Is Class Arbitration Waiver in an Arbitration Agreement Legal ?
In AT&T Mobility LLC v. Concepcion (2011) U.S.,131 S.Ct. 1740, the court overruled Discover Bank v. Superior Court (2005) 36 Cal.4th 148, which had held that class action waivers in certain adhesive consumer contracts were per se unconscionable when the party with the superior bargaining power engaged in a scheme to defraud large numbers of consumers out of individually small sums of money; Discover Bank reasoned such waivers had the practical effect of exempting the wrongful party from responsibility for its own fraud. (Concepcion, supra, 131 S.Ct. at p. 1746.)
Concepcion held that the rule set out in Discover Bank was preempted by the FAA. (Concepcion, at p. 1753.)
The FAA, which was enacted in response to widespread judicial hostility to arbitration agreements, provides that arbitration agreements are "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.) The final provision, the "saving clause," "permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability,' but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." (Concepcion, at p. 1746.) The Concepcion court concluded the FAA did not permit a state to rely on categorical rules prohibiting arbitration of a particular type of claim. (Id. at p. 1747.)
Although California's general unconscionability doctrine was not such a categorical rule, because the Discover Bank rule would apply to most consumer contracts, it stood "as an obstacle to the accomplishment of the FAA's objectives," one of which was to "'ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.'" (Concepcion, at p. 1748.)
Allowing a party to a consumer contract to demand class wide arbitration notwithstanding an express class arbitration waiver in the arbitration agreement "interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA." (Ibid.)
Further, imposing class wide arbitration on a party who did not agree to it is inconsistent with the FAA. (Id. at pp. 1750-1751.)