On April 27, the United States Supreme Court handed down AT&T Mobility LLC v. Concepcion, 11 C.D.O.S. 4842. This 5-4 decision invalidated California’s judge-made Discover Bank rule, which had required that most consumer contract arbitration agreements provide for class arbitration or else be stricken down as unconscionable. The court held that this law was preempted by the Federal Arbitration Act.
While California precludes class action waivers outside the arbitration context as well, the court reversed precedents that had held that a state law that generally limits all contracts — not just arbitration agreements — escapes FAA preemption. Instead, the court held the FAA preempts not only state laws that expressly disfavor arbitration, but also ones — like a ban on class action waivers that effectively requires arbitration agreements to provide for class arbitration — that “stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” The court held that Congress’ primary intent in enacting the FAA was to “ensure the enforcement of arbitration agreements according to their terms so as to facilitate informal, streamlined proceedings.”
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