Court Opinion

ID: 4227423
Source: CourtListenerOpinion
Date Created: 2017-12-11 18:00:31.766021+00
Date Added: 2024-06-11T12:12:31.764402
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

MARCUS A. ROBERTS;                    No. 16-16915
KENNETH A. CHEWEY; ASHLEY
M. CHEWEY; JAMES KRENN, on                D.C. No.
behalf of themselves and all        3:15-cv-03418-EMC
others similarly situated,
           Plaintiffs-Appellants,
                                          OPINION
               v.

AT&T MOBILITY LLC,
       Defendant-Appellee.

      Appeal from the United States District Court
         for the Northern District of California
       Edward M. Chen, District Judge, Presiding

        Argued and Submitted October 17, 2017
              San Francisco, California

                Filed December 11, 2017

  Before: Michael Daly Hawkins, William A. Fletcher,
        and Richard C. Tallman, Circuit Judges.

                Opinion by Judge Tallman
2                ROBERTS V. AT&T MOBILITY

                          SUMMARY *

                           Civil Rights

    The panel affirmed the district court’s order compelling
arbitration of putative class action claims against AT&T
Mobility LLC by customers who alleged that AT&T falsely
advertised their mobile service plans as “unlimited” when in
fact it intentionally slowed data at certain usage levels.

    Plaintiffs filed a putative class action, alleging statutory
and common law consumer protection and false advertising
claims under California and Alabama law. AT&T moved to
compel arbitration in light of the Supreme Court’s ruling in
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)
“that the Federal Arbitration Act preempts state law deeming
AT&T’s arbitration provision to be unconscionable.”
Plaintiffs opposed arbitration on First Amendment grounds.
The district court compelled arbitration, holding as a
threshold matter that there was no state action.

    The panel agreed with the district court and held that
there was no state action in this case. The panel rejected
plaintiffs’ assertion that there is a state action whenever a
party asserts a direct constitutional challenge to a permissive
law under Denver Area Educational Telecommunications
Consortium, Inc. v. FCC, 518 U.S. 727 (1996). The panel
held that Denver Area did not broadly rule that the
government is the relevant state actor whenever there is a

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
               ROBERTS V. AT&T MOBILITY                     3

direct constitutional challenge to a “permissive” statute, and
it did not support finding state action in this case.

    The panel rejected plaintiffs’ argument that they could
show state action because the Federal Arbitration Act,
including judicial interpretations of the statute, encourages
arbitration such that AT&T’s actions were attributable to the
state. The panel held that the Act merely gives AT&T the
private choice to arbitrate, and does not encourage
arbitration such that AT&T’s conduct is attributable to the
state.

                        COUNSEL

Alexander H. Schmidt (argued), Colts Neck, New Jersey ;
Michael Liskow, Wolf Haldenstein Adler Freeman & Herz
LLP, New York, New York; Rachele R. Rickert, Wolf
Haldenstein Adler Freeman & Herz LLP, San Diego,
California; Michael W. Sobol and Roger N. Heller, Lieff
Cabraser Heimann & Bernstein LLP, San Francisco,
California; John A. Yanchunis and Rachel Soffin, Morgan
& Morgan Complex Litigation Group, Tampa, Florida; Jean
Sutton Martin, Law Office of Jean Sutton Martin PLLC,
Wilmington, North Carolina; Daniel M. Hattis, Hattis Law,
Clyde Hill, Washington; D. Anthony Mastando and Eric J.
Artrip, Mastando & Artrip LLC, Huntsville, Alabama;
Douglas C. Martinson II, Martinson & Beason PC,
Huntsville, Alabama; for Plaintiffs-Appellants.

Andrew J. Pincus (argued), Archis A. Parasharami, Kevin
Ranlett, and Daniel E. Jones, Mayer Brown LLP,
Washington, D.C.; Donald M. Falk, Mayer Brown LLP, Palo
Alto, California; for Defendant-Appellee.
4              ROBERTS V. AT&T MOBILITY

Karla Gilbride and F. Paul Bland Jr., Washington, D.C.;
Brian Hardingham, Oakland, California; as and for Amicus
Curiae Public Justice P.C.

Adam G. Unikowsky, Jenner & Block LLP, Washington,
D.C.; Kater Comerford Todd and Warren Postman, U.S.
Chamber Litigation Center, Washington, D.C.; Deborah R.
White, Retail Litigation Center Inc., Arlington, Virginia; for
Amici Curiae Chamber of Commerce of the United States of
America and Retail Litigation Center, Inc.

                         OPINION

TALLMAN, Circuit Judge:

    Marcus Roberts, Ashley and Kenneth Chewey, and
James Krenn (“Plaintiffs”) appeal an order compelling
arbitration of their putative class action claims against
AT&T Mobility LLC (“AT&T”). Plaintiffs allege that
AT&T falsely advertised their mobile service plans as
“unlimited” when in fact it intentionally slowed data at
certain usage levels. AT&T moved to compel arbitration,
and Plaintiffs opposed on First Amendment grounds. The
district court compelled arbitration, holding as a threshold
matter that there was no state action.

    On appeal, Plaintiffs raise two arguments. First, they
claim there is state action whenever a party asserts a direct
constitutional challenge to a permissive law under Denver
Area Educational Telecommunications Consortium, Inc. v.
FCC, 518 U.S. 727 (1996). Second, Plaintiffs contend that
the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, including
judicial interpretations of the statute, “encourages”
arbitration such that AT&T’s actions are attributable to the
                ROBERTS V. AT&T MOBILITY                      5

state. We find there is no state action under either theory and
affirm.

                               I

    Plaintiffs—AT&T customers and putative class
representatives—contracted with AT&T for wireless data
service plans.      Their contracts included arbitration
agreements. Plaintiffs allege AT&T falsely advertised that
its mobile service customers could use “unlimited data,” but
actually “throttled”—intentionally slowed down—
customers’ data speeds once reaching “secret data usage
caps” between two and five gigabytes. Plaintiffs claim a
phone’s key functions, such as streaming video or browsing
webpages, are useless at “throttled” speeds.

    Plaintiffs filed a putative class action, alleging statutory
and common law consumer protection and false advertising
claims under California and Alabama law. AT&T moved to
compel arbitration in light of the Supreme Court’s ruling in
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011),
“that the FAA preempts state law deeming AT&T’s
arbitration provision to be unconscionable.” Plaintiffs
opposed the motion on First Amendment grounds. They
argued that an order forcing arbitration would violate the
Petition Clause, as they “did not knowingly and voluntarily
give up their right to have a court adjudicate their claims,”
and could not “bring their claims in small claims court.”

    The district court granted AT&T’s motion to compel
arbitration. It held, as a threshold matter, that there was no
state action and did not reach Plaintiffs’ constitutional
challenge. The court agreed to reconsider, but again held
there was no state action. It rejected Plaintiffs’ three main
arguments, concluding that (1) judicial enforcement alone
does not automatically establish state action; (2) Denver
6               ROBERTS V. AT&T MOBILITY

Area did not hold that state action categorically exists
whenever there is a direct challenge to a permissive statute;
and (3) there was insufficient “encouragement” to attribute
AT&T’s conduct to the government.

    The district court granted Plaintiffs’ motion to certify the
order compelling arbitration for immediate interlocutory
appeal. See 28 U.S.C. § 1292(b). The court found there was
“substantial ground for difference of opinion on two issues”
that raised “novel and difficult questions of first
impression[:]” if state action exists under (1) Denver Area,
or (2) the “encouragement” test. We granted permission to
appeal.

                               II

    We have jurisdiction under 28 U.S.C. § 1292(b) and
Federal Rule of Appellate Procedure 5. We review orders
compelling arbitration de novo. Duffield v. Robertson
Stephens & Co., 144 F.3d 1182, 1186 (9th Cir. 1998)
(reviewing order compelling arbitration certified under
§ 1292(b)), overruled on other grounds by EEOC v. Luce,
Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. 2003).
The district court’s state action determination is subject to de
novo review. Merritt v. Mackey, 932 F.2d 1317, 1324 (9th
Cir. 1991) (citation omitted).

                              III

    There is no state action here. First, AT&T’s conduct
must be fairly attributable to the state, and Denver Area did
not hold otherwise. Second, AT&T is not a state actor under
the “encouragement” test. The FAA merely gives AT&T the
private choice to arbitrate, and does not “encourage”
arbitration such that AT&T’s conduct is attributable to the
state.
                ROBERTS V. AT&T MOBILITY                      7

                               A

    AT&T’s actions must be attributable to the government
for state action to exist. Denver Area did not broadly rule
that the government is the relevant state actor whenever
there is a direct constitutional challenge to a “permissive”
statute, and does not support finding state action here.

                               1

    “A threshold requirement of any constitutional claim is
the presence of state action.” Duffield, 144 F.3d at 1200.
Because the First Amendment right to petition is “a
guarantee only against abridgment by [the] government,”
Hudgens v. NLRB, 424 U.S. 507, 513 (1976) (citation
omitted), “state action is a necessary threshold which
[Plaintiffs] must cross before we can even consider whether
[AT&T] infringed upon [Plaintiffs’] First Amendment
rights,” George v. Pac.-CSC Work Furlough, 91 F.3d 1227,
1230 (9th Cir. 1996).

     The state action requirement “preserves an area of
individual freedom by limiting the reach of federal law and
federal judicial power,” and “avoids imposing on the State,
its agencies or officials, responsibility for conduct for which
they cannot fairly be blamed.” Lugar v. Edmondson Oil Co.,
Inc., 457 U.S. 922, 936 (1982). By requiring courts to
“respect the limits of their own power as directed against . . .
private interests,” id. at 936–37, the state action doctrine
“ensures that the prerogative of regulating private business
remains with the States and the representative branches, not
the courts,” Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40,
52 (1999). “Whether this is good or bad policy, it is a
fundamental fact of our political order.” Lugar, 457 U.S. at
937.
8                ROBERTS V. AT&T MOBILITY

     We apply a two-part state action test. Id. “First, the
deprivation must be caused by the exercise of some right or
privilege created by the State or by a rule of conduct imposed
by the state[.]” Id. “Second, the party charged with the
deprivation must be a person who may fairly be said to be a
state actor.” Id. While the second Lugar prong “does not
restrict the application of the Constitution solely to
governmental entities,” Duffield, 144 F.3d at 1200, a private
party’s actions must be “properly attributable to the State,”
Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 156 (1978).
Otherwise, “private parties could face constitutional
litigation whenever they seek to rely on some [statute]
governing their interactions with the community
surrounding them.” Lugar, 457 U.S. at 937.

                                 2

    Under Lugar, AT&T’s conduct must be attributable to
the state. See id. Plaintiffs try to circumvent this
requirement by bringing a “direct First Amendment
challenge to the FAA and its Supreme Court[]
interpretations[.]” They assert state action exists “because
the government is the relevant state actor as to Plaintiffs’
direct challenge, not AT&T.” 1

    But the Supreme Court already rejected that argument in
American Manufacturers. There, the plaintiffs sued private
insurers for withholding disputed medical treatment
payments, as permitted by a state workers’ compensation
law. 526 U.S. at 43, 48. The plaintiffs—“[p]erhaps hoping
    1
       Plaintiffs argued below that judicial enforcement of AT&T’s
arbitration agreements constitutes state action, but abandoned that
argument on appeal. It is well established that judicially enforcing
arbitration agreements does not constitute state action. See, e.g.,
Duffield, 144 F.3d at 1202.
                ROBERTS V. AT&T MOBILITY                        9

to avoid the traditional application of our state-action
cases”—framed their challenge as “direct.” Id. at 50. They
claimed “the ‘identity of the defendant’ or the ‘act or
decision by a private actor or entity who is relying on the
challenged law’” was irrelevant. Id.

    The Court was unpersuaded. The plaintiffs’ approach
“ignore[d] our repeated insistence that state action requires”
satisfying the second Lugar prong—“that ‘the party charged
with the deprivation must be a person who may fairly be said
to be a state actor.’” Id. (citation omitted). The Court then
“identif[ied] the specific conduct of which the plaintiff[s]
complain[ed,]” and addressed the issue they sought to evade:
“whether a private insurer’s decision to withhold payment
for disputed medical treatment may be fairly attributable to
the State so as to subject insurers to [constitutional]
constraints[.]” Id. at 51 (quotation omitted) (holding that the
private insurers were not state actors).

     Similarly, plaintiffs were required to show a private
defendant was a “state actor” in Flagg Bros., a seminal case
on which American Manufacturers relied. See id. at 50;
Flagg Bros., 436 U.S. at 155–56. Flagg Bros. involved a
due process challenge to a warehouseman’s proposed sale of
furniture as permitted by the New York Uniform
Commercial Code. 436 U.S. at 151–53. Because plaintiffs
had named the warehouseman, Flagg Brothers, as a
defendant, the Court asked “whether Flagg Brothers’ action
may be fairly attributed to the State of New York,” and
“conclude[d] that it may not.” Id. at 157; see also Duffield,
144 F.3d at 1200 (noting that the Constitution would apply
to “[p]rivate entities like the [New York Stock Exchange]
and the [National Association of Securities Dealers]” only
“if their actions are ‘fairly attributable’ to the state” (quoting
Lugar, 457 U.S. at 936)).
10              ROBERTS V. AT&T MOBILITY

    Just as the plaintiffs in American Manufacturers and
Flagg Bros. had to show the private defendants were “state
actors,” AT&T’s conduct must be fairly attributable to the
state. See 526 U.S. at 50–51; 436 U.S. at 157. Plaintiffs
cannot convert AT&T into a state actor simply by framing
their FAA challenge as “direct.” If every private right were
transformed into a governmental action just by raising a
direct constitutional challenge, “the distinction between
private and governmental action would be obliterated.” See
Ohno, 723 F.3d at 999 (quotation omitted).

                               3

    Plaintiffs argue Denver Area’s “implicit edict” changed
this established state action framework and made “proving
private arbitration clause drafters to be state actors
unnecessary.” We disagree.

                               a

    As an initial matter, Plaintiffs’ reading must be incorrect,
as Denver Area did not overrule Flagg Bros., decided
eighteen years earlier; nor was Denver Area overruled by
American Manufacturers, decided three years later.

    Plaintiffs unsuccessfully attempt to distinguish Flagg
Bros. and American Manufacturers as section 1983 lawsuits
that “sought money damages from . . . private parties for
harm caused by the alleged constitutional violations.” This
distinction, drawn from a dissenting opinion, lacks binding
legal authority. It is also barred by Duffield, where we asked
if similarly postured private defendants were state actors.
144 F.3d at 1200. Still, the splintered decision—even
considered in a vacuum—does not stand for the sweeping
proposition Plaintiffs assert.
                  ROBERTS V. AT&T MOBILITY                          11

                                   b

    Denver Area addressed First Amendment challenges to
three provisions of the Cable Television Consumer
Protection and Competition Act of 1992, 106 Stat. 1460,
which empowered cable operators to restrict offensive, sex-
related speech aired on cable television. 518 U.S. at 732.
Two provisions permitted cable system operators to ban the
broadcasting of programming—on leased access and public
access channels—if the operator believed the programming
contained “patently offensive” sex-related material. 2 Id.
Previously, federal law had barred cable operators from
exercising any editorial control over programming on leased
and public access channels. Id. at 734.

     All nine Justices addressed the merits of the First
Amendment challenge, 3 but only six explicitly addressed
state action—four in a plurality opinion, and two in a
separate opinion. Id. at 737 (plurality op.), 782 (Kennedy,
J., concurring in part, concurring in the judgment in part, and
dissenting in part). Justice Breyer’s plurality opinion, joined
in relevant part by three Justices, explained:

    2
      A third provision required cable operators to segregate certain
“patently offensive” programming from leased access channels to a
single channel blocked except by subscriber request. Denver Area,
518 U.S. at 733.

    3
       A majority of the Court held that the provision permitting cable
operators to restrict content on leased access channels was consistent
with the First Amendment, but the provision permitting them to restrict
content on public access channels was not. 518 U.S. at 768 (plurality
op.) (describing the outcome of the case). The provision requiring cable
operators to segregate certain content on leased channels was also held
unconstitutional. Id.
12             ROBERTS V. AT&T MOBILITY

       Although the court [of appeals] said that it
       found no “state action,” it could not have
       meant that phrase literally, for, of course,
       petitioners attack (as “abridg[ing] . . .
       speech”) a congressional statute—which, by
       definition, is an Act of “Congress.” More
       likely, the court viewed this statute’s
       “permissive” provisions as not themselves
       restricting speech, but, rather, as simply
       reaffirming the authority to pick and choose
       programming that a private entity, say, a
       private broadcaster, would have had in the
       absence of intervention by any federal, or
       local, governmental entity.

Id. at 737 (alterations in original) (citation omitted). The
plurality further reasoned “that the First Amendment, the
terms of which apply to governmental action, ordinarily does
not itself throw into constitutional doubt the decisions of
private citizens to permit, or to restrict, speech—and this is
so ordinarily even where those decisions take place within
the framework of a regulatory regime such as broadcasting.”
Id.

                              c

    We read Denver Area very narrowly. The case—its six
opinions, with a majority opinion as to only one issue,
plurality opinions as to others, and separate concurring and
dissenting opinions—is “the epitome of a splintered
opinion.” See Lair v. Bullock, 697 F.3d 1200, 1205 (9th Cir.
2012) (referring to a case that generated six opinions). In the
21 years since it was published, the Supreme Court has never
cited Denver Area in addressing state action.
               ROBERTS V. AT&T MOBILITY                   13

    Moreover, the plurality opinion on which Plaintiffs rely
is not binding. See Thalheimer v. City of San Diego,
645 F.3d 1109, 1127 n.5 (9th Cir. 2011) (Supreme Court
plurality opinions, while persuasive, are not binding
precedent). Thus, if any controlling state action analysis
emerged from Denver Area, it would be the “common
denominator” of the four-Justice plurality opinion and
Justice Kennedy’s opinion, joined by Justice Ginsburg—the
only opinions to explicitly address state action. See Marks
v. United States, 430 U.S. 188, 193 (1977) (“When a
fragmented Court decides a case and no single rationale
explaining the result enjoys the assent of five Justices, the
holding of the Court may be viewed as that position taken by
those Members who concurred in the judgments on the
narrowest grounds[.]” (quotation omitted)); United States v.
Davis, 825 F.3d 1014, 1022 (9th Cir. 2016) (applying the
“common denominator” approach to the Marks rule, which
requires that a narrower concurring opinion be a logical
subset of the plurality opinion).

   Justice Kennedy, joined by Justice Ginsburg, wrote:

       In [two of the challenged provisions],
       Congress singles out one sort of speech for
       vulnerability to private censorship in a
       context where content-based discrimination
       is not otherwise permitted. The plurality at
       least recognizes this as state action, avoiding
       the mistake made by the Court of Appeals.
14                ROBERTS V. AT&T MOBILITY

Denver Area, 518 U.S. at 782 (Kennedy, J., concurring in
part, concurring in the judgment in part, and dissenting in
part) (emphasis added) (citation omitted). 4

    To the extent the plurality and Justice Kennedy’s opinion
overlap at all, 5 it is seemingly where Justice Kennedy
explicitly agrees with the plurality. That is, state action
exists when “Congress singles out one sort of speech for
vulnerability to private censorship in a context where
content-based discrimination is not otherwise permitted.”
See id. This narrow reading also accounts for Denver Area’s
unique context, where cable operators were empowered by
statute to censor speech on public television, and as a result
were “unusually involved” with the government given their
monopolistic-like power over cable systems. See id. at 739
(plurality op.), 782 (Kennedy, J., concurring in part,
concurring in the judgment in part, and dissenting in part).
These unique characteristics of cable systems are not at issue
here.

     4
       Plaintiffs rely heavily on Justice Kennedy’s subsequent statement
that “[s]tate action lies in the enactment of a statute altering legal
relations between persons, including the selective withdrawal from one
group of legal protections against private acts, regardless of whether the
private acts are attributable to the State.” Denver Area, 518 U.S. at 782
(Kennedy, J., concurring in part, concurring in the judgment in part, and
dissenting in part). But this reasoning is neither binding nor consistent
with American Manufacturers, where there was no state action even
though “[t]he State . . . ha[d] shifted [the statute] from favoring the
employees to favoring the employer.” 526 U.S. at 54.

     5
      The Supreme Court has found “it not useful to pursue the Marks
inquiry to the utmost logical possibility when it has so obviously baffled
and divided the lower courts that have considered it.” Nichols v. United
States, 511 U.S. 738, 745–46 (1994).
                ROBERTS V. AT&T MOBILITY                     15

    Finally, our reluctance to expand the state action doctrine
in other settings supports a confined reading of Denver Area.
For example, we have refused to “alter our mode of analysis
under the generally applicable Lugar framework,” despite
Shelley v. Kraemer, 334 U.S. 1 (1948), which established
that judicially enforcing a legal right or obligation can
constitute state action. Ohno, 723 F.3d at 998. We
explained that Shelley “has generally been confined to the
context of discrimination claims under the Equal Protection
Clause” and does not apply “[i]n the context of First
Amendment challenges to [judicially enforced] speech-
restrictive provisions in private agreements or contracts[.]”
Id.; see also Davis v. Prudential Secs., Inc., 59 F.3d 1186,
1191 (11th Cir. 1995) (rejecting the defendants “Shelley v.
Kraemer theory that a court’s enforcement of a private
contract constitutes state action,” as “Shelley . . . has not
been extended beyond the context of race discrimination”).
Plaintiffs here cannot invoke Denver Area to evade Lugar.
They must show AT&T is a state actor.

                               4

    Plaintiffs spend much of their briefing arguing “that
requiring private actors to be state actors as a prerequisite to
challenging permissive statutes would immunize many such
statutes from constitutional scrutiny, including the FAA.”
Given this “immunization-from-judicial-scrutiny problem,”
they assert that “normative justice demands” a relaxed state
action doctrine, under which “the government is the relevant
state actor for direct challenges of permissive statutes and
that the private infringer’s status is irrelevant.” This policy
argument does not and cannot alter the existing state action
doctrine under which the private party’s status is relevant
and serves to preserve “the essential dichotomy between
16             ROBERTS V. AT&T MOBILITY

public and private acts that our cases have consistently
recognized.” Am. Mfrs., 526 U.S. at 53 (quotation omitted).

    Plaintiffs’ argument also assumes the FAA violates
citizens’ constitutional rights. For example, Plaintiffs allege
that “AT&T resorts to the tired fiction that its adhesive
arbitration clause is an ‘agreement,’ as if consumers had a
choice.” But the FAA declares that arbitration agreements
are “valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any
contract.” Concepcion, 563 U.S. at 336 (quoting 9 U.S.C.
§ 2). And “the FAA does not require parties to arbitrate
when they have not agreed to do so[.]” Volt Info. Scis., Inc.
v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468,
478 (1989).

    Plaintiffs disagree with this case law, but we are bound
by it. See, e.g., DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463,
468 (2015) (“No one denies that lower courts must follow
[the Supreme Court’s] holding in Concepcion.”); United
States v. Dare, 425 F.3d 634, 641 (9th Cir. 2005) (“[I]t
certainly is not our role as an intermediate appellate court to
overrule a decision of the Supreme Court or even to
anticipate such an overruling by the Court.” (quotation
omitted)).

                              B

    Plaintiffs argue that, even if their Denver Area argument
fails, they can still show state action under Lugar because
the government sufficiently “encourages” AT&T to
arbitrate. They reason “the FAA’s mandate and the Supreme
Court’s corresponding enforcement of consumer adhesion
forced arbitration contracts have sufficiently encouraged the
drafting of such contracts, particularly in the mobile phone
industry, so as to hold the State fairly responsible for their
                  ROBERTS V. AT&T MOBILITY                           17

burgeoning use.” This stretches the encouragement test too
far.

                                   1

    For a private party to be a state actor, there must be “a
sufficiently close nexus between the State and the challenged
action of the [private] entity.” Duffield, 144 F.3d at 1200
(quoting Blum v. Yaretsky, 457 U.S. 991, 1004–05 (1982)).
Courts first identify “the specific conduct of which the
plaintiff complains,” paying “careful attention to the
gravamen of the plaintiff’s complaint.” Am. Mfrs., 526 U.S.
at 51 (quotation omitted). “Whether such a ‘close nexus’
exists . . . depends on whether the State ‘has exercised
coercive power or has provided such significant
encouragement, either overt or covert, that the choice must
in law be deemed that of the State.’” 6 Id. at 52 (citation
omitted); see also Duffield, 144 F.3d at 1202 (“The
touchstone of state action in the context of governmental
oversight is whether the government has moved beyond
mere approval of private action into the realm of
‘encouragement, endorsement, and participation’ of that
action.” (citation omitted)). Conduct “by private entities
with the mere approval or acquiescence of the State is not
state action.” Am. Mfrs., 526 U.S. at 52.

                                   2

   For example, Duffield held that the New York Stock
Exchange and National Association of Securities Dealers
were not state actors under the “encouragement” test—even

    6
      The Supreme Court has articulated three other tests for determining
whether a private party’s conduct amounts to state action, none of which
Plaintiffs have invoked. See Ohno, 723 F.3d at 995.
18             ROBERTS V. AT&T MOBILITY

though the SEC approved and influenced their rules,
including a mandatory arbitration requirement. 144 F.3d at
1201–02. There was not “a sufficiently close nexus between
the State and the challenged action” because “the
‘challenged action’ is the requirement that [the plaintiff]
actually arbitrate her lawsuit, [and] that requirement is found
in her private contract, not in federal law.” Id. at 1201. “No
federal law required [the plaintiff] to waive her right to
litigate[,] . . . and no state action is present in simply
enforcing that agreement.” Id.; see also Fed. Deposit Ins.
Corp. v. Air Fla. Sys., Inc., 822 F.2d 833, 842 n.9 (9th Cir.
1987) (“The arbitration involved here was private, not state,
action; it was conducted pursuant to contract by a private
arbitrator.”). The SEC had not crossed the line of “mere
approval . . . into the realm of ‘encouragement’” because no
SEC “rule or regulation . . . specifie[d] arbitration as the
favored means of resolving employer-employee disputes.”
Duffield, 144 F.3d at 1202 (citations omitted); accord
Desiderio v. Nat’l Ass’n of Secs. Dealers, Inc., 191 F.3d 198,
207 (2d Cir. 1999); Koveleskie v. SBC Capital Mkts., Inc.,
167 F.3d 361, 368 (7th Cir. 1999).

    Even assuming Duffield “left open whether state action
would exist [under the circumstances here],” as Plaintiffs
claim, American Manufacturers eliminated any lingering
doubt. There, the choice by private insurers to withhold
payments for disputed medical treatments was not state
action under the encouragement test. Am. Mfrs., 526 U.S. at
51. The state authorized—but did not require—insurers to
withhold payment; “[t]he decision . . . [was] made by
concededly private parties,” and depended on “judgments
made by private parties’ without ‘standards . . . established
by the State.” Id. at 52 (quotation omitted).
               ROBERTS V. AT&T MOBILITY                    19

    The plaintiffs argued the State had “encouraged”
insurers to withhold payment by amending the relevant
statute to allow the practice when it had previously been
prohibited. Id. at 53. Recognizing this could “in some sense
be seen as encouraging [insurers,]” or “favoring the
employer,” the Court nevertheless rejected the argument:

       [T]his kind of subtle encouragement is no
       more significant than that which inheres in
       the State’s creation or modification of any
       legal remedy. We have never held that the
       mere availability of a remedy for wrongful
       conduct, even when the private use of that
       remedy serves important public interests, so
       significantly encourages the private activity
       as to make the State responsible for it. It
       bears repeating that a finding of state action
       on this basis would be contrary to the
       “essential dichotomy” between public and
       private acts that our cases have consistently
       recognized.

Id. at 53–54 (citations omitted).

    In fact, allowing insurers to withhold payments could be
interpreted as “state inaction”—the legislature’s choice not
to interfere in private disputes between insurers and
employees. Id. at 53 (emphasis added). “The most that can
be said of the statutory scheme . . . is that whereas it
previously prohibited insurers from withholding payment
for disputed medical services, it no longer does. Such
permission of private choice cannot support a finding of state
action.” Id. at 54 (citation omitted).

    By contrast, there was sufficient encouragement to
establish state action in Skinner v. Railway Labor
20                ROBERTS V. AT&T MOBILITY

Executives’ Ass’n, 489 U.S. 602 (1989). Skinner considered
Federal Railroad Administration regulations that “removed
all legal barriers” to drug testing by preempting any
collective bargaining agreement that did not provide for the
testing, prohibited railroad companies from negotiating
away their right to conduct tests in the future, punished
employees who refused to submit to testing, and authorized
the government to obtain testing results. Id. at 615. These
coercive provisions evinced the government’s “strong
preference for [drug] testing.” Id.

                                    3

     Here, AT&T’s conduct is not attributable to the state,
and thus the second Lugar prong is not met. 7 As an initial
matter, there is not a “sufficiently close nexus between the
State and the challenged action of [AT&T.]” See Duffield,
144 F.3d at 1200 (emphasis added). Here, as in Duffield,
“the ‘challenged action’ is the requirement that [Plaintiffs]
actually arbitrate [their] lawsuit.” See id. at 1201. Plaintiffs
concede, as they must, that “the FAA regulates private
conduct,” and “private parties draft adhesive consumer
arbitration clauses, not governments[.]” Because “[n]o
federal law required [Plaintiffs] to waive [their] right to
litigate,” there is no state action simply because the state
enforces that private agreement. See id. at 1201–02
(“[N]either private arbitration nor the judicial act of
enforcing it under the FAA constitutes state action.”); see
also Federal Deposit, 822 F.2d at 842 n.9 (“[W]e do not find

     7
      AT&T’s argument that Plaintiffs cannot meet the first Lugar prong
fails. The alleged constitutional deprivation arose because AT&T
exercised its federally created right to compel arbitration under the FAA,
and “[u]ndoubtedly the State was responsible for the statute.” Lugar,
457 U.S. at 938.
                ROBERTS V. AT&T MOBILITY                        21

in private arbitration proceedings the state action requisite
for a constitutional due process claim.”); Tulsa Prof’l
Collection Servs., Inc. v. Pope, 485 U.S. 478, 485 (1988)
(“Private use of state-sanctioned private remedies or
procedures does not rise to the level of state action.” (citation
omitted)).

    Plaintiffs contend this case law does not apply because
“the Supreme Court (and Congress via the FAA, as so
interpreted)” has “exercised its power in a manner so heavily
favoring arbitration . . . to fairly attribute AT&T’s use of
such contracts to the State[.]” That argument is a nonstarter.
If amending a statute to afford private insurers a previously
unavailable right—thereby “shift[ing the remedial system]
from favoring the employees to favoring the employer”—
does not provide sufficient “encouragement,” Am. Mfrs.,
526 U.S. at 54, then neither does the FAA, which simply
ensured courts would “place arbitration agreements on an
equal footing with other contracts and enforce them
according to their terms,” Concepcion, 563 U.S. at 339
(emphasis added) (citations omitted).

    There is insufficient “encouragement” even assuming
“Concepcion [and its progeny] crystalized the directive . . .
that the FAA’s purpose is to give preference (instead of mere
equality) to arbitration provisions.” See Mortensen v.
Bresnan Commc’ns, LLC, 722 F.3d 1151, 1160 (9th Cir.
2013). Neither has “the government . . . moved beyond mere
approval of private action,” Duffield, 144 F.3d at 1202,
simply because the Supreme Court has said the FAA
“reflect[s] . . . ‘a liberal federal policy favoring arbitration,’”
Concepcion, 563 U.S. at 339 (quoting Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
While the post-Concepcion increase in arbitration could “in
some sense be seen as encouraging [AT&T to arbitrate,] . . .
22              ROBERTS V. AT&T MOBILITY

this kind of subtle encouragement is no more significant than
that which inheres in the State’s creation or modification of
any legal remedy.” See Am. Mfrs., 526 U.S. at 53; see also
Katz v. Cellco P’ship, No. 12-cv-9193-VB, 2013 WL
6621022, at *6 (S.D.N.Y. Dec. 12, 2013) (holding that “the
very existence of the FAA” did not sufficiently encourage
Verizon to include arbitration agreements in customer
contracts, as “that promotion hardly constitutes the kind of
significant encouragement necessary to a finding of state
action” (citing Am. Mfrs., 526 U.S. at 53)), aff’d in part,
vacated in part on other grounds, remanded, 794 F.3d 341
(2d Cir. 2015).

    By contrast, the FAA and its interpretations, like the
payment-withholding statute in American Manufacturers,
could also be seen as state inaction—the government’s
decision not to interfere with private parties’ choices to
arbitrate. See 526 U.S. at 53. In any event, the FAA has no
provision even resembling the sort of coercive regulations
that met the encouragement test in Skinner. See 489 U.S. at
615. “[O]ur cases will not tolerate the imposition of
[constitutional] restraints on private action by the simple
device of characterizing the State’s inaction as
‘authorization’ or ‘encouragement.’” Am. Mfrs., 526 U.S. at
54 (quotation omitted).

                               IV

    “[P]ermission of a private choice cannot support a
finding of state action,” id., and “private parties [do not] face
constitutional litigation whenever they seek to rely on some
[statute] governing their interactions with the community
surrounding them,” Lugar, 457 U.S. at 937. Plaintiffs must,
                  ROBERTS V. AT&T MOBILITY                             23

but cannot, show AT&T’s conduct is attributable to the state.
Because there is no state action, we AFFIRM. 8

   Costs are awarded to the Appellee. See Fed. R. App. P.
39(a)(2).

    8
      This opinion does not reach the merits of Plaintiffs’ Petition Clause
argument, as there is no state action—“[a] threshold requirement of any
constitutional claim[.]” See Duffield, 144 F.3d at 1200.