On March 16, 2012, the Ninth Circuit followed the recent U.S. Supreme Court decision in AT&T Mobility, Inc. v. Concepcion, 131 S. Ct. 1740 (2011), and held that the Federal Arbitration Act (the FAA) preempts state law refusing to enforce arbitration provisions with class action waivers. See Marygrace Coneff v. AT&T Corp., — F.3d —-, 2012 U.S. App. LEXIS 5520 (9th Cir. Wash. Mar. 16, 2012). Coneff follows closely on the heels of the Ninth Circuit’s recent opinion in Kilgore v. KeyBank, Nat’l Ass’n, — F.3d —-, 2012 WL 718344, *10 (9th Cir. March 7, 2012), in which it followed Concepcion in holding the FAA preempts California law excluding claims for “public injunctions” from arbitration.

In Coneff, the plaintiffs were wireless cell phone customers of AT&T Mobility, LLC. They entered into service agreements with AT&T that included clauses requiring the arbitration of any dispute and waiving any right to bring a class action. AT&T moved to compel arbitration, but the district court denied the motion and, applying Washington law, found the class action waiver substantively unconscionable and therefore unenforceable.

The Ninth Circuit applied Concepcion, reversed the district court, and held that states cannot require a procedure that is inconsistent with the FAA. Id. at 3147. In doing so, the Court rejected the plaintiffs’ attempt to distinguish the Washington law from the California law at issue in Concepcion. The Court held that the state laws were similar and that the underlying state policy concerns behind both laws were the same. The FAA preempted both. Id.

The plaintiffs also argued that there must exist an implied exception to Concepcion when arbitration provisions interfere with the effective vindication of statutory rights, such as a right to a class action. Id. at 3147. The Ninth Circuit rejected this argument, at least with regard to statutory rights under state law. Though the rule might be different with respect to statutory rights under federal law, the FAA displaces any such right under state law. Id. at 3147, fn. 2.

The Court also observed that the plaintiffs failed to grasp the distinction between having “no effective means” to vindicate statutory rights through arbitration and having “insufficient incentive to do so.” Id. at 3148 (emphasis in original). Just because individuals might not pursue small value claims in arbitration does not mean that there is no effective means to vindicate those rights. Under Concepcion, the risk of small claims falling through the cracks is an inadequate justification to avoid the application of the FAA. Id. at 3149.

Authored By:

Sarah A. Kagan
(213) 617-5521

Shannon Z. Petersen
(619) 338-6656