RESPONDENT: Vincent Concepcion, et ux.
LOCATION: United States Capitol
DOCKET NO.: 09-893
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 563 US 333 (2011)
GRANTED: May 24, 2010
ARGUED: Nov 09, 2010
DECIDED: Apr 27, 2011
Andrew J. Pincus - for the petitioner
Deepak Gupta - for the respondents
Facts of the case
Customers brought a class action lawsuit against AT&T Mobility LLC in a California federal district court. They alleged that the company's offer of a free phone to anyone who signed up for its service was fraudulent to the extent the company charged the new subscriber sales tax on the retail value of each free phone. AT&T moved to compel arbitration based on the arbitration clause contained within its contract of service. The district court denied the motion.
On appeal, the U.S. Court of Appeals for the Ninth Circuit held that (1) the arbitration clause was unconscionable and unenforceable under California law and (2) the Federal Arbitration Act ("FAA") did not expressly or impliedly preempt California law governing unconcionability.
Does the FAA preempt states from conditioning the enforcement of an arbitration agreement on the availability of class-wide arbitration procedures?
Media for AT&T Mobility LLC v. ConcepcionAudio Transcription for Oral Argument - November 09, 2010 in AT&T Mobility LLC v. Concepcion
Audio Transcription for Opinion Announcement - April 27, 2011 in AT&T Mobility LLC v. Concepcion
This case is here on writ of certiorari to the United States Court of Appeals for the Ninth Circuit.
The respondents Vincent and Liza Concepcion entered into a contract for the sale and servicing of cellular telephones with the petitioner here, AT&T Mobility LLC.
The contract provided that all disputes between the parties would be arbitrated and that each party would enter arbitration in its “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding."
The contract also specified that AT&T, would among other things, bear the cost of arbitration in all nonfrivolous cases, would not seek reimbursement of its attorney's fees, and would provide a minimum award of $7,500 plus double attorney's fees to any customer who recovered more in arbitration than AT&T had offered in settlement.
In March 2006, the Concepcions filed a complaint against AT&T in the United States District Court for the Southern District of California.
That complaint was later consolidated with a putative class action.
It alleged that AT&T had engaged in false advertising and fraud by charging sales tax on phones that AT&T had advertised as free with the purchase of cellular service.
AT&T moved to compel arbitration under the terms of its contract, but the District Court denied the motion.
The Ninth Circuit affirmed.
It held that the arbitration agreement was invalidated by a California law which said that class waivers in consumer arbitration agreements are unconscionable and hence, unenforceable if three conditions are satisfied.
First, the agreement is in an adhesion contract, that is a -- a take it or leave it contract presented by a party in a strong bargaining position.
Second, disputes between the parties are likely to involve small amounts of damages.
And third, the party with inferior bargaining power alleges a deliberate scheme to defraud.
The Ninth Circuit also held, and this is the federal issue that brings the case to this Court, that the California law did not run a foul of the Federal Arbitration Act or the FAA which makes agreements to arbitrate, “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
“Unconscionability,” the Ninth Circuit said, “Is a ground for revocation of any contract.”
In an opinion filed with the clerk today, we reverse the judgment of the Ninth Circuit.
The FAA was enacted in 1925 in response to longstanding judicial hostility to agreements to arbitrate.
By requiring courts to hold arbitration agreements "valid, irrevocable and enforceable," the Act was meant to preserve for agreed upon use, a procedure that provides the flexibility necessary to develop specialized dispute resolution mechanisms.
We have held that parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom they will arbitrate.
And we have held that state laws, specifically targeting arbitration, such as laws prohibiting the arbitration of particular types of claims are preempted.
Although the FAA says that arbitration agreements can be held unenforceable on grounds that exist at law or in equity for the revocation of any contract.
If that language does not give States free rein to adopt the policies that discriminate against arbitration or interfere with its central mechanics.
We have held that a saving clause such as that cannot be read to create an exception so large that it swallows the whole statute.
Here, to allow any ground of unconscionability that is generally applied, would do just that.
Nothing would stop States from declaring that all agreements for dispute resolution, whether in court, in mediation, or an arbitration are unconscionable unless they require adherence to the Federal Rules of Evidence, or allow judicially monitored discovery.
Such rules would destroy arbitration as we know it, which is what the FAA was designed to preserve.
We think that an effective requirement of classwide consumer arbitration is similar to those examples and is similarly preempted.
We held in Stolt-Nielsen versus AnimalFeeds International Corporation that, “the changes brought about by the shift from bilateral arbitration to class-action arbitration are fundamental.”
Classwide arbitration is slower and procedurally much more complicated than bilateral arbitration.
In court litigation, for a class-action money judgment to bind absentee class member -- members, those -- the -- the representatives of those members must -- I'm sorry.