Class Action Waivers Declared Enforceable By The U.S. Supreme Court

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On April 27, 2011, the U.S. Supreme Court — in AT&T Mobility v. Concepcion1 — held that class action waivers in consumer contracts are enforceable under the Federal Arbitration Act. The Court's ruling is likely to have far-reaching consequences not only for class actions between consumers and companies, but also for class actions between employees and employers, and parties in similar relationships. In effect, the Court's decision may allow a company to enforce, throughout the United States, customer agreements that contain arbitration provisions waiving class actions.

The Concepcion case involved consumer-plaintiffs who contracted with AT&T for cellular phone service and the purchase of cell phones. The wireless service agreement between the parties included an arbitration provision and a class action waiver clause, which together required that any dispute between the parties be arbitrated on an individual basis (i.e., no class actions). Despite the arbitration provision and class action waiver, the plaintiffs filed a lawsuit against AT&T in a California federal district court, seeking to pursue their claims as a class action. AT&T moved to compel the plaintiffs to submit their claims, individually, to arbitration pursuant to the parties' contract. The district court denied AT&T's motion, holding that the class action waiver provision of the arbitration agreement was unconscionable under California law, and that California's unconscionability law was not preempted by the Federal Arbitration Act. On appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court's decision. The U.S. Supreme Court overturned the ruling of the appellate court.

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