Marc J. Goldstein Arbitrator & Mediator NYC
April 28, 2011

First Thoughts on AT&T Mobility v. Concepcion: An Opportunistic Reformulation of Federal Arbitration Law

On April 27, 2011, some 86 years after the passage of the US Federal Arbitration Act (“FAA”), five justices of the United States Supreme Court declared that arbitration “as envisioned by the FAA” does not include class arbitration because class arbitration cases (i) predictably involve high stakes which arbitrators are not suited to handle, (ii) predictably involve an unacceptable risk of unreviewable arbitral error because of the high stakes, (iii) invariably require procedural formality that is at odds with arbitration’s “principal advantage” of informality, and (iv) invariably require that formal rules be applied by arbitrators who, as a group, are not well-suited to that task.  (AT&T Mobility, Inc. v. Concepcion, No. 09-893, 2011 U.S. LEXIS 3367 (April 27, 2011)).

We learn from these five justices that the “overarching purpose” of the FAA was not (as many of us thought before April 27, and perhaps still believe) merely to enforce private agreements to arbitrate according to their terms, but to do so “so as to facilitate streamlined proceedings.

Have these five justices decided to dismantle 86 years of jurisprudence that has evolved to permit parties to structure their arbitration agreements however they wanted, and instead interposed from now on a quaint, folksy vision of simplistic low-stakes informal arbitration, capable of resolution by unskilled arbitrators unschooled in complex litigation? Has the Court with deliberate intent rendered unenforceable a large swath of arm’s-length, non-consumer, non-class, arbitration agreements?  Of course not.  And the fact that the majority could not possibly have had such an intent is what makes fundamentally ludicrous the rationale of the majority opinion in Concepcion.  The Court’s right-wing majority has resurrected all of the most shopworn elements of judicial hostility to arbitration, all of the canards that the FAA was assuredly enacted to banish, in service of a one-time-only “vision” of arbitration, contrived for the singular purpose of making class arbitration unlawful only when it arises for a state’s invalidation of a class action waiver under state law principles of unconscionability.

The nearly unassailable logic of the position taken by the Supreme Court of California, and the federal Ninth Circuit Court of Appeals, made necessary this astonishing and opportunistic reformulation of the basis of federal arbitration law.  Those courts had held that a clause in an adhesive consumer contract – whether providing for litigation or arbitration — that operates indirectly, by virtue of its prohibition of  class actions, as a disclaimer of liability for willful corporate misconduct, is just as much a violation of public policy as a direct and explicit liability disclaimer. Those courts held that California’s public policy rule against exculpatory clauses generally, as applied to class action waivers, was not pre-empted by the FAA, because the rule applied with equal force to such waivers in agreements for litigation or arbitration and did not take its meaning from the fact that an arbitration clause was involved.

The Supreme Court majority effectively concedes – a concession noted by Justice Breyer in the dissent supported by Justices Ginsburg, Kagan, and Sotomayor  — that the California rule of public policy, as applied to bar enforcement of an arbitration agreement prohibiting class actions, is permitted by the literal terms of the “savings” clause in Section 2 of the FAA, which provides that arbitration agreements shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” But a rule permitted by the literal terms of Section 2’s “savings” clause, the Court holds, still may be unlawful under Section 2 if the rule is “applied in a fashion that disfavors arbitration.  Whereas the availability of class procedures in arbitration, permitting aggregation of small-dollar consumer claims, made it more likely that consumers would elect to arbitrate rather than forego prosecution of their claims entirely, California’s public policy rule appeared to the Ninth Circuit to favor arbitration or at least not disfavor it. To answer that position, the majority posits that the type of arbitration California’s rule promotes is the antithesis of arbitration as envisioned by the FAA.  Class arbitration, according to the majority, therefore runs afoul of the FAA – but only when it results from the judicial invalidation of a class action waiver, not when the parties have made an agreement for class arbitration.


This limitation would seem to expose the illogic and circularity of the majority’s analysis.  The majority posits that “States cannot require a procedure that is inconsistent with the FAA. But the holding of the case is that the procedure is only inconsistent with the FAA when the state requires it (as a condition of small-claims consumer arbitration, by invalidating a waiver). If class arbitration were indeed inherently the antithesis of arbitration as envisioned by the FAA, an arm’s-length agreement for class arbitration in a non-adhesive contract should be outside the FAA and enforceable only in accordance with state law.

Last year the Supreme Court in Stolt-Nielsen held that arbitrators exceed their powers when they apply their own conceptions of good arbitration policy to interpret an arbitration clause as permitting class arbitrations.  But from Concepcion we glean that Supreme Court justices, unlike arbitrators, may use their own conceptions of good arbitration policy to interpret the FAA as prohibiting class arbitrations when they result from state law invalidation of class action waivers. 

Judges and litigants looking to distinguish Concepcion will surely seize on the Court’s references to particular features of AT&T’s Mobility’s arbitration procedures that the Court viewed as likely to induce individuals to prosecute rather than forego small claims.  (“States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons. Moreover, the claim here was most unlikely to go unresolved.”  (emphasis supplied)). If comparable procedures tending to encourage individual claims are not present, judges may hold that Concepcion does not preclude finding that the FAA permits the application of state law contract principles of unconscionability to invalidate class action waivers.

But it can be expected the arbitration procedures of consumer products companies will be widely overhauled to mimic AT&T Mobility’s approach, and thus to close the window for distinguishing Concepcion.


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