SUPREME COURT UPHOLDS ARBITRATION CLAUSES THAT DO NOT PERMIT CLASS ARBITRATION
The United States Supreme Court held yesterday that the Federal Arbitration Act preempted California state contract law which courts had applied to find arbitration agreements invalid if they did not permit class arbitration. The Supreme Court’s decision appears to clear the way for consumer contracts to require the individual arbitration of disputes and prohibit consumers’ use of class action in litigation or arbitration. Some commentators are even saying the decision “could spell the death-knell of consumer class actions.”
In AT&T Mobility LLC v. Concepcion, the Concepcions brought an action in federal court alleging that AT&T had engaged in false advertising and fraud by charging sales tax on mobile phones it advertised as free. Their action was later consolidated with a putative class action. AT&T tried to compel arbitration because the Concepcions had entered into a contract that contained an arbitration clause. Both the District Court and the Ninth Circuit Court of Appeals denied AT&T's motion to compel arbitration. The lower courts relied on the California Supreme Court’s decision in Discover Bank v. Superior Court to invalidate the arbitration clause in the contract as “unconscionable” under state law because the provision did not allow for class action arbitration. The Ninth Circuit rejected the argument that “class proceedings will reduce the efficiency and expeditiousness of arbitration.”
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