The US Supreme Court heard oral argument in the AT&T Mobility v. Concepcion case on November 10, 2010. As we explained earlier on this blog, the class action complaint alleged that AT&T misleadingly offered a “free” phone to consumers, then charged consumers sales tax for “free” phones. AT&T demanded individual arbitration, relying on a provision in the contract that prohibited class actions. Both the district court and the Ninth Circuit ruled for the plaintiff by holding that the provision prohibiting class actions was unconscionable under California law. AT&T asked the US Supreme Court to consider whether Section 2 of the Federal Arbitration Act pre-empts state law on the unconscionability of class action arbitration waivers.
At oral argument, Justices Scalia, Kagan, Ginsburg and Sotomayor all appeared to favor deferring to state law because, in their view, the California rule was neutral and did not single out arbitration contracts from other types of contracts. If the state law does not treat arbitration contracts differently from other contracts, the FAA cannot preempt state law. Justice Kennedy also appeared to be leaning in favor of plaintiffs, however not as strongly. Justice Alito and Chief Justice Roberts, however, appeared to support AT&T. In their view, California law applied disproportionately to arbitration contracts over other contracts. Justices Breyer and Thomas did not appear to have a position.
The primary debate among the Justices appeared to be how to fashion a predictable rule for pre-emption. Questioning focused on whether the test for pre-emption should focus on the purpose of the state law (e.g. is the purpose to disfavor arbitration) or the effect of the state law (e.g. although facially neutral, did it nevertheless effectively discourage arbitration)? The Justices did not suggest which approach they favored.
A decision should be handed down by April or May 2011.