Supreme Court Decides Class-wide Arbitration Issue

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In recent years, corporate defendants facing consumer class actions in California and several other states have been unable to enforce arbitration agreements prohibiting class actions. Under the California Supreme Court’s ruling in Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-63 (2005), class action waivers were unenforceable if the waivers were in “a consumer contract of adhesion,” in disputes that “predictably involve small amounts of damages,” when the “party with superior bargaining power" allegedly has harmed large numbers of consumers.

Last week, the U.S. Supreme Court, in a 5-4 decision in AT&T Mobility LLC v. Concepcion, No. 09-893, held that the Federal Arbitration Act (“FAA”) preempted the Discover Bank rule. Significantly, the Supreme Court also held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Slip Op. at 9. This decision will significantly enhance corporate defendants’ ability to enforce arbitration provisions in California and the many other states with similar limitations on class action waivers.

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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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