Washington Law on Class Action Waivers, Unconscionability Preempted by Federal Law

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Coneff v. AT&T, 9th Cir., No. 09-35563, 3/16/12


Key Holding: Under the Supreme Court's ruling in AT&T v. Concepcion, Washington case law holding class action waivers in arbitration clauses to be unconscionable is preempted by the Federal Arbitration Act.

Potential Impact: Putative class action plaintiffs are not faring well in attempting to argue around AT&T v. Concepcion.

Under the U.S. Supreme Court's recent ruling in AT&T v. Concepcion, an AT&T Mobility contract requiring arbitration of disputes and prohibiting both class actions and class arbitrations is enforceable despite its substantive unconscionability under Washington law, the U.S. Court of Appeals for the Ninth Circuit ruled March 16, reversing (Coneff v. AT&T, 9th Cir., No. 09-35563, 3/16/12).

Judge Susan P. Graber rejected the plaintiffs' efforts to argue around Concepcion. Concepcion held that the Federal Arbitration Act prohibits states from conditioning the enforceability of arbitration provisions on the availability of classwide arbitration, 131 S.Ct. 1740, 79 U.S.L.W. 4279 (2011).

The plaintiffs, urging the court to uphold the district court's refusal to enforce the contract, argued that this case was distinguishable because it:

  • arose under Washington law, which they said is more narrow; and
  • fell within an exception in Concepcion for invalidation of waivers that preclude effective vindication of statutory rights.

The unanimous court was unpersuaded, noting that the Eleventh Circuit rejected similar arguments under Florida law in Cruz v. Cingular Wireless LLC, 648 F.3d 1205 (11th Cir. 2011) (80 U.S.L.W. 189).

The court remanded the case, directing the U.S. District Court for the Western District of Washington to explore whether the formation of the contract was procedurally unconscionable. The court must first determine, applying Washington choice-of-law rules, what state law applies. If Washington law applies, the court noted in a footnote that Washington law is unsettled on whether procedural unconscionability, standing alone, is sufficient to invalidate a contract.

Contract Similar to Concepcion.

The district court, relying on Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009) (78 U.S.L.W. 1263), held that the FAA, at 9 U.S.C. §§1-16, does not preempt state unconscionability law pertaining to class action waivers in arbitration clauses.

Concepcion reversed that holding, and concluded that the FAA preempts California's judge-made rule classifying collective-arbitration waivers in consumer contracts as unconscionable.

Concepcion is broadly written, and applied here, the court concluded.

The plaintiffs argued that Concepcion is in tension with other Supreme Court holdings requiring arbitration of statutory rights only if a prospective litigant “effectively may vindicate” those rights, looking to Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000).

Green Tree observed that large arbitration costs could preclude litigants from effectively vindicating their rights. The plaintiffs here argued that this tension should be resolved by reading Concepcion narrowly, to include a carveout that permits state law to invalidate class action waivers when they preclude effective vindication of statutory rights.

According to the plaintiffs, because the costs of arbitration would exceed the value of their claims, they could not effectively vindicate their rights via arbitration.

“We do not read Concepcion to be inconsistent with Green Tree and similar cases[,]” the court said.

Significantly, this contract, like the one in Concepcion, included a number of fee-shifting and consumer-friendly provisions, the court found. Cruz rejected the same argument, the court noted.

And even if Concepcion was inconsistent with prior precedent, its rule would control.

Washington Law Preempted, Too.

The plaintiffs next argued that the Washington Supreme Court's rule on unconscionability of class action waivers, announced in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), is meaningfully different from California's rule.

Class action waivers are only unconscionable under Washington law on a case-by-case, evidence-specific finding of exculpation, the plaintiffs argued.

“Essentially, Plaintiffs argue that Concepcion would not apply to a sufficiently narrow, fact-based state-law rule for voiding class-action waivers[,]” the court surmised.

The court disagreed with that argument, noting that it has found the concerns underlying those two states' rules “almost identical,” in Lowden v. T-Mobile USA Inc., 512 F.3d 1213 (9th Cir. 2008).

“In conclusion, Concepcion controls, the FAA preempts the Washington state law invalidating the class-action waiver, and we reverse the district court's conclusions regarding preemption and substantive unconscionability.”

The plaintiffs were represented by F. Paul Bland and Leslie A. Bailey, Public Justice, Washington, D.C., and Oakland, Calif., respectively. Evan M. Tager, Mayer Brown LLP, Washington, D.C., represented the defendants.

Full text at http://pub.bna.com/eclr/09cv35563_31612.pdf.

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