Supreme Court Decision in Concepcion Compelled Granting AT&T’s Motion to Compel Arbitration of Individual Claims because FAA Preempts California Laws Barring Class Action Arbitration Waivers
Plaintiff filed a putative class action against cellular telephone service provider, AT&T Mobility, alleging violations of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), Consumer Legal Remedies Act (CLRA) and breach of contract. Kaltwasser v. AT&T Mobility LLC, ___ F.Supp.2d ___, 2011 WL 4381748 (N.D.Cal. September 20, 2011) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, plaintiff renewed his cell service with AT&T based on the company’s representations that it had the “fewest dropped calls.” Id., at 2. Because he alleges that this representation was false, plaintiff filed this lawsuit. AT&T moved to compel arbitration and to dismiss the class claims on the grounds that the service contract included an arbitration clause with a class action waiver. Id. In April 2008, the district court denied AT&T’s motion finding the class action waiver unconscionable under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005). Id., at 2-3. Plaintiff subsequently filed a motion to have his lawsuit certified as a class action; the district court delayed ruling on the motion pending the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). Id., at 1. Based on Concepcion, the federal court denied plaintiff’s motion and ordered his claims to be arbitrated on an individual basis. Id., at 1-2.
After providing a general discussion of the FAA and Concepcion, the district court noted Concepcion’s holding that “California’s Discover Bank rule is preempted by the FAA.” Kaltwasser, at 5 (quoting Concepcion, at 1753). Plaintiff, however, argued that Concepcion did not require reconsideration of the district court’s prior order denying AT&T’ s motion to compel arbitration because (1) “Concepcion left intact a vindication-of-rights doctrine under federal common law” permitting him to avoid arbitration “if he can show that the costs involved in proving his claims exceed the damages he can potentially recover”; (2) “Concepcion did not affect public policy principles of contract law” which hold that “‘a law established for a public reason cannot be contravened by a private agreement’”; and (3) AT&T waived its right to arbitration. Id., at 5-6. The district court disagreed.
The federal court first addressed plaintiff’s claim that Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) permits a plaintiff to avoid arbitration if he can prove that the costs of proceeding with arbitration would preclude him from pursuing his claim. Kaltwasser, at 6-7. The Second Circuit followed this rule in invalidating an arbitration clause based on a showing that the costs of prosecuting the plaintiff’s Sherman Act claims would typically run from $300,000 to $2 million, while the plaintiff’s expected recovery was only $39,000. Id., at 7 (citing In re American Express Merchants’ Litig., 634 F.3d 187, 197-99 (2d Cir. 2011). In part, the district court held that Green Tree did not survive Concepcion, which expressly recognized that in striking down Discover Bank could cause “small-dollar claims” to “slip through the system.” Id., at 8 (citation omitted). The court concluded at page 10:
To be sure, Concepcion does not explicitly overrule Green Tree, but it does make it untenable to read Green Tree for a vindication-of-rights principle as robust as Kaltwasser asserts here. If Green Tree has any continuing applicability, it must be confined to circumstances in which a plaintiff argues that costs specific to the arbitration process, such as filing fees and arbitrator’s fees, prevent her from vindicating her claims…. Concepcion forecloses plaintiffs from objecting to class-action waivers in arbitration agreements on the basis that the potential cost of proving a claim exceed potential individual damages.
Plaintiff next argued that his UCL, FAL and CLRA claims are not arbitrable under California law, because Broughton v. Cigna Healthplans, 21 Cal.4th 1066 (Cal. 1999) holds that “claims for injunctive relief under the CLRA may not be arbitrated because the purpose of such relief is to ‘remedy a public wrong.’” Kaltwasser, at 11 (quoting Broughton, at 1080 and citing Cruz v. PacifiCare Health Sys., Inc., 30 Cal.4th 303 (Cal. 2003)). The district court noted however that numerous federal courts have held that the FAA preempts Broughton and Cruz. The court also explained that Discover Bank itself was “ based upon public policy rationales intertwined with the generally applicable doctrine of unconscionability.” Id., at 11-12. “Cruz and Broughton, even more patently than Discover Bank, apply public policy contract principles to disfavor and indeed prohibit arbitration of entire categories of claims.” Id., at 12.
Finally, the district court held that AT&T did not waive its right to arbitrate plaintiff’s claim. Kaltwasser, at 12. The court explained that prior to Concepcion AT&T “did not have a right to compel arbitration,” but that “it promptly moved to compel arbitration after the Supreme Court decided Concepcion.” Id., at 13. Accordingly, the court granted AT&T’s motion to compel arbitration. Id.