Class Action Update: Supreme Court Upholds Limits On Class-Wide Arbitration Contained In Consumer Contracts

Yesterday, the U.S. Supreme Court issued an important decision concerning the enforcement of arbitration provisions in consumer contracts. In AT&T Mobility LLC v. Concepcion, the Court held that the Federal Arbitration Act ("FAA") requires courts to enforce an arbitration provision in a consumer contract even if the provision bars class-wide arbitration and even if the otherwise applicable state law declares such a provision to be void. AT&T reaffirms the strong public policy embodied by the FAA favoring the enforcement of arbitration agreements. The decision also provides businesses with a route to avoid being subject to class actions by their customers.

In AT&T, the Concepcions signed a contract for cellular telephone service. Advertisements stated that customers who signed up for the service would receive free telephones. The Concepcions received their free telephones, but they were charged sales tax based on the retail value of the telephones.