U.S. Supreme Court Overturns California Rule that Prohibited Waivers of Class Action Relief in Arbitration Agreements

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On April 27, 2011, in AT&T Mobility LLC v. Concepcion1 (AT&T Mobility), the United States Supreme Court, in a 5–4 decision, ruled that federal law preempts California’s so-called Discover Bank rule, which had classified most purported class action waivers in consumer arbitration contracts as unconscionable and unenforceable. The AT&T Mobility decision breathes life into the ability of businesses across the country that regularly contract with consumers to demand, as part of that contract, arbitration of disputes and waiver of any right to pursue a class action or other aggregate or representative action against the business. As a result of this decision, the mere presence of a class action waiver, without more, will be legally insufficient to establish that a consumer arbitration agreement is unconscionable. There remains a risk, however, that class action waivers could still be found to be unconscionable on other grounds, particularly where the arbitration agreement lacks provisions that would make it feasible for customers to seek resolution of small claims.

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