Kerman’s Korner returns for the new year with Jeremy discussing an arbitration that required some outside-the-box thinking, and how he learned that sometimes it’s the things you DON’T do that make all the difference.
Corporations appear to have scored a win, at least in the short term, with the Supreme Court’s recent decision in AT&T Mobility v. Concepcion  , as it is likely to result in less class action litigation. By looking at the individual nature of the issues raised by consumer disputes, the Court took the position that the interests of those parties would be better served by resolutions achieved through arbitration. For corporations, the ability to circumvent protracted and, oftentimes, costly litigation, can significantly drive down costs enabling companies to find better ways to spend their money. However, before closing the book on class actions, many question whether this decision will stand.
With a 5-4 majority, the Court held that, contrary to California’s Discover Bank rule  the Federal Arbitration Act (“FAA”) preempted state law that conditions the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures. In reaching this decision considerable attention was paid to the Discover Bank rule, often invoked to find arbitration agreements unconscionable. In touting the legislative intent of the FAA, the Court considered to what extent the rule conflicted with the objective of the FAA in promoting the enforcement of arbitration agreements in accordance with their terms. Contemporaneous with this decision have been highly vocal consumer advocate opponents decrying the free reign such a decision disproportionately grants corporations to the detriment of the individual consumer. Such fervent opposition has gained the attention of Congress as efforts to minimize the impact of this decision are underway.
In brief review, the Concepcions signed a contract with AT&T for “free” phones along with a bundled-service contract but were charged sales tax on the retail value of the phones. Contrary to the contract’s arbitration clause requiring claims be brought in an individual capacity, they filed a complaint that was later consolidated with a putative class action. Consistent with the plain language of the contract, AT&T demanded these claims be submitted to individual arbitrations. In opposition, the Concepcions relied on, and the lower courts agreed with, the Discover Bank rule holding that the arbitration provision was unenforceable as it was unconscionable by prohibiting classwide proceedings.
The crux of the dissention highlighted by the Supreme Court hinged on the objective of the FAA and how classwide arbitration engineered by virtue of the Discover Bank rule frustrated the efficiencies of a mutually agreed to arbitration between signatories to a contract. Extolling the benefits of streamlining proceedings and providing expeditious results, the Court emphasized how dramatically the principles of arbitration change when involving a class thereby calling into question the utility of arbitration as an appropriate alternative dispute resolution. Yet, the Court did limit its holding by restricting it to the Discover Bank rule stating that unconscionability can still properly be employed to invalidate arbitration clauses just not in a “wholesale manner” as was attempted in this case.
PLUS members can read this entire article in the PLUS Journal archive.