Supreme Court activity for the week of February 13, 2012

With a lot of catching up to do, I'm starting easy.  The California Supreme Court held its (usually) weekly conference on February 15, 2012.  Notable results include:

  • On a petition for review, review was granted in In re Cipro Cases I & II.  This case is one to follow if you practice in the area of anti-competitive behavior.  There's a big dash of pre-emption thrown in, along with some procedural questions about a trial court's obligation to rule on evidentiary objections at summary judgment.
  • On a petition for review, review and depublication were denied in Collins v. eMachines, discussed on this blog here. The Court of Appeal held that “injury in fact” can be satisfied by alleging as damages the difference between the actual purchase price and the fair market value of a defective product. 

Degelmann v. Advanced Medical Optics applies Kwikset to support UCL standing but finds medical device preemption applies

I've been swamped at work, so posts around here have been few and far between.  But there haven't been many class-related decisions to write about either, so maybe you didn't miss much.  Today, however, when the legal profession is repenting, I at least have some time to write.  In Degelmann v. Advanced Medical Optics (9th Cir. Sept. 28, 2011), the Ninth Circuit examined UCL standing and medical device preemption.  In Degelmann, the plaintiffs sought to represent a putative class of purchasers of contact lens solution. Their suit alleged that defendant violated California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”) by marketing Complete MoisturePlus (“MoisturePlus”) as a product that cleans and disinfects lenses. The district court granted defendant's motion for summary judgment, ruling that plaintiffs lacked standing.

First, the Court examined the plaintiffs' standing under the UCL:

Here, as in Kwikset, the plaintiffs allege that they paid more for a product due to reliance on false advertising. The district court in this case was likely correct that Degelmann and Lin would have bought other contact lens solution had they not purchased MoisturePlus. However, as elucidated by the Kwikset court’s discussion, it does not necessarily follow that they did not suffer economic harm. Degelmann and Lin presented evidence that they were deceived into purchasing a product that did not disinfect as well as it represented. Had the product been labeled accurately, they would not have been willing to pay as much for it as they did, or would have refused to purchase the product altogether. The district court’s reasoning—that class members would have bought other contact lens solution, and therefore suffered no economic harm— conceived of injury in fact too narrowly.

Slip op., at 18565.  In that same discussion, the Court distinguished Birdsong v. Apple, Inc.:

The inquiry into injury in fact in this case, where the class makes claims under both the UCL’s fraud prong and the FAL, is not controlled by Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009). In that case, purchasers of iPod headphones pursued a claim under the UCL’s “unfair” and “unlawful” prongs, asserting that listening to loud music on the headphones could result in hearing loss. They did not allege economic harm from having purchased headphones in reliance on false advertising, but rather claimed that the inherent risk of the headphones reduced the value of their purchase and deprived plaintiffs of the benefit of their bargain. Id. at 961. The court in that case found that the claim of economic harm was not sufficient to plead injury in fact in part because, in distinct contrast to the MoisturePlus labeling at issue in this case, Apple had not represented that the headphones were safe at high volume. Rather, “Apple provided a warning against listening to music at loud volumes.” Id. Because there is allegedly false labeling and advertising at issue in this case, Birdsong does not aid our disposition here.

Slip op., at 18565-66.  So far, so good for the plaintiffs.  But then the Court discusses preemption.  The Court found that the lens solution at issue satisfied FDA requirements for labelling contact lens solution.  The Court concluded that, having met the standard, the UCL and FAL would necessarily have to impose additional obligations in order for the plaintiffs to state any claim, which would then invoke preemption, immediately precluding the claim:

In order for the class to recover in this lawsuit, a court would have to hold that California’s UCL and FAL required something different than what the FDA required in order for AMO to label MoisturePlus a disinfectant. Those California laws would have to require that AMO test for Acanthamoeba, and show that MoisturePlus kills it in sufficient quantities. That is, California law would have a requirement that is additional to the federal requirements.

Slip op., at 18569.  And that, as they say, was that.  You have standing, but you lose.  At least it's good to have some guidance from the Ninth Circuit on the application of Kwikset to federal standing arguments.

California Grocers Association v. City of Los Angeles holds that City may regulate wholesale replacement of a workforce after purchase of a business

In California Grocers Association v. City of Los Angeles (July 18, 2011), the California Supreme Court considered whether a worker retention ordinance -- regulating the ability of some employers to summarily replace a workforce after purchasing the business -- is preempted as intruding upon either matters of health and safety already regulated by the state or matters of employee organization and collective bargaining fully occupied by federal law.  The six Justices in the majority explained in their 38-page opinion that the neutral ordinace promulaged by the City of Los Angeles did not run afoul of preemption landmines.  The dissenting opinion, all 27 pages of it, concluded otherwise, essentially on the ground that the NLRA is intended to confer upon employers the right to hire anyone they want.  The majority wasn't persuaded by this analysis, opining instead that the NLRA was actually passed to protect employees and regulate employers.  Crazy talk.

The City of Los Angeles passed an ordinance much like those passed in other municipalities.  The Los Angeles Ordinance, focused on grocery stores, was summarized by the Court:

For grocery stores of a specific size (15,000 square feet or larger) that undergo a change of ownership, the Ordinance vests current employees with certain individual rights during a 90-day transition period. First, the incumbent owner is to prepare a list of nonmanagerial employees with at least six months' employment as of the date of transfer in ownership, and the successor employer must hire from that list during the transition period. (L.A. Mun. Code, § 181.02.) Second, during that same period, the hired employees may be discharged only for cause. (Id., § 181.03(A)-(C).) Third, at the conclusion of the transition period, the successor employer must prepare a written evaluation of each employee's performance. The Ordinance does not require that anyone be retained, but if an employee's performance is satisfactory, the employer must "consider" offering continued employment. (Id., § 181.03(D).) If the workforce is unionized, however, the union and the employer may agree on terms that supersede the Ordinance. (Id., § 181.06.)

Slip op., at 2.  The California Grocers Association did not like this ordinance and sued to enjoin its implementation.

The Court began its analysis with state law preemption in the health and safety field.  The majority had little difficulty explaining why an ordinance regulating mass terminations had little direct impact on any health and safety regulations controlling how food is handled in grocery stores.

Next, the Court examined federal preemption:

We consider as well whether the Ordinance is preempted by the NLRA, a federal law enacted to protect "the right of employees to organize and bargain collectively." (29 U.S.C. § 151.)

Slip op., at 11.  Summarizing the post-Machinists preemption cases, the Court first explained that preemption was directed at regulations of bargaining process, not local employment laws setting substantive minimum labor standards for all employees.  Next, the Court considered whether there was evidence of a clear and manifest congressional intent to bar at any level the regulation of employee retention during ownership transitions.  Working their way through the history of such decisions, the Court found solid support for the notion that the NLRA was silent as to an obligation to hire the employees of a purchased business.  The Court finished its analysis by concluding that the retention ordinance should not have a meaningful impact on successorship obligations.

Finally, the Court declined to set aside the ordinance on equal protection grounds, observing that a rational relationship exists between the stated goal of the ordinance and the decision to focus on large grocery stores.

The dissent contested the majority's decision by asserting, again and again, that the NLRA provides employers with a protected right to hire as they see fit.  The majority directly dispatched this argument with great brevity, and the length of the dissent does not make it more persuasive in my view.

More on AT&T Mobility LLC v. Concepcion

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.

Breaking News: Supreme Court invalidates Discover Bank in AT&T Mobility LLC v. Concepcion

Today, in AT&T Mobility LLC v. Concepcion (April 27, 2011), the Supreme Court held, 5-to-4, that California's Discover Bank rule is preempted by the Federal Arbitration Act.  What a thing to wake up to after sleeping extra to try and recover faster from being sick.  I'll write more about the deaths of class arbitration and state's rights later.  So much for federalism.  This is truly the era of the Central Planning Bureau.

Ninth Circuit agrees with other Courts and applies Wyeth v. Levine in holding that failure-to-warn claims are not pre-empted for generic drug manufacturers.

I don't spend too much time on products liability issues, but Wyeth v. Levine was a major ruling in the area of federal preemption, and its reach is still being tested.  In Gaeta v. Perrigo Pharmaceuticals Company (9th Cir. Jan. 24, 2011), the Ninth Circuit agreed with two Courts of Appeals and all of the district courts to consider the issue of whether federal law preempts state law failure-to-warn claims against generic manufacturers.

In Wyeth v. Levine, 129 S. Ct. 1187 (2009), the Supreme Court determined that state law failure-to-warn claims against brand name manufacturers were not preempted by federal law.  However, it was unclear whether the holdilng applied to generic manufacturers.  Applying the Levine analysis, two other Courts of Appeals, and all of the district courts to consider the issue, held that federal law does not preempt state law failure-to-warn claims against generic manufacturers, provided there is no “clear evidence” that the FDA would not have approved the proposed stronger warning. We agree and hold that the district court erred in applying federal preemption. The Ninth Circuit agreed, reversing and remanding.

AT&T Mobility v. Concepcion set for oral argument next week

and the Los Angeles times notes that "Consumers' right to file class actions is in danger."  David Lazarus, Consumers' right to file class actions is in danger (November 5, 2010)

Ninth Circuit holds that the Higher Education Act (HEA), and its Federal Family Education Loan Program (FFELP), preempt state law claims for unfair billing practices

The Higher Education Act (HEA) was passed “to keep the college door open to all students of ability, regardless of socioeconomic background.” Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1030 (9th Cir. 2009).  Congress also Congress established the Federal Family Education Loan Program (FFELP), a system of loan guarantees meant to encourage lenders to loan money to students and their parents on favorable terms. See 20 U.S.C. §§ 1071-1087-4; Rowe, 559 F.3d at 1030.  In Chae, et al. v. SLM Corporation, dba Sallie Mae, et al. (9th Cir. January 25, 2010), the Ninth Circuit considered whether the HEA and FFELP preempted state law consumer protection claims in a putative class action alleging false and misleading disclosures about billing practices.

The Court excluded field preemption from its analysis, noting: "Turning now to the issues before us, we have previously held that field preemption does not apply to the HEA."  Chae, at 1382.  With that, the Court analyzed whether "express preemption" or "conflict preemption" were present.

The Ninth Circuit found that express preemption applied to the claims in Chae:

Congress has enacted several express preemption provisions applicable to FFELP participants. See, e.g., 20 U.S.C. §§ 1078(d), 1091a(a)(2)(B), 1091a(b)(1)-(3), 1095a(a), 1098g. These provisions expressly preempt the operation of state usury laws, statutes of limitations, limitations on recovering the costs of debt collection, infancy defenses to contract liability, wage garnishment limitations, and disclosure requirements. This last provision, 20 U.S.C. § 1098g, is entitled, “Exemption from State disclosure requirements.” The text of the statute reads: “Loans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act . . . shall not be subject to any disclosure requirements of any State law.” Id. The FFELP falls within Title IV of the HEA, and is thus subject to its express preemption provision. 

Chae, at 1383.  The Court then explained its disagreement with the plaintiffs' characterization of their claims as misrepresentation claims, not disclosure claims:

At bottom, the plaintiffs’ misrepresentation claims are improper-disclosure claims. The plaintiffs do not contend that California law prevents Sallie Mae from employing any of the three loan-servicing practices at issue. We consider these allegations in substance to be a challenge to the allegedly misleading method Sallie Mae used to communicate with the plaintiffs about its practices. In this context, the state-law prohibition on misrepresenting a business practice “is merely the converse” of a state-law requirement that alternate disclosures be made. See Cipollone, 505 U.S. at 527. 

Chae, at 1384.  The Court was not sympathetic to the plaintiffs' argument that a finding of preemption would eliminate any recourse for unfair practices by Sallie Mae.  The Court, in a footnote, suggested that the plaintiffs' only remedy was to complain to the Department of Education.  Chae, at 1384-85, n. 6.

Finally, the Court concluded, after a lengthy discussion, that application of state consumer protection laws would directly conflict with the uniformity and stability goal behind the FFELP.

Back to the drawing board: AT&T's arbitration agreement that bans class actions is still unconscionable

It seems to me that the telecommunications and credit card industries are more determined to make an arbitration agreement with a class action ban stick than any other industry.  Most employers have given up that dream, but not the phone company and not the bank.  The latest arbitration agreement with a class action ban comes to us compliments of AT&T Mobility LLC.  But, in Laster v. AT&T Mobility LLC (October 27, 2009), the Ninth Circuit sends another class action ban to the unconscionability graveyard, and just in time for Halloween.

Those crazy mad scientists in the secret AT&T Arbitration Agreement Drafting Lab (also known as the "Triple A - DL" to those in the know), their latest scheme to ban class actions was ingenious, and could have helped them take over the world!  The plan was to circumvent the holding of Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) with a little bonus payment clause:

[T]he phone company points to a new wrinkle: unlike the arbitration clause in Shroyer, this arbitration clause provides for a “premium” payment of $7,500 (the jurisdictional limit of California’s small claims court) if the arbitrator awards the customer an amount greater than the phone company’s last written settlement offer made before selection of an arbitrator. Hence, says the phone company, the arbitration clause is not an artifice that has the practical effect of rendering it immune from individual claims.

Slip op., at 14391.  The Ninth Circuit disagreed, and shot down a preemption argument along the way:

We will find, on second blush, the new “premium” payment does not distinguish this case from Shroyer, and that under California law, the present arbitration clause is unconscionable and unenforcable [sic]. Further, we will also find no merit to the phone company’s claim the Federal Arbitration Act (FAA) preempts California unconscionability law.

Slip op., at 14391.  Back to the Triple A - DL, Snidely.  For those not satisfied with just the holding, the Court's analysis relied heavily on Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005):

The California Supreme Court addressed the unconscionability of class action waivers in arbitration agreements for the first time in Discover Bank v. Sup. Ct., 113 P.3d 1100 (Cal. 2005), holding that class action waivers were at least sometimes unconscionable under California law. 113 P.3d at 1108. Class actions, the court reasoned, serve the important policy function of deterring and redressing wrongdoing, particularly where a company defrauds large numbers of consumers out of individually small sums of money. Id. at 1105. Class action waivers pose a problem because, “small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.” Id. at 1106. In this way, the class action waiver allows the company to insulate itself from liability for its wrongdoing and the policy behind class actions is thwarted. Id. at 1109.

Slip op., at 14394.  The Court then explained how it interpreted the test in Discover Bank:

We have interpreted Discover Bank as creating a three-part test to determine whether a class action waiver in a consumer contract is unconscionable: (1) is the agreement a contract of adhesion; (2) are disputes between the contracting parties likely to involve small amounts of damages; and (3) is it alleged that the party with superior bargaining power has carried out a scheme deliberately to cheat large numbers of consumers out of individually small sums of money. Id. at 983. In Shroyer, we noted that “there are most certainly circumstances in which a class action waiver is unconscionable under California law despite the fact that all three parts of the Discover Bank test are not satisfied.” Id. Because we hold that the class action waiver at issue satisfies all three parts of the test, as was true in Shroyer, “it is unnecessary to explore those circumstances here.” Id.

Slip op., at 14395.  The application of the Discover Bank test tracks Shroyer.  The Court then disposed of AT&T's contention that the promise of a premium payment distinguished this agreement from Shroyer:

The $7,500 premium payment is available only if AT&T does not make a settlement offer to the aggrieved customer in a sum equal to or higher than is ultimately awarded in arbitration, and before an arbitrator is selected. This means that if a customer files for arbitration against AT&T, predictably, AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500. Thus, the maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22. We held in Shroyer that a claim worth a few hundred dollars did not provide adequate incentive for a customer to bother pursuing individual arbitration. 498 F.3d at 986. The $30.22 at issue here is even less of an incentive to file a claim. As a result, aggrieved customers will predictably not file claims—even if the odds are that after the letter-writing and arbitrator-choosing, they will get a $30.22 offer—thereby “greatly reduc[ing] the aggregate liability” AT&T faces for allegedly mulcting small sums of money from many consumers. See id. The premium payment provision has no effect on this conclusion, nor do any of the other provisions of AT&T’s revised arbitration clause. The actual damages a customer will recover remain predictably small, thus under the rationale of Discover Bank and Shroyer, AT&T’s class action waiver is in effect an exculpatory clause, hence substantively unconscionable.

Slip op., at 14397-98.  I'll spare you any excerpts from the preemption discussion.  It's sufficient to say that the Court was impressed with a repeat of arguments rejected in Shroyer.