Michael A. Geibelson
Yes, Concepcionmeans what it says, but ... UCL Claims after AT&T Mobility v. Concepcion
In Discover Bank v. Superior Court
(Boehr) (2005) 36 Cal.4th 148, the California Supreme Court held that arbi- tration clauses in consumer contracts that prohibit class arbitration are uncon- scionable, and that such clauses are not preempted by the Federal Arbitration Act (FAA). Six years later, in AT&T Mobility LLC v. Concepcion (2011) 131 S. Ct. 1740, the United States Supreme Court held that Discover Bank was wrongly decided. Now, more than six months after
Concepcion, plaintiff after plaintiff has tried to invalidate arbitration clauses and bring class actions concerning matters covered by arbitration clauses in con- sumer agreements characterized as adhe- sion contracts. Almost all of them have failed. The claims that have survived principally seek only injunctive relief. This review of the cases in the wake
of Concepcion cautions those bringing claims covered by arbitration clauses, and identifies the features of those narrow claims that have threaded the needle of FAA preemption.
Discover Bank recalled Understanding Concepcion starts with
a few facts and the Court of Appeal’s opinion in Discover Bank. The claim in Discover Bank arose out of the bank’s rep- resentation “to cardholders that late pay- ment fees would not be assessed if pay- ment was received by a certain date, whereas in actuality they were assessed if payment was received after 1:00 p.m. on that date, thereby leading to damages that were small as to individual con- sumers but large in the aggregate.” (36 Cal.4th 152.) The Discover Bank card- holder agreement “governing plaintiff ’s credit card account contained a choice- of-law clause providing for the applica- tion of Delaware and federal law.” An
8 — The Advocate Magazine JANUARY 2012
arbitration clause was added by a subse- quent amendment which “precluded both sides from participating in classwide arbitration, consolidating claims, or arbi- trating claims as a representative or in a private attorney general capacity,” and which stated that the provision would be governed by the FAA. Plaintiff filed a class-action com-
plaint. Discover Bank moved to compel arbitration on an individual basis and to dismiss the class action pursuant to the arbitration agreement’s class action waiv- er. After reconsideration, the trial court denied the motion to compel. Discover Bank obtained writ review by a petition, and the Court of Appeal reversed the trial court. Without disputing that class arbitration waivers may be uncon- scionable under California law, and with- out addressing whether California or Delaware law controlled, the Court of Appeal held that the FAA preempts the state law rule that class arbitration waivers are unconscionable. On review, the California Supreme
Court disagreed, holding that “at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion (“a stan- dardized contract, which, imposed and drafted by the party of superior bargain- ing strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it”) and with no opportunity to negotiate are unenforce- able, whether the consumer is being asked to waive the right to class action litigation or the right to class-wide arbitration.” The court reasoned that “one-sided, exculpato- ry contracts in a contract of adhesion, at least to the extent they operate to insulate a party from liability that otherwise would be imposed under California law, are gen- erally unconscionable.”
Finally, the Discover Bank Court con-
cluded that the FAA does not preempt California law in this respect. In doing so, it noted that “the FAA is silent on the matter of class actions and class action arbitration,” and that its “conclusions with respect to FAA preemption must come from the United States Supreme Court’s articulation of general principles regarding such preemption.” (36 Cal.4th. at 163-64.)
Along comes Concepcion Unlikely because of Discover Bank’s
invitation, but certainly directly address- ing it, the United States Supreme Court in Concepcion held that the FAA preempts the rule of Discover Bank and California’s prohibition on class action and class arbi- tration waivers. Concepcion involved a false advertis-
ing and fraud claim related to a cell phone contract. The Concepcions alleged that they were improperly charged sales tax on the retail value of phones provided for free under their service contract. Their suit was consoli- dated with a class action alleging, inter alia, that AT&T had engaged in false advertising and fraud by charging sales tax on “free” phones. AT&T moved to compel arbitration and the district court denied the motion, finding the class- action waiver unconscionable under Discover Bank. The Ninth Circuit Court of Appeals affirmed, holding AT&T’s cus- tomer agreement was unconscionable. But in a 5-4 decision, the Supreme
Court reversed. That Court held that the FAA preempted the Discover Bank rule, and that the saving clause in 9 U.S.C. § 2 was not intended to preserve state law rules that stood as an obstacle to the accomplishment of the FAA’s objectives.
See Claims, Page 12
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