Thursday, April 28, 2011

Supreme Court Ruling Continues Strong Federal Policy Favoring Arbitration

The US Supreme Court gave a strong endorsement to the primacy of the Federal Arbitration Act in ruling that the Act preempted a California Supreme Court opinion that class action waivers in an arbitration agreement were unconscionable. In a 5-4 opinion, the Court provided a ringing endorsement for federal arbitration of consumer claims and, although, this was not a securities brokerage dispute, reasoning by analogy allows for the thought that the opinion bodes well for the brokerage industry at a time when Congress in Dodd-Frank questioned the continued efficacy of arbitration clauses in brokerage agreements. AT&T Mobility v. Concepcion, Dkt. No. 09-893.

The Court said 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 class wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

From the Court's Wilko v. Swan ruling in 1953 until a series of rulings by the Court in the 1980s, notably Rodriquez, it was black letter that federal securities claims not arbitrable. Ultimately, through the Court's opinions, the strong federal policy in favor of arbitration took over and now arbitration clauses are the rule in brokerage agreements. The instant opinion reaffirms the strong federal policy favoring arbitration. It involved a cellular telephone contract between respondents (Concepcions) and
petitioner (AT&T) that provided for arbitration of all disputes but did nit permit class wide arbitration.