AT&T v. Concepcion: the end of the modern consumer class action.
In AT&T v. Concepcion (hereinafter Concepcion), the U.S. Supreme Court held that Vincent and Liza Concepcion could not represent the rights of a class of citizens alleging that AT&T had engaged in false advertising and fraud. (1) Instead, the Court found that AT&T had a superior interest in enforcing hidden, contractual pre-dispute arbitration clauses against its consumers on a one-on-one basis. (2) AT&T had surreptitiously bundled a class actio n waiver agreement and a mandatory, pre-dispute arbitration clause into its standard cell-phone contract. (3) Such a waiver prohibits consumers from pursuing class-wide relief for claims arising from the sales contract. (4) In fact, AT&T had extensively researched potential consumer reactions to a prior version of the agreement, "signed" by the Concepcions, and ultimately administered the details of that agreement in a letter "specifically intended to make customers less alert to the details" of the arbitration and class waiver provisions. (5) Nonetheless, the Court enforced AT&T's standard sales agreement with the class action waiver binding the Concepcions to one-on-one arbitration. (6)
Additionally, the Court held that a valid arbitration agreement alone precludes class action procedure as a matter of federal law. (7) In doing so, the Court bolstered its policy of placing pre-dispute arbitration agreements in a class of contracts above all others--a branch of private law that can trump Constitutional rights of individuals, like the Concepcions, without their realizing that such an agreement even exists. (8) Since "[v]irtually all class actions today occur between parties who are in transactional relationships with one another: shareholders and corporations, consumers and merchants, employees and employers," this decision likely represents the "death knell" to the modern consumer class action lawsuit. (9)
Many people legitimately criticize class action litigation as a "lawyer-driven" field and a major force behind the modern tort reform movement. (10) The Supreme Court's endorsement of the class action waiver in Concepcion represents an extension of the tort reform initiative into the contractual realm, as corporations realize most class actions arise out of pre-existing transactional relationships (even if the claim sounds in tort). However, extinguishing class action litigation in the consumer context through private arbitration takes the reform initiative too far. The deterrent and protective effects of class action litigation (11) and the procedural benefit of handling a multitude of cases at once--docket control for the court, cost spreading for the plaintiff class, and expedient and final resolution of related issues for the defendant (12)--require that class actions remain a viable option for litigants. Perhaps the most convincing illustration of the need to deter corporate misconduct is a recent case in Manhattan, in which a federal judge allowed consumers' conspiracy and antitrust claims to proceed in a class format against Citigroup, Discover Bank, American Express and Wells Fargo. (13) The consumers alleged that the credit providers met at a private law firm and conspired to craft arbitration clauses with class action waivers that would skirt judicial scrutiny. (14) But this Comment seeks not to debate the relative merits and demerits of class action litigation, but to explore the impropriety of allowing private arbitration agreements to waive, per se, consumers' ability to use this important procedural device.
Importantly, arbitration does have its benefits, and these benefits accrue to both the corporate defendant and its consumers. (15) In short, arbitration is quicker and cheaper than traditional litigation for all of the involved parties. (16) Furthermore, corporations often promise to cover all legal expenses for the consumer, and the informal nature of the process can sometimes eliminate the need for consumers to hire outside counsel. (17) Finally, the benefits accrue to those consumers who do not have claims against the seller-corporation as well as the general public--lower litigation costs translate into lower prices of goods (arguably keeping expensive devices, such as the Apple iPhone, affordable), and arbitration has helped to lessen the burden on an already over-taxed judicial system. (18) However, these benefits should not overshadow the important premise upon which the judicial system allows arbitration to exist. The premise is that parties can agree to deal with each other however they see fit through freedom of contract. As this Comment will show, judicial concerns regarding lower costs and efficiency provided by arbitration should not justify the presumption of consumer consent to contracts that waive important protections, such as the class action device.
For reasons expounded in this Comment, the Court's decision in Concepcion represents an unconscionable interpretation of the Federal Arbitration Act ("FAA") and should be legislatively overruled because it 1) runs counter to the "savings" provision of the FAA., (19) 2) inappropriately removes a procedural matter from the scope of the arbitrator's discretion, and 3) unconstitutionally allows for an implicit waiver of one's rights unprecedented in consumer contracts.
To understand the devastating effect that Concepcion could have on the due process rights of the class action (20) plaintiff in America, one must first grasp the United States Supreme Court's historically aggressive interpretation of the FAA. (21) Thus, Part I of this Comment will briefly describe the FAA's history to show how the Supreme Court's policy initiative has turned the Act into a creature its drafters never intended. Part II of this Comment will explain the holding of Concepcion and place it within the grand scheme of FAA case law described in Part I. Part III will discuss the force and impropriety of the holding in Concepcion as a matter of law and policy. Finally, Part IV proposes that Congress legislatively overrule Concepcion and authoritatively decide either to immunize the properly formed consumer-class from the scope of pre-dispute arbitration agreement coverage, or to adopt class arbitration procedures similar to those set forth in the American Arbitration Association Supplementary Rules for Class Arbitration.
II. THE FEDERAL ARBITRATION ACT: HISTORICAL BACKGROUND
According to the majority in Concepcion, Supreme Court case law places "beyond dispute that the FAA was designed to promote arbitration" (22)--an accurate and simple assessment, but one that has been too liberally interpreted by the Court. (23) To illustrate this point, this section will discuss the origins of the FAA, where it stands today, and its future in light of Concepcion.
A. The Early History: Pre-FAA
Conceptually, modern arbitration (24) was born in nineteenth century Europe, and later adopted by early twentieth century America. (25) As one author observed, "arbitration--in nineteenth-century Europe and later in the United States--was ... viewed as a process that functioned in derogation of legality. It was a bastard remedy, incapable of being integrated into the self-respecting family of adjudication." (26) Under English law, arbitrators had no authority to hand down legal rulings. (27) In the United States, arbitration lacked binding effect until the moment the arbitrator handed down an award thus allowing a party to remove himself from an arbitration proceeding at any time if he disliked the anticipated outcome. (28) Both legal systems distrusted this mechanism because it operated under limited, if any, judicial scrutiny. (29) Modern consumers possess a similar distrust for the mechanism.
B. The Onset of the Federal Arbitration Act: The Tides Change
Anticipating the needs of an "emerging international business community," (30) the United States passed the Arbitration Act of 1925, the precursor of the modern FAA. (31) The controversy that is the subject of this Comment stems from the Court's construction of [section] 2 of the modern FAA (also found in the original act of 1925), which reads in pertinent part:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall he valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (32)
The Court has narrowly construed the final phrase (referred to as the "savings provision") to combat what it considers state court hostility to arbitration. (33) But, as the discussion below illustrates, the Court's policy has caused both the invalidation of this provision, and the erosion of other important federal and constitutional law concepts.
Arguably, the FAA was problematic from its inception. But the first questionable Supreme Court interpretation of the FAA pertinent to this discussion occurred in 1967.34 35 In Prima Paint Corporation v. Flood & Conklin Manufacturing Company (hereinafter Prima Paint), (35) the Court, sitting in diversity, held not only that the FAA represented a piece of federal legislation that had "the authority to command that the federal courts rule in a particular way on certain issues," but also that "[the FAA] governed a purely procedural matter." (36) In doing so, the Court avoided the "Erie" problem of applying federal substantive law to a state law matter. (37) In Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, the Court announced that the federal policy favoring arbitration required "any doubts concerning the scope of arbitrable issues [to be] resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." (38) Then, on the basis of expanding federal power to regulate interstate commerce, (39) the Court also forced this initiative on state courts hearing state law challenges to arbitration agreements under the savings provision in Southland Corporation v. Keating. (40) Thus, the Court implied that agreements to arbitrate under the FAA constituted a federal substantive law matter impervious to state law challenges. Reading Prima Paint and Southland together, the FAA was apparently procedural law in federal court, but substantive law in state court. (41) The Court seemed willing to bend the law to find a basis on which to further the national policy of enforcing arbitration over the objections of a growing number of states hostile to the FAA. (42)
On the heels of these decisions, courts enforced arbitration agreements in consumer and employee contracts regardless of the nature of the claim, the parties' relative bargaining power, or the adhesionary nature of the alleged "agreement." (43) Moreover, by viewing state law challenges as calculated attacks on arbitration agreements rather than "generally applicable contract defenses," the federal courts managed to circumvent the savings provision of the Act. (44)
At this juncture, one must note that the current Congress recently acknowledged two important facts about the FAA's history:
(1) The Federal Arbitration Act (now enacted as chapter 1 of title 9 of the United States Code) was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power.
(2) A series of decisions by the Supreme Court of the United States have changed the meaning of the Act so that it now extends to consumer disputes and employment disputes. (45)
The Senate proposed these findings on May 12, 2011 in an effort to pass a bill "[t]o amend title 9 of the United States Code with respect to arbitration." (46) Importantly, Congress acknowledged the impropriety of consumer and employee arbitration prior to the passage of the Act of 1925 and assured concerned members of Congress that the Act merely guaranteed enforcement of freely entered arbitration agreements between parties of equal bargaining power. (47) Furthermore, Senate Hearings of 1923 also confirm that the Act specifically meant to exempt "take-it-or-leave-it" (or "adhesionary") consumer and employee contracts from arbitration. (48) Thus, the proposed "Arbitration Fairness Act of 2011" quoted above represents the widely felt sentiment that the totality of Supreme Court case law regarding consumer and employee arbitration runs contrary to the FAA's language and purpose.
C. The Federal Arbitration Act and the Class Action
In Southland Corporation v. Keating, the first imposition by the federal judiciary of arbitration policy on the state court system, the Supreme Court first considered "whether arbitration under the Federal Act is impaired when a class action structure is imposed on the process by the state courts." (49) The Court found that the FAA, as substantive federal law, supplanted state law in matters of interstate commerce thus forcing the franchisees into one-on-one arbitration with the franchisor, Southland Corporation. (50) Under applicable state law, the defendant's franchisors had the ability to bring a class action against him, since California deemed all contractual arrangements that impede a franchisor's vindication of his rights (such as the right to proceed as a member of a class) unenforceable. (51) Nonetheless, the U.S. Supreme Court granted certiorari and invalidated California law insofar as it impeded the parties' right to compel arbitration under the FAA. (52) The decision was remarkable for two reasons. First, the Court held that the FAA's [section] 2 created substantive rights that state courts must enforce, (53) contrary to the Court's prior holding in Prima Paint that categorized the FAA as federal procedural law. (54) Second, the Court held that California state law calling for class action procedure proved incompatible with the spirit and purpose of the FAA and, therefore, inapplicable under the Supremacy Clause and not preserved by the savings provision. (55)
Thus, amidst the potentially fraudulent conduct on the part of the franchisee, the Court validated a pre-dispute agreement, which the parties did not even realize would affect the potential for a class proceeding, and bound the individual franchisors to settle the matter in private, one-on-one arbitration with Southland. (56) Putting aside constitutional concerns, Justice O'Connor noted in her dissent that the majority's reading was "wrong as a matter of statutory construction" and that Congress intended the FAA to apply as a procedural matter in federal courts. (57) Both of Justice O'Connor's concerns arise in Concepcion. Part III of this Comment more fully explores the statutory construction problem, the issue of class "arbitrability," and the unconstitutionality of waiver agreements.
Justice O'Connor's concerns went unchecked, and, as predicted, the "mandatory binding arbitration" clause became a key weapon in the corporate push to cut litigation costs by eliminating the threat of a class action. (58) Right on cue, the Court handed down another decision bolstering the position of corporate America. In Green Tree Financial Corporation v. Randolph, the Court held that plaintiffs seeking to avoid arbitration on the basis of the right to form a class (or seeking to institute class arbitration proceedings for that matter) bear the burden of proving that individual arbitration posed a prohibitively expensive bar to the vindication of rights. (59) Furthermore, in an effort to further expand the realm of issues within the arbitrator's power to decide, (60) the Supreme Court in Howsam v. Dean Witter Reynolds (hereinafter Howsam) differentiated between "gateway" matters that a court must decide, regarding the validity of an arbitration clause, and "procedural" matters of "arbitrability" within the arbitrator's power to resolve. (61) In Howsam, the Court declared that "the question whether parties have submitted a particular dispute to arbitration, i.e., the 'question of arbitrability,'" is "an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise." (62) The "question of arbitrability" has a limited scope, applicable only to circumstances where the contracting parties would have expected a court to decide the gateway matter. (63) All other matters, and most importantly procedural matters, "which grow out of the dispute and bear on its final disposition," (64) and "allegation[s] of waiver, delay, or a like defense to arbitrability," are left to the arbitrator to decide. (65) Consequently, "a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court[,]" while procedural matters, "i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide." (66) In practice, these strong federal precedents serve only to promote enforcement of arbitration agreements, rather than to provide structured, reasoned rules by which lower courts may judge these agreements under the FAA and general contract law. (67)
D. Foreshadowing of Things to Come: Given the Wide Breadth of the FAA, What Does this Case Law Mean for the Modern Day Consumer?
The only remaining issue for the Court to resolve was the nature of these waiver agreements in relation to the FAA in the context of consumer contracts--contracts where the "waiver" would likely occur without the knowledge of the consumer or as a "take-it-or-leave-it" prerequisite to doing business with the corporation. (68) In this very different context, the same issue--whether these waivers impacted the validity of the arbitration agreement under the FAA or merely impacted the manner in which arbitration would proceed--remained. Howsam dictated that the courts applying the FAA's saving clause handle matters impacting the validity of an arbitration agreement, but that arbitrators handle other questions affecting arbitration procedure. (69) Nonetheless, Concepcion preempted the resolution of this question by holding that a valid agreement to arbitrate under the FAA precludes consumers' ability to form a class whether they do so in an attempt to avoid arbitration or to institute a class arbitration format. (70) In other words, the Court decided that the FAA invalidates class procedure as a matter of law, and neither judges nor arbitrators have the right to hold otherwise. This Comment seeks to critically assess the legal and factual conclusions of Concepcion and to suggest that the real reason for the decision was a liberal federal policy favoring arbitration and a general hostility toward the class action device.
III. BREAKING DOWN AT&T MOBILITY, LLC V. CONCEPCION
Vincent and Liza Concepcion entered into AT&T's standard agreement for the "sale and servicing" of a cellular telephone--a contract that gives the consumer the option to either buy or not buy a "cell-phone," (71) (in other words, a contract under which the terms are non-negotiable or "adhesionary"). As scholars predicted, (72) the AT&T standard cell-phone agreement included not only an arbitration clause, but also a class action waiver agreement that consumers could either accept or consider another provider who does not require such an agreement. (73) The Concepcions purchased the service based on AT&T's promise that the agreement included the provision of a free cell-phone, but the company charged them $30.22 in sales tax based on the phone's retail value. (74) The Concepcions filed suit in the Southern District of California, and "[t]he complaint was later consolidated with a putative class action alleging, among other things, that AT&T had engaged in false advertising and fraud by charging sales tax on phones it advertised as free." (75) When AT&T sought to compel arbitration, the Concepcions opposed the motion, arguing that the arbitration provision of the sales agreement was unconscionable under California's Discover Bank rule. (76) The rule invalidated any pre-dispute agreement purporting to affect a waiver of the right to class procedure. (77)
The Southern District held, and the Ninth Circuit affirmed, that the agreement was unconscionable under the Discover Bank rule "because AT&T had not shown that bilateral arbitration adequately substituted for the deterrent effects of class actions." (78) Furthermore, the Ninth Circuit rejected AT&T's contention that the Discover Bank rule discriminated against agreements to arbitrate under the FAA, holding that the rule places these agreements on the exact same footing as any contract purporting to preclude one's right to form a class. (79)
Nonetheless, the Supreme Court reversed the Ninth Circuit, holding that the FAA preempted California's Discover Bank rule because the rule '"stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" (80) The majority (81) relied on precedent, described in Part I, interpreting [section] 2 of the FAA to preclude not only arbitration-specific state law defenses to arbitration, but also any generally applicable state or common law defense that derives its preclusive effect from the fact that an arbitration clause is at issue. (82) In doing so, the Court made three troubling findings, discussed generally below and in further detail in Part III.
First, in answer to the Concepcions' argument that the FAA's savings clause protected California's Discover Bank rule, Justice Scalia, writing for four Justices, (83) claimed that the rule was not a generally applicable contract defense saved by [section] 2. (84) Rather, he claimed the rule was a distortion of the common law defense of unconscionability (85) meant to invalidate agreements to arbitrate, not surprising, "since the judicial hostility towards arbitration that prompted the FAA had manifested itself in 'a great variety' of 'devices and formulas' declaring arbitration against public policy." (86) He claimed that the rule's requirements--both a predictably small claim and an allegation of a scheme to cheat consumers--are "toothless and malleable" amounting only to an escape device that the courts could apply whenever they feel the need to invalidate an arbitration agreement. (87)
Next, and most importantly, Justice Scalia determined that a valid arbitration agreement need not mention the fact that class procedure will not apply because such a notion is implicit in the spirit of arbitration, the primary purpose of which he claims is "to allow for efficient, streamlined procedures tailored to the type of dispute." (88) The Court finally declared what Justice Scalia claims Stolt-Nielsen S.A. v. AnimalFeeds International Corp. implied: (89) that the formality, expense, and time associated with class procedure contradict the expediency and informality of arbitration, that the two cannot co-exist, and, that where the two conflict, the FAA trumps. (90)
Finally, relying on the above assessments that California's rule amounts to a per se invalidation of arbitration agreements and that arbitration and class action procedure prove wholly inconsistent, Justice Scalia found that [section] 2 actually counseled against rules like the one proffered in Discover Bank, which seek to "discriminate" against arbitration. (91) One need look no further than Justice Breyer's dissent to see the problems with Justice Scalia's reading of both California's rule and the FAA's [section] 2. (92) As Justice Breyer points out, the Discover Bank rule does precisely what Congress intended in drafting [section] 2: it places arbitration agreements on the same footing as any contract that would invalidate a form of judicial remedy on its face. (93) In fact, California courts have upheld contracts with waiver agreements that do not meet this threshold of unconscionability, directly refuting any claim that the Discover Bank rule is a "blanket" policy against waiver agreements. (94) Thus, Justice Scalia reads too expansively both the purpose of arbitration and of the Discover Bank rule; the FAA guarantees enforcement, not efficiency, while California's rule promoted fairness. (95) Nonetheless, the result is a shiny, new precedent stating that take-it-or-leave-it arbitration agreements forced upon consumers or employees under the FAA, regardless of whether they purport to effect a class waiver or not, foreclose any possibility of the plaintiffs utilizing class action procedure to obtain relief, even if the inability to proceed as a class would foreclose the claim altogether.
IV. CONCEPCION AND THE REALIZATION OF SCHOLARS' FEARS--A NATURAL EXTENSION OF THE ALREADY INAPPROPRIATE "NATIONAL POLICY FAVORING ARBITARTION"
Putting aside the obvious policy battle between the Ninth Circuit and the U.S. Supreme Court over the merits of both class action procedure and pre-dispute arbitration agreements, the decision in Concepcion is wrong as a matter of construction of the FAA's savings provision found in [section] 2, against the precedent set forth by the Court in Howsam, (96) and inappropriate as a matter of consumers' rights. (97) Scholars have long predicted that corporations would recognize and take advantage of the Supreme Court's blind support of arbitration for its own sake, and Concepcion represents one example of what the inequality of bargaining power guarantees corporate America: a pre-dispute arbitration agreement in a consumer contract of adhesion insulates one's business from the "small claim" altogether as such a claim may only be viable in a class format. (98) The result is an attempt by companies like AT&T to deceptively pass on a part of the cost of doing business to the consumer in blatant violation of the law. (99) In the remainder of this section, this Comment will show how AT&T v. Concepcion was a natural extension of the Supreme Court's already inappropriate policy behind arbitration and represents the impetus for legislative reform.
A. What Happened to the Savings Provision of [section] 2?
As previously stated, the FAA's [section] 2 makes pre-dispute arbitration agreements "in any ... contract evidencing a transaction involving commerce ... valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (100) The Supreme Court has read this provision as putting arbitration agreements on an equal footing with other contracts. (101) But the majority in Concepcion seems to elevate such agreements to a class of super-contract above any other in an effort to fend off what the Court saw as state discrimination against the federal policy favoring arbitration. (102) In doing so, the Court distorted [section] 2's savings provision because, as Justice Breyer noted, California's rule does not run counter to the FAA, but to what Justice Scalia claims is the primary purpose behind the Act--guaranteeing the expeditious resolution of claims. (103) In short, the Court has invalidated the savings clause of [section] 2 under the guise of safeguarding the immediately preceding clause that ensures the agreement's validity, irrevocability, and enforceability as written. Importantly, [section] 2 does not explicitly guarantee efficiency.
The FAA guarantees that a freely and validly made arbitration agreement will be enforced according to its terms; the FAA does not guarantee expeditious, procedurally simple, low cost, one-on-one arbitration. (104) As a matter of fact, the American Arbitration Association ("AAA") regularly handles class arbitrations, and has set forth "Supplementary Rules for Class Arbitration" indicating that arbitration and class procedure can coexist. (105) Conceding that class arbitration cannot be handled as quickly as bilateral arbitration, the former must be imposed if forcing the consumer into bilateral arbitration will practically invalidate individual claims, thereby insulating the corporation from liability for wrongdoing. (106) Furthermore, lawyers who participate in class arbitrations describe them as more efficient than class action litigation. (107) Consequently, the majority's holding in Concepcion is flawed as a matter of law. California's rule does not run counter to the spirit of arbitration; rather, it runs counter to what the Court believes arbitration should be. As a matter of policy, in a battle for tort reform in which corporate America is decidedly winning, (108) Concepcion should not stand. Although corporations were already familiar with the power of arbitration to insulate them from liability for "small dollar amount" violations of the law, (109) they now possess an atom bomb in terms of negotiating power in the form of the adhesive arbitration clauses in consumer and employment contracts. (110) Essentially, with the gloss of Concepcion, the FAA now implies a waiver of the right to class procedure as a matter of statutory construction. Regardless of what one believes are the merits or demerits of class procedure, the Supreme Court seems intent on placing its fate within the hands of private corporations. This goal is not an appropriate one for the Court, since Congress protected the device in the Federal Rules of Civil Procedure (111) and "the threat of class action liability plays a vital role in deterring corporate wrongdoing." (112)
Furthermore, assuming arguendo that "class arbitration" is an oxymoron, the Discover Bank rule, as written, does not violate [section] 2, as written. (113) First, the Discover Bank rule applies to any contractual waiver of the ability to form and proceed as a class, by declaring any such agreement unconscionable as a violation of public policy. (114) Although California currently stands as the only state to do so, its courts have consistently struck down "standard-form" agreements including class action waivers as unconscionable, not just those that also include arbitration provisions. (115) As such, the rule serves as a generally applicable contract defense, a mere "variation" on the widely accepted notion that unconscionability is a defense to arbitration as it is to any other contract provision. (116)
The conditions of the Discover Bank rule are not "toothless and malleable" as Justice Scalia describes them, but real conditions that seek to invalidate contracts (including a subset of arbitration agreements) deemed against the public policy of California. (117) In the climate that the Supreme Court has established for the FAA, the threat that corporations will use arbitration in schemes to take advantage of consumers is very real. Thus, California's Discover Bank rule does not invalidate arbitration agreements at face value. Rather, insofar as the rule applies to arbitration agreements, it seeks to either eliminate a subset of arbitration agreements unconscionable as a matter of public policy, or at least provide California courts with a device to ensure that corporations do not contract away the arbitrator's ability to consider class arbitration. (118) As one author notes, "[i]n nearly all of these cases [those dealing with class waivers in the consumer context] courts have focused on the inherent unfairness of a contractual clause that prevents claimants 'from seeking redress for relatively small amounts of money' and thus immunizes defendants from class or representative suits." (119) Thus, rather than representing a "blanket policy in California against class action waivers in the consumer arbitration context[,]" (120) the Discover Bank rule represents California's definition of unconscionability in the context of class action waivers. (121) As such, the FAA's [section] 2 explicitly saves the rule as a defense to arbitration, and the Supreme Court erred when it held otherwise. (122)
The dubious analogy drawn by the majority between California's Discover Bank rule and a rule that would impose certain discovery requirements in arbitration further complicates the analysis of the Concepcion holding. (123) As stated, the Court did not merely invalidate California's rule on [section] 2 grounds, but declared class arbitration impossible as a matter of law. (124) Thus, the Court's holding implies that the matter bore on the validity of the agreement; however, its reasoning indicates a traditionally procedural concern, which Howsarn would leave to the arbitrator's discretion. (125) The following section will explore this inconsistency as an alternative ground for the assertion that the Court erred in declaring the FAA preclusive of class arbitration. If the unconscionability of this "one-two punch"--an arbitration agreement combined with a class waiver--is not a matter for lower courts interpreting valid state statutory defenses to arbitration under [section] 2, the possibility of class arbitration procedure is one that the arbitrator must decide under the facts and in the circumstances most beneficial to the parties involved.
B. Class Arbitration as a Procedural Matter
Concepcion held the Discover Bank rule invalid under the FAA, finding it prejudicial to the national policy favoring arbitration. (126) However, the Court also held class action procedure inapplicable in the arbitration context, whether or not the state has enacted a protection like Discover Bank. (127) In doing so, the Court invalidated a procedural mechanism that the arbitrator ought to have at his disposal in the interest of fairness to the parties involved. The Court relied on Stolt-Nielsen for the proposition that arbitration and class procedure are inherently inconsistent, and that an arbitrator attempting to impose such a class structure would exceed his authority. (128) The Court erroneously relied on Stolt-Nielsen for two reasons: 1) Stolt-Nielsen is factually distinguishable, and 2) Stolt-Nielsen removed an important procedural tool from the arbitrator's discretion contrary to Howsam.
First, Stolt-Nielsen involved sophisticated maritime actors--specifically, parcel tanker owners and those holding charter agreements with them. (129) Conversely, Concepcion involved adhesionary sales agreements between a corporation and its consumers who hold virtually no bargaining power. (130) Under the facts and circumstances surrounding the arbitration agreements in Stolt-Nielsen, the Court held that the arbitrator exceeded his authority by imposing class arbitration on the charterers' antitrust claims. (131) Under Howsam, the Court erred when it interpreted silence in an arbitration agreement as preclusive of class procedure, since the arbitrator decides procedural matters (a point that will be more fully expounded below). But Concepcion represents an overextension of that holding to consumer contracts in which consumers have no ability to negotiate the terms.
In short, the arbitration agreements in Stolt-Nielsen precluded class procedure because the agreements made no mention of the possibility of class arbitration, although the parties amply negotiated their terms and had the opportunity to insert such language. (132) Such agreements are a far cry from the adhesive arbitration clauses unilaterally imposed by AT&T on consumers in Concepcion. Thus, interpreting silence as preclusive of class arbitration procedure in the consumer context as a matter of intention on the part of the contracting parties is disingenuous. As the majority in Stolt-Nielsen observed, "the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration 'is a matter of consent, not coercion.'" (133) By refusing to allow the arbitrator to use class procedure, the Court arguably acted as the sole vehicle of coercion in Stolt-Nielsen, but the element of coercion on the part of AT&T in its adhesionary phone sales' contracts ought to preclude a similar line of reasoning in the consumer context. Nonetheless, the strong precedent regarding the national policy favoring arbitration in any context dictated the result in Concepcion that valid agreements to arbitrate preclude class procedure in consumer contracts of adhesion. (134)
Second, the majority in Concepcion ignores the distinction drawn by Howsam between "gateway" and "procedural" matters (135) in favor of Justice Scalia's reading that the national policy favoring arbitration includes efficiency concerns, and that the application of class procedure prejudices these concerns. (136) However, these efficiency concerns are precisely the reason a per se invalidation of class arbitration procedure is unwise. (137) As the above discussion of the AAA Supplemental Class Arbitration Rules and Southland indicate, arbitrators and parties to arbitration have effectively chosen to use the class format in the past. Furthermore, the class device is an important procedural fairness protection for all the involved parties--the named plaintiffs, the virtually represented plaintiff class, and the defendant. (138)
Class arbitration, or the impossibility thereof, should remain an issue within the power of the arbitrator to decide, with state legislatures retaining the right to set the standard of the arbitrator's decision. The analogy drawn by Justice Scalia in Concepcion between California's attempt to impose class procedure and a rule that would impose certain discovery requirements upon the arbitral process strongly indicates the procedural element to such an issue. (139) Thus, Howsam would place these efficiency concerns within the power of the arbitrator to decide. In Shady Grove Orthopedic Associates, PA. v. Allstate Insurance Co., an opinion rendered one month prior to Stolt-Nielsen, Justice Scalia wrote strongly on the nature of class action procedure, and like tools found within the Federal Rules of Civil Procedure:
[W]e think it obvious that rules allowing multiple claims (and claims by or against multiple parties) to be litigated together are also valid, [discussing the applicability of federal procedural rules in state law diversity matters before federal courts] See, e.g., Fed. Rules Civ. Proc. 18 (joinder of claims), 20 (joinder of parties), 42(a) (consolidation of actions). Such rules neither change plaintiffs' separate entitlements to relief nor abridge defendants' rights; they alter only how the claims are processed. For the same reason, Rule 23--at least insofar as it allows willing plaintiffs to join their separate claims against the same defendants in a class action--falls within [the Rules Enabling Act's] authorization. A class action, no less than traditional joinder (of which it is a species) merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits. And like traditional joinder, it leaves the parties' legal rights and duties intact and the rules of decision unchanged. (140)
Yet, when Rule 23 met the FAA a month later in Stolt-Nielsen, class procedure became a claim transformative issue that would so alter the arbitral process that the parties could not have agreed to its use merely by agreeing to arbitrate. As Justice Ginsburg noted in her dissent in Stolt-Nielsen, the arbitrators had not exceeded their authority in allowing class arbitration, so the Court should not have disturbed their judgment. (141) The arbitrator's ability to control procedural fairness becomes even more important in the context of adhesionary consumer arbitration agreements, which virtually guarantee an inequality of bargaining power. (142)
Thus, Concepcion strays farther than Stolt-Nielsen from the guidelines set forth in Shady Grove and Howsam regarding the nature of class action procedure under Rule 23 and under whose authority such procedural issues fall under the FAA, respectively. Furthermore, insofar as California's Discover Bank rule sought merely to protect these concerns in consumer contracts, the Court erred by invalidating it. Because of the adhesionary, often clandestine, nature of arbitration agreements offered by corporations in consumer contracts, class action procedure (and consequently, California's Discover Bank rule) protects procedural fairness concerns that rise to the constitutional level. For reasons discussed below, the right to form a class often involves constitutional protections in the consumer context, and thus, Concepcion's broad ruling has the potential to prejudice consumers' constitutional rights.
C. Unconstitutionality of an Implicit Waiver of the Right to Participate in a Class Action (or Class Arbitration)
Perhaps the most troubling implication of Concepcion is the effect it has on the ability of consumers to unknowingly waive constitutional protections. The Court's invalidation of California's Discover Bank rule in violation of [section] 2, and removal of the issue of class arbitration from the scope of the arbitrator's power in Howsam, threatens crucial protections of Federal Rule of Civil Procedure 23--protections guaranteed both to the named plaintiffs and representative plaintiff class. (143) Although in Shady Grove Justice Scalia wrote of the procedural nature of Rule 23, he nonetheless maintained that the Rule's language requires courts to certify a class when a plaintiff meets its requirements and elects to use the device. (144)
First, many small claims like the one at issue in Concepcion are only viable in the aggregate, as the Supreme Court has recognized. (145) In these cases, the "cost splitting" feature of Rule 23 becomes fundamental to the vindication of individual rights. (146) Furthermore, the consumer rarely "consents" to the waiver because consumer contracts, as stated, are often offered on an adhesionary basis with arbitration/class waiver clauses buried in the fine print or given to the consumer after the completion of the transaction. (147) For example, AT&T's arbitration agreement in Concepcion permitted AT&T to make unilateral amendments; one of those amendments included the class action waiver at issue in that case. (148) The lack of "real" consent by consumers to the details of an arbitration clause in an arms-length sales agreement ought to preclude waivers of important constitutional and procedural protections such as the right to bring qualifying claims before a federal judge (149) or the right to a trial by jury. (150) As stated above, the right to form a class protects access to the courts for resolution of small claims that would otherwise never reach a judge or jury. Thus, in these small claims cases, the right to class procedure becomes as fundamental to justice as the Constitution's promise of an impartial adjudicator in cases meriting federal jurisdiction.
Second, one must consider Rule 23's built-in protective measures for the represented or "absent" class members. Rule 23 requires a court to certify a class, (151) to mandate notice to class members, (152) to require opportunity for direct participation in the action, (153) and to approve or disapprove any settlement reached. (154) Assuming, as argued, that under consumer contracts similar to the one in Concepcion neither the named plaintiff nor these "absent" potential class members will ever possess a viable individual claim, Rule 23's built-in protections become the only method of ensuring the constitutionality of the proceeding to follow (whether litigation or arbitration). Yet, the decision in Concepcion prevents any adjudicator from considering the consumers' right to class certification even under such appalling circumstances as an alleged corporate scheme to avoid small-dollar-amount claims. (155) In other words, Concepcion is unconstitutional because it provides private corporations with the choice of exposing themselves to class liability--a decision that potentially affects fundamental rights that an impartial adjudicator must make unless both parties expressly and unequivocally agree to waive it.
As one author notes, when constitutional rights are involved, the Court has highly scrutinized waiver agreements in other contexts requiring a fact-specific analysis of "consent" to the waiver. (156) Specifically, the Court balances the factors of "visibility and clarity of the waiver itself, the relative knowledge and economic power possessed by the parties, the degree of voluntariness of the purported agreement, and the substantive fairness of the purported agreement." (157) Thus, reading arbitration agreements to imply class action waivers as a matter of law runs counter to the Court's previously stringent, fact-specific method of scrutinizing contractual waivers.
To illustrate the harsh consequences of Concepcion on individual rights, consider the following excerpt from a Seventh Circuit opinion. This decision upheld a consumer arbitration clause against "consent" challenges although the sale had been completed on the phone, but the terms came later in the mail:
Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products. Cashiers cannot be expected to read legal documents to customers before ringing up sales. If the staff at the other end of the phone for direct-sales operations such as Gateway's had to read the four-page statement of terms before taking the buyer's credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. Others would hang up in a rage over the waste of their time. (158)
Such a view aligns with the Supreme Court's national policy favoring arbitration; however, it begs the question--has the Court gone too far? As previously stated, no one is more aware of the power of the Court's policy than the corporations who, armed with the savvy advice of extremely capable counsel, make use of mandatory pre-dispute arbitration agreements on a daily basis. Consumer arbitration agreements ought not imply class action waivers because such a policy will lead to corporations unilaterally contracting away liability for small dollar claims that would not be viable outside of a class format. Thus, the holding in Concepcion jeopardizes the rights of both the named plaintiffs and the virtually represented class members.
The Supreme Court has, in recent years, crafted and nurtured a national policy favoring arbitration. (159) Corporate America has benefitted greatly from this policy, and not surprisingly, has embraced it. Yet this policy has developed at a cost: it has rendered the traditional consent-driven theory of contract seemingly inapplicable to agreements to arbitrate under the FAA. (160) As a result, corporate America has trended toward "pushing the envelope" to see just how far courts will go to enforce unilaterally imposed arbitration agreements under the FAA. (161) Nonetheless, before Concepcion, concerns for corporate goodwill and a common reaction by corporate lawyers that "that can't be permissible" somewhat tempered the prevalence of pre-dispute arbitration agreements and contractual waivers in the consumer context. (162) With the holding in Concepcion, the stakes have gotten too high for these corporations to ignore. (163) Even before Concepcion, authors suggested the insertion of an arbitration clause in a contract could effectively insulate one from class action exposure in different contexts. (164) These contexts, though, involve at least some level of equality of bargaining power or mutuality of agreement, neither of which exist in consumer contracts of adhesion. Congress never intended the FAA to apply to such contracts. Furthermore, the FAA's [section] 2 protects traditional consent-based contract defenses like the Discover Bank rule at issue in Concepcion. (165) This Comment points out three flaws in the reasoning of Concepcion that indicate the need for legislative reform to preempt the demise of modern class action procedure and further erosion of federal statutory and judge-made law.
First, the Court's treatment of California's Discover Bank rule represents an erosion of the FAA's savings provision. In a world where consumer contracts involve an increasing amount of "fine print," the national policy favoring arbitration has become a protective barrier for corporations to bundle waiver agreements into contracts offered on adhesionary and "buy now, terms later" bases, thereby surreptitiously avoiding aggregate exposure to liability. Such a reading of the FAA contradicts Congress' intent behind the savings provision, as well as Congress' overall intent to extend the FAA only to contracts between sophisticated parties of equal bargaining power. Given the reach and application of California's Discover Bank rule, one can hardly imagine any state law withstanding the harsh scrutiny the Supreme Court gives to legislation that threatens arbitration.
Second, Concepcion has rendered "toothless and malleable" both the procedural nature of the Rule 23 class action, and the "gateway vs. procedural" distinction of Howsam. Although the Court in Shady Grove emphasized the procedural nature of Rule 23, the mere presence of an agreement to arbitrate under the FAA rendered the matter "claim transformative" a month later in Stolt-Nielsen. (166) The FAA should not have such an effect on a procedural device that Howsam seeks to leave to the arbitrator's discretion. The decision in Shady Grove correctly describes class action procedure as a "super-sized" form of joinder. Thus, Stolt-Nielsen and Concepcion incorrectly removed a matter of procedural fairness from the arbitrator's power. The reasoning in Shady Grove should apply to the arbitration context, requiring the arbitrator to institute class action procedure if a party who meets the rule's requirements so requests.
Finally, Concepcion raises constitutional rights concerns as the class action device often protects an individual "small claim" plaintiffs only form of recourse. Even absent state law to the contrary, the Court's decision flies in the face of prior jurisprudence in other contexts regarding protections against waivers of constitutional rights. Nonetheless, California's Discover Bank rule specifically sought not only to protect consumers from unknowingly waiving their rights, but also to prevent a novel form of FAA-specific corporate misconduct--that is, bundling arbitration clauses with waiver agreements in the hopes that the relaxed "consent" approach under the FAA will also apply to the waiver. Thus, Concepcion cannot stand because it renders such deceptive business practices acceptable and allows corporations to unilaterally decide the level of their exposure to class liability.
Congress should legislatively overrule Concepcion in one of two ways. The more drastic alternative requires that Congress adopt a class-protective device similar to California's Discover Bank rule in order to insulate the properly formed consumer class from arbitration agreement coverage. Adopting such a rule would remove these types of claims from the scope of the arbitrator's power and ensure that a court decide such critical issues affecting consumer rights and corporate responsibility. Although this solution risks not honoring some validly entered arbitration agreements, it avoids the infringement on individual rights apparent in Concepcion and other situations where courts merely presume consent to "fine-print" or "buy now, terms later" arrangements. Such a solution also appears less drastic if one takes into account that Congress never intended the FAA to apply to consumer contracts of adhesion. The less drastic alternative requires Congress to implement rules, similar to the AAA Supplementary Rules for Class-wide Arbitration, (167) requiring arbitrators to certify classes when necessary to protect procedural fairness. This less ambitious solution does not require Congress to remove a branch of consumer disputes from arbitration to the detriment of the Court's national policy favoring arbitration, but requires Congress to ensure that class arbitration remains a viable alternative for parties and that arbitrators have a set of rules by which to judge the propriety of such an alternative. Under this solution, arbitrators would retain the power to consider the class action alternative to multiple arbitrations over the same issue. Although one cannot easily harmonize class procedure with the private, expeditious nature of arbitration under the FAA, expediency is not a reason to invalidate an important protection afforded by the Federal Rules of Civil Procedure in the consumer context--a context where these protections arguably become the most important. As a result, either one of these alternatives represents a shift in FAA jurisprudence more in line with Congress' intent in drafting the FAA, since it was never meant to apply to consumer contracts of adhesion. If Congress takes no action, corporate America could eliminate the consumer class action altogether by refusing to sell to anyone who does not sign an arbitration agreement. According to a 2008 study conducted by the Michigan Journal of Law Reform, seventy-seven percent of consumer contracts (of the twenty-one major corporations in the study) included mandatory arbitration clauses. (168) With that number on the rise, Concepcion makes the demise of class actions inevitable, as corporations who impose these agreements know how little contractual consent and individual rights matter when class action meets arbitration under the FAA.
(1.) See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744, 1751 (2011) (holding that California's Discover Bank rule, which safeguarded citizens from inadvertently waiving the right to form a class in arbitration, was preempted by the Federal Arbitration Act because the rule stood "as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress").
(2.) Id. at 1752.
(3.) Id. at 1744.
(5.) See Ting v. AT&T, 319 F.3d 1126, 1133-34 (9th Cir. 2003) (finding that AT&T's business practices were deceptive and prevented any real consent on the part of the consumer to the waiver because AT&T's own research concluded that "only 25 percent of its customers were likely to open the separate mailing, approximately 10 percent would not even look at it, and only 30 percent would actually read the entire contract").
(6.) Concepcion, 131 S. Ct. at 1753.
(7.) Id. (holding that valid agreements to arbitrate under the Federal Arbitration Act preclude class procedure because such agreements stand as an obstacle to the intent of Congress).
(8.) See id. at 1761 (Breyer, J., dissenting) ("And we have recognized that '[t]o immunize an arbitration agreement from judicial challenge' on grounds applicable to all other contracts 'would be to elevate it over other forms of contract."' [quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)]).
(9.) Ashby Jones, After AT&T Ruling, Should We Say Goodbye to Consumer Class Actions'?, WALL ST. J. L. BLOG (Apr. 27, 2011, 12:36 PM), http://blogs.wsj.com/law/2011/04/27/after-att-ruling-should-we-say-goodbye-to-consumer-class-actions/ (quoting Vanderbilt Law Professor, Brian Fitzpatrick).
(10.) Myriam Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 MICH. L. REV. 373, 373, 386 (2005) (discussing the trend to decertify "mass classes" under FED. R. CIV. PRO. 23 as federal judges became averse to the technique). Many judges saw it as a method to aggregate weak tort claims with strong ones in an effort to not only strengthen the weak claims, but also create intense pressure on the defendant(s) to settle (unflatteringly referred to as "judicial blackmail"). Id. at 386. Many view this attitude toward mass classes as an extension of the modern tort reform movement--an effort to protect corporate economic interests from greedy, predatory plaintiffs' lawyers. Id. at 389-90.
(11.) Baron & Budd, The Importance of Class Actions, PROTECTING WHAT'S RIGHT. BARON AND BUDD (Oct. 12, 2011), http://baronandbudd.com/protecting-whats-right/2011/10/the-importance-of-class-actions/ ("A recent study by the finance and accounting departments of the business schools at Rutgers University and Emory University found that class action lawsuits are a very effective way to do what many Americans are focused on right now: make corporations play fair.") (emphasis added). See also Jean R. Sternlight, Should an Arbitration Provision Trump the Class Action? No: Permitting Companies to Skirt Class Actions Through Mandatory Arbitration Would be Dangerous and Unwise, 8 DISP. RESOL. MAG. 13, 19 (2002) (discussing the importance of protection from corporate misconduct and the class action waiver amounting to immunity from the small dollar claim).
(12.) Gilles, supra note 10, at 382-84. Professor Gilles notes that although many judges argue that class litigation creates uncertainty for the defendant rising to the level of judicial blackmail, defendants often prefer the device because the final resolution of related issues in the case allows them to better forecast losses created by litigation. Id. at 382, 386.
(13.) Nate Raymond, Citi, Discover Can't Shake Credit Card Antitrust Suit Over Arbitration, AM. LAWYER MAG., Feb. 13, 2012, available at 2012 LEXIS 1202541961304.
(15.) See Steven C. Bennett & Dean A. Calloway, A Closer Look at the Raging Consumer Arbitration Debate, 65 DISP. RESOL. J., 28, 31 (May-Oct. 2010).
(19.) See 9 U.S.C. [section] 2 (2006). The final clause of 9 U.S.C. [section] 2 is commonly referred to as the "savings provision" because it saved what grounds exist "at law or in equity for the revocation of any contract" as defenses to mandatory, pre-dispute arbitration provisions in contracts, which the preceding clause of 9 U.S.C. [section] 2 made "valid, irrevocable and enforceable."
(20.) FED. R. CIV. PRO. 23. A procedural device through which a person, or group of persons, may represent the rights of all those sharing the same claim against a particular defendant.
(21.) 9 U.S.C [section][section] 1-16 (2006).
(22.) AT&T Mobility LLC. v. Concepcion, 131 S. Ct. 1740, 1749 (2011) ("[Supreme Court case law] has repeatedly described the Act as 'embod[ying] [a] national policy favoring arbitration,' ... and 'a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary."' (citations omitted)).
(23.) Thomas E. Carbonneau, Arbitral Justice: The Demise of Due Process in American Law, 70 TUL. L. REV. 1945, 1946 (1996) ("Owing largely to the holdings of the U.S. Supreme Court, arbitration law and procedure have emerged from the obscurity of specialized practice and entered the adjudicatory mainstream.").
(24.) Absent from the Federal Arbitration Act is a definition of the term "arbitration." See 9 U.S.C. [section][section] 1-16, 201-208, 301-307 (2006). However, the term refers quite informally (and as a matter of common application) to a method of private dispute resolution under which the parties agree to submit an argument to an impartial third party who can render either a binding or non-binding decision based on the parties' choice of applicable law and relevant concerns.
(25.) Carbonneau, supra note 23, at 1947.
(27.) Id. at 1948.
(28.) Id. at 1949.
(30.) Id. at 1950.
(31.) Act of Feb. 12, 1925, ch. 213, 43 Stat. 883 (current version at 9 U.S.C. [section][section] 1-16 (2006)).
(32.) 9 U.S.C. [section] 2 (2006).
(33.) See Carbonneau, supra note 23, at 1952.
(34.) Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
(36.) Carbonneau, supra note 23, at 1952 ("[B]ecause substantive rights were not involved, there could be no constitutional conflict between state and federal authority to legislate. Despite the evasive, somewhat tortuous reasoning, the Court's message was clear: The federal courts were to apply the federal law on arbitration whenever they entertained an arbitration question, regardless of Erie and claims for safeguarding states' authority to legislate in the area.").
(37.) Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (holding that federal courts may apply their own procedural rules, but must apply state substantive law to matters in federal court based only on diversity of citizenship jurisdiction).
(38.) Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
(39.) Carbonneau, supra note 23, at 1954.
(40.) See Southland Corp. v. Keating, 465 U.S. 1, 12 (1984) (holding that the FAA applies in state as well as federal court, and that it preempts conflicting state statutes); Mitsubishi Motors Corp v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) ("[While] the parties' intentions control ... those intentions are generously construed as to issues of arbitrability."); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987) (discussing arbitrability of securities fraud and RICO claims) ("The burden is on the party opposing arbitration ... to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue."); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (citing federal policy favoring arbitration in holding that claims brought under the Age Discrimination in Employment Act can be forced into arbitration); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995) (holding that the FAA applies to the full extent of Congress' permitted regulation under the Commerce Clause); Doctor's Ass'n., Inc. v. Casarotto, 517 U.S. 681, 688-89 (1996) (reversing the Montana Supreme Court and holding that Montana's statutory notice requirement regarding waiver of rights was preempted by the FAA).
(41.) See supra notes 34, 40 and accompanying text.
(42.) Carbonneau, supra note 23, at 1955 ("In effect, the right to arbitrate had become a substantive federal right protected by the Supremacy Clause of the federal Constitution. The protection of that right would extend wherever the concept of interstate commerce could be made to reach. Indeed, one might speculate that the exercise of the right itself created substantive, federal question jurisdiction.").
(43.) Id. at 1955-56.
(44.) 9 U.S.C. [section] 2 (2006).
(45.) Arbitration Fairness Act of 2011, S. 987, 112th Cong. (2011).
(47.) See R. REP. NO. 68-96 (1924). See also S. REP. No. 68-536, at 3 (1924).
(48.) See Hearing on S. 4213 and S. 4214 Before the Subcomm. of the S. Comm, on the Judiciary, 67th Cong. 9-11 (1923).
(49.) Southland Corp. v. Keating, 465 U.S. 1, 3 (1984).
(50.) Id. at 16.
(51.) Id. at 5.
(52.) Id. at 17.
(53.) Id. at 16.
(54.) Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).
(55.) Southland Corp. v. Keating, 465 U.S. 1, 16 (1984).
(56.) See generally id.
(57.) Id. at 22-25, 36.
(58.) Jean R. Sternlight, As Mandatory Binding Arbitration Meets the Class Action, Will The Class Action Survive?, 42 WM. & MARY L. REV. 1, 5 (2000).
(59.) Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92 (2000) ("We have held that the party seeking to avoid arbitration bears the burden of establishing that Congress intended to preclude arbitration of the statutory claims at issue. Similarly, we believe that where, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs." (citation omitted)).
(60.) See Gilles, supra note 10, at 394.
(61.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84 (2002).
(62.) Id. at 83 (quoting AT&T Techs., Inc. v. Commc'ns Workers, 475 U.S. 643, 649 (1986)).
(63.) Id. at 83.
(64.) Id. at 84. (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)).
(65.) Id. at 84 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).
(66.) Id. at 84-85 (citing REV. UNIF. ARB. ACT [section] 6(c), comment 2, 7 U.L.A. 13 (2000) (emphasis in original)).
(67.) See generally Lawrence A. Cunningham, Access to Justice: Investor Suits in the Era of the Robert Court: Rhetoric Versus Reality in Arbitration Jurisprudence: How the Supreme Court Flaunts and Flunks Contracts, 75 L. & CONTEMP. PROBS. 129 (2012).
(68.) Carbonneau, supra note 23, at 1956.
(69.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84-85 (2002).
(70.) AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753 (2011).
(71.) Id. at 1744.
(72.) See Gilles, supra note 10, at 396 ("In this fertile environment, corporate lawyers created the collective action waiver and wrapped their newborn in the cloak of an arbitration clause protecting it against attack with the now sacrosanct policies of the FAA."); see also Sternlight, supra note 58, at 91.
(73.) Concepcion, 131 S. Ct. at 1744.
(76.) Id. at 1745.
(77.) Id. at 1746.
(79.) Concepcion, 131 S. Ct. at 1746.
(80.) Id. at 1753 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
(81.) This case resulted in a hotly contested 5-4 decision. Justice Scalia delivered the majority opinion in which Roberts, C.J., and Kennedy, Thomas, and Alito, JJ., joined. However, Justice Thomas filed separate reasons in a concurring opinion. Justice Breyer filed a dissenting opinion in which Ginsburg, Sotomayor, and Kagan, JJ. joined. Id. at 1743.
(82.) Id. at 1746.
(83.) Id. at 1753-56 (Thomas, J., concurring).
(84.) Id. at 1746, 1748.
(85.) Concepcion, 131 S. Ct. at 1746 ("Under California law, ... [a] finding of unconscionability requires a 'procedural' and a 'substantive' element, the former focusing on 'oppression' or 'surprise' due to unequal bargaining power, the latter on 'overly harsh' or 'one-sided' results") (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (2000)).
(86.) Id. at 1747 (quoting Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (2d Cir. 1959)).
(87.) Id. at 1750.
(88.) Id. at 1749.
(89.) Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758, 1775 (2010) (stating that class procedure under Rule 23 substantively affected the claim at issue because "[it] changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator").
(90.) Concepcion, 131 S. Ct. at 1750-53.
(91.) Id. at 1748 ("As we have said, a federal statute's saving clause cannot in reason be construed as [allowing] a common law right, the continued existence of which would be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to destroy itself.") (internal quotations omitted).
(92.) Id. at 1756.
(93.) Id. at 1757.
(94.) See Provencher v. Dell, Inc., 409 F. Supp. 2d 1196, 1201 (C.D. Cal. 2006); Gentry v. Superior Court, 42 Cal. 4th 443, 457 (2007); Arguelles-Romero v. Superior Court, 184 Cal. App. 4th 825, 843-45 (2010); Walnut Producers of Cal. v. Diamond Foods, Inc., 187 Cal. App. 4th 634, 647-50 (2010).
(95.) Concepcion, 131 S. Ct. at 1757-58 (Justice Breyer cited directly to a House report compiled during the drafting of the FAA in support of his contention that the national policy favoring arbitration is too expansively interpreted by the majority). See also H.R. Rep. No. 96, 68th Cong., 1st Sess., 1 (1924); S. Rep. No. 536, 68th Cong., 1st Sess., 2 (1924).
(96.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84-85 (2002).
(97.) Concepcion, 131 S. Ct. at 1756 (Breyer, J., dissenting).
(98.) See Gilles, supra note 10, at 378. (The title speaks for itself: "Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action.").
(99.) Concepcion, 131 S. Ct at 1744 (Noting Justice Scalia's characterization of the claim--that "AT&T had engaged in false advertising and fraud by charging sales tax on phones it advertised as free").
(100.) 9 U.S.C. [section] 2 (2006).
(101.) See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006).
(102.) Concepcion, 131 S. Ct at 1745-46.
(103.) Id. at 1758 (Justice Breyer writes "we have also cautioned against thinking that Congress' primary objective was to guarantee these particular procedural advantages") (Discussing the majority's notion that the FAA guaranteed expeditious resolution of claims, and was, therefore, irreconcilable with class procedure).
(104.) Id. at 1758. Justice Breyer writes in his dissent, Rather, [the] primary objective was to secure the "enforcement" of agreements to arbitrate. Dean Witter, 470 U.S. at 221, 105 S. Ct. 1238. See also id., at 219, 105 S. Ct. 1238 (we "reject the suggestion that the overriding goal of the Arbitration Act was to promote the expeditious resolution of claims"); id., at 219, 217-218, 105 S. Ct. 1238 ("[T]he intent of Congress" requires us to apply the terms of the Act without regard to whether the result would be "possibly inefficient"); cf. id., at 220, 105 S. Ct. 1238 (acknowledging that "expedited resolution of disputes" might lead parties to prefer arbitration).
(105.) Supplementary Rules for Class Arbitrations (2003), AMERICAN ARBITRATION ASSOCIATION (AAA), http://www.adr.org/aaa/faces/s/sitesearch/sitesearchdetail?doc =ADRSTG_004129&_afrLoop=1734437459090334&_afrWindowMode=0&_afrWindo wId=19638ziorc_99#%40%3F_afrWindowId%3D19638ziorc_99%26_afrLoop%3D1734 437459090334%26doc%3DADRSTG_004129%26_afrWindowMode%3D0%26_adf.ctrlstate%3D19638ziorc_147 (also available in Clerk of Court's case file) (last visited Nov. 20, 2012). See also Justice Breyer's dissent in Concepcion, 131 S. Ct at 1759-60 (Discussing the unsuitability of arbitration to high-stakes claims like class actions, Justice Breyer writes that such a notion "lacks empirical support. Indeed, the majority provides no convincing reason to believe that parties are unwilling to submit high-stake disputes to arbitration. And there are numerous counterexamples." (internal quotation marks omitted). He goes on to provide examples of multimillion dollar judgments handled in arbitration. He also discusses AAA statistics regarding the efficiency of class arbitration procedure indicating that the AAA has substantial experience with this type of proceeding.).
(106.) Sternlight, supra note 58, at 38.
(107.) Id. at 52.
(108.) Gilles, supra note 10, at 375 (discussing the virtual extinction of the mass tort class action, and the forthcoming demise of the consumer/employee class action through contractual class action waivers); and cf. at 377 ("Once the waivers gain broader acceptance and recognition, it will become malpractice for corporate counsel not to include such clauses in consumer and other class-action-prone contracts.").
(109.) See id. at 397.
This movement accelerated in 1999, when the National Arbitration Forum ("NAF"), a for-profit arbitral body designated in the arbitration provisions of many large companies, disseminated marketing materials cautioning corporate attorneys that the only way to insulate their clients from class action liability in general--and Y2K computer class action liability in particular--was to implement arbitration provisions containing terms that expressly waive the right to class treatment. Companies were responsive to this pitch.
See also Ross v. Bank of Am., No. 05 Civ. 7116 (WHP), 2006 U.S. Dist. LEXIS 208, at 220-21 (S.D.N.Y. 2006).
(110.) Gilles, supra note 10 at 375 (Discussing the threat of class action extinction at the hands of the FAA).
(111.) Fed. R. Civ. P. 23.
(112.) Gilles, supra note 10, at 378. She continues:
[a]nd while one might argue--as many scholars do--that class actions in contemporary practice may tend to overdeter, or that agency costs hamper the effectiveness of the class action device, I am aware of no serious argument that we should ditch class actions in their entirety. Everyone seems to agree that sound public policy requires collective litigation be available for small-claim plaintiffs who would not have the incentive or resources to remedy harms or deter wrongdoing in one-on-one proceedings.
(113.) AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1760 (2011) (Breyer, J., dissenting) (noting that "California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the State does not adopt a special rule that disfavors arbitration"). See also Doctors Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
(114.) Id. at 1758-59.
(115.) See, e.g., Am. Online, Inc. v. Superior Court, 108 Cal. Rptr. 2d 699 (Cal. Ct. App. 2001); Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862 (Cal. Ct. App. 2002); Comb v. Paypal, Inc., 218 F. Supp. 2d 1165, 1173 (N.D. Cal. 2002); ACORN v. Household Inti, Inc., 211 F. Supp. 2d 1160, 1174 (N.D. Cal. 2002); Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003); Circuit City Stores, Inc. v. Mantor, 335 F.3d 1101 (9th Cir. 2003); Aral v. EarthLink, Inc., 134 Cal. App. 4th 544, 555-57 (2005); Klussman v. Cross Country Bank, 134 Cal. App. 4th 1283, 1297 (2005); Cohen v. DirecTV, Inc., 142 Cal. App. 4th 1442, 1451-53 (2006).
(116.) Concepcion, 131 S. Ct at 1760.
(117.) Id. at 1756-57. The pertinent part of the Discover Bank rule reads:
[when a class action waiver] is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then ... the waiver becomes in practice the exemption of the party from responsibility for [its] own fraud, or willful injury to the person or property of another. (internal citations omitted)
(119.) See Gilles, supra note 10, at 401 (quoting Szetela v. Discover Bank, 118 Cal. Rptr. 2d 862, 867 (Cal. Ct. App. 2002)).
(120.) Provencher v. Dell, Inc., 409 F. Supp. 2d 1196, 1201 (C.D. Cal. 2006).
(121.) See supra note 79 & 99.
(122.) See 9 U.S.C. [section] 2 2006.
(123.) Concepcion, 131 S. Ct. at 1747.
(124.) Id. at 1753.
(125.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) ('"[P]rocedural' questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.") (internal citation omitted).
(126.) Concepcion, 131 S. Ct. at 1753.
(127.) Id. at 1750-51.
(128.) Id. at 1750.
(129.) Stolt-Nielsen v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758, 1764 (2010).
(130.) Concepcion, 131 S. Ct. at 1760-62 (Breyer, J., dissenting) (discussing the propriety of California's Discover Bank rule as it applies to consumer contracts of adhesion).
(131.) Stolt-Nielsen, 130 S. Ct. at 1776.
(132.) Id. at 1774-75.
(133.) Id. at 1773.
(134.) Concepcion, 131 S. Ct. at 1749.
(135.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002).
(136.) Id. at 1748-49.
(137.) See Gilles, supra note 10, at 389-90.
(138.) Id. at 390; Sternlight, supra note 58, at 51-53.
(139.) Concepcion, 131 S. Ct. at 1747.
(140.) Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1443 (2010).
(141.) Stolt-Nielsen v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758, 1781-82 (2010) (Ginsburg, J., dissenting).
(142.) Gilles, supra note 10, at 414-17.
(143.) See Sternlight, supra note 58, at 33, 80.
(144.) Shady Grove, 130 S. Ct. at 1438.
(145.) See, e.g., Eiseti v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) ("Economic reality dictates that petitioner's suit proceed as a class action or not at all." (estimated $70 claim)); Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997) (confirming the policy behind Rule 23 to protect the vindication of rights that would never find their way to court in an individual format because of economic realities); see also Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985).
(146.) See Gilles, supra note 10, at 406-08 (Professor Gilles discussed this "Second-Wave Challenge" to arbitration agreements in the context of federal statutory claims, as they tend to be very expensive, but the argument is easily extended to consumer claims where the prospective recovery is often very small).
(147.) Id. at 412-13 (discussing the replacement of the "quaint, Williston-era preoccupation with volitional assent" with an "economist's model, in which overall, systemic efficiency gains are more highly valued").
(148.) AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1744 (2011).
(149.) U.S. CONST, art. Ill, [section] 2, cl. 1 ("The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority ...").
(150.) U.S. CONST, amend. VII (protecting the right to a trial by jury "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars ...").
(151.) Fed. R. Civ. P. 23(c)(1)(A); see also Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1443 (2010) (discussing the fact that Rule 23 is optional for the plaintiff, but mandatory upon the Court if its requirements are met).
(152.) Id. at 23(c)(2)(A); see also id. at 23(e)(1) (mandating notice of proposed dismissal or settlement); and id. 23(c)(2) (mandating notice as to 23(b)(3) class actions).
(153.) Id. 23(d)(1)(B).
(154.) Id. 23(e)(2).
(155.) AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1750 (2011).
(156.) Jean R. Sternlight, Rethinking the Constitutionality of the Supreme Court's Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers, and Due Process Concerns, 72 TUL. L. Rev. 1, 56 (1997).
(157.) Id. at 57-58.
(158.) Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1149 (7th Cir. 1997).
(159.) Sternlight, supra note 58, at 10.
(160.) See Carbonneau, supra note 23, at 1956.
(161.) Gilles, supra note 10, at 426-27.
(163.) Id. at 427.
(164.) See, e.g., Edward Wood Dunham, The Arbitration Clause as Class Action Shield, 16 FRANCHISE L.J. 141, 142 (1997) (urging franchisors to adopt binding arbitration); Michael R. Pennington, Every Health Insurer's Litigation Nightmare: A Case Study of How One Class Action Affected the Business of One Insurer, 28 BRIEF 47, 52 (1998-99) (noting use of binding arbitration clauses by Alabama insurance companies in an "effort to limit litigation exposure in general, and exposure to class actions in particular"); John M. Flynt, A Solution to Force-Placed Insurance Litigation for Lenders: Disclosure and Arbitration, 26 CUMB. L. REV. 537, 573 (1996) (proposing a solution for high-risk insurers to avoid litigation over "force-placed" insurance coverage).
(165.) See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1757 (2011) (Breyer, J., dissenting).
(166.) Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758, 1776 (2010).
(167.) Id. at 1777 (Ginsburg, J., dissenting).
(168.) Amalia D. Kessler, Stuck in Arbitration, N.Y. TIMES (Mar. 6, 2012), http://www.nytimes.com/2012/03/07/opinion/stuck-in-arbitration.html?_r=l&scp= l&sq=arbitration%20and%20fairness&st=cse.
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|Author:||Mandich, Marc J.|
|Publication:||Loyola Journal of Public Interest Law|
|Date:||Sep 22, 2012|
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