In AT&T Mobility v. Concepcion, the Supreme Court struck California's so-called "Discover Bank rule"--a judge-made rule providing that arbitration agreements attended by class action waivers are unenforceable if those agreements are contained in standard form consumer contracts. (1) The Discover Bank rule had been informed by a judicial suspicion that class waivers in adhesion contracts often prevent putative claimants from being able to vindicate their rights. But over time, the rule was applied more broadly and ceased to be limited to cases where the ability to vindicate rights was frustrated. The fact that the Discover Bank rule might save many claimants from forfeiting the ability to vindicate their rights--from seeing their claims "slip through the legal system"--presented no justification, in the view of the Scalia-led majority, for a prophylactic state rule that would label "unconscionable" all arbitration agreements in standard-form consumer contracts. Even if such an ex ante rule were "desirable for unrelated reasons," the Court held, "States cannot require a procedure that is inconsistent with the FAA." (2)
As I and others have argued, Concepcion leaves open and unresolved the viability of a state law challenge to a bilateral arbitration clause which is shown, in a particular case, to impose a forfeiture of the claimant's ability to vindicate his state law rights. (3) Reasonable people can dispute the implications that Concepcion holds for such challenges, whether they are couched in terms of a generally applicable state law doctrine against exculpatory contracts, (4) or the vaguer and broader concept of "unconscionability." But the Concepion majority certainly did not foreclose such challenges in any explicit fashion--indeed, the Concepcion Court expressly granted certiorari to consider whether states may condition the enforceability of an arbitration agreement on the availability of class-wide procedures "when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims." (5)
Meanwhile, in the context of federal claims, the Second Circuit in Amex III (6) reaffirmed, in light of Concepcion, its earlier holdings that a class action waiver contained in an arbitration agreement is unenforceable if it is proven in the individual case that the arbitration clause at issue would force the claimant to shoulder such costs as would prevent the claimant from effectively vindicating its federal statutory rights. (7) On both the state and federal levels, then, cost-based vindication of rights challenges remain a significant concern to corporate defendants looking to exculpate themselves from exposure to aggregate litigation.
All of this begs a question: will the robust recognition of cost-based, evidence-backed vindication of rights challenges swallow up the basic ruling of Concepcion, rendering unenforceable arbitration agreements and class action waivers that the Supreme Court has held are otherwise to be enforced?
Recently, in Amex IV, (8) a divided Second Circuit refused to rehear Amex III en banc. In dissenting from the court's decision, Chief Judge Jacobs flagged this very issue, complaining that the vindication of rights doctrine "can be used to challenge virtually every consumer arbitration agreement that contains a class action waiver" (9) given the generally low per-plaintiff damages and significant expense of litigating most federal class actions. (10) Such an expansive interpretation would, in Chief Judge Jacobs's view, imply that class action waivers in cases asserting rights arising under most federal statutes are per se unenforceable, "permit[ting] plaintiffs to evade enforcement of class action ... waivers simply by manufacturing an affidavit or choosing pricey attorneys." (11) In the end, "every class counsel and every class representative who suffers small damages [could] avoid arbitration by hiring a consultant (of which there is no shortage) to opine that expert costs would outweigh a plaintiffs individual loss. …