Supreme Court’s 2009-2010 term sets up showdown over class-action waivers in arbitration agreements

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Not only did the Supreme Court’s 2009-2010 term continue the trend in favor of arbitration, but it also set up a key showdown for next term regarding the enforceability of classaction waivers in arbitration agreements and the extent to which the Federal Arbitration Act preempts state contract law.

In three decisions issued last spring, the court took positions that appear to strengthen the hands of parties who wish to avoid class action litigation by including arbitration provisions in contracts for consumer products, financial services and employment:

• First, the Supreme Court held in Stolt- Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (Apr. 27, 2010), that class arbitration cannot be imposed on parties whose arbitration agreement is silent on the issue.

• Second, in American Express Co. v. Italian Colors Restaurant, 130 S. Ct. 2401 (Mem.) (May 3, 2010), the Supreme Court vacated a judgment of the 2nd U.S. Circuit Court of Appeals that held a class-action waiver was unenforceable. The Supreme Court issued its decision without opinion and remanded the case to the 2nd Circuit for reconsideration in light of Stolt-Nielsen.

• Third, the Supreme Court held in Rent- A-Center West v. Jackson, 130 S. Ct. 2772 (June 21, 2010), that if the parties’ agreement has clearly delegated the task, the arbitrator should decide when an arbitration provision is unconscionable.

Finally, and perhaps most significantly, the Supreme Court granted certiorari in AT&T Mobility LLC v. Concepcion, 130 S. Ct. 3322 (May 24, 2010), to address whether the Federal Arbitration Act preempts state law rules limiting the enforceability of arbitration agreements. In Concepcion, which is scheduled for oral argument Nov. 9, the justices will specifically consider whether the FAA preempts California state court rulings that class-action waivers are unconscionable in consumer arbitration agreements as a matter of public policy. Because courts in many states have held that the waivers may be found unconscionable under state contract law principles, the Supreme Court’s decision has the potential to mark a significant shift in the arbitration arena.

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