A-List Celebrity No. 5: The AT&T v Concepcion case
- Raquel Macedo Moreira
- Sep 2, 2024
- 5 min read
This article is part of the series A-List: The Celebrities of Arbitration Cases. A series delving into the most renowned cases that have shaped the landscape of international arbitration.
Parties: AT&T Mobility LLC v Vincent Concepcion, et ux. (563 U.S. 333 (2011))
Decided by: United States Supreme Court
Date: 27 April 2011
Why is this case famous?
The AT&T v Concepcion is the type of case that you either love or hate. With polarized discussions about consumers' rights to bring disputes in the form of class actions, this case painted the framework for companies to include arbitration agreements in their consumer contracts with an express waiver to class wide proceedings. While some will say that this case strengthened the enforceability of arbitration agreements, other may argue that, as far as the United States are concerned, this case established a powerful tool for companies to avoid class action lawsuits. Whichever side you pick, it is simply impossible not to be in awe by the fact that it all started with a $ 30,22 claim…
Summary of the facts
Vincent and Liza Concepcion entered into an agreement for the sale and servicing of cellular telephones with AT&T. The contract contained an arbitration agreement that required claims to be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” The clause also provided that “the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.”
A dispute arose once the service purchased by the Concepcions from AT&T was advertised as including a free phone, but the Concepcions were charged $ 30,22 in sales tax on the basis of the phone’s retail value.
The Concepcions then filed a claim against AT&T in the United States District Court for the Southern District of California, alleging that AT&T's behaviour amounted to false advertising and fraud. The case was later consolidated with a putative class action on the same matter.
Subsequently, AT&T presented a motion asking the court to compel the Concepcions to go to arbitration as per the terms of the signed contract. The motion to compel the Concepcions to arbitration was denied by the District Court and Court of Appeals. The discussion then went all the way up to the US Supreme Court.
Delving into the parties' positions
The Concepcions’ argument was that the arbitration agreement could not be enforced because it prevented class wide procedures which, under California law, would be unconscionable (meaning it cannot be enforced because it contains obligations that unfairly exploit the unequal power of the consenting parties) and unlawfully exculpatory (meaning unlawfully relieving AT&T from due liability).
Specifically, reference was made to the California Supreme Court’s decision Discover Bank v. Superior Court (2005) in which the court held that class action waivers can sometimes be unconscionable. The three-part test applied to verify alleged unconscionability involved assessing whether (1) the agreement was a contract of adhesion; (2) the disputes between the contracting parties were likely to involve small amounts of damages; and (3) if it was 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. In the Concepcions' views all requirements were met.
AT&T, on the other hand, said that the Federal Arbitration Act (FAA) prevented California Law from governing unconscionability and, accordingly, from conditioning the enforceability of certain arbitration agreements on the availability of class wide arbitration procedures. In other words, for AT&T the clause was valid and the dispute should be settled in arbitration.
TIMELINE OF THE DISPUTE
US Supreme Court decision
To be honest, the decision is not easy to read, especially since it does not include much of the context regarding the parties' arguments and the procedural history of the dispute.
Still, in the decision, the Supreme Court points out that the FAA was enacted in response to widespread judicial hostility to arbitration agreements. By providing 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", the FAA would enforce the fundamental principle that arbitration is a matter of contract. Accordingly, and recalling previous decisions, the Supreme Court says that it must place arbitration agreements on an equal footing with other contracts.
Just like other contracts, therefore, and in line with the second half of the highlighted part above, the court recognized that arbitration agreements can be declared unenforceable upon the same grounds as any contract. That includes fraud, duress, and unconscionability for instance. Nonetheless, the court said that nothing there in the FAA suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.
The overarching purpose of the FAA, evident in the text of §§2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of class wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.
That said, on 27 April 2011, the Supreme Court reversed the Court of Appeals' decision and held that the FAA prevents, and renders invalid, any state laws that forbid agreements that waive class action arbitration. The decision was rendered by 5 votes against 4.
FOOD FOR THOUGHT
The dissenting opinion issued in the Supreme Court’s decision placed particular importance on the fact that class proceedings are necessary to prosecute small dollar claims that might otherwise slip through the legal system.
While making the argument that class action may have been the only realistic alternative to the Concepcions, the dissenting judges pose the question:
What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?
Such considerations can fuel a discussion as to whether this case reflects AT&T’s attempt to avoid class action at all costs. At the same time, one should also consider whether arbitration might have been a better fit to resolve this dispute after all.
As a matter of fact, according to the records of the case, the dispute resolution procedure included in AT&T’s contract provided that:
Customers may initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT&T’s website, and AT&T may then offer to settle the claim.
If it does not, or if the dispute is not resolved within 30 days, the customer may invoke arbitration by filing a separate Demand for Arbitration, also available on AT&T’s website.
In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for non-frivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages.
The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.
Is that an unconscionable dispute resolution procedure? I don't know… it's just food for thought.
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