Kelly Morrison
AT&T Mobility LLC v. Concepcion
BUS 200-05
Abstract
Vincent and Liza Concepcion entered into an agreement with AT&T for the sale and servicing of cellular devices. The Concepcions brought forward a class action lawsuit against AT&T in a California District Court for charging a sales tax on the retail value on each free phone. Concepcion maintained that AT&T’s advertising for free cellular devices was deceptive. However, AT&T put an arbitration clause in its contract and motioned for the court to dismiss the case. The Ninth Circuit Court of Appeals denied the motion and held that the arbitration clause was unconscionable and unenforceable under California state law since the Federal Arbitration Act (FAA) did not preempt California law governing unconscionability. AT&T ultimately appealed to the Supreme Court, where the decision was eventually reversed.
The Concepcions objected to the arbitration conditions in their contract because they found the agreement to be unconscionable and exculpatory under California law.
AT&T motion to dismiss was unsuccessful due to the District Court’s interpretation of the Discover Bank v. Superior Court. The District Court found that the arbitration provision was unconscionable since AT&T had not shown that bilateral arbitration substituted for the deterrent effects of class actions. On appeal, the Ninth Circuit Court maintained this decision. The court also maintained that the Discover Bank decision was not preempted by the FAA because that rule was “a refinement of the unconscionability analysis applicable to contracts generally in California” (AT&T Mobility LLC. v. Concepcion). As a result, AT&T appealed to the Supreme Court. The Supreme Court decided California contract law related to arbitration agreements is preempted by the FAA since enforcing arbitrations on a class-action basis is contrary to Congress’ legislative intent. Both the majority and minority effectively supported their opinions with relevant case precedents. However, the dissenting opinion was able to do so more effectively by assessing the history of the FAA and revealing the shortcomings of the majority’s opinion.
When state law prohibits arbitration, the conflicting rule is displaced by the FAA. The majority asserts that requiring judicially monitored discovery, or adherence to the Federal Rules of Evidence, are not “a far cry from this case” (AT&T v. Concepcion). This is because the fundamental goal of arbitration is to facilitate streamlined proceedings. Since Concepcion suffers very little in damages, it makes sense to arbitrate in order to resolve a disagreement in a timely manner. Additionally, the majority argues that the legislation clearly dictates its preemptive authority. Requiring the availability of classwide arbitration would furthermore interfere with the accessibility of arbitration and creates an inconsistent scheme with the FAA. The dissent quotes Dean Witter Reynolds v. Byrd to demonstrate that the main goal of the FAA is to facilitate “expeditious resolution of claims” (AT&T v. Concepcion). However, in the same case it is stated that “the costliness and delays of litigation… can be largely eliminated by agreements for arbitration” (AT&T v. Concepcion). Additionally, the majority demonstrates “beyond dispute” that the FAA was designed to promote arbitration (AT&T v. Concepcion). The case of California’s Discover Bank directly interferes with arbitration. Although it doesn’t directly require classwide arbitration, Discover Bank allows any party to request it after the fact. According to the decision made in Stolt-Nielsen, however, it was held that an arbitration panel exceeded its power under the FAA when imposing class procedures based on policy procedures instead of the arbitration agreement itself. In doing so, the informality of arbitration is lost and the process becomes slower, more costly, and likelier left unresolved (AT&T v. Concepcion).
On what basis did the minority disagree with the majority? The minority maintains that the rule in state law is consistent with the FAA’s primary objective and the court is wrong to determine that it preempts the state law ruling. In §2 of the FAA, arbitration agreements are declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract” (AT&T v. Concepcion). Therefore, arbitration is invalidated when evidence of fraud, duress, or unconscionability (AT&T v. Concepcion). According to the relevant Senate Report cited in Dean Witter, the dissent maintains that Congress’ intent “is clearly set forth in section 2” (AT&T v. Concepcion). Therefore, §2 further supports the Discover Bank decision that allows “upon such grounds as exist at law or in equity for the revocation of any contract” (AT&T v. Concepcion). The minority’s view is that class arbitration is consistent with the use of arbitration. According to the American Arbitration Association, classwide arbitration has been found to be “a fair, balanced, and efficient means of resolving class disputes” (AT&T v. Concepcion). The dissenting opinion further questions the majority regarding why individual arbitration is a “fundamental attribute” to arbitration (AT&T v. Concepcion). According to the dissenting opinion, the majority fails to explain and justify why this is the case. The minority additionally questions the validity of the Act, maintaining that arbitration procedures were not fully developed at the time. Therefore, it is unlikely that Congress could have predicted all the implications that arbitration would have in future contractual disputes. For example, the dissenting opinion cites Mitsubishi Motors to demonstrate how both parties in a dispute historically possessed equivalent bargaining power. As a result, California’s statute would be consistent with Congress’ intent when writing the FAA.