Concepcion Fallout

The Supreme Court has vacated a Second Circuit decision refusing to enforce an arbitration agreement that included a class action waiver, remanding the case for further consideration in light of AT&T v. Concepcion. In the case, Fensterstock v. Affiliated Computer Services, a law school graduate, Joshua Fensterstock, was the lead plaintiff in a class action alleging fraud in the servicing of student loans. Although brought in New York, the case applied California law. Both the District Court and the Second Circuit held that the class waiver—and hence the arbitration clause—was unconscionable under the Discover Bank test laid out by the California Supreme Court.

Clearly Discover Bank and its progeny are on shaky ground at best after Concepcion. The lawyer for the defendant is quoted in this New York Law Journal article ($) saying “We’re elated the Court enforced the parties’ agreement,” suggesting his view that Concepcion requires a reversal of the Second Circuit. I’m not so sure the Second Circuit will see it that way. It is worth remembering that AT&T used a very claimant-friendly arbitration clause, which appeared to be designed specifically to remove the argument that the claimants could not “effectively vindicate” their rights without class treatment. It isn’t clear from either the Circuit Court or the District Court opinions in Fensterstock what the arbitration procedure would be if arbitration were compelled. The Second Circuit could still find that the class waiver is unenforceable under the FAA if it concludes that individual arbitration would be cost-prohibitive or otherwise ineffectual. Since that issue appears never to have been raised, it may require a further remand to the District Court. In any event, it will be interesting to see whether the Second Circuit pushes back against Concepcion.

3 thoughts on “Concepcion Fallout”

  1. Thanks for the update. Not a surprising step. Obviously still much to be decided on this case and on class waivers in general.

  2. The Second Circuit did not push back. See its June 30, 2011 order. It neither distinguished Concepcion factually nor found the waiver to be unenforceable under the FAA. It merely remanded the case to the district court for consideration of an issue the latter did not reach. (I represent ACS, by the way).

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