Unless you've been living in a compound, off the grid with no internet access in a medium sized city outside the capital of a troubled nation in South Asia, you undoubtedly are aware of the Supreme Court's decision in AT&T Mobility LLC v. Concepcion (April 27, 2011). For a number of reasons, which I will revisit obliquely in a moment, I decided against providing any immediate analysis. Apparently this silence was disconcerting to some, as several readers actually inquired about my silence. Beginning first with a synopsis, here are some, but not all, of my comments on Concepcion.
The result was all but pre-determined by the way in which the issue was framed: "We consider whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures." Slip op., at 1. But Justice Scalia, writing for the Court, went ahead with the rest of the opinion. The Court summarized the findings in the courts below:
In March 2008, AT&T moved to compel arbitration under the terms of its contract with the Concepcions. The Concepcions opposed the motion, contending that the arbitration agreement was unconscionable and unlawfully exculpatory under California law because it disallowed classwide procedures. The District Court denied AT&T’s motion. It described AT&T’s arbitration agreement favorably, noting, for example, that the informal disputeresolution process was “quick, easy to use” and likely to “promp[t] full or . . . even excess payment to the customer without the need to arbitrate or litigate”; that the $7,500 premium functioned as “a substantial inducement for the consumer to pursue the claim in arbitration” if a dispute was not resolved informally; and that consumers who were members of a class would likely be worse off. Laster v. T-Mobile USA, Inc., 2008 WL 5216255, *11–*12 (SD Cal., Aug. 11, 2008). Nevertheless, relying on the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P. 3d 1100 (2005), the court found that the arbitration provision was unconscionable because AT&T had not shown that bilateral arbitration adequately substituted for the deterrent effects of class actions. Laster, 2008 WL 5216255, *14.
The Ninth Circuit affirmed, also finding the provision unconscionable under California law as announced in Discover Bank. Laster v. AT&T Mobility LLC, 584 F. 3d 849, 855 (2009). It also held that the Discover Bank rule was not preempted by the FAA because that rule was simply “a refinement of the unconscionability analysis applicable to contracts generally in California.” 584 F. 3d, at 857. In response to AT&T’s argument that the Concepcions’ interpretation of California law discriminated against arbitration, the Ninth Circuit rejected the contention that “ ‘class proceedings will reduce the efficiency and expeditiousness of arbitration’ ” and noted that “ ‘Discover Bank placed arbitration agreements with class action waivers on the exact same footing as contracts that bar class action litigation outside the context of arbitration.’ ” Id., at 858 (quoting Shroyer v. New Cingular Wireless Services, Inc., 498 F. 3d 976, 990 (CA9 2007)).
Slip op., at 3. At this point, I parenthetically comment as follows: "Right."
After describing the "liberal" federal policy favoring arbitration agreements, the Court described the savings clause of the FAA thusly:
The final phrase of §2, however, permits arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” This 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. Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681, 687 (1996); see also Perry v. Thomas, 482 U. S. 483, 492–493, n. 9 (1987). The question in this case is whether §2 preempts California’s rule classifying most collective-arbitration waivers in consumer contracts as unconscionable. We refer to this rule as the Discover Bank rule.
Slip op., at 5. California law includes an unconscionability defense to any contract. The consumers in Concepcion argued that this generally applicable defense, and California's general policy against exculpation, are not arbitration-specific, and even if they are, the same principles apply to any dispute resolution contract. The Court commented:
When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 552 U. S. 346, 353 (2008). But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. In Perry v. Thomas, 482 U. S. 483 (1987), for example, we noted that the FAA’s preemptive effect might extend even to grounds traditionally thought to exist “ ‘at law or in equity for the revocation of any contract.’ ” Id., at 492, n. 9 (emphasis deleted). We said that a court may not “rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot.” Id., at 493, n. 9.
Slip op., at 7-8. Before this decision was rendered, I knew that the outcome is dependent upon how you choose to look at the situation. It is very subjective. If one views a policy against exculpation as a policy applicable to all contracts, it is arbitration neutral. If one views a policy against exculpation as directed at arbitration agreements, it would be invalidated under just that logic. When the outcome is so subjective, the result is highly dependent upon the predilictions of the majority.
The Court then did something that I find highly inconsistent with Justice Scalia's professed refusal to consider legislative intent and other indicia of legislative meaning. The Court restricted the FAA's savings clause to preclude any generally applicable contract defense that might interfere with the FAA (which begs the question of what defense that overcomes an arbitration agreement does not do so):
Although §2’s saving clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Cf. Geier v. American Honda Motor Co., 529 U. S. 861, 872 (2000); Crosby v. National Foreign Trade Council, 530 U. S. 363, 372–373 (2000). As we have said, a federal statute’s saving clause “ ‘cannot in reason be construed as [allowing] a common law right, the continued existence of which would be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to destroy itself.’ ” American Telephone & Telegraph Co. v. Central Office Telephone, Inc., 524 U. S. 214, 227–228 (1998) (quoting Texas & Pacific R. Co. v. Abilene Cotton Oil Co., 204 U. S. 426, 446 (1907)).
Slip op., at 9. After spending some time criticizing the dissent for disputing the majority's characterization of the legislative purpose in passing the FAA, the Court rejected the Discover Bank rule as a rule interfering with the FAA. In doing so, the Court candidly declared all consumer contracts to be contracts of adhesion:
California’s Discover Bank rule similarly interferes with arbitration. Although the rule does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post. The rule is limited to adhesion contracts, Discover Bank, 36 Cal. 4th, at 162–163, 113 P. 3d, at 1110, but the times in which consumer contracts were anything other than adhesive are long past.
Slip op., at 12. Troubling comment pepper the Court's opinion. For instance the Court observes, "And faced with inevitable class arbitration, companies would have less incentive to continue resolving potentially duplicative claims on an individual basis." Slip op., at 13. So what this evidently means is that, if a company faces only sporadic, individual challenges to its misconduct, it will have some incentive to buy those few people off, but if it faces a whole class, it will fight tooth and nail to retain its ill-gotten goods. Charming. What a great reason to favor arbitration agreements and bar class actions.
Wrapping up, the Court said, "States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons." Slip op., at 17. One might observe two things at this point: (1) There is a notable absence of conservative protection of federalism where the federal government is imposing dispute resolution procedures on state law claims in state courts, and (2) setting aside the unconstitutionality of federal interference in state dispute resolution procedures related to their substantive law, the federal government can certainly impose procedures that are inconsistent with the FAA.
Justice Thomas "reluctantly" concurred. In his view, "As I would read it, the FAA requires that an agreement to arbitrate be enforced unless a party successfully challenges the formation of the arbitration agreement, such as by proving fraud or duress." Slip op., concurrance, at 1-2.
Justice Breyer delivered the dissenting opinion, crisply defining the subjectivity of this debate in his summary of the issue:
The Federal Arbitration Act says that an arbitration agreement “shall be 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 (emphasis added). California law sets forth certain circumstances in which “class action waivers” in any contract are unen forceable. In my view, this rule of state law is consistent with the federal Act’s language and primary objective. It does not “stan[d] as an obstacle” to the Act’s “accomplishment and execution.” Hines v. Davidowitz, 312 U. S. 52, 67 (1941). And the Court is wrong to hold that the federal Act pre-empts the rule of state law.
Slip op., dissent, at 1. The dissent found good support for its position in other California decisions:
The Discover Bank rule does not create a “blanket policy in California against class action waivers in the consumer context.” Provencher v. Dell, Inc., 409 F. Supp. 2d 1196, 1201 (CD Cal. 2006). Instead, it represents the “appli cation of a more general [unconscionability] principle.” Gentry v. Superior Ct., 42 Cal. 4th 443, 457, 165 P. 3d 556, 564 (2007). Courts applying California law have enforced class-action waivers where they satisfy general uncon scionability standards. See, e.g., Walnut Producers of Cal. v. Diamond Foods, Inc., 187 Cal. App. 4th 634, 647–650, 114 Cal. Rptr. 3d 449, 459–462 (2010); Arguelles-Romero v. Superior Ct., 184 Cal. App. 4th 825, 843–845, 109 Cal. Rptr. 3d 289, 305–307 (2010); Smith v. Americredit Financial Servs., Inc., No. 09cv1076, 2009 WL 4895280 (SD Cal., Dec. 11, 2009); cf. Provencher, supra, at 1201 (considering Discover Bank in choice-of-law inquiry). And even when they fail, the parties remain free to devise other dispute mechanisms, including informal mechanisms, that, in context, will not prove unconscionable. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479 (1989).
Slip op., dissent, at 2-3. The dissent then questioned the majority's asseration that individual, rather than class, arbitration is a "fundamental attribute" of arbitration:
When Congress enacted the Act, arbitration procedures had not yet been fully developed. Insofar as Congress considered detailed forms of arbitration at all, it may well have thought that arbitration would be used primarily where merchants sought to resolve disputes of fact, not law, under the customs of their industries, where the parties possessed roughly equivalent bargaining power.
Slip op., dissent, at 6. If fact, the dissent spent a good deal of time challenging the assertions of the majority, which appear thinly supported in some areas:
the majority provides no convincing reason to believe that parties are unwilling to submit high-stake disputes to arbitration. And there are numerous counterexamples.
Slip op., dissent, at 8. And the dissent also observed:
Because California applies the same legal principles to address the unconscionability of class arbitration waivers as it does to address the unconscionability of any other contractual provision, the merits of class proceedings should not factor into our decision. If California had applied its law of duress to void an arbitration agreement, would it matter if the procedures in the coerced agreement were efficient?
Slip op., dissent, at 9. It is with irony not lost on me that the dissent concluded as follows:
[F]ederalism is as much a question of deeds as words. It often takes the form of a concrete decision by this Court that respects the legitimacy of a State’s action in an individual case. Here, recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California’s law, not to strike it down. We do not honor federalist principles in their breach.
Slip op., dissent, at 12. So Concepcion ends with the "liberal" justices decrying the death of federalist principles. I think we need to revisit the "strict constructionist" labels that get tossed around. Maybe Posner really has it right when he says, essentially, that every judge does whatever they damn well want, reverse engineering a justification that makes them feel good about their decision.
I've seen a number of theories floated around for responding to Concepcion. In Marks v. United States, 430 U.S. 188 (1977), the Supreme Court oexplained how the holding of a case should be viewed where there is no majority supporting the rationale of any opinion: “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of [the majority], the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.” Marks, 430 U.S. at 193. I don't think it likely that California courts will parse the holdings of the Court and the concurring opinion for a narrower holding. Justice Thomas said that, even though he differs slightly in the reasoning, the result will generally be the same. Marks isn't going to accomplish what plaintiffs would like it to accomplish.
Calling for legislative action is just silly. Either something gets through Congress or it doesn't. If it does, it may moot all of this, but the assumption must be that it won't. With that in mind, non-legislative responses to Concepcion should occupy the plaintiffs' class action bar.
I've suggested on several occasions that I favor the argument that the FAA is unconstitutional when applied to state law claims in state courts. I believe, and will believe even if a Court says otherwise, that the FAA is exclusively a procedural statute regulating how substative claims are to be resolved. Unless the federal government would purport to pre-empt contract law of the states, a dubious effort in its own right, I believe the Commerce Clause goes too far when it treads upon the sovereignty of states deciding their own dispute resolution procedures. Procedural rules are no place for some form of partial pre-emption. But I also doubt that any Court would have the stomach to declare the FAA unconstitutional as applied to state law claims in state courts.
I have a project in the works that may affect how far Concepcion applies in, at least, the wage & hour context. Once it is in the can and safe from intermeddlers, I'll report in detail on that project and what I view as better ways to keep Concepcion in its proper place.
While not directly applicable to class member identity discovery, the Ninth Circuit recently provided some guidance about individual privacy interests and how they are weighed against a countervailing set of interests to keep them confidential. Prudential Locations LLC v. U.S. Department of Housing and Urban Development (9th Cir. June 9, 2011) involved a Freedom of Information Act request for identification of various informants that advised the U.S. Department of Housing and Urban Development (“HUD”) about their suspicions that Prudential Locations LLC was violating the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-2617, which was passed, in part, to “eliminat[e] . . . kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.” 12 U.S.C. § 2601(b)(2).
