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Sacrificing Class Arbitration For The Good Of Individual Arbitration

May 3, 2011

In its 5 to 4 Opinion written by Justice Scalia, the United States Supreme Court in AT&T Mobility LLC v. Concepcion (No. 09-893), concludes that because it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," California’s Discover Bank Rule is preempted by the Federal Arbitration Act.  The judgment of the Ninth Circuit was reversed and the case was remanded for further proceedings.

This case deals with what is a uniquely American phenomena, which is the use of pre-arbitration agreements in consumer contracts and the availability, at least until today, of class action processes in consumer arbitrations.  In this case, the Ninth Circuit Court of Appeals, relying on California law, struck down a class arbitration waiver in a consumer contract that otherwise required arbitration.  The Ninth Circuit, relying on a decision by the California Supreme Court in a case known as Discover Bank, held that class arbitration waivers were unconscionable and could not be enforced (thus permitting class actions even where the parties had agreed to only individual arbitrations).  Simply put, the issue as it came to the Supreme Court was whether a rule that struck down a consumer arbitration agreement's waiver of a right to commence a class arbitration contradicted the Federal Policy of promoting arbitration according to the terms agreed to by the parties.

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