Sternlight on AT&T v. Concepcion

As one would expect, it’s a big day at Indisputably when the Supreme Court issues another arbitration opinion.  UNLV law prof and FOI (Friend of Indisputably) Jean Sternlight adds to the analysis.

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I mostly agree with Paul Kirgis’ explication of the Supreme Court’s decision in AT&T v. Concepcion and write to offer a few additional thoughts.

First, it is highly ironic that the supposed federalists on the Court have given state unconscionability doctrine such short shrift.   While admitting that the FAA’s Section 2 does not require enforcement of those arbitration clauses that are unconscionable, the Court nonetheless finds that in this instance California’s interpretation of its own unconscionability is preempted.  The Court accomplishes this end by reading a particular definition of arbitration (excluding classwide arbitration) into the FAA and then finding that the California unconscionability determination is preempted by the FAA.

Second, it is noteworthy that the majority places the question of whether or not classwide arbitration is a good thing at the center of its analysis.  This is rather a neat rhetorical trick, in my opinion.  Opponents of  class action arbitration prohibitions do not argue that classwide arbitration is superior to individual arbitration, but rather argue that individual arbitration is often not feasible in consumer cases.  By shifting the terms of the debate to focus on the virtues and detriments of classwide arbitration as compared to individual arbitration, rather than focusing on the use of class action prohibition to deprive consumers or others of all access to justice, the majority has obscured the real issues at play:  whether companies can use class action prohibitions to entirely protect themselves from claims in small cases and in cases where many victims may not realize their rights have been compromised.

Third, I am hopeful that advocates and lower courts may find some ways to limit Concepcion to its somewhat unusual facts, and allow consumers and others to continue to challenge future class action prohibitions using unconscionability arguments.  The majority was consistently careful to state that the FAA  preempted “the Discover Bank rule”, rather than all unconscionability determinations.  Indeed, the majority made clear that unconscionability can still appropriately be used to invalidate arbitration clauses.  Thus, in a future case where plaintiffs could show that the nature of the arbitration process, including its lack of class action opportunities, prevented plaintiffs from having access to justice, I believe a court could find the arbitration clause unconscionable and this finding would not be preempted by the FAA.  Also, the Supreme Court’s finding in Concepcion described the AT&T arbitration process in highly favorable terms, praising its speed and efficiency and noting that it was likely to ensure relief and provide adequate incentives for prosecution of meritorious claims.  In future cases, where companies’ plans might be found less favorable to consumers or other plaintiffs, I believe Concepcion could appropriately be distinguished.

Of course, as Paul noted, Congress may have the last word in this discussion.

8 thoughts on “Sternlight on AT&T v. Concepcion”

  1. Jim-
    I don’t think Thomas’s opinion would save Armendariz. Thomas wrote separately to make clear that defenses that go to the formation of the agreement are still available. As I understand it, he’s talking about fraud, duress, and mistake. I don’t think his opinion says anything that would contradict the plurality on the question of whether the arbitration process contemplated by the contract could render the agreement unenforceable.

    Thomas has certainly suggested in the past that he disagrees with the application of the FAA to state court proceedings. But he does not make that point in this concurrence (it wasn’t raised by the facts), and he seems to go along with the majority on the basic pre-emption point. Given the overwhelming acceptance at this point that at least Section 2 applies in state court proceedings, I think a state court would be blatantly flouting the Supreme Court to find that it is not bound by this holding. Having said that, this is a point on which the Court could pivot, as you suggest.

  2. I’d like to comment on one aspect of AT&T v. Concepcion that I haven’t seen discussed in the blogosphere, which is, is it even applicable in state court? One of the 5 Justices in the majority, Clarence Thomas, has consistently held the position that the FAA does not apply in state court at all, that it was intended by Congress merely as a set of procedural rules in federal court. Accordingly, he has consistently dissented whenever the court has applied the FAA to a state court judgment. (See Preston v. Ferrer, 552 US at 363.) So it seems that if the case had arisen from a state court judgment, 4 Justices would say that the FAA doesn’t preempt the Discover Bank rule and 1 additional Justice would say Discover Bank doesn’t preempt anything in state court. Of course it is possible that if such a case arose, 1 or more of the 4 would vote with a majority feeling bound by stare decisis, or that Thomas would change his position, but we shouldn’t assume that either of those things would happen. It’s just as likely they’d simply refuse to grant cert. (Scalia also is on record as believing the FAA doesn’t apply in state court and would join 4 others to overturn Southland, although he doesn’t continue to dissent as Thomas does.) Of course it is true that often a class action filed in state court can be removed to federal court on diversity grounds, but that’s not necessarily always the case. And it’s well established that the FAA itself doesn’t create federal jurisdiction. Also, inasmuch as Concepcion is taken to apply to Armendariz-type protections in, for example, ordinary, nondiverse employment actions, the fact that AT&T may not apply in state court is very significant. Am I missing something?

  3. I would be interested in your thoughts about whether it makes a difference that only four justices joined in the lead opinion. Justice Thomas’ concurring opinion was much narrower. He agreed that the Discover Bank rule was preempted by the FAA, but he also stated that state law rules related to the formation of the arbitration agreement (i.e., rules regarding fraud, duress, mistake, and unconscionability) survive. This means that five justices (Thomas plus the four dissenters) agree that plaintiffs remain entitled to challenge arbitration agreements on the ground of unconscionability. Furthermore, since the lead opinion was a plurality opinion, the holding must be construed as narrowly as Justice Thomas’ concurrence. What are your thoughts on this? Doesn’t this mean that Armendariz is still good law?

  4. I agree with Jean that Concepcion leaves open the possibility of raising unconscionability where cost would prevent a consumer from seeking redress. I hope you are right that other unconscionability challenges might also still be available. But I wonder whether a decision like Armendariz would survive this. Can a court now invalidate an arbitration agreement on the grounds that it doesn’t include sufficient procedural safeguards? I read Concepcion to say, probably not.

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