Arbitration in California Construction Defect Cases - After AT&T Mobility v. Concepcion

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The U.S. Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S.Ct. 1740 (2011) (Concepcion) has engendered considerable controversy for upholding arbitration provisions in consumer contracts containing class action waivers. Importantly for the construction industry, the decision may impact other types of cases in which California courts have found arbitration provisions unenforceable, including construction defect cases brought by homeowners or condominium associations against developers.

In Concepcion, the Court invalidated the California Supreme Court's decision in Discover Bank v. Superior Court, 36 Cal. 4th 148, 162 (2005), which held that class action waivers in certain consumer contracts are unenforceable on unconscionability grounds. The Concepcion Court held that rejecting arbitration because of a class action waiver violated Section 2 of the Federal Arbitration Act (FAA), which specifies that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The Concepcion Court also found that the Discover Bank rule was preempted because it was an obstacle to the accomplishment of the FAA's objectives—encouraging efficient and quick dispute resolution through arbitration—because it was “applied in a fashion that disfavors arbitration” by California courts....

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