Opinion ID: 624814
Heading Depth: 3
Heading Rank: 2

Heading: The Concepcion Decision

Text: It is against this backdrop that we must read the savings clause found in § 2 of the FAA. Although that section explicitly retains an external body of law governing revocation (such grounds `as exist at law or in equity'), Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009) (quoting 9 U.S.C. § 2), it also ensures that [the parties'] agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration,  Mastrobuono, 514 U.S. at 58, 115 S.Ct. 1212 (emphasis added). This inherent tension between the two clauses of § 2 has caused many courts to struggle to define the precise scope of the savings clause. The Supreme Court recently clarified that scope in AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). Concepcion reemphasized that 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. at 1746 (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)). The plaintiffs in Concepcion were telephone service customers to whom AT & T had promised free phones. Although AT & T did not charge its customers for the actual phones, it did charge sales tax based on the retail value of the phones. Id. at 1744. When the customers filed suit in federal court, AT & T moved to compel arbitration pursuant to the arbitration agreement in the customers' service contracts. The arbitration clause required all customers to arbitrate disputes in an individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding. Id. The district court concluded in Concepcion that the arbitration clause was unconscionable, relying on the California Supreme Court's opinion in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal. Rptr.3d 76, 113 P.3d 1100 (2005). The Discover Bank rule prohibited as unconscionable the enforcement of class action waivers in arbitration agreements, 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. Id., 30 Cal.Rptr.3d 76, 113 P.3d at 1110. On appeal, we affirmed the district court's application of the Discover Bank rule to find the arbitration clause unenforceable. We held that the Discover Bank rule was not preempted by the FAA because it was simply a refinement of the unconscionability analysis applicable to contracts generally in California, rather than a rule that applied only to arbitration agreements. Laster v. AT & T Mobility LLC, 584 F.3d 849, 857 (9th Cir.2009) (internal quotation marks omitted), rev'd sub nom., Concepcion, 131 S.Ct. 1740. The Supreme Court disagreed. The Court identified the two situations in which a state law rule will be preempted by the FAA. First, [w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Concepcion, 131 S.Ct. at 1747. A second, and more complex, situation occurs when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. Id. In that case, a court must determine whether the state law rule stand[s] as an obstacle to the accomplishment of the FAA's objectives, which are principally to ensure that private arbitration agreements are enforced according to their terms. Id. at 1748. If the state law rule is such an obstacle, it is preempted. The Court held that the Discover Bank ruleprohibiting class action waivers in arbitration agreementswas just such a rule because [r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA. Id. at 1748. Just as the FAA guarantees that contracting parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate, id. at 1748-49 (internal citations omitted), so too does it allow them to agree to limit in what capacity they arbitrate, id. at 1750-51. In so holding, the Court rejected the plaintiffs' argument that the savings clause applied to the Discover Bank rule because of the rule's origins in California's unconscionability doctrine and California's policy against exculpation. Id. at 1746. Neither was the Court persuaded by the dissent's policy argument that requiring the availability of class proceedings allows for vindication of small-dollar claims that otherwise might not be prosecuted, concluding that States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons. Id. at 1753. Even though California might have had a legitimate basis for its public policy against class action waivers, that policy could not save the Discover Bank rule from FAA preemption.