The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November. Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.
The Corporate Abuse at the Heart of Concepcion
The Concepcion case involves the widespread corporate practice of using standard-form contracts to ban class actions. Many state courts have held such class-action bans unenforceable, but AT&T Mobility (“ATTM”) has asked the Supreme Court to find that at least some of that state law is preempted by the Federal Arbitration Act (“FAA”). To understand why the Court’s holding in Concepcion could be so significant, it is important to understand how class-action bans come to be and why they are often disastrous for consumers and employees.
Class-action bans are contract terms that purport to prevent consumers and employees from ever participating in class proceedings. As in Concepcion, they are often buried in companies’ standardized arbitration clauses. Class-action bans favor companies at consumers’ and employees’ expense, but companies can impose them unilaterally because they draft the contracts. Consumers and employees rarely have time to read the lengthy agreements companies send them, let alone the ability to understand their dense legalese. And even if they did, few consumers or employees could negotiate the contracts’ terms.
Companies love imposing class-action bans because they dramatically undermine enforcement of consumer- and employee-protection laws. Unlike European countries which mostly rely on large and powerful government agencies to enforce consumer protection and civil rights laws, the U.S. has relatively small government agencies which handle relatively few cases. Most enforcement of these laws in the U.S. is done by private parties. We rely upon individual consumers or employees who’ve been cheated or discriminated against to bring cases enforcing these laws. Many types of illegal behavior can be addressed through individual cases by a single consumer. But the reality is that many types of illegal behavior that harm very large numbers of people – thousands, sometimes hundreds of thousands of individuals – can only be meaningfully addressed through class actions.
In many circumstances, very few individuals would ever bring a claim (in court, or in a small claims court, or in arbitration) when their rights are violated. For a huge percentage of the population, for many types of illegal activities there are realistic barriers to individuals bringing cases on their own. Many people never realize when their rights are violated, for example, and many people do not have the knowledge or skills to begin to pursue a case to protect their rights. For those who know to seek out a lawyer, very few lawyers will handle cases that are quite small, and few if any lawyers will handle fairly complex cases that involve only a few thousand dollars. These are only a few examples of situations where the realistic situation is that a case will either be handled on a class action basis or it will never be brought at all.
This is why large corporations are hoping that the Concepcion case will wipe away most class actions – because they want to make it impossible for the vast majority of cheated consumers and employees who’ve suffered discrimination to bring any kind of case, in any forum. The idea is to atomize individuals, to prevent them from grouping together in a way that lets them enforce these rights.
WILL CONCEPCION BE SIGNIFICANT?
In the worst case scenario, Concepcion could wipe away the vast majority of consumer and employee class actions for years to come. But that result is far from inevitable. For one thing, ATTM submitted a narrow question in its petition for certiorari, and if the Court sticks to the question presented (as it should), then the decision may not have much significance. On the merits, if the Court agrees with the overwhelming majority of lower courts, which have held that state law in this area is not preempted, then the decision should not have much significance. Indeed, if the Court simply applies the language of the FAA, and doesn’t invent new rules of federal law for the purpose of wiping away state law, then the decision should not be significant at all.
If many members of the corporate defense bar get the Court to use this case to grant their fondest wishes for immunity from consumer protection and civil rights laws granted, however, then this case could have the kind of impact on class actions that an asteroid landing in Mexico millions of years ago had on dinosaurs.
For the Court to Wipe Away Consumer and Employee Class Actions, It Will Have to Ignore ATTM’s Question Presented.
Most cases, including Concepcion, get to the Supreme Court because the party that lost below files a petition for certiorari, presenting specific questions for the Court to review. In Concepcion, ATTM took care to draft a narrowly worded question. Essentially ATTM asked: does the FAA preempt state law prohibiting class-action bans in those cases where class actions are unnecessary for the effective vindication of consumer and employee rights?
This question may sound convoluted, and it is. The last part asks the Court to assume that individual consumers and employees can vindicate their legal rights without a class action. It’s striking that ATTM asks the Court to begin with this assumption as though it were an uncontroversial and obvious abstract legal principle instead of a factual issue to be resolved on a case-by-case basis in light of actual admissible.2 In any event, if the Court limits its holding in Concepcion to the question presented, then whatever that holding is, it should not apply whenever class actions are necessary for the effective vindication of statutes aimed at protecting consumer and employee rights.
But notwithstanding ATTM’s narrowly worded question, some of its corporate allies (and particularly the U.S. Chamber of Commerce) are claiming that Concepcion raises the issue of whether the FAA preempts any and all state law that would limit class-action bans embedded in arbitration clauses—regardless of whether consumers and employees have other adequate avenues for vindicating their rights. These ATTM allies argue that it does not matter what the evidence in a case would show, that it does not matter what the state law at issue says, and that there is simply a federal right for any corporation to put in any contract a term that bans class actions (so long as the contract includes an arbitration clause).
It’s unlikely that the Supreme Court will be tempted to take such an extreme position. But at this point, it is clear that advocates for unlimited corporate power hope and imagine that the U.S. Supreme Court will strip state law in this way. And it’s clear that a lot of corporate defense lawyers privately believe that the Court is so definitively in their clients’ collective pocket that companies can get whatever they want from this case. I’ve heard several defense lawyers privately predict a 5-4 ruling that wipes away the vast majority of class actions in America, and I know of several cases that had been in mediation, where the evidence of liability is overwhelming and the only barrier to a recovery for the consumers was a class action ban that’s unenforceable or probably unenforceable under state law, where defendants have walked away from the settlement table because they suddenly believe that the Court will uphold class-action bans in all cases and immunize them from any meaningful liability.
You have to hand it to the tort reforming corporate apologists: they are asking the Court to issue a decision that would be an immediate candidate for Most Activist Decision Ever
For the Court to Rule for ATTM, It will Have to Sweep Aside a Widespread Consensus of State Supreme Courts and Federal Appellate Courts
More than 100 reported cases have considered the enforceability of class-action bans embedded in arbitration clauses. While their holdings on enforceability vary, more than 90% have agreed that state law governs the enforceability issue—that courts are free to apply to state law to determine whether a class action ban in an arbitration clause is enforceable.
Many corporate defendants have argued (like ATTM) that the FAA preempts state law limiting the enforcement of class bans embedded in arbitration clauses, but scores of courts have strongly disagreed. A typical example is a 2007 Washington Supreme Court case called Scott v. Cingular Wireless, where ATTM was also the defendant. ATTM argued that even if a ban on class actions would be illegal in other contexts as a matter of Washington law, the FAA preempted Washington law in Scott because the company had put its class-action ban in its arbitration clause. Like most courts, the Washington Supreme Court rejected the argument, concluding that the FAA only preempts state laws that are aimed at arbitration, and that the state’s law against contract terms that gut the state’s consumer protection laws are not aimed at arbitration:[C]ontracts that effectively exculpate their drafter from liability under the [Consumer Protection Act] for broad categories of liability are not enforceable in Washington, even if they are embedded in arbitration clause . . . . Class action waivers have very little to do with arbitration.3
A large number of other courts have articulated this same conclusion in very similar ways.4
State Supreme Courts all agree on this issue. Every single state supreme court to consider the enforceability of a class-action ban embedded in an arbitration clause has resolved the question of enforceability as a matter of state law.5 The last eight state supreme courts to consider the validity of class bans also happen to have struck them down, but even courts that have upheld class bans have done so by applying state law.6 In addition to state supreme courts, intermediate courts of appeal in a number of states have struck down class action bans under state law,7 as have federal circuit courts, which have examined the issue as one of state law.8 Given this settled nationwide consensus, it is puzzling that the U.S. Supreme Court decided to grant certiorari in Concepcion.
FOR THE COURT TO ADOPT THE CHAMBER OF COMMERCE’S FANTASY SCENARIO, It WILL HAVE TO INVENT ALL NEW FEDERAL LAW
The corporatist idea that the FAA preempts all state law limiting class-action bans hasn’t caught on in the lower courts because there is no serious legal or intellectual basis for it. If the Supreme Court decides to completely federalize the law in this area, it will have to invent from whole cloth new federal law that is not supported by anything in the language of the FAA or in its history.9
During their confirmation hearings, conservatives like Chief Justice Roberts and Justice Alito solemnly assured the Senate Judiciary Committee that they would bring a very humble approach to their jurisprudence if they were confirmed to the Supreme Court. They weren’t the kind of guys to throw out precedents, make up new laws, or ignore history.
But if a majority of the Court plays Santa Claus for lawbreaking corporations in the way the Chamber wants, it will have done so only by tossing all of those promises overboard.
Consider these facts:
- Because the FAA does not contain any express preemption provision, and does not preempt the field of arbitration, it preempts state laws only if they conflict with the purposes of the Act.10 This is important because the latter type of preemption is called implied conflict preemption, and Justice Thomas is on record as saying that the Court should be extremely reluctant to find implied conflict preemption based upon frustration of purpose.11 In light of Justice Thomas’s strong principled stand on this point, it is puzzling that a number of corporate defense lawyers privately claim to be so certain that Justice Thomas will vote for a broad FAA preemption position in Concepcion.
- The only language in the FAA that relates to the question presented in Concepcion strongly supports the idea that the statute does not preempt state law. The FAA’s key provision, section 2, provides that agreements to arbitrate will be enforceable only if three criteria are met: (1) there is an agreement to arbitrate; (2) the agreement falls within interstate commerce; and (3) the agreement is not counter to laws that would lead to revocability of any contract. 9 U.S.C. § 2. This last criterion necessarily refers to state law because contract law is generally comprised of state law and has been for a very long time. What corporate defense lawyers want is for the court to cross out this last requirement, whenever it would apply to a contract term banning class actions that is inserted into an arbitration clause. In other words, the corporate defense bar can only get what it wants from this case if the Court invents some rule to cross out that language whenever a class action is involved. This is a pretty activist proposal, to put it mildly.
- When the FAA was passed in 1924, there were no such things as class actions. Congress could hardly have intended to preempt a body of state law relating to something that didn’t exist.12 And if the class procedure created some conflict with the FAA, one would have expected Congress to mention it in 1967, when it approved Federal Rule of Civil Procedure 23 and expressly authorized class actions.
- Another line of case law leads to the same conclusion. When a statute does not address a topic, the U.S. Supreme Court normally has held that there is no preemption with respect to that topic.13 Here, we know that the FAA does not address class actions because the Supreme Court has said so: “the FAA itself contains no provision designed to deal with the special practical problems that arise in multi-party contractual disputes when some or all of the contracts at issue include agreements to arbitrate.”14
- The state laws that corporate defense lawyers want the Court to strike down in Concepcion are well-established laws of general application. They are laws and common-law doctrines, like the rule that exculpatory get-out-of-jail-contract-terms that undermine statutes are unconscionable, that do not mention arbitration, do not target arbitration, and have nothing to do with arbitration—all of which makes it hard to explain why they might conflict with the Federal “Arbitration” Act.
- A few examples help to make this point. In pretty much every state, an employer would be prohibited from writing a contract with an employee that says “we can fire you because of your race or gender, or pay you less if you’re a woman or African American, and none of the civil rights laws apply to you.” Similarly, a corporation would be prohibited from writing a consumer contract that says “we can violate the Truth-in-Lending Act, your state consumer protection act, and other consumer laws.” These provisions have nothing to do with arbitration, but they would be held unenforceable under the same set of state contract laws that courts have applied to class-action bans—laws that prohibit unfair and exculpatory contracts (i.e., contracts that immunize defendants from basic laws protecting civil or consumer rights). Similarly, the law from around the nation demonstrates that a number of states have case law striking down class action bans in cases that do not involve arbitration clauses.15
- State contract laws prohibiting exculpatory contract terms existed for many years before the FAA passed, and the roots of these doctrines track back to the British common law. No one in the 1924 Congress ever suggested that the FAA was intended to preempt this body of state law and that Congress would have been shocked to hear that it was tossing these laws overboard. The 1924 Congress intended the FAA to make arbitration clauses as enforceable as other contracts, not as a means of “laundering” otherwise illegal contract terms.16
- Some corporate defense lawyers argue that class action bans are different from other contract terms that can have an exculpatory effect, because the class action is only a “procedural” device. The idea here is that a contract term might be illegal if it openly says that it’s exculpatory, but it’s okay if it reaches the same exculpatory end through an indirect and “procedural” path. Most state courts laugh off this formalism and hold that state laws also strike down contract terms that are effectively exculpatory, even if not explicitly so. Consider another example: if an employer’s contract said “you can bring a discrimination claim but only if you pay $1 million to an arbitrator, travel to New Zealand, and arbitrate on Leap Day” no reasonable court would uphold the contract because these effectively exculpatory requirements are arguably merely “procedural.”
- The Supreme Court has said a number of times that arbitration clauses are only enforceable under the FAA if they let people “effectively vindicate their statutory legal rights.”17 The Court will have to re-write or ignore those decisions if it’s going to find that the FAA preempts state contract laws that insist that contract terms may not bar individuals from effectively vindicating their rights. For the Chamber what it wants, the Court will have to manufacture a conflict between state law and one of the core principles the Court itself has repeatedly found to be a central premise of the FAA. It will have to say something that amounts to the equivalent of “the FAA requires that parties must be accorded the formal power to theoretically vindicate their individual rights, but corporations have a newly minted federal right to gut any laws protecting against widespread violations of civil or consumer rights.”
- State law recognizing the importance of class actions for vindicating consumer and employee rights is also entirely consistent with the decisions of the U.S. Supreme Court.18 It’s hard to see how a state contract-law doctrine is in conflict with federal law when the doctrine, as applied to class-action bans, recognizes something that’s set forth in a number of the Supreme Court’s decisions.
For the U.S. Supreme Court to say, in effect, “the usual longstanding rules barring exculpatory clauses are erased by federal law if the contract term that is exculpatory is a class action ban embedded in an arbitration clause” would be a pretty radical ruling. Almost every court in the U.S. has blinked and stepped away from that abyss. Will the Supreme Court be the first to go the other way?
THE STAKES IN CONCEPCION
The Supreme Court’s decision in Concepcion probably won’t be that significant. There are a number of ways that the Court could decide this case narrowly and make law that doesn’t change the legal landscape one way or the other. The stakes in the case might be enormous, however.
There are some powerful corporations who are sick and tired of occasionally being taken to task when they get caught violating civil rights and consumer protection laws on a widespread basis. These corporations want a new federal right to strip their employees and customers of their rights to ever bring class actions, no matter what state law provides or no matter how egregious the facts.
If these corporations get what they want – a very huge “if” – then America will experience the biggest contraction of private enforcement of consumer protection and civil rights laws since those laws were enacted.
Will the majority of the Court abandon the humble role of umpire to invent sweeping and radical new law? Will scores of state and federal appellate cases be disregarded? Will the FAA be re-written, widely expanded, and put on an inevitable collision course with congressional intent? Or will the Court step back and do the right thing? No one will know for sure until the Court decides Concepcion next spring.
1. Author’s: Paul Bland and Claire Prestel are Attorneys at Public Justice. Melanie Hirsch is the Brayton-Baron Fellow at Public Justice.
2. The precise question presented in Concepcion is as follows:
Whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures – here, class-wide arbitration – when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.
Pet. for a Writ of Cert. at i, Concepcion, No. 09-893 (U.S. Jan 25, 2010).
3. Scott v. Cingular Wireless, 161 P.3d 1000, 1008 (Wash. 2007).
4. Homa v. Am. Express Co., 558 F.3d 225, 230 (3d Cir. 2009) (“the defense [New Jersey law] provides is a general contract defense, one that applies to all waivers of class-wide actions, not simply those that also compel arbitration. Therefore, there are no grounds for FAA preemption.”); Kinkel v. Cingular Wireless, 857 N.E. 2d 250, 263 (Ill. 2006) (the “FAA neither expressly nor implied preempts a state court from holding that an arbitration clause or specific provision within an arbitration clause is unenforceable”).
5. See, e.g., Discover Bank v. Super. Ct., 113 P.3d 1000 (Cal. 2005); Kinkel, 857 N.E.2d 250; Feeney v. Dell Inc., 908 N.E. 2d 753 (Mass 2009); Tillman v. Commercial Credit Loans, Inc., 655 S.E. 2d 362 (N.C. 2008); Muhammad v. County Bank, 912 A.2d 88 (N.J. 2006); Fiser v. Dell Computer Corp., 188 P.3d 1215 (N.M. 2008); Scott, 161 P.3d 1000; Herron v. Century BMW, 693 S.E. 2d 394 (S.C. 2010); Leonard v. Terminix Int’l Co., 854 So.2d 529 (Ala. 2002); West Virginia ex rel. Dunlap v. Berger, 567 S.E. 2d 265 (W. Va. 549 2002).
6. See, e.g., Forrest v. Verizon Comm.’s, Inc., 805 A.2d 1007, 1013 (D.C. 2002) (upholding class action ban under D.C. law); Walther v. Sovereign Bank, 872 A.2d 735, 70 (Md. 2005) (same, with Maryland law); Stenzel v. Dell, Inc., 870 A.2d 133 (Me. 2005) (class action ban in arbitration clause not unconscionable under Texas law).
7. See, e.g., S.D.S. Autos, Inc. v. Chrzanowski, 976 So.2d 600 (Fla. Dist. Ct. App. 2007); Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940 (Or. Ct. App. 2007); Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa. Super. Ct. 2006); Coady v. Cross Country Bank, 729 N.W. 2d 732 (Wis. Ct. App. 2007); Eagle v. Fred Martin Motor, 809 N.E. 2d 1161 (Ohio Ct. App. 2004); Whitney v. Alltel Communics., Inc., 173 S.W. 3d 300 (Mo. Ct. App. 2005; Woods v. QC Fin. Servs, Inc., 280 S.W. 3d 90 (Mo. Ct. App. 2008).
8. This has been true in cases where the federal courts have struck down class action bans. See, e.g., Skirchak v. Dynamics Research Corp., 508 F.3d 49 (1st Cir. 2007) (class action ban in arbitration clause unconscionable under Massachusetts law); Fensterstock v. Edn. Fin. Partners, __ F.3d __, 2010 WL 2729759 (2d Cir. July 12, 2010); Chalk v. T-Mobile USA, Inc., 560 F.3d 1087 (9th Cir. 2009); Homa, 558 F.3d 225; Dale v. Comcast Corp., 498 F.3d 1216 (11th Cir. 2007). This has also been true, however, for courts that have upheld bans on class actions embedded in arbitration clauses. Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1377-79 (11th Cir. 2005) (upholding class action ban and other terms in arbitration clause under Georgia law); Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 174-75 (5th Cir. 2004) (upholding class action ban as consistent with Louisiana law); Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002) (same, with Maryland law); Pleasants v. Am. Express, 541 F.3d 853 (8th Cir. 2008) (same, with Missouri law).
9. Of course, it has been widely observed that quite a few of U.S. Supreme Court decisions in this area are not readily traced to the language of the statute itself. In one case, Sandra Day O’Connor wrote that “the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.” Allied-Bruce Terminix (Co.s, Inc. v. Dobson, 513 U.S. 265, 283 (1995) (O’Connor, J., concurring). See also Rent-a-Center, West, Inc. v. Jackson, __ U.S. __, 2010 WL 2471058 at * 12 (U.S. June 21, 2010) (dissent of Justice Stevens) (in holding that arbitrator should decide challenge that an arbitration clause is unconscionable, the Court has extended a “fantastic” and likely erroneous decision).
10. Volt Info. Sciences, Inc. v. Bd. Of Trustees of Standford Univ., 489 U.S. 468, 477-78 (1989).
11. Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009). (Thomas, J., concurring in the judgment.).
12. See Discover Bank, 30 Cal. Rptr. 3d at 88-89 (“class action litigation for damages was for the most part unknown in federal jurisdictions at the time the FAA was enacted in 1925. . . . The Congress that enacted the FAA therefore cannot be said to have contemplated the issues before us.”).
13. E.g., Freightliner Corp. v. Myrick, 514 U.S. 280, 289-90 (1995) (“A finding of liability against petitioners would undermine no objectives or purposes with respect to ABS devices since none exist.”).
14. Volt, 489 U.S. at 476 n. 5.
15. See, e.g., Dix v. ICT Group, Inc., 161 P.3d 1016 (Wash. 2007); America Online, Inc. v. Pasieka, 870 So.2d 170 (Fla. Dist. Ct. App. 2004); America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1 (2001).
16. See Dunlap, 567 S.E. 2d at 280 (FAA does not allow a party to evade state contract law “merely because the prohibiting or limiting provisions are part of or tied to provisions in the contract relating to arbitration”); Scott, 161 P.3d at 1008 (contract terms “do not change their character merely because they are found within a clause labeled ‘Arbitration’.”).
17. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 637 (1985) (arbitration clauses are enforceable “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum”); Equal Employment Opportunity Comm’n v. Waffle House, Inc., 534 U.S. 279, 295 n. 10 (2002); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991); Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 81 (2000).
18. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.”); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) (“A critical fact . . . is that petitioner’s individual stake . . . is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner’s suit proceed as a class action or not at all.”); Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326, 338 n. 9 (1980) (to same effect).