When the Concepcions went to AT&T to get a phone, they were confused as to why they were paying money for the phone when it was advertised as being free.
They had to pay sales tax on the full normal price of the phone. When the couple sued the company, their lawsuit was added to a class action suit that argued the company had engaged in fraud and false advertising. However, the contract the couple had signed with the company stipulated that the parties must settle through arbitration and a class action suit was off limits. However, the first court rejected the company’s motion, saying that the contract could not ban class action suits and thus was unconscionable under California law. The company appealed.
JUSTICE SCALIA [The contract] “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”…

a. Section 2 reflects a “liberal federal policy favoring arbitration,” and the “fundamental principle that arbitration is a matter of contract.” Thus courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms. Section 2’s saving clause permits agreements to be invalidated by “generally applicable contract defenses,” but not by defenses that apply only to arbitration or derive their meaning from the fact that an agreement to arbitrate is at issue.

b. In Discover Bank, the California Supreme Court held that class waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud.

c. The Concepcions claim that the Discover Bank rule is a ground that “exist[s] at law or in equity for the revocation of any contract” under FAA §2. When state law prohibits outright the arbitration of a particular type of claim, the FAA displaces the conflicting rule. But the inquiry is more complex when a generally applicable doctrine is alleged to have been applied in a fashion that disfavors or interferes with arbitration. Although §2’s saving clause preserves generally applicable contract defenses, it does not suggest an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. The FAA’s overarching purpose is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate informal, streamlined proceedings. Parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom they will arbitrate.

d. Class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, interferes with fundamental attributes of arbitration. The switch from bilateral to class arbitration sacrifices arbitration’s informality and makes the process slower, more costly, and more likely to generate procedural morass than final judgment. And class arbitration greatly increases risks to defendants. The absence of multilayered review makes it more likely that errors will go uncorrected. That risk of error may become unacceptable when damages allegedly owed to thousands of claimants are aggregated and decided at once. Arbitration is poorly suited to these higher stakes. In litigation, a defendant may appeal a certification decision and a final judgment, but 9 U.S.C. §10 limits the grounds on which courts can vacate arbitral awards.
CRITICAL THINKING:
Do you think AT&T was being dishonest when it linked its stipulation for arbitration to ensuring a smooth and streamlined resolution process? Are there rival reasons that the company was hiding?
ETHICAL DECISION MAKING:
Why would companies favor arbitration over class action lawsuits? Is it fair for a company to ban resolution practices just because they could be more expensive for the company, among other problems?