The Aftermath of AT&T Mobility V. Concepcion : Are Class Actions Now Extinct?

Article excerpt

In a previous issue of this journal I wrote of the U.S. Supreme Court's pro-business decision in AT&T Mobility v. Concepcion,1 in which a majority of the Justices held that the Federal Arbitration Act (FAA) preempts the California Supreme Court decision in Discover Bank v. Superior Court,2 which held that class arbitration waivers in arbitration agreements are unconscionable and therefore unenforceable. The Court reasoned in Concepcion that "requiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."3 It recognized that its ruling could deprive many persons of the only practical means of recovering small amounts from large defendants, but nonetheless concluded that even an adhesive contract providing for a waiver of class claims was enforceable.4

My previous article discussed four post-Concepcion appellate decisions, three by federal courts of appeal, and one by a state appellate court,5 en - forcing class action waivers in arbitration agreements relying on Concepcion. I noted, however, that at that time, the scope of FAA preemption in Cali - fornia was not yet clear for two reasons. First, a California appeals court had held that Concepcion did not apply to "representative actions" under the state Private Attorney General Act (PAGA)6, which gives private citizens the right to seek civil penalties on behalf of the state in their capacity as "private attorneys general." Second, that decision suggested that the 2007 decision by the California Supreme Court in Gentry v. Superior Court7 (al - lowing employees to seek to recover unpaid wages under circumstances in which they would not do so on an individual basis) was still good law. Since that article was written, recent decisions by the 9th Circuit demonstrate that Concepcion should be ap plied broadly to the benefit of em ployers. These cases are discussed below.

In Kilgore v. KeyBank, N.A.,8 decided on March 7, 2012, the 9th Circuit held that the FAA preempts Cali fornia's Broughton-Cruz9 rule prohibiting arbitration of claims for public injunctive relief. Kilgore arose out of loans secured by two students of a helicopter vocational school. They sued to enjoin a lender from engaging in false and deceptive practices in violation of California's Unfair Com petition Law. The notes they signed provided for binding arbitration and stated that there shall be "no authority for any claims to be ar bitrated on a class action basis." The students petitioned a district court to compel arbitration. The court denied the motion on the ground that Broughton-Cruz prohibited arbitration of injunctive relief claims under the Unfair Com petition Law. The 9th Circuit re - versed and ordered the claims to arbitration. The court concluded that under Concep cion, state laws "cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons," and even though such a result may admittedly "reduce the effectiveness of state laws like the [California] Unfair Com petition Law."

The 9th Circuit further acknowledged that state legislatures may well "find their purposes frustrated" by the Supreme Court's ruling, but it said that this "cannot justify departing from the preemption analysis as set forth by the Supreme Court in Con - cepcion." The appeals court, therefore, concluded that a claim to enjoin false advertising under the Unfair Compe - tition Law was arbitrable, even though the plaintiffs were attempting to act as "private attorneys general" representing the public interest.

Therefore, it stands to reason that if the FAA preempts a state law that precludes plaintiffs from seeking in - junctive relief under the Unfair Com - petition Law on behalf of the public, the FAA also arguably preempts state laws and court rulings that prohibit arbitration of claims under the PAGA, which individuals have been increas - ingly filing since the decision in the Concepcion case. …