Class arbitration is when a group of plaintiffs join together as claimants against an entity. This will happen more commonly when a group of consumers is affected by a defective product that may cause some type of loss to an individual. Know the Concepcion Case.

1. Is the Concepcion Case a Pandora's Box
for Class Arbitration?
Class arbitration is when a group of plaintiffs join together as
claimants against an entity. This will happen more commonly
when a group of consumers is affected by a defective product
that may cause some type of loss to an individual, but it might
not be financially worth it for such individual to bring a
lawsuit against a company on his own. So, in many countries
such as United States, Canada, Spain and the United Kingdom
these individuals can join together in a class to bring a cause of
action. This enables plaintiffs to be compensated for their
damages without the need for the case to go to court. In these
cases, an arbitrator either decides liability and the appropriate
settlement, in the case of binding arbitration, or assists the
claimant and defendant in coming to an agreement together
about the appropriate settlement. Arbitration can provide a
relatively standard process and often cases are decided on the
papers, saving the costs associated with court hearings. In the
American context, arbitration also avoids civil jury trials.
Nonetheless, companies have been drafting arbitration
clauses with “Class Action Waivers” to eliminate or reduce the
risk of class actions brought by consumers, customers,
employees or other groups they have contracts with.
Some say that these waivers unfairly exculpate one party from
its wrongdoing, where the individual damages are small and
that without class actions, minor frauds would not be
remedied. What lawyer would represent a plaintiff claiming
damage fees for the cost of a pill, a cellphone or a
refrigerator? Although these “class action waivers” have been
challenged on various grounds, The United States Supreme
Court, in a series of decisions, has upheld their validity and

2. effectiveness. Among the cases in which these waivers have
been deemed valid is the case of Vincent and Liza Concepcion
(the “Concepcions”) vs AT&T. Let’s take a look at this case and
how it was resolved.
Image courtesy of Adrian Clark at Flickr.com
In February 2002, Vincent and Liza Concepcion entered into an
agreement for the sale and servicing of cell phones with AT&T
Mobility LLC. The Agreement provided for arbitration of all
disputes between the parties, but contained a requirement
that claims be brought in the parties’ “individual capacity, and
not as a plaintiff or class member in any purported class or
representative proceeding.” The Agreement the Concepcions
entered into was for free phones, and while they did not pay
for the handset, they were required to pay US$30.22 in sales
tax based on its retail value. Failing to reach a suitable
settlement with AT&T, in March 2006, the Concepcions chose
to litigate.
So on March 2006, the Concepcions filed a complaint against
AT&T in the United States District Court for the Southern

3. District of California. They sought to consolidate this complaint
with a class action, declaring that “AT&T had engaged in false
advertising and fraud on the basis of the charged sales tax on
the free phones”.
However, in March 2008, AT&T responded to the claim
requesting to compel to arbitration clause under the above
mentioned terms of the Agreement. The Court of Appeals for
the Ninth Circuit held that the class action waiver contained in
the agreement was unconscionable and violated the California
Statute governing contracts. So the District court denied
AT&T’s motion to adhere to the clause as invalid and of no
effect, therefore not barring the class action to be heard by
the court. In response, AT&T appealed to the Supreme Court
stating that the Federal Arbitration Act (FAA) preempts state
law and that the Ninth Circuit judgment be reversed. The
Supreme Court gave it full consideration (granted certiorari).
Image courtesy of Jeff Kubina at Flickr.com

4. The Court rejected the Concepcions’ argument and upheld the
arbitration provision; stating that, as AT&T argued, the FAA
preempts state law. It said that the purpose of the FAA
(enacted in 1925) is to ensure the enforcement of arbitration
agreements as a means of promoting arbitration and ensuring
that private arbitration agreements are enforced to their
terms. The Court went on to quote FAA’s text Section 2, which
makes arbitration agreements “valid, irrevocable and
enforceable” as written, and the courts therefore must keep
litigation of arbitral claims pending arbitration in accordance
with the terms of the agreement, and must also compel
arbitration upon motion of either party of the agreement.
Therefore, the availability of classwide arbitration, contrary to
the Concepcions’ suggestion, would interfere with
fundamental attributes of arbitration and thus contradict the
FAA.
In this case, the Court reversed the Ninth Circuit ruling. Setting
a precedent in which it allows parties to agree whatever
arbitration clause they wish and, since the FAA is a federal law,
it prevailed over the (in this case) Californian law which would
otherwise have made the clause invalid.
The case was a stepping stone for many companies to follow
AT&T’s example and started adding arbitration provisions to
their consumer contracts. According to a September 2011 CNN
article, a Sony spokesperson said that Sony added an
arbitration clause to its PlayStation Network terms of service
because "the Supreme Court recently ruled in the AT&T case
that language like this is enforceable".
Other companies reported to have added arbitration
provisions to their consumer contracts after “The Concepcion
Case” includes, Microsoft, Netflix, Umpqua Bank, Valve, eBay,
PayPal, Instagram and StubHub.