The Irony of AT&T v. Concepcion
19 Pages Posted: 8 Jul 2011 Last revised: 26 Aug 2011
Date Written: 2011
Irony is defined as, “the use of words to express something other than and especially the opposite of the literal meaning.” Though many other definitions of the word exist, in light of the Supreme Court’s majority opinion in AT&T v. Concepcion, this definition comes to mind. Read broadly, the decision strikes a blow to the ability of consumers to bring suits against companies, both inside and outside of arbitration. But that was not the intent behind the federal act which the Court relied upon to justify its decision.
In 1925, when Congress passed the Federal Arbitration Act (FAA), its intended purpose was to promote enforcement of arbitration clauses. Congress did not sweep away all state-created defenses to contract; however; quite the contrary, Congress inserted a savings clause that arbitration provisions could be stricken just as any other contract could, “upon such grounds as exist at law or in equity.” It was upon this basis that the Ninth Circuit upheld a decision to strike down a clause in an agreement between AT&T and the Concepcions which required not only that the Concepcions submit all disputes to arbitration, but also forbade them from forming a class within that arbitration. On appeal to the Supreme Court, AT&T argued that the FAA preempted the unconscionably finding, despite the savings clause, as California law discriminated against arbitration clauses in violation of the FAA. Justice Scalia, writing for the majority, agreed that the unconscionably finding under California law was preempted by the FAA. In overruling the Ninth Circuit, he repeated the theme of the need to promote arbitration. Throughout the majority opinion, he introduced, as a corollary, the desire to promote expedited resolution of disputes.
The majority opinion is itself open to multiple interpretations, however. Read narrowly, the opinion may do nothing more than restate the already established principle that states cannot strike down arbitration clauses simply by virtue of their existence. But the decision can also be read much more broadly. A broad reading of the opinion suggests that any attempt by a court or state legislature to limit the method and means of arbitration in a way inconsistent with what Congress envisioned is preempted by the FAA. Thus, according to the majority opinion, Congress’ desire to promote bilateral arbitrations preempted the California courts’ rulings that clauses limiting the ability to form class actions are unconscionable.
And therein lies the irony.
If the opinion is read broadly, in striking down the defense of unconscionably to class actions waivers as inconsistent with the purposes of the FAA, the majority opinion, in effect, has denied a large swath of individuals the realistic opportunity to ever bring their claims, in arbitration or otherwise. In the aftermath of this decision, every corporation will be inserting class action waivers into their arbitration clauses, if they haven’t already, and may be emboldened to go much further. Thus, while the majority opinion cites, as the reason for its decision, to a broad policy of encouraging arbitration and the expeditious resolution of disputes, the effect will be quite the opposite.
This essay explores the possible dual readings of AT&T v. Concepcion in light of the FAA and its interpretation, including Supreme Court precedents. This essay concludes that, though there is support for interpreting the Concepcion decision narrowly, it is more likely that a broader interpretation was intended, but the metes and bounds of this opinion have yet to be explored. Nonetheless, under this broad interpretation, the effect on consumers will be to discourage individuals from seeking redress for their claims. The decision may actually encourage businesses to breach contractual obligations with impunity when the individual sums owed are too small to justify, in the mind of a reasonable consumer, the time and effort to seek a remedy.
Keywords: unconscionable, unconscionability, AT&T, Concepcion, FAA, arbitration, class action, waiver, preempt, contract, consumer, employee, saving, clause
JEL Classification: C78, D11, D18
Suggested Citation: Suggested Citation