On April 27, 2011, the U.S. Supreme Court held in a 5-4 decision that the Federal Arbitration Act (FAA) preempted California’s Discover Bank rule, which deemed unenforceable most mandatory consumer arbitration agreements that include class-action waivers. The decision is seen by many as a victory for companies, especially those that rely on standardized contracts, and paves the way for the use of arbitration clauses as a means of avoiding class litigation. However, questions remain as to how the newly formed Consumer Financial Protection Bureau (CFPB) may attempt to regulate the use of arbitration clauses in consumer contracts and whether this may have the effect of limiting the impact of the Concepcion decision. Given the CFPB’s focus on consumer contracts, commercial contracts face less uncertainty, making adoption of arbitration agreements with express class-action waivers worthy of consideration by providers of business services.

AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), involved a California couple who sued AT&T after they were charged $30 in sales tax on phones that AT&T had advertised as free. The Concepcions’ complaint was consolidated with a class action that alleged, among other things, claims for fraud and false advertising based on the same facts. AT&T moved to compel individual arbitration with the Concepcions based on their contract’s arbitration agreement, which included an express class-action waiver. The California courts found the class-action waiver unconscionable under the Discover Bank rule. The Supreme Court reversed on FAA preemption grounds because “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Id. at 1748.