U.S. Supreme Court Overturns Ban On Class Action Waivers In Arbitration Clauses

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The U.S. Supreme Court held yesterday that the Federal Arbitration Act (“FAA”) preempts California law banning class action waiver provisions in consumer arbitration agreements.

In AT&T Mobility LLC v. Conception, et. al., __ S.Ct. __, No. 09-893 (April 27, 2011), the high court overturned the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal.4th 148, 113 P.3d 1100 (2005), which held that an arbitration clause in a consumer agreement containing a class action waiver was unconscionable and therefore unenforceable as a matter of law.

The case arose from a class action filed by California consumers who alleged that AT&T engaged in false advertising and fraud by charging sales tax on “free” phones. In lower court proceedings, both the District Court and the Ninth Circuit Court of Appeal ruled that the FAA did not preempt the Discover Bank rule.

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