Arbitrations 1, Class Actions 0: Supreme Court Breathes New Life Into Consumer Arbitrations

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The Supreme Court may have dealt a death blow to the arbitration of consumer class actions in the 5-4 decision in AT&T Mobility LLC v.Concepcion, 563 U.S. _____ (April 27, 2011). The Court held that the Federal Arbitration Act pre-empted the California rule that arbitration clauses banning class actions were unconscionable. By reversing the Ninth Circuit, the Supreme Court has reopened a seemingly locked door and businesses may wish to consider resurrecting their arbitration clauses and modeling them on the AT&T opinion.

The case arose out of a cell phone contract in which the consumers were promised “free phones” by AT&T, but were charged $30.22 sales tax for the full retail value of the phones. They sued AT&T for deceptive advertising. AT&T moved to compel an individual arbitration proceeding under the arbitration clause in the cell phone contract. Under the contract, “all disputes” between the parties were subject to arbitration, which must be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” The clause went on to provide that “the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.”

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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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