Concepcion and Mis-Concepcion: Why Unconscionability Survives the Supreme Court's Arbitration Jurisprudence

Abstract

States have long relied on the doctrines of unconscionability and public policy to protect individuals against unfair terms in mandatory arbitration provisions. The Supreme Court recently struck a blow to such efforts in AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant. In those two cases, the Court established that a challenge to the enforceability of unfairly one-sided arbitration clauses is preempted if it would interfere with “fundamental attributes of arbitration.” Several commentators have argued that these decisions will dramatically alter the arbitration landscape, by wiping away virtually any contract defense to the validity of an arbitration agreement and giving corporations carte blanche to impose whatever terms they want into an arbitration clause. Many practitioners are aggressively pushing courts to take a similarly broad reading of Concepcion and Italian Colors.

This article takes a contrary view. First, this article argues that the cases will have very little impact outside of the context of class action waivers, the subject matter of both Concepcion and Italian Colors. Applying state law to strike down arbitration provisions that are so one-sided as to be unconscionable ordinarily will not interfere with “fundamental attributes of arbitration” and should not be preempted.

Second, the Court’s newfound focus on “fundamental attributes of arbitration” reveals why Concepcion should actually narrow the scope of Federal Arbitration Act (FAA) preemption rather than expand it. A careful examination of arbitration clauses shows that, if anything, the “fundamental” aspect of arbitration is choice, that is, the ability of parties to freely negotiate the terms of their arbitration agreements in an arms-length fashion. If choice is fundamental to arbitration, then what is inconsistent with arbitration is a lack of choice, namely adhesion. As a result, states have much greater power than previously thought to ensure fairness in standard-form, non-negotiable adhesion contracts, in which most arbitration agreements are contained, without violating the FAA.

Keywords: dispute resolution, arbitration, contract, jurisprudence, civil procedure, consumer, litigation