(CN) - AT&T can block class actions by enforcing an arbitration clause that had been previously ruled unconscionable, a divided Supreme Court said on Wednesday.
Federal arbitration law preempts California's findings about the class-action ban, Justice Antonin Scalia wrote for the five-justice majority, all conservative appointees. Justice Stephen Breyer led a four-justice dissent that laments the court's blow to federalism.
Vincent and Liza Concepcion brought a class action against AT&T Mobility for allegedly fraudulent taxes on their cell phone contract. The District Court held that AT&T's arbitration clause blocking class actions was unconscionable, and thus unenforceable, and the 9th Circuit affirmed, finding that the Federal Arbitration Act did not preempt California's law on unconscionable contracts. Oral arguments occurred in November 2010.
Scalia said the bench conducted a complex inquiry of the case to see if the lower courts applied the unconscionability doctrine "in a fashion that disfavors arbitration."
"[I]t is worth noting that California's courts have been more likely to hold contracts to arbitrate unconscionable than other contracts," according to the majority opinion. "The Concepcions suggest that all this is just a parade of horribles, and no genuine worry."
Though the majority agreed that the savings clause in Section 2 of the Federal Arbitration Act would not let states' anti-arbitration preference "eviscerate arbitration agreements," as the Concepcions argued in their brief, they said the Concepcions strayed from the act's purpose.
"Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA," Scalia wrote, using the acronym for the act.
Arbitration has many benefits, according to the ruling.
"The point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute," Scalia wrote. "It can be specified, for example, that the decisionmaker be a specialist in the relevant field, or that proceedings be kept confidential to protect trade secrets. And the informality of arbitral proceedings is itself desirable, reducing the cost and increasing the speed of dispute resolution."
Breyer agreed in the dissent that the arbitration has advantages, but he noted that Congress never meant to guarantee such benefits. "Rather, that primary objective was to secure the 'enforcement' of agreements to arbitrate," Breyer wrote.
"Thus, insofar as we seek to implement Congress' intent, we should think more than twice before invalidating a state law that does just what §2 requires, namely, puts agreements to arbitrate and agreements to litigate 'upon the same footing,'" the dissent also states.
Scalia attacked this characterization of intent as "misleading." And though the dissent also argues that class actions are valuable for small claims that could slip through the cracks of the legal system, Scalia noted that the lower courts said the Concepcions would have fared better in their arbitration agreement with AT&T than as participants of a class action.
Breyer countered that "the merits of class proceedings should not factor into our decision."
"Why is this kind of decision - weighing the pros and cons of all class proceedings alike - not California's to make?" the dissent asks.
Justice Clarence Thomas said in concurring opinion that, although he would "reluctantly join" the majority, litigants cannot nullify an arbitration agreement under federal law unless they prove fraud, duress or some other challenge to "the formation of the arbitration agreement."
Breyer concludes that the majority's holding dishonors federalist ideals.
"But federalism is as much a question of deeds as words," the dissent states. "It often takes the form of a concrete decision by this Court that respects the legitimacy of a State's action in an individual case. Here, recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California's law, not to strike it down. We do not honor federalist principles in their breach."
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