Case Facts and Legal Proceedings
In February 2002, Concepcion signed a two- year contract with AT&T Mobility for serving of wireless phones and receive free phones as part of the contract. The contact did not allow any disputes to be settled class-wide but through bilateral arbitration. The conditions of the contract allowed AT&T to make unilateral amendments which it practiced severally during the contract period. The problem arose when AT&T offered services as agreed and gave phones only that they charged Concepcion a tax on the phones equivalent to the Phones’ retail price.
The Conceptions took their problem to the court filled a case suing ATT Mobility for false and deceptive advertisement. In March 2008, the AT&T Mobility went to court and wanted the court to allow the complaint be carried out as per the terms of the contract. The Concepcion, however, opposed the motion claiming that the arbitration agreement was unconscionable because it did not allow a class of action. The district claimed that the bilateral arbitration was incapable of achieving the same level of deterrence as the class of action and therefore ant anti-class provisions were unconscionable and denied the motion. The AT&T appealed and said the Federal Arbitration Act (FAA) of 1925 was exercising superiority in displacing a state law that prevents contracts disallowing class of action but on the Ninth Circuit, Court of Appeals affirmed the district decision on referencing on a similar case of 2005 of Discover Bank Superior Court. The court of appeal and said Federal Arbitration Act did not expressly forestall the state law governing unconscionability.AT&T took the Supreme Court.
Justice Scalia delivered an opinion in court indicating that Section 2 of FAA makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”9 U. S. C. Section 2.The opinion of the court considered if FAA prohibits states from contracts conditioned for class-wide. By this provision, courts were mandated to treat arbitration agreements on same grounds with other contracts. The provision permits arbitrations to be declared enforceable and such grounds as per the law allow a revocation of a contract. The clause can be used to invalidate arbitration agreements to defend cases like fraud or unconscionability.The California law can allow application of unconscious clause requiring it be applicable in the case of a procedural or substantive element, meaning if there is an existence of oppression resulting from unequal bargaining power or if the result of a contract is one sided respectively.
The Supreme Court ruling applied the framework of Discover Bank and held that if there is a constitution of a waiver in consumer contracts, and disputes arise involving small amounts of damages, when the party with higher bargaining power is alleged to be operating a scheme that cheats large amounts of consumers by obtaining small amounts of money from individual consumers ,then the waiver is treated like a form of scheme that tries to exempt a party from responsibility for fraud or wilful injury,. In such a circumstance, the waiver becomes unconscionable under California law.
The Conceptions argued that The ‘Discover Bank Rule’ used the California policy that allows unconscionability.They continued to argue that even if The Discover Bank Rule is seen as a prohibition of collective waiver action rather than unconscionability, the rule would still be applied following the California prohibition of waiver of class litigation (Elder, 2012). This argument can apply to a ruling of unconscionability on arbitration agreements that do not abide by the Federal Rules of Evidence, or that does not allow a disposition by a jury. The Conceptions suggested that any rules that are meant to destroy arbitration can be prevented by the FAA because there is no sensible way the section can reconcile such a scenario. The majority option largely agreed with Conceptions and partly disagreed on the issue of Federal Rules of Evidence on the application of the case analysis, by disagreeing the rules requiring adherence to the Federal Rulers of Evidence and therefore the case cannot rely on that argument. The provision of section 2 requires the courts to take legal action regarding arbitration claims by terms of the agreement.
The case of ‘Dean Writer Reynolds v.Byrd’ dissenting quotes rejected the suggestion that the overriding goal of arbitration Acts was to promote the efficiency of resolving claims. The quotes claimed that the intent of overriding goals was ensuring judicial enforcements of agreements to arbitrate that were made private. The case also quoted that the delay and costliness of legal process can be eliminated by arbitration agreements. In response to the dissent’s view, the majority opinion, in contrast, claimed that their cases were placed beyond disputes that FAA promoted arbitration. They had described the act severally that it was a national policy and a federal policy which favor arbitration agreements that did not have a substantive or procedural element. Further referencing from ‘Preston v.Ferrer’, they said that, by preventing state’s rule that required administrative remedies be exhausted before arbitration, they meant the fundamental objective of an agreement to arbitrate was to streamline proceeding and ensure an efficient result.
According to the majority opinion, shifting from bilateral to class-wide arbitration sacrifices the informality of bilateral agreements makes the process slower and more costly. It also increases the risk of the defendant because informal procedures may not correct the error and if errors are detected the defendant can pay for them, and it requires procedural formality. The states cannot allow a procedure that does not abide by FAA, even it is desired for unrelated benefits (Elder, 2012). Justice Thomas concurred with the court’s opinion stating that the FAA requires enforcement of an agreement to arbitrate unless a party proves the agreement contains fraud or duress. Justice Buyer, on the other hand, dissented with the court’s opinion stating that the second provision of California law authorizes courts to limit the application of unconscionable clause and therefore, the Supreme Court in its ruling should be aware that not all contracts are applicable under the provision. Buyer further explained that The Discover Bank Ruler did not just set a policy against class action waivers but represents the application of a general principle of unconscionability.According to Buyer, federalism is much an action of deed than words and therefore federalist ideal embodied in a certain language needs us to uphold the law not striking it down. Federalist principles are not honored in their breach
The case represents deceptive practices that can be practiced by businesses through the formation of one-sided arbitration practices. It shows how business can intentionally condition contracts to allow them to engage in fraud practices. The case also reveals how contracts are conditioned by businesses that ensure they have a higher bargaining power. Businesses should be honest and should also ensure they abide by the waiver requirements. The case also provides grounds for ethical arbitration procedures that are fair to consumers and sets guidelines for businesses to be responsible for their actions and to protect consumers. The decision of the Supreme Court is important in scrutinizing the arbitration programs that are selfish and harmful to consumers. The FAA requires adequate remedies on wrong doers. The businesses can agree to settle the disputes on right standards that satisfy the consumers. The standard of settlement must be agreeable by the majority, must be sensible and must be effective.
On April 27, 2011, the Supreme Court endorsed AT&T arbitration program since it allowed claims be settled individually (Lee, 2014). The grounds of this decision were . First, AT&T company had millions of consumers, and it faces large volumes of complains. Secondly, class of action lawyers are positioned to file expensive suits when something appears to go wrong and finally, the AT&T program for addressing them one by one ensures speedy response.AT&T will pay the expense of arbitrator and customer does not pay even on losing. Justice Scalia was in agreement with the program stating that it provided incentives that ensured AT&T treated their customers fairly. This decision has allowed for close examination of Arbitration programs of business. Companies which experience regular cases of consumer complaints have also made major changes. It has provided an important opportunity to business to develop arbitration programs that are effective. After the Conception, the new regime of robust examination and development of arbitration programs has ensured costly consumer class of action are prevente
Elder, R. (2012). Mis-Concepcion About Arbitration: A Critical Analysis of
AT&T Mobility LLC v. Concepcion.
Lee, J. (2014). California Consumer Contracts after AT&T Mobility v.
Concepcion. UC Davis Bus. LJ, 15, 219.