In a class action, Plaintiffs sued Defendant for false advertising and fraud. Defendant moved to compel arbitration, but Plaintiffs argued the agreement was invalid.
The Federal Arbitration Act overrides state law that undermines its purpose.
Liza and Vincent Concepcion (Plaintiffs) sued AT&T Mobility LLC (Defendant) as part of a class action alleging that Defendant had engaged in false advertising and fraud. Defendant moved to compel arbitration based on the contract the Plaintiffs had signed, which waived class actions. Plaintiffs argued that the arbitration agreement was unconscionable and unlawfully exculpatory because it didn’t allow class actions.
Was the California law finding arbitration agreements that limited class actions unconscionable legal under the Federal Arbitration Act?
No, the Federal Arbitration Act does not allow states to limit arbitration agreements in this way. The decision is reversed and remanded.
Justice Breyer argued that California’s law was consistent with the language of the Federal Arbitration Act, and that the act should not so easily overrule state law.
The Court determined that California’s law stood in the way of the purpose of the Federal Arbitration Act. Contrary to the Federal Arbitration Act, class action arbitration is slower and more costly than bilateral arbitration, requires more procedural formality, and increases risk for defendants.