by M. Todd Ratay

In 2011, the United States Supreme Court decided in AT&T Mobility Inc. v. Concepcion that companies can enforce a contract provision that requires customers to arbitrate their disputes individually. Many feared this decision could effectively end consumer class action lawsuits. This article discusses the analyses the Court’s decision and its likely ramifications for class actions in various contexts.

AT&T v. Concepcion involved the purchase of a cell phone and a service agreement, The Concepcions alleged AT&T had engaged in false advertising and fraud by charging sales tax on what they were told was a “free” phone. Although the phone was advertised as free under their service contract, the Concepcions were still required to pay sales tax based upon the retail value of the phone, a sum of $30.22. The Concepcions filed suit against AT&T and their case was consolidated into a class action.

The service agreement the Concepcions signed for service with AT&T contained an arbitration clause that compelled the Concepcions to bring their claim in an arbitration proceeding, and required they do so individually, and not as a member of a class. AT&T moved to compel arbitration in accordance with the contract’s arbitration clause. The district court denied the motion, finding the clause that required the Concepcions to bring the action individually acted as a class action waiver, and this was unconscionable under California law as spelled out by the California Supreme Court in Discover Bank. The Ninth Circuit agreed, AT&T appealed to the United States Supreme Court.

When the case reached the Supreme Court, the issue was whether the Discover Bank ruling which found the class action waiver clause to be unconsciounable under California law was preempted by the Federal Arbitration Act. In a 5-4 decision, the Court held it was, and therefore AT&T could compel the Concepcions, or anyone who signs a service agreement, to arbitration to settle their disputes individually. “Requiring the availability of classwide arbitration,” Justice Scalia wrote, “interferes with fundamental attributes of arbitration.” Justice Scalia reasoned arbitrators are ill-suited to handle the magnitude of class-wide cases, and sensible businesses would not agree to participate in informal proceedings when only very limited appeals are possible and yet there is the potential for a devastating loss to the company if the arbitrator were to find for the class.

The implications for this ruling are far-reaching. First, it does not appear this decision will effectively eliminate all consumer class actions because there must be a contract, such as the wireless service agreement between the Concepcions and AT&T which includes the clause preventing the consumer from joining a class action. Nevertheless, areas in which these agreements will likely become more prevalent and probably be upheld include contracts for mobile phones, auto loans, bank deposit agreements, credit cards, and cable television.

Part 2 of this article will appear in the March issue.

M. Todd Ratay is an associate at Neil Dymott and concentrates his practice on the defense of healthcare professionals and general civil litigation defense. Mr. Ratay may be reached at (951) 303-3930 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it