The U.S. Supreme Court’s 5-4 decision in AT&T v. Concepcion is a disturbing example of judicial activism that makes it easier for corporations to enforce mandatory arbitration clauses banning class actions, cheat consumers and workers out of millions and keep almost all of the money. But, contrary to what many corporate defense counsel claim and I feared (see Arthur H. Bryant, “Class Actions Wipe Out,” NLJ, Nov. 25, 2010), Concepcion does not kill — or let corporations kill — class actions. The decision has lots of limitations.
First, the Court held that the Federal Arbitration Act of 1925 (FAA) pre-empts California’s Discover Bank rule — which declared all class action bans in adhesion contracts unconscionable in cases charging companies with cheating “large numbers of consumers out of individually small amounts of money” — because, in the Court’s view, the rule could force defendants into class arbitration without their consent even though the consumers’ claim was “most unlikely to go unresolved” in individual arbitration. The Court pointed to the facially attractive aspects of AT&T’s mandatory arbitration clause, which the district court (in the absence of evidence) opined would “prompt full…or even excess payment to the customer without the need to arbitrate or litigate” and make consumers “better off…than they would [be] in a class action.” Few states, however, have categorical rules like the Discover Bank rule, and few companies have arbitration clauses like AT&T’s (although more will be adopting them soon).
Second, the Court did not consider, much less uphold, the validity of AT&T’s mandatory arbitration clause or class action ban. It simply remanded the case for further proceedings. But the facts are that AT&T’s clause precludes the parties from being forced into class arbitration (it bars arbitration if the class action ban is struck down) and virtually ensures that customers’ claims will go unresolved. No evidence about the operation of AT&T’s clause was introduced in Concepcion because the Discover Bank rule made it unnecessary. But in Coneff v. AT&T, in which extensive evidence was heard, the Western District of Washington found that only 170 of the company’s 70 million customers (0.00024%) pursued individual arbitration, while the Federal Communications Commission, Consumer Reports and consumer groups were (and are) reporting record complaints (iPhone anyone?). On remand, Vincent and Liza Concepcion should be free to develop — and challenge AT&T’s clause on — the facts.
Third, the Court did not hold that the FAA pre-empts state rules of law invalidating class action bans that do not force parties into class arbitration without their consent. The clear rule in some states is that, when a class action ban is illegal, the parties may choose between class arbitration and class action litigation. More states are likely to clarify their rules now, too.
Fourth, the Court did not hold that the FAA pre-empts state rules of law declaring class action bans unconscionable when the evidence proves that they would effectively preclude consumers from vindicating their rights and immunize defendants from liability. Several states have rules like this. The question presented in Concepcion was “Whether the FAA preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.”
The Court has never held that the FAA pre-empts states from conditioning the enforcement of arbitration agreements on the availability of procedures that are necessary to ensure the parties can vindicate their claims. Indeed, in at least four cases, the Court has described and justified arbitration as moving parties to a cheaper, faster, less formal forum without affecting their substantive rights and said that arbitration clauses are not enforceable if they preclude plaintiffs from “effectively vindicating” their rights. Nothing in Concepcion overturned those cases.
Fifth, the Court did not hold that corporations can ban any class actions brought under federal law. Concepcion addressed whether the FAA pre-empts particular rules of state law. The FAA does not pre-empt other federal law. Moreover, several federal courts have held that class action bans violate the FAA when, for example, the costs or claims involved (e.g., antitrust claims that would require expensive and complex expert testimony) preclude individual litigation.
Sixth, there are strong arguments that Concepcion‘s holding does not apply in state court. Justice Clarence Thomas, who provided the critical fifth vote, has insisted in five separate cases that the FAA does not apply to cases in state court. If Concepcion had come to the Court from state court, he would likely have voted against pre-emption.
Finally, the Court’s ruling does not affect class actions in which arbitration clauses or class action bans were adopted with inadequate notice or consent, during the course of litigation or in circumstances of fraud, duress or mutual mistake involving the arbitration clause. Nor does it affect class actions in which clauses or bans are unconscionable or invalid for other reasons, or do not exist.
Concepcion was wrongly decided. The Discover Bank rule made common sense and was not biased against arbitration. It automatically preserved class actions when they are most needed — when corporations could otherwise cheat consumers and get off scot-free. The facts about AT&T’s arbitration clause, which the Court did not consider, demonstrate that. In contrast, Concepcion ensures that more money will be transferred illegally from consumers and workers to corporations. The Court’s dramatic expansion of FAA pre-emption is one more reason that Congress and regulatory agencies should ban mandatory arbitration of consumer and employment claims. In the meantime, however, to paraphrase Mark Twain, the reports of class actions’ death are greatly exaggerated.
Arthur H. Bryant is the executive director of Public Justice, a national public interest law firm dedicated to preserving access to justice. Public Justice filed an amicus brief opposing federal pre-emption in Concepcion.