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In what was a putative class action, a federal court recently applied the U.S. Supreme Court’s Concepcion decision and compelled arbitration on an individual basis, despite the potential prohibitive costs of asserting claims individually. A putative consumer class action was brought against AT&T Mobility by a plaintiff who had agreed to arbitrate disputes only on an individual basis – and not as a class action. The plaintiff initially prevailed in avoiding arbitration, relying on California law. Prior to class certification, however, the U.S. Supreme Court decided the Concepcion case, which held the FAA preempts state laws that preclude class action waivers. Arguing that Concepcion conflicts with the court’s initial decision in this case, AT&T renewed its motion to compel arbitration. The court granted AT&T’s motion, rejecting plaintiff’s argument that Concepcion should only be applied where arbitration on an individual basis would be cost effective, i.e., where the plaintiff had substantial individual claims. The court was not persuaded by the plaintiff’s citation to an earlier Supreme Court ruling and a Second Circuit decision predating Concepcion, and noted that plaintiff’s position that a court should conduct a case-by-case cost-benefit analysis was “unworkable.” Kaltwasser v. AT&T Mobility LLC, Case No. 5:07-cv-00411 (N.D. Cal. Sept. 20, 2011).

This post written by Michael Wolgin.

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Trustmark Insurance Company challenged in court the impartiality of John Hancock Life Insurance Company’s party-selected arbitrator. As we have reported at each stage, Trustmark’s challenge lost at the district court, lost in the Seventh Circuit, and was denied review by the U.S. Supreme Court. Trustmark then filed a second amended complaint, in an attempt to avoid the issues it lost on appeal, including new fraud allegations. Trustmark also brought a Rule 60(b)(3) motion for relief from the court’s original order, based on alleged fraud by the opposing party. The court dismissed the new claims in the second amended complaint and denied the 60(b)(3) motion, finding it time-barred. Trustmark Ins. Co. v. John Hancock Life Ins. Co., No. 1:09-cv-03959 (USDC N.D. Ill. Nov. 15, 2011).

This post written by John Pitblado.

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A purchaser filed a putative state class action against a car dealer alleging state law violations related to the sale of automobiles. The car dealer filed a motion to compel arbitration pursuant to a provision in the sales contract, which also contained a class action waiver. The trial court determined that the class action waiver was unenforceable, and, based upon this denial, a “poison pill” clause in the contract went into effect making the entire arbitration provision unenforceable. The trial court’s invalidation of the class arbitration waiver provision arguably could not stand in light of the US Supreme Court’s recent decision in AT&T Mobility LL v. Concepcion, 131 S.Ct. 1740 (2011). However, the Court of Appeals affirmed based upon another ground, that the arbitration provision itself was a product of adhesion and unequal bargaining power and hence unconscionable. The court found that Concepcion preserved the ability of state courts to invalidate entire arbitration provisions on the basis of unconscionability. However, the California “Discover Bank rule” disapproved by the Supreme Court in Concepcion was premised on a conclusion that the class arbitration waiver was the product of adhesion, and the Supreme Court found that justification insufficient to overcome the objectives of the Federal Arbitration Act. The Sanchez court’s invalidation of the entire arbitration provision on the same ground may raise a question as to whether this decision is consistent with the principles articulated by the Supreme Court in Concepcion. Sanchez v. Valencia Holding Co., LLC, No. BC433634 (Cal. Ct. App. Oct. 24, 2011). The Court of Appeals granted a petition for rehearing and issued a modified opinion affirming the lower court’s decision. In the new opinion, the Court of Appeals emphasized that unconscionability itself survived the Concepcion ruling, and that here, the unconscionability permeated the entire agreement with numerous unconscionable clauses. Again, the Court of Appeals took pains to limit the scope of the Supreme Court’s Concepcion opinion. Sanchez v. Valencia Holding Co., LLC, B228027 (Cal. Ct. App. Nov. 23, 2011).

This post written by John Black.