The plaintiff entered into a cell phone contract which provided for arbitration of all disputes between the parties, and required that claims be brought in their individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding. While such provision was considered “unconscionable” under the California Supreme Court’s Discover Bank decision, the U.S. Supreme Court upheld the class action ban. The Court noted that the Federal Arbitration Act “permits arbitration agreements to be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.'” Which “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Although the Act’s savings clause “preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.” As a matter of policy, the Court wrote that “Classwide arbitration includes absent parties, necessitating additional and different procedures and involving higher stakes. Confidentiality becomes more difficult. And while it is theoretically possible to select an arbitrator with some expertise relevant to the class-certification question, arbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties. The conclusion follows that class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA.” With respect to class actions generally, the Court commented that “class arbitration greatly increases risks to defendants. Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims. Other courts have noted the risk of ‘in terrorem’ settlements that class actions entail.” Adding that “the District Court concluded that the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which “could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.” See AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011).
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