Carlton Fields

On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.

Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.

Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)

This post written by John Black.

Kevin Imhoff left his job as a broker for Primerica, for whom he sold various securities and insurance products, to go work for a competitor. He sued Primerica in state court, alleging that they harmed his relationship with his clients and with AIG (one of the insurance companies whose products he sold), as a result of various communications Primerica sent announcing his departure. Primerica filed a petition in federal court seeking to compel arbitration under FINRA. Imhoff conceded he agreed to arbitrate certain disputes, as set forth in his FINRA registration, but that the dispute pertaining to his sale of insurance products was exempt from arbitration by FINRA Rule 13200. The Court rejected this claim, narrowly construing Rule 13200’s exception for “insurance related claims,” which states that “disputes arising out of insurance business activities of a member that is also an insurance company are not required to be arbitrated under FINRA,” and finding that it does not encompass employment disputes, but rather only “intrinsically insurance” claims. The Court compelled arbitration of all claims. PFS Investments, Inc. v. Imhoff, No. 11-10142 (USDC E.D. Mich. March 25, 2011).

This post written by John Pitblado.