U.S. Supreme Court Invalidates California's Discover Bank Rule on Classwide Arbitration in AT&T Mobility v. Concepcion

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On April 27, 2011, the United States Supreme Court issued an important decision in AT&T Mobility vs. Concepcion, No. 09-893, impacting the ability of defendants to move to compel arbitration in response to consumer class action complaints. In a 5-4 decision, the Court overturned a Ninth Circuit ruling that had held an arbitration provision in AT&T Mobility contracts to be invalid.

The arbitration provision in question required all disputes to be brought in “the party’s individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.”

Plaintiffs originally filed an individual claim in federal district court alleging that AT&T improperly charged approximately $30 in sales taxes on mobile phones that AT&T advertised as free. The case was consolidated into a putative class action.

The question presented in the case was whether §2 of the Federal Arbitration Act preempts California?s rule classifying most collective-arbitration waivers in consumer contracts as unconscionable. This rule is known as the Discover Bank rule, after the California Supreme Court's decision in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005).

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