Recent Second Circuit Decision Invalidating Class Action Waiver Highlights Actions by Lower Courts to Limit and Distinguish AT&T Mobility, LLC v. Concepcion

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The Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, which upheld the validity of class arbitration waivers in consumer contracts, was initially viewed as a serious blow to the continued viability of consumer class actions. Inevitably, lower court decisions blunting Concepcion’s impact soon followed. Although Concepcion does indeed provide a robust defense against class action liability, subsequent decisions have begun to limit Concepcion’s reach, with some finding the rule in Concepcion inapplicable even when dealing with substantively identical contractual provisions. Most recently, In Re American Express Merchants’ Litigation, (Amex III), a Second Circuit decision, held that Concepcion does not mandate enforcement of class action waivers when plaintiffs’ federal rights are at stake. The issuance of the Amex III decision provides an opportune moment to look back at how, and in what circumstances, lower courts have determined, notwithstanding Concepcion, that a class action waiver in an arbitration agreement does not preclude the assertion of class action claims in a court of law.

Concepcion establishes principles of broad applicability concerning the scope of the Federal Arbitration Act (FAA) that would not seem to admit of any serious exceptions. Specifically, the Supreme Court considered whether the FAA preempted California’s so-called “Discover Bank” rule, which deemed class arbitration waivers in certain consumer contracts to be per se unconscionable. The FAA requires judges to enforce contractual arbitration provisions as written “save upon such grounds as exist at law or in equity for the revocation of any contract.”  The Concepcions argued that the Discover Bank rule, an application of California’s unconscionability doctrine, was such a basis for invalidation under section 2. The Court rejected this argument, stating that to do otherwise would be to hold “the [FAA] … to destroy itself.”  The Court noted that Congress enacted the FAA to promote arbitration, and to underscore that arbitration is a creature of contract. Allowing parties to control the scope of arbitration in their contracts encourages efficiency in the resolution of disputes. A common law rule ensuring that class proceedings, with their accompanying complexity and delay, are available regardless of any preexisting agreement is incompatible with those statutory goals. Accordingly, Concepcion found that the FAA preempted California’s Discover Bank rule.

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Published In: Antitrust & Trade Regulation Updates, Civil Procedure Updates, General Business Updates, Conflict of Laws Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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