In the usual line up of five Republican nominated Justices prevailing over four Democratic nominated Justices, the Court held that a California law rendering arbitration unconscionable frustrated the purposes and objectives of the Federal Arbitration Act (FAA), 9 U.S.C. § 2, and was therefore preempted.
While claiming to base his decision on the “text” of the FAA, the decision by Justice Scalia is contrary to the text of the FAA’s savings clause. To justify his non-textual reading of the FAA, Scalia uses the “L” word and emphasizes the “liberal federal policy favoring arbitration.” AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (April 27, 2011). Justice Breyer penned the dissent. Public Citizen represented the plaintiffs.
AT&T advertised free phones to accompany its service, but actually charged $30 in sales tax for the phones. The Concepcions filed suit in federal court alleging false advertising. AT&T moved to compel arbitration. The Concepcions opposed on the grounds that the arbitration agreement was unconscionable under California law, because it disallowed class actions. The California Supreme Court had held that class action waivers in arbitration agreements are unconscionable. Relying on this decision of the California Supreme Court, the federal district court held that the arbitration provision was unconscionable. The Ninth Circuit affirmed.
The FAA has a savings clause providing that arbitration agreements may be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” The majority acknowledged that this saving clause “permits agreements to arbitrate to be invalidated” by contract defenses, including unconscionability. Nevertheless, this savings clause did not preserve state laws that stand as an obstacle to the FAA’s objectives.
Justice Scalia asserts that the “text” of the FAA demonstrates that the purpose of the FAA is to ensure the enforcement of arbitration agreements. This interpretation of “purpose” completely ignores the FAA’s savings clause. The Court in essence held that a statutory provision seeking to ensure the enforcement of arbitration agreements except under specified circumstances was to be interpreted as seeking to ensure the enforcement of arbitration agreements under the excepted specified circumstances.
The opinion trumpets: “our cases place it beyond dispute that the FAA was designed to promote arbitration.” That conclusion is irrelevant. The issue was whether the FAA was designed to promote arbitration when grounds exist under state law for revocation of the contract.
Scalia works in his disdain for class litigation. He expounds: “there is little incentive for lawyers to arbitrate on behalf of individuals when they may do so for a class and reap far higher fees in the process. And faced with inevitable class arbitration, companies would have less incentive to continue resolving potentially duplicative claims on an individual basis.” He further noted that “class arbitration greatly increases risks to defendants.”
Justice Thomas wrote a separate concurrence, suggesting that the savings clause applies only to fraud and duress in the making of the contract.
Justice Breyer’s dissent argues that the California law is consistent with FAA’s language and objectives, as expressed in the savings clause. He notes that “[l]inguistically speaking,” the California law “falls directly” under the savings clause. The dissent protests: “insofar as we seek to implement Congress’ intent, we should think more than twice before invalidating a state law that does just what [the FAA] requires.” The dissent makes passing reference to the presumption against preemption, and concludes that the majority opinion is inconsistent with “federalist principles.”