Client Alert
U.S. Supreme Court Further Limits Class Arbitration
May 11, 2011
John E. Porter, Christopher F. Dugan, Charles A. Patrizia, James E. Berger, & Joseph R. Profaizer
On April 27, 2011, in AT&T Mobility LLC v. Concepcion, a sharply divided U.S. Supreme Court ruled that the Federal Arbitration Act (FAA) preempted Californias judicially created Discover Bank rule, which found waivers of class arbitration in most consumer contracts to be unconscionable and therefore unenforceable. Specifically, the Supreme Court held that the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures. AT&T Mobility reflects the ongoing commitment of the Supreme Court to ensure that the FAA preempts state laws or court rulings that are perceived to present an obstacle to the enforcement of private parties mutual consent to arbitrate in accordance with the terms of their written agreements.
The AT&T Mobility decision is not surprising. It was foreshadowed by the Supreme Courts decision last year in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 599 U.S. ___, 130 S.Ct. 1758 (2010), in which the Court held that where an arbitration agreement is silent on the question of whether class action proceedings are authorized, the parties consent to class arbitration may not be inferred absent evidence of the parties intent or a governing rule of law authorizing that inference. Taken together, Stolt-Nielsen and AT&T Mobility may well lead to the effective demise of class arbitrations unless those decisions are abrogated by federal legislation or subsequent Supreme Court decisions. For companies that seek to avoid the risk of class action lawsuits or arbitrations, AT&T Mobility and Stolt-Nielsen indicate that properly drafted arbitration clauses can minimize, and perhaps even eliminate, that risk in many circumstances.