AT&T Mobility v. Concepcion

Brief Fact Summary.

Plaintiffs sue AT&T for fraud and AT&T attempts to force bilateral arbitration.

Synopsis of Rule of Law.

The FAA supersedes any conflicting state law.

Facts.

Plaintiffs Concepcions purchased phones and cell service from Defendant AT&T after they saw an advertisement that Defendant was offering phones for free. The Concepcions were charged sales tax on the phones even though they were supposed to get them for free. There was an arbitration clause in the service agreement signed by the Concepcions that mandated disputes be resolved in arbitration and prohibited arbitration in the form of class actions. The contract also allowed Defendant AT&T to make one-sided changes to the contract, which it did. The Concepcions brought suit against AT&T for false advertising and fraud. AT&T filed a motion to compel arbitration. The district court denied AT&T’s motion based on the Discover Bank v. Superior Court, holding that the arbitration clause was unconscionable because AT&T did not show that arbitration made up for the deterrent effects of class actions. The Ninth Circuit Court of Appeals affirmed and the Supreme Court granted certiorari.

Issue.

Does the Federal Arbitration Act preempt state law that conflicts with it?

Held.

Yes, the FAA preempts state law that conflicts with it. The judgement of the court of appeals is thus reversed and the matter is remanded for further proceedings consistent with this opinion.

Dissent.

Justice Justice Justice Breyer with Justices Ginsburg, Sotomayor, and Kagan

The Discover Bank rule falls under the FAA’s exception of ruling an arbitration agreement unenforceable on the basis that exists for the revocation of a contract. The majority needlessly focuses on the merits of the class proceeding.

Concurrence.

Justice Justice Thomas concurring

Under the FAA, which requires enforcement of arbitration agreements unless there is fraud or duress, there can be no state rule like the Discover Bank rule, that is allowed to ascend federal law.

Justice Justice Breyer with Justices Ginsburg, Sotomayor, and Kagan dissenting

The Discover Bank rule falls under the FAA’s exception of ruling an arbitration agreement unenforceable on the basis that exists for the revocation of a contract. The majority needlessly focuses on the merits of the class proceeding.

Discussion.

1. § 2 of the FAA validates agreements to arbitrate except on grounds that exist to revoke a contract.
2. § 2 also allows arbitration agreements to be deemed unenforceable using contract defenses such as unconscionability and fraud.
3. In Discover Bank v. Superior Court the California Supreme Court held an arbitration agreement, between a consumer and a company with a disparity in bargaining power, that waived class actions, void for unconscionability.
4. When a state law conflicts with the FAA, the FAA preempts it.
5. The Discover Bank rule is preempted by the FAA because it interferes with arbitration by allowing any party to a consumer contract to demand class-wide arbitration in any circumstance.
6. The judgement of the court of appeals is thus reversed and the matter is remanded for further proceedings consistent with this opinion.