February 23, 2021 Articles

Class Arbitration and the Enforceability of Class Action Waivers in Arbitration Agreements

Careful attention to the agreement—including, for example, whether a court or an arbitrator must make threshold arbitrability decisions—is essential.

By Sara Anne Ford, R. Ashby Pate, and Jeffrey P. Doss

In AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the U.S. Supreme Court upheld a class action waiver in a standard consumer contract, first finding that the Federal Arbitration Act (FAA) preempted state law on the issue of whether such contractual provisions are unconscionable. Concepcion concerned a class action waiver in AT&T’s standard contract for cellular service. The company’s advertising stated that, if a customer signed up for service, then he or she would receive a free phone. The plaintiffs signed up, received their free phone, but were charged sales tax; so they sued.

Faced with a class action challenging the sales tax charges, AT&T filed a motion to compel the plaintiffs to arbitrate on an individual basis. It did so based on a provision in its contract calling for arbitration but requiring that it be brought in an “individual capacity, not as a plaintiff or class member in any purported class or representative proceeding.” Id. at 336–37.

The district court, in a decision affirmed by the Ninth Circuit, denied AT&T’s motion, concluding that under California law, the class action waiver was unconscionable. The Supreme Court reversed and held that a state law “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Id. at 344.

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