Supreme Court holds that Federal Arbitration Act preempts California rule on unconscionability

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate), White & Case LLP

In AT&T Mobility LLC v Concepcion, No. 09-893 (Apr. 27, 2011), the US Supreme Court reversed a Ninth Circuit Court of Appeals decision applying California law to find an arbitration provision waiving class arbitrations unconscionable.

In AT&T Mobility LLC v Concepcion, No. 09-893 (Apr. 27, 2011), the US Supreme Court reversed a Ninth Circuit Court of Appeals decision applying California law to find an arbitration provision waiving class arbitrations unconscionable. The Supreme Court found that the California rule applied by the Ninth Circuit served as an obstacle to achieving the goals of the Federal Arbitration Act (www.practicallaw.com/6-501-6615). The purpose of the Federal Arbitration Act is to "ensure that private arbitration agreements are enforced according to their terms" to facilitate "efficient, streamlined procedures tailored to the type of dispute." Class arbitration interferes with "fundamental attributes of arbitration" because it is more formal, more costly, slower, more likely to create procedural problems, and poses more risks to defendants than bilateral arbitration. Not enforcing the class arbitration waiver, in other words, interferes with arbitration.

The court therefore held that the California rule on unconscionability is pre-empted by the Federal Arbitration Act.

After this decision, it is not clear how courts can rely on state law unconcsionability doctrines to refuse to enforce class arbitration waivers. This could affect future use of arbitration agreements with class arbitration waivers.

 
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