April 27, 2011

Sternlight on AT&T v. Concepcion

By Art Hinshaw

As one would expect, it’s a big day at Indisputably when the Supreme Court issues another arbitration opinion.  UNLV law prof and FOI (Friend of Indisputably) Jean Sternlight adds to the analysis.

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I mostly agree with Paul Kirgis’ explication of the Supreme Court’s decision in AT&T v. Concepcion and write to offer a few additional thoughts.

First, it is highly ironic that the supposed federalists on the Court have given state unconscionability doctrine such short shrift.   While admitting that the FAA’s Section 2 does not require enforcement of those arbitration clauses that are unconscionable, the Court nonetheless finds that in this instance California’s interpretation of its own unconscionability is preempted.  The Court accomplishes this end by reading a particular definition of arbitration (excluding classwide arbitration) into the FAA and then finding that the California unconscionability determination is preempted by the FAA.

Second, it is noteworthy that the majority places the question of whether or not classwide arbitration is a good thing at the center of its analysis.  This is rather a neat rhetorical trick, in my opinion.  Opponents of  class action arbitration prohibitions do not argue that classwide arbitration is superior to individual arbitration, but rather argue that individual arbitration is often not feasible in consumer cases.  By shifting the terms of the debate to focus on the virtues and detriments of classwide arbitration as compared to individual arbitration, rather than focusing on the use of class action prohibition to deprive consumers or others of all access to justice, the majority has obscured the real issues at play:  whether companies can use class action prohibitions to entirely protect themselves from claims in small cases and in cases where many victims may not realize their rights have been compromised.

Third, I am hopeful that advocates and lower courts may find some ways to limit Concepcion to its somewhat unusual facts, and allow consumers and others to continue to challenge future class action prohibitions using unconscionability arguments.  The majority was consistently careful to state that the FAA  preempted “the Discover Bank rule”, rather than all unconscionability determinations.  Indeed, the majority made clear that unconscionability can still appropriately be used to invalidate arbitration clauses.  Thus, in a future case where plaintiffs could show that the nature of the arbitration process, including its lack of class action opportunities, prevented plaintiffs from having access to justice, I believe a court could find the arbitration clause unconscionable and this finding would not be preempted by the FAA.  Also, the Supreme Court’s finding in Concepcion described the AT&T arbitration process in highly favorable terms, praising its speed and efficiency and noting that it was likely to ensure relief and provide adequate incentives for prosecution of meritorious claims.  In future cases, where companies’ plans might be found less favorable to consumers or other plaintiffs, I believe Concepcion could appropriately be distinguished.

Of course, as Paul noted, Congress may have the last word in this discussion.

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