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June 22, 2018 Practice Points

Enforcement of Arbitration Clause Does Not Constitute State Action

By Milana Lickova

On December 11, 2017, the Ninth Circuit held that a telecommunication provider’s attempt to compel arbitration was not state action on which customers could base a claim for violation of their First Amendment right to petition the government. Roberts v. AT&T Mobility LLC, 877 F.3d 833 (U.S. Dist. 9th Cir. 2017).

In Roberts, consumers brought a putative class action against AT&T Mobility LLC (AT&T), a provider of a wireless data service plans. The plaintiffs alleged that AT&T falsely advertised its data services as unlimited in violation of consumer protection laws. AT&T moved to compel arbitration based on an arbitration clause in its standard contract with consumers. AT&T also relied on an earlier ruling by the U.S. Supreme Court holding that the FAA preempted a California law rendering arbitration provisions in consumer contracts unconscionable and unenforceable. AT&T Mobility LLC v. Conception, 131 S. Ct. 1740 (2011). The plaintiffs opposed AT&T’s motion on First Amendment grounds, arguing that they did not knowingly and voluntarily give up their right to have a court adjudicate their claims and that AT&T’s efforts to compel arbitration constituted state action that violated their First Amendment right to petition the government. The district court rejected the plaintiffs’ arguments and compelled arbitration. The plaintiffs appealed and reasserted their arguments.

The Ninth Circuit applied a two-prong test to determine whether there was state action to support the plaintiffs’ constitutional claims. First, the court stated that a direct action against a state can be brought only if the state deprives or abridges the plaintiffs’ First Amendment rights, such as the right to have a claim adjudicated by a court of law. The court held that the deprivation must be caused by the exercise of some right or privilege created by the state. Second, the court held that the party charged with the deprivation must be a state actor or a private entity whose actions are properly attributable to the state. Under the first prong, the Ninth Circuit relied on a well-established doctrine that the judicial enforcement of arbitration agreements does not constitute state action. The FAA does not impose arbitration but simply reaffirms the private choice to arbitrate.

The court then analyzed under what circumstances a state can be held responsible for the conduct of a private party. Under the second prong of the test, the Ninth Circuit ruled that a private party could be considered a state actor when there was a sufficiently close nexus between the state and the challenged action of the private entity. Whether there was a sufficiently close nexus would depend on whether the state exercised coercive power or provided such significant encouragement to the private actor, either overtly or covertly, that the actions of the private party should be deemed to be those of the state.

The Ninth Circuit held that second prong of the test was not met because AT&T’s arbitration clause was not action fairly attributable to the state. The FAA does not require parties to arbitrate when they have not agreed to do so, nor did it require the plaintiffs to waive their right to litigate. Where the state merely approves or acquiesces in the conduct of a private party, there is insufficient encouragement by the state to convert the actions of the private entity into state action. Furthermore, the promotion of arbitration by the FAA does not constitute that kind of significant encouragement necessary to a finding of state action. Accordingly, the Ninth Circuit affirmed the district court’s decision to compel arbitration, as no state action existed that would support the plaintiffs’ constitutional challenge to the enforcement of their arbitration agreement.

Milana Lickova is a 2018 J.D. candidate at DePaul University College of Law in Chicago, Illinois.

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