| |
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;
jallgood@fordharrison.com |
|
|
