Supreme Court Holds That Consumer Arbitration Agreements Can Bar Class Action Relief

In AT&T Mobility v. Concepcion, No. 09-893, the U.S. Supreme Court validated consumer contracts with arbitration clauses containing class action waivers. This decision may cause companies that do not have arbitration provisions in their consumer contracts to add them in order to limit or avoid class actions.

In a 5-4 ruling, Justice Antonin Scalia's majority opinion held that the Federal Arbitration Act ("FAA") preempted the California rule articulated in Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P.3d 1100 (2005), which stated that class action waivers in consumer contracts are largely unconscionable. Specifically, the Court found the Discover Bank rule "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." In the course of reaching its decision, the Court made clear its strong disfavor of class action arbitration.