Instant Analysis: AT&T Mobility v. Concepion

April 27th, 2011

In AT&T Mobility v. Concepion the Court, 5-4 per Justice Scalia held that the Federal Arbitration Act pre-empts a California rule that found that a ban on class action arbitration is unconscionable. The rule “stands as an obstacle to the accomplishment and exe-cution of the full purposes and objectives of Congress,” and is pre-empted by the FAA. Justice Thomas filed a concurring opinion. Justice Breyer dissented, joined by Ginsburg, Sotomayor, and Kagan. The pro-business Roberts Court is no doubt back, I predict detractors will broadly proclaim, ignoring all those other cases this term where it was on vacation. (see here, here, and here). I will update this page as I read through the opinion. For what it’s worth AT&T went .500 at SCOTUS, winning this case and losing FCC v. AT&T.

Majority Opinion

Scalia’s lays out the analytical framework:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 552 U. S. 346, 353 (2008). But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. . . .
We largely agree. Although §2’s saving clause preservesgenerally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand asan obstacle to the accomplishment of the FAA’s objectives.

The overarchingpurpose of the FAA, evident in the text of §§2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

Scalia finds the purpose of the FAA “readily apparent from the . . . text.”

The California rule will interfere with arbitration of all contracts of adhesion (just about all of them).

California’s Discover Bank rule similarly interferes with arbitration. Although the rule does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post. The rule is limited to adhesion contracts, Discover Bank, 36 Cal. 4th, at 162–163, 113 P. 3d, at 1110, but the times in which consumer contracts were anything other than adhesive are long past.6

In a footnote Scalia calls out Breyer in dissent from relying on tenuous legislative history—“ statements of witnesses in committee hearings and a press release of Secretary of Commerce Herbert Hoover.”

5Relying upon nothing more indicative of congressional understanding than statements of witnesses in committee hearings and a press release of Secretary of Commerce Herbert Hoover, the dissent suggests that Congress “thought that arbitration would be used primarily where merchants sought to resolve disputes of fact . . . [and] possessed roughly equivalent bargaining power.” Post, at 6. Such a limitation appears nowhere in the text of the FAA and has been explicitly rejected by our cases. “Relationships between securities dealers and investors, for example, may involve unequal bargaining power, but we [have] nevertheless held . . . that agreements to arbitrate in that context are enforceable.” Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 33 (1991); see also id., at 32–33 (allowing arbitration of claims arising under the Age Discrimination in Employment Act of 1967 despite allegations of unequal bargaining power between employers and employees). Of course the dissent’s disquisition on legislative history fails to note that it contains nothing—not even the testimony of a stray witness in committee hearings—that contemplates the existence of class arbitration.

Scalia also had a few comments about class action arbitration, in general:

Although we have had little occasion to examine classwide arbitration, our decision in Stolt-Nielsen is instructive. In that case we held that an arbitration panel exceeded its power under §10(a)(4) of the FAA by imposingclass procedures based on policy judgments rather than the arbitration agreement itself or some background principle of contract law that would affect its interpretation. 559 U. S., at ___ (slip op., at 20–23). We then held that the agreement at issue, which was silent on the question of class procedures, could not be interpreted to allow thembecause the “changes brought about by the shift frombilateral arbitration to class-action arbitration” are “fundamental.” Id., at ___ (slip op., at 22). This is obvious as a structural matter: Classwide arbitration includes absent parties, necessitating additional and different proceduresand involving higher stakes. Confidentiality becomesmore difficult. And while it is theoretically possible toselect an arbitrator with some expertise relevant to the class-certification question, arbitrators are not generallyknowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties. The conclusion follows that class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA.

Here is Scalia’s onclusion:

Because it “stands as an obstacle to the accomplishmen tand execution of the full purposes and objectives of Congress,” Hines v. Davidowitz, 312 U. S. 52, 67 (1941), California’s Discover Bank rule is preempted by the FAA. The judgment of the Ninth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.

Justice Thomas’ Concurring Opinion

Justice Thomas wrote “separately to explain how [he] would find that limit in the FAA’s text.”

As I would read it, the FAA requiresthat an agreement to arbitrate be enforced unless a partysuccessfully challenges the formation of the arbitration agreement, such as by proving fraud or duress. 9 U. S. C. §§2, 4. Under this reading, I would reverse the Court of Appeals because a district court cannot follow both the FAA and the Discover Bank rule, which does not relate to defects in the making of an agreement.

Thomas reiterates his position from Wyeth, and writes that “although I adhere to my views on purposes-and-objectives pre-emption, see Wyeth v. Levine, 555 U. S. 555, ___ (2009) (opinion concurring in judgment), I reluctantly join the Court’s opinion.”

Justice Breyer’s Dissenting Opinion.

Justice Breyer’s dissent takes a purposive approach to pre-emption, and finds that the California rule is consistent with the objective of the FAA.

The Federal Arbitration Act says that an arbitrationagreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2 (emphasis added). California law sets forth certain circumstances in which “class action waivers” in any contract are unenforceable. In my view, this rule of state law is consistentwith the federal Act’s language and primary objective. It does not “stan[d] as an obstacle” to the Act’s “accomplishment and execution.” Hines v. Davidowitz, 312 U. S. 52, 67 (1941). And the Court is wrong to hold that the federal Act pre-empts the rule of state law.

Yesterday I commented on a Sotomay-Breyer concurring opinion, which focused on how the purposes of Congress today to understand an act passed in 1868. Today, Justice Breyer intimated the same notion:

Regardless, if neither the history nor present practice suggests that class arbitration is fundamentally incompatible with arbitration itself, then on what basis can themajority hold California’s law pre-empted?

This suggests that how Congress interprets the FAA today provides meaning of how the enacting Congress (in 1925) interpreted it.

Scalia directly responds to this part, and notes that class action arbitration did not exist in 1925. How could today’s intent possibly affect the old intent?

We find it unlikely that in passing the FAA Congressmeant to leave the disposition of these procedural requirements to an arbitrator. Indeed, class arbitration was not even envisioned by Congress when it passed the FAA in 1925; as the California Supreme Court admitted in Discover Bank, class arbitration is a “relatively recent development.” 36 Cal. 4th, at 163, 113 P. 3d, at 1110. And it is at the very least odd to think that an arbitratorwould be entrusted with ensuring that third parties’ dueprocess rights are satisfied.

Scalia focuses on the intent of the enacting Congress only:

We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision

Breyer closes with a snipe at what he sees as pseudo-federalism in the pre-emption context.

action”). But federalism is as much a question of deeds as words. It often takes the form of a concrete decision by this Court that respects the legitimacy of a State’s action in an individual case. Here, recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California’s law, not to strike it down. We do not honor federalist principles in their breach.
With respect, I dissent.

Et tu Brutus? (Yes I know it is Brute, but Brutus was an anti-federalist, so it works here).