Stites & Harbison, PLLC

On April 27, 2011, the United States Supreme Court issued an Opinion which upheld the enforceability of an arbitration clause in a cellular phone agreement that required claims to be arbitrated in the customer’s individual capacity.   In a 5-4 ruling in the case of AT&T Mobility LLC v. Concepcion, the Court held that Section 2 of the Federal Arbitration Act preempts state laws that invalidate arbitration clauses that require claims to be brought in an individual capacity or otherwise have a disproportionate impact on arbitration agreements. 

The arbitration clause at issue required disputes to be brought in the parties “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” AT&T, relying on this provision, argued that the case could not proceed in Court nor as a class action in any forum.  The lower federal courts refused to enforce the arbitration agreement and permitted the case to proceed in court based upon a prior ruling by the California Supreme Court which prohibited class action waivers in all standard form contracts, even where the contract required arbitration, finding that such provisions were unconscionable.

The United States Supreme Court found that the arbitration provision was enforceable.  The Court held that the purpose of the Federal Arbitration Act is to ensure that private arbitration agreements are enforced according to their terms in order to allow parties the discretion to design arbitration processes which streamline procedures tailored to their particular dispute.  Therefore, the Court found that the Federal Arbitration Act preempts state laws or court rulings, including that of the California Supreme Court decision, which attempt to limit arbitration clauses deemed to be unfair.