U. S. Supreme Court declines to apply state law, enforces waiver of class-wide arbitration

By Lori Irish Bauman
May 2, 2011

Last week, in a 5-4 decision, the United States Supreme Court strengthened the Federal Arbitration Act (FAA) by enforcing a term in a consumer contract that provided for arbitration of all disputes, but prohibited classwide arbitration. 

In AT&T Mobility LLC v. Concepcion, Mr. and Mrs. Concepcion entered into a contract for sale and service of cell phones with AT&T Mobility.  The contract provided for arbitration of all disputes, but required that any claims be brought in a party's individual capacity, and not as a class member.  The Concepcions later sought to participate in a class action lawsuit claiming false advertising and fraud by AT&T.  They claimed that the arbitration clause was unenforceable under Calfornia law because the waiver of classwide proceedings was unconscionable.

The Supreme Court, reversing the Ninth Circuit, agreed with AT&T that California's test for invaildating waivers of classwide arbitration stands as an obstacle to the purpose of the FAA.  For that reason, state law can't be used to invalidate such a clause as unconscionable.  The Court refused to apply state law even though the FAA expressly provides that arbitration agreements may be invalidated on grounds existing under state law.

This result apparently voids similar cases applying Oregon and Washington law, in which waivers of class arbitration have been found to be unconscionable.  See our coverage of those cases here and here

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