Discover Bank rule, which classif[ied] most collective-arbitration waivers in consumer contracts as unconscionable. See Concepcion, 131 S.Ct. at 1751-52. [7] Until Concepcion, Discover Bank had provided for California courts: [Not all] class action waivers [in arbitration agreements] are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party from responsibility for [its] own fraud, or willful injury to the person or property of another. [California Civ. Code, sec. 1668.] Under these circumstances, such waivers are unconscionable under California law and should not be enforced. Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100, 1110 (2005), abrogated by Concepcion, 131 S.Ct. 1740. Concepcion declared that California's  Discover Bank rule was preempted by the FAA because the rule was an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the FAA. 131 S.Ct. at 1753 (internal quotations omitted). In finding the  Discover Bank rule untenable under the FAA, Concepcion highlighted that the FAA was enacted to protect arbitration agreements from judicial hostility toward arbitration. 131 S.Ct. at 1745. Concepcion discussed that the application of the  Discover Bank rule had resulted in courts ordering class arbitrations even when class arbitration was not mutually consented to by the parties [8] or when class arbitration was not more beneficial to consumers. See Concepcion, 131 S.Ct. at 1750-52. Concepcion reasoned that the  Discover Bank rule, as it was applied by the courts, violated the spirit of the FAA by undermining the FAA's intent to place arbitration agreements on equal footing with other contracts and to enforce arbitration agreements by their terms. See Concepcion, 131 S.Ct. at 1745-46. The Supreme Court emphasized that the FAA places arbitration agreements on equal footing with other contracts because the FAA's saving clause preserves generally applicable contract defenses. Id. at 1748. The saving clause allows an arbitration agreement to be declared unenforceable upon such grounds as exist at law or in equity for the revocation of any contract. See 9 U.S.C. sec. 2. And, as such, the FAA's saving clause permits arbitration agreements 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. Concepcion, 131 S.Ct. at 1746 (internal quotations omitted). [9] Concepcion concluded that the  Discover Bank rule was preempted by the FAA because nothing [in the FAA's `saving clause'] suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment to the FAA's objectives. Id. at 1748. The Supreme Court noted that, in effect, the California courts' application of the  Discover Bank rule resulted in the invalidation of most arbitration agreement class waivers and compelled class arbitrations. See id. at 1750 (noting that California's  Discover Bank rule interferes with arbitration because it does not require classwide arbitration, [but] allows any party to a consumer contract to demand it ex post  when there is an adhesion contract, which covers most consumer contracts). The  Discover Bank rule disfavored the terms of arbitration agreements as they were agreed to by the parties, and it impermissibly stretched the FAA's saving clause considerations by applying California's state-law unconscionability analysis in a way that singled out and disfavored arbitration agreements. Id. at 1747-48. Concepcion articulated that the application of the  Discover Bank rule to essentially [r]equir[e] the availability of classwide arbitration interfere[d] with [the] fundamental attributes of arbitration and thus create[d] a scheme inconsistent with the FAA. Id. at 1748. Concepcion outlined concerns that class arbitrations can be unfair to parties who agree to individual arbitration only, potentially can disadvantage corporate defendants, and can result in unfairness to potential co-plaintiffs who remain unaware of the class proceedings. See id. at 1750-52. Concepcion reasoned that class arbitrations, in contrast to individual arbitrations, undermine arbitration hallmarks like informality and unreviewability of results. See id. at 1749-51. Concepcion expressed disfavor for any state-law rule that forced class arbitrations because [t]he point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute ... [a]nd the informality of arbitral proceedings is itself desirable, reducing the cost and increasing the speed of dispute resolution. Id. at 1749. In contrast to the majority opinion's concerns about class arbitration, the dissenting opinion in Concepcion [10] emphasized the benefits of class arbitration, especially to protect consumers with small-dollar claims that might not be remedied if class relief was unavailable. See Concepcion, 131 S.Ct. at 1760-61 (Breyer, J. dissenting). The majority's opinion, however, suggested that the dissent failed to recognize that the FAA preempts any state-law procedure that is inconsistent with the FAA's purposes, even if the state-law result otherwise would be desirable. See id., at 1753. It also reasoned that, under the specific facts of Concepcion, there was limited concern that the claimants' small-dollar claims would remain unresolved even absent the availability of class arbitration. Id. The majority opinion noted that the arbitration agreement terms at issue in Concepcion were actually beneficial to the consumers, even if they did not proceed as a class. See id. [11]