US Supreme Court: FAA Preempts Discover Bank Rule
The U.S. Supreme Court today issued its opinion in AT&T Mobility LLC v. Concepcion, reversing the Ninth Circuit opinion below and holding that California's Discover Bank rule is preempted by the Federal Arbitration Act, 9 U.S.C. § 2 ("FAA").
In Concepcion, plaintiffs filed suit in federal district court alleging false advertising and fraud, asserting AT&T charged sales tax on cellular telephones advertised as "free." AT&T moved to compel arbitration. The district court denied the motion, citing Discover Bank v. Superior Court, 26 Cal.App. 4th 148 (2005), which held class action waivers in most consumer arbitration agreements are unconscionable, and therefore subject to the FAA's savings clause and not preempted. The Ninth Circuit affirmed.
In its opinion reversing the Ninth Circuit, the Supreme Court first noted generally that the FAA reflects a "liberal federal policy favoring arbitration" and that anything that "stands as an obstacle to the accomplishment and execution of the full purposes and objectives" of the FAA is preempted. Specifically, the Court held that California's Discover Bank rule is preempted by the FAA because "[r]equiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration and creates a scheme inconsistent with the FAA."
in its analysis, the Court identified a number of ways in which the Discover Bank rule interferes with arbitration and is therefore inconsistent with the FAA: (1) class arbitration makes the process slower, more costly, and more likely to generate procedural disputes; (2) class arbitration requires procedural formality, which is inconsistent with arbitration's essential informality; and (3) class arbitration significantly increases risks to defendants, who could be subject to a class-wide arbitration award with minimal rights to challenge errors on appeal or otherwise to overturn the award.
http://www.consumerfinancelitigation.com/admin/trackback/247131
