• United States Supreme Court Upholds Class Action Waivers In Consumer Arbitration Agreements - Consumer Financial Protection Bureau Study Looms
  • May 5, 2011 | Authors: David N. Anthony; A. William "Bill" Loeffler; John C. Lynch; Lynette Eaddy Smith; Alan D. Wingfield
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office
  • Throughout the past decade, courts across the country have wrestled with the validity of class action waiver provisions in arbitration agreements - that is, agreements that preclude the parties from litigating and, typically, arbitrating claims on a consolidated or class-wide basis. In a recent, widely anticipated decision, AT&T Mobility LLC v. Concepcion, 2011 U.S. LEXIS 3367 (April 27, 2011), the United States Supreme Court has come down against the growing trend of lower courts finding class action waiver provisions in arbitration agreements unconscionable and unenforceable.

    In Concepcion, the plaintiffs sued AT&T Mobility in a class action lawsuit for alleged false advertising and fraud in the sale of telephones. AT&T Mobility asked the trial court to enforce a waiver provision in the customer agreement that precluded both class litigation and class arbitration and to refer the matter to arbitration on an individual basis. The trial court refused, finding the waiver to be unconscionable and invalid under California law. The Ninth Circuit agreed, relying on a line of prior decisions invalidating class waiver provisions, particularly where the waiver also barred class arbitration.

    The Supreme Court disagreed. In a 5-4 decision, the Court reversed and held that the arbitration agreement containing the class action waiver provision must be enforced under the Federal Arbitration Act (FAA) “according to its terms.” The Court premised its decision on its long-standing view that Congress designed the FAA to promote arbitration and that the Act embodies a national policy favoring arbitration, which has as its principal purpose ensuring that Courts enforce arbitration agreements according to their terms. The Court found that the Ninth Circuit’s unconscionability analysis conflicted with the terms and purpose of the FAA and, therefore, was preempted by the FAA.

    In some ways, Concepcion is a companion case to the Supreme Court’s decision from last year in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 2010 U.S. LEXIS 3672 (2010). In that case, the Court held that an arbitration panel could not require or allow an arbitration to proceed on a class-wide basis where the arbitration agreement between the parties made no provision for class or consolidated arbitration.

    In light of the importance of Concepcion and Stolt-Nielsen, companies using arbitration agreements in their consumer, employment or business agreements would be well advised to review their form agreements to ensure that the agreements are valid and make clear what disputes the companies are and are not agreeing to arbitrate.

    The Concepcion and Stolt-Nielsen decisions, however, may not be the end of the story. Section 1028 of the comprehensive Dodd-Frank Wall Street Reform and Consumer Protection Act requires the newly created Consumer Financial Protection Bureau (CFPB) to study the issue of mandatory arbitration agreements involving consumers and report its conclusions to Congress.  Based upon the broad authority given to the CFPB, CFPB may attempt to restrict or impose conditions on arbitration agreements depending on the results of the study.