In a pro-business and pro-arbitration decision, the United States Supreme Court on April 27 struck down as preempted by federal law the California rule that class arbitration waivers in consumer adhesion contracts are unconscionable and thus unenforceable. The Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), hinged on Section 2 of the Federal Arbitration Act (“FAA”), which provides that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” In a 5-4 decision, the divided Court, in an opinion authored by Justice Scalia, concluded that the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of class arbitration procedures. The majority reaffirmed its recent pro-arbitration leanings, while at the same time seeming to reject arbitration as an appropriate venue for class claims.
The named plaintiffs, Vincent and Liza Concepcion, alleged that they entered into an agreement with AT&T Mobility LLC to purchase mobile phone service that was advertised as including free phones. The Concepcions sought to represent a class of AT&T Mobility customers and alleged that AT&T Mobility had engaged in false advertising by charging sales tax based on the value of the phones it advertised as free.