Drafting Class Arbitration Waivers after AT&T Mobility V. Concepcion

Article excerpt

The Supreme Court's decision in Concepcion has caused some businesses to take a second look at whether to include a class action waiver in their arbitration agreements. This article explores the risks and benefits of doing so, and discusses language that could be considered to implement that objective.

Earlier this year, the U.S. Supreme Court handed businesses a major victory when it decided, in AT&T Mobility, LLC v. Concepcion,1 that class arbitration waivers stand "as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."2 As a result, the Court held that the Federal Arbitration Act (FAA) preempts California's law making such waivers unconscionable and enforceable. This decision, and the state and federal court decisions that have followed it, provide the opportunity for businesses to reconsider the use of such waivers in mandatory arbitration agreements, particularly those in consumer and employment contracts.

Vincent and Liza Concepcion sued AT&T Mobility, an AT&T subsidiary, for false advertising and fraud after they were charged approximately $30 in sales tax for a phone that they were promised for free. Their cell phone service contract not only provided for arbitration of all disputes, it required the parties to arbitrate only in their "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." It also prohibited the arbitrator from consolidating the claims of more than one person, or from presiding over any form of representative or class proceeding.3

A trial court denied AT&T Mobility's motion to compel the Concepcions to arbitrate and the 9th Circuit affirmed, both courts concluding that the class arbitration waiver was unlawful under a California case known as Discover Bank v. Superior Court.4 A majority of the U.S. Supreme Court re - versed and ordered the Con - cepcions to individually arbitrate their claims against the company. The majority opinion stated that the principal advantage of arbitration, its informality, would be sacrificed by classwide arbitration and that the time-consuming na ture of such proceedings and numerous procedural issues make arbitration "poorly suited" to the higher stakes of class litigation.5 Accordingly, the majority concluded that a collective or representative action, convenient as it may be as a method to try to "pressure defendants into settling questionable claims," is not available in this context absent the consent of both parties.

Stolt-Nielsen v. AnimalFeeds

The Concepcion case is the second U.S. Su - preme Court decision in the last two years to address the issue of whether consent to class arbitration may be "read into" agreements covered by the FAA. In the earlier case, Stolt-Nielsen v. AnimalFeeds International Corp.,6 a majority of the Court decided that a party "may not be compelled under that statute to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." The majority reasoned that "an implicit agreement to authorize class-action arbitration ... is not a term that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate." It also concluded that mere silence on the issue of classaction arbitration cannot be interpreted to constitute consent to resolve their disputes in class proceedings, given the substantial differences between bilateral (i.e., individual) and class arbitration. 7

This principle was amplified by the Concepcion decision, which expanded on the Stolt-Nielsen holding. The Concepcion majority held that since the FAA's overarching purpose is to "ensure the enforcement of arbitration agreements according to their terms," requiring class arbitration on a non-consensual basis would interfere with Con - gressional intent.8 Calling its Stolt-Nielsen decision "instructive," the Concepcion majority also stated that class-wide arbitration is a "structural matter" that includes absent parties, necessitating additional and different procedures and concerns about confidentiality that are not present in the traditional arbitration setting. …