The U.S. Supreme Court Reaffirms The Enforceability Of Arbitration Agreements

In CompuCredit Corp. v. Greenwood, ---S.Ct.---, 2012 WL 43514 (U.S. Jan. 10, 2012), the Supreme Court has again enforced an arbitration clause and class action waiver in a consumer contract. In doing so, the Court solidified the holding of its recent landmark decision of AT&T Mobility v. Concepcion, 563 U.S. ___, 131 S.Ct. 1740 (2011) that under the Federal Arbitration Act (the “FAA”) arbitration agreements must be enforced according to their terms. Indeed, CompuCredit demonstrates a growing consensus on this point. While the Court decided Concepcion by a 5-4 majority, 8 out of 9 justices formed the majority in CompuCredit, with only Justice Ginsberg dissenting. Justice Scalia wrote the majority opinions in both cases.

CompuCredit, however, does not merely repeat Concepcion. The Court in Concepcion held that the FAA preempts state law refusing to enforce arbitration terms (such as class action waivers) that some argue favor corporate defendants over consumers. The Court in CompuCredit expands this by holding that the FAA also trumps federal law implying a statutory right to a civil action in a court of law. Unless some other federal law expressly prohibits arbitration, the FAA requires that arbitration agreements be enforced. As for state law, the FAA preempts any implied or express statutory right to a judicial action.

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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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