Supreme Court Upholds Class Action Waivers In Consumer Arbitration Agreements

The United States Supreme Court in AT&T Mobility LLC  v. Concepcion (Slip Op. No. 09-893, April 27, 2011) struck down California’s “Discovery Bank” rule to the extent that it authorized courts to refuse to enforce arbitration provisions containing class action waivers in consumer adhesion contracts. In a 5-4 decision, the Court held that S. 2 of the Federal Arbitration Act (FAA) preempts any State effort to interfere with the “liberal federal policy favoring arbitration” and the “fundamental principle that arbitration is a matter of contract”. Although the saving clause in S. 2 of the FAA permits arbitration agreements to be declared unenforceable by “generally applicable contract defenses such as fraud, duress or unconscionability”, this cannot be accomplished  “by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”   A federal statute’s saving clause may not be construed in a way “which would be absolutely inconsistent with the provisions of the act”.

AT&T Mobility LLC  v. Concepcion