United States Supreme Court Decides Significant Arbitration And Class Action Case

On April 27, 2011, the United States Supreme Court decided AT&T Mobility LLC v. Concepcion. Although factually, the case involved consumer products and arbitration agreements, the decision may have a significant impact on employers and employees who enter into arbitration agreements, as well as class action practice.

By way of background, California courts had previously ruled that when a consumer contract of adhesion purports to require individual arbitration of consumer disputes with the vendor, essentially any alleged ban on class arbitration is unenforceable. This was the so-called "Discover Bank rule". California courts had applied this rule even if the consumer contract contained provisions making it worthwhile for an individual consumer to challenge a small dispute (e.g., an improper charge on a phone bill). In AT&T's case, the contract provided that AT&T would pay all the forum costs except in cases deemed frivolous and that the consumer could elect whether arbitration would be in person, by telephone, or based just on documents. Furthermore, if the consumer did better than AT&T's last offer to settle, the consumer would be guaranteed a recovery of at least $7,500, plus attorney's fees. However, the agreement did not allow for class arbitration.

In the AT&T case, the lower courts had recognized that AT&T's procedures provided a speedy, non-burdensome method for individual consumers to obtain redress. Nonetheless, the lower courts invalidated the class action waiver requirement on the ground that under Discover Bank, any class action waiver is unconscionable unless the arbitration procedure "adequately substituted for the deterrent effects of class actions," a test that is essentially unattainable.

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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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