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Home > Blog > All > Federal Arbitration Act

Federal Arbitration Act

  • January 17, 2012

    NLRB Decision Limiting Class Action Waivers Based on Longstanding Precedent

    Guest Post

    By Ann C. Hodges, a professor of law at the University of Richmond

    In the past 20 years the Supreme Court has interpreted the Federal Arbitration Act broadly, allowing businesses to require consumers and employees to arbitrate, rather than litigate, many legal claims. Businesses frequently use arbitration agreements to bar class actions, which can be costly and time-consuming. Just last term, in AT&T v. Concepcion, the Court enhanced this business tool, striking down a California law that prevented businesses from barring class actions in cases involving small claims brought by less powerful parties bound to arbitrate by contracts of adhesion. Although the case involved consumers, it offered employers a vehicle to restrict employee class actions.

    The NLRB’s decision in D.R. Horton, issued in early January, significantly limited the effectiveness of this tool for employers by invalidating an arbitration agreement that banned class actions. This case is likely to generate significant controversy, provoking even more attacks on the agency by its vocal critics, but experienced labor lawyers will recognize the case as an unremarkable application of long-settled legal principles.

    Class claims frequently offer the only vehicle for consumers or employees to challenge unlawful actions that cause limited damages to each individual while often reaping millions for the business. For each person injured, the cost of litigating a claim outweighs the potential benefit.  Without class actions, these claims often go unremedied. In the workplace, Fair Labor Standards Act cases seeking minimum wage or overtime payments are most likely to be abandoned on this basis and Horton involved such a claim, alleging that the nonunion employer misclassified employees as exempt from overtime pay.

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    Tags:
    Access to Justice, Administrative law, Class actions, Procedural barriers to court, Financial regulation, Arbitration, Economic, Workplace and Environment Regulation, AT&T v. Concepcion, Federal Arbitration Act, Guest Post, National Labor Relations Board, NLRB
  • May 2, 2011

    The Supreme Court Majority Ignores the Text of the Federal Arbitration Act

    Guest Post

    By Rochelle Bobroff, Directing Attorney, Herbert Semmel Federal Rights Project, National Senior Citizens Law Center

    While many have decried the result in AT&T v. Concepcion – the invalidation of a state law that rendered unenforceable the waiver of class action suits in arbitration – little attention has been paid to the method utilized by the Supreme Court majority of five Republican nominated Justices.  Professing to simply follow the “text” of the Federal Arbitration Act (“FAA”), the opinion for the Court written by Justice Scalia in effect took a black magic marker and crossed out the words of the text they didn’t like.  Without those words in the statute, the result would indeed be true to the text.  But just as aptly as the boy in the Hans Christian Andersen fable cried, “the Emperor has no clothes,” we must protest that ignoring the words of a statute is not a textual approach.

    Throughout his career on the federal bench, Justice Scalia has famously touted the necessity for courts to rely primarily or even solely on the text of statutory provisions and to disregard “vague” notions of statutory purpose. That approach has served him and his colleagues often and well to justify narrow readings of civil rights and other modern progressive laws.  Here, however, his professed “textualism” is fictitious. 

    The majority stated: “The overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements.”  The Court conceded that § 2 includes an exception to this general policy, known as a savings clause, which “preserves generally applicable contract defenses.”  But the Court completely ignored the savings clause when determining that the “objectives” of the FAA were thwarted by state law.    

    In plain English, the FAA seeks to ensure enforcement of arbitration agreements except when there are contract defenses, but the Supreme Court stated that the statute seeks to ensure enforcement of arbitration agreements when there are contract defenses.  The Court read the exception out of the text and then concluded that the state law was an obstacle to federal law.  This complete disregard of words in the text should not be paraded as a textual approach.

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    Tags:
    Methods of interpretation, Originalism, Supreme Court, Constitutional Interpretation and Change, Economic, Workplace and Environment Regulation, AT&T Mobility v. Concepcion, Federal Arbitration Act, Guest Post
  • April 27, 2011

    Supreme Courts Says Federal Law Trumps Calif. Law on Class Action Arbitration

    The Supreme Court led by its conservative wing issued an opinion limiting states’ ability to nullify contracts that prohibit class action arbitration.

    In AT&T Mobility v. Concepcion, Justice Antonin Scalia writing for the 5-4 majority concluded that a provision of the Federal Arbitration Act (FAA) bars enforcement of a California law that nullifies contracts that prohibit class-action arbitration. Scalia was joined by Chief Justice John Roberts, Anthony Kennedy, Clarence Thomas and Samuel Alito. The opinion overturns a ruling by the U.S. Court of Appeals for the Ninth Circuit, which found that the FAA provision did not preempt the California law.

    Scalia wrote that the “overarching purpose of the FAA … is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

    Justice Stephen Breyer, joined by Justices Ginsburg, Sotomayor and Kagan, lodged a dissent, arguing that California’s law “is consistent with the federal Act’s language and primary objective.”

    Breyer added, “California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration.”

    The Associated Press says today’s opinion “could greatly restrict the use of class actions, in which a party represents a much larger group, in disputes over contracts.”

    In a guest post for ACSblog, Public Justice’s Paul Bland Jr. charged that the “corporatist idea that the FAA preempts all state law limiting class-action bans hasn’t caught on in the lower courts because there is no serious legal or intellectual basis for it. If the Supreme Court decides to completely federalize the law in this area, it will have to invent from whole cloth new federal law that is not supported by anything in the language of the FAA or in its history.”

    Bland also participated in an ACS briefing on the AT&T Mobility v. Concepcion case. Video of the briefing, which included a panel discussion, is available here.

    Update: Senate Judiciary Chairman Patrick Leahy, in a statement on the opinion, said, "The opinion of five Supreme Court Justices in AT&T v. Concepcion will further weaken protections for consumers. The divided court decided that state laws which would protect consumers' rights to band together are preempted by Federal law. This is the latest in a series of cases where five conservative justices have hampered the rights of consumers to be protected by state laws. Class actions are an effective way to ensure consumer protection, but today's opinion by the Roberts Court continued to move in a direction that undermines this access to justice for hardworking Americans."

     

    Tags:
    Class actions, Supreme Court, Arbitration, AT&T Mobility v. Concepcion, FAA, Federal Arbitration Act
  • November 10, 2010

    Class Actions Targeted in AT&T Mobility v. Concepcion: An Interview with Prof. Pillard

    Even a narrow ruling in favor of AT&T Mobility in a case before the Supreme Court regarding class action waiver in a contract clause could create more difficulty for class action proceedings, Professor Nina Pillard tells ACSblog.

    Following an ACS event on AT&T Mobility v. Concepcion, which the high court heard oral argument in yesterday, Pillard, a professor of law at Georgetown, explained why the case was before the Supreme Court - as The New York Times' Adam Liptak notes the case involves legal action over a "$30 charge for what was said to be a free mobile phone" - and why it may have an impact on class action lawsuits.

    Pillard described the case as a "class action ban case in arbitration clothing." Specifically, AT&T Mobility is arguing that California's law banning waiver of class actions in contracts, including arbitration clauses, is preempted by the Federal Arbitration Act, which as Liptak notes "generally overrides state laws unfavorable to arbitration and requires courts to enforce arbitration agreements unless state law limitation applies to all kinds of contracts."

    Pillard noted that, not surprisingly, many American businesses are not "fans of class action," and AT&T Mobility in its mobile phone contract clause, which is being challenged by Vincent and Liza Concepcion of California, included a waiver of class action rights. But, Pillard said, California and many other states have laws that say companies cannot exculpate themselves in such a manner.

    If the high court does find that California's law is preempted by the Federal Arbitration Act, even in narrow manner, a "presumption against class actions could be created," Pillard said. Watch her interview below or download a podcast of it here. Video of the entire panel discussion about the case is here.

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    Tags:
    Economic inequality, Supreme Court, Economic, Workplace and Environment Regulation, AT&T Mobility v. Concepcion, Class Action, Federal Arbitration Act, Nina Pillard
  • August 24, 2010

    Potential Death Star for Civil Rights and Consumer Class Action: AT&T Mobility v. Concepcion?

    Guest Post
    By F. Paul Bland, Jr., senior attorney at Public Justice.
    The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November. The case could decide the fate of most consumer and employee class actions for years to come.

    The Concepcion case involves the widespread corporate practice of using standard-form contract terms that purport to prevent consumers and employees from ever participating in class proceedings. Consumers and employees rarely have time to read the lengthy agreements companies send them, let alone the ability to understand their dense legalese. And even if they did, few consumers or employees could negotiate the contracts' terms.

    Many federal and state courts have held such class-action bans unenforceable under state laws providing that contract terms that block individuals from enforcing their rights under consumer protection and civil rights laws. Hoping to sweep aside many of those cases, AT&T Mobility ("ATTM") has asked the Supreme Court to find that at least some of that state law is preempted by the Federal Arbitration Act ("FAA").

    Class-action bans dramatically undermine enforcement of consumer- and employee-protection laws. In many circumstances, very few individuals would ever bring a claim (in court, or in a small claims court, or in arbitration) even when those laws are broken. Many people never realize when their rights are violated, for example, and many people do not have the knowledge or skills to begin to pursue a case to protect their rights. For those who know to seek out a lawyer, very few lawyers will handle cases that are quite small, and few if any lawyers will handle fairly complex cases that involve only a few thousand dollars. There are many situations where a case will either be handled on a class action basis or it will never be brought at all.

    In the worst case scenario, Concepcion could wipe away the vast majority of consumer and employee class actions for years to come. But that result is far from inevitable. For one thing, ATTM submitted a narrow question in its petition for certiorari, and if the Court sticks to the question presented (as it should), then the decision should be limited. On the merits, if the Court agrees with the vast majority of lower courts, then the decision will change little. If the Court uses this case to grant the fondest wishes of some corporate lawyers for immunity, however, then this case could have the kind of impact on class actions that an asteroid landing in Mexico millions of years ago had on dinosaurs.

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    Tags:
    Supreme Court, Preemption, Labor law, Economic, Workplace and Environment Regulation, AT&T Mobility v. Concepcion, class actions, Federal Arbitration Act, Guest Post, Paul Bland, Public Citizen

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