Federal Arbitration Act Strengthened

The U.S. Supreme Court,  in a 5-4 ruling along its "usual" liberal-conservative lines in the case of AT&T Mobility v. Concepcion, has held that the Federal Arbitration Act pre-empts state law in California that holds that waiving the right of access to a class action remedy in an arbitration clause in unconscionable and void when it included in certain kinds of consumer contracts.

Since the U.S. Supreme Court ruling interprets only a federal statute, Congress could pass a law changing the result as it did, for example, in a recent case where Congress disagreed with a U.S. Supreme Court ruling interpreting the statute of limitations under a federal employment law.

The dissent in the case emphasized that the ruling effectively makes it economically impracticable to make all consumers who are harmed by low dollar misconduct in a consumer case to receive a remedy, and instead, effectively insures that the big business with the arbitration clause will profit from its misconduct in these consumer transaction because not all consumers will litigate.  Indeed, since the doctrine of collateral estoppel does not necessarily apply in arbitration cases, in principle, each consumer must separately litigate the merits of the underlying misconduct in full in every case, despite the fact that the harm to each consumer is only about $30.

On the other hand, while this ruling creates a situation where consumers cannot file a class action in this kind of case (either in court, from which they are barred, or in arbitration), the arbitration clause does not necessarily prevent a governmental regulatory body or attorney general from bringing suit against a business for a violation of a state or federal statute in connection with its conduct.  Indeed, this kind of litigation is fairly routine.  The total volume of regulatory actions in consumer cases rivals or exceeds the aggregate volume of consumer class action litigation, while avoiding sticky problems associated with selecting and compensating class counsel in a private class action case.  Generally, since the regulator or governmental agency is not a party to any contract with the business, it cannot be bound by an arbitration clause or other limitation on remedies reached with consumers in that contract.