Be Neutral
A Publication of the Georgia Office of Dispute Resolution

 
 


Case Watch: The Impact of Concepcion on Georgia Arbitrators

On April 27, 2011, the Supreme Court issued a much-anticipated ruling in the case of AT&T Mobility LLC v. Concepcion, which addressed the enforceability of an arbitration agreement in a consumer contract that prohibited class-action arbitration. In a 5-4 decision, the Court held that the agreement was enforceable, reversing the Ninth Circuit’s determination that the agreement prohibiting class claims was unconscionable under California law.

Background
Vincent and Liza Concepcion entered into a cell phone agreement with AT&T. The agreement provided for arbitration of all disputes between the parties. The agreement specified that all claims be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” When the Concepcions learned that they were charged $30.22 in sales tax despite AT&T’s advertising their telephones as “free,” they filed a complaint against AT&T in the District Court for the Southern District of California alleging false advertising and fraud.


AT&T moved to compel arbitration pursuant to the terms of the contract it held with the Concepcions. The District Court denied AT&T’s motion based on a California Supreme Court case, Discover Bank v. Superior Court, 113 P.3d 1100 (2005), which held that arbitration provisions in most consumer contracts are unconscionable. The Ninth Circuit affirmed, holding that the Discover Bank rule was not preempted by the Federal Arbitration Act (FAA) because that rule was applicable to contracts generally in California only.

Under California law, courts may refuse to enforce contracts based on unconscionability. In Discover Bank, the California Supreme Court held that class-action waivers in arbitration agreements were unconscionable, and thus unenforceable. In contrast, Section 2 of the FAA makes arbitration agreements “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 U.S. Supreme Court framed the legal issue before it in Concepcion as: “whether §2 [of the FAA] preempts California’s rule classifying most collective-arbitration waivers in consumer contracts as unconscionable.”

The U.S. Supreme Court held that permitting classwide arbitration would interfere with the fundamental benefits of arbitration, and noted that the “principle purpose of the FAA is to ensure that private arbitration agreements are enforced according to their terms.” To that end, parties may agree to limit the issues subject to arbitration, arbitrate according to specific rules, and limit with whom a party will arbitrate its disputes. By applying the Discover Bank rule, the California courts interfered with arbitration, the Court stated. The Court went on to discuss why it favors two-party arbitration but disfavors class arbitration. Class arbitration, the Court said, 1) undermines the efficiency of arbitration by making arbitration slower and more expensive; 2) requires procedural formality; and 3) magnifies the effect of arbitration mistakes because there are so many more parties and there no right to appeal.

Application to Georgia Arbitrators
In the April issue of this newsletter I discussed some implications this ruling might have for Georgia arbitrators. California and other states have attempted to impose restrictions on arbitration in areas like consumer and employment cases. While the Georgia courts and the Eleventh Circuit have not interpreted Section 2 of the FAA to limit the use of preclusion clauses in arbitration agreements, Georgia arbitrators should hear the Supreme Court’s latest message on the FAA loud and clear – the FAA trumps state law. Concepcion follows established federal policy favoring enforcement of arbitration agreements. In Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 130 S. Ct. 1758 (2010), the Court held that “a party may not be compelled under the [FAA] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” In Concepcion, the Court took the additional step of upholding arbitration agreements that prohibit class actions.


Class-action claims are becoming increasingly frequent and expensive. Arbitration agreements on the other hand are efforts to provide parties with cost containment, timeliness and simplicity of process. Faced with clauses precluding arbitration, Georgia arbitrators have a firm basis in the pro-arbitration Supreme Court decisions for enforcing those arbitration agreements that preclude class actions.

There remains the issue, however, where the enforcing individual forms of relief rather than a class forms may not provide effective relief. In these instances there are still several options for Georgia arbitrators: (1) Look to the standards of the Consumer Due Process Protocol for arbitration of disputes and determine enforceability based on these standards; and (2) where the consumer prevails, fashion forms of relief that provide sufficient remedies to the consumer consistent with what could be obtained from a court, even where the language of the arbitration agreement is unclear. Most providers now address these issues with separate consumer rules that an arbitrator can rely upon as authority for granting appropriate relief. For example, the American Arbitration Association rules provide for the same relief as could be obtained in a court and further permit the consumer to seek relief in small claims court if it is the preferred process.

The Concepcion decision clarifies and reinforces the federal policy favoring arbitration. It also limits states’ ability to intervene in arbitration agreements and to prevent parties’ access to the arguably streamlined process of arbitration. While Concepcion focused on consumer arbitration, the decision signals strongly that the Supreme Court would find that arbitration agreements prohibiting class-action arbitration in employment cases are enforceable as well.

 













 

John Allgood is of counsel at Ford & Harrison.  For more than 20 years he has arbitrated and mediated cases in commercial, employment, construction and securities law, as well as in real estate and anti-trust matters.  An adjunct professor of ADR at Emory University School of Law, he was a member of the U.S. Olympic Committee panel of arbitrators during the 1996 and 1998 Olympic Games.

Phone: 404-888-3832; fax: 404-888-3863;