By S.I. Strong
In an opinion that was seen as a victory for corporate America, the Supreme Court upheld the waiver on the grounds that the California law was inconsistent with the FAA. As a result, the Concepcions could not initiate class proceedings and were required to have their dispute heard in individual arbitration.
On its face, the opinion presents itself as a run-of-the-mill statutory analysis. However, the underlying sense is that the justices in the majority view arbitration in an entirely different manner than the justices in the dissent. This is a critical issue for the arbitration community and one that I discuss at length in an upcoming article entitled “Does Class Arbitration ‘Change the Nature’ of Arbitration? Stolt-Nielsen, AT&T and a Return to First Principles,” which will be published in volume 17 of the Harvard Negotiation Law Review (a working draft is currently available on SSRN).
The majority opinion begins by focusing on its claim that the purpose of the FAA “is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” AT&T Mobility, 131 S.Ct. at 1748. However, the last portion of the majority’s sentence – “so as to facilitate streamlined proceedings” – is highly problematic, since it suggests that speedy and simplistic procedures are in some way necessary to the arbitral process. Indeed, Justice Breyer himself notes that the majority’s view “rests primarily upon its claims that the Discover Bank rule increases the complexity of arbitration procedures, thereby discouraging parties from entering into arbitration agreements, and to that extent discriminating in practice against arbitration.” Id. at 1758 (Breyer, J., dissenting). However, there is nothing in the FAA or in nearly a century’s worth of Supreme Court precedent to support that reading of the statute or that understanding of the nature of arbitration. See id. at 1761 (Breyer, J., dissenting). Instead, parties have long been permitted to agree to a wide variety of procedures in arbitration, even if that will result in the slow, costly or inefficient resolution of disputes.
This interchange reflects two different views of arbitration: one that believes that “arbitration,” properly understood, can only mean one thing – simple, informal, bilateral proceedings – and one that recognizes the procedural flexibility inherent in arbitration. This dichotomy was also reflected in Stolt-Nielsen SA v AnimalFeeds International Corp., 103 S.Ct. 1758 (2010), and is an issue that I discuss at length in the First Principles article to be published in the Harvard NLR. Although I will not outline all of the issues covered in that article here, I will note that one of the key points of that analysis is that “virtually all authorities would accept that arbitration is a process by which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedures affording the parties an opportunity to be heard.” Gary B. Born, International Commercial Arbitration 217 (2009). Notably, there is nothing in this definition of arbitration – which appears to be the one adopted by Justice Breyer and the other dissenting justices, see AT&T Mobility, 131 S.Ct. at 1759 (Breyer, J., dissenting) – that requires speed, simplicity or a particular procedure.
Therefore, the question of the fundamental nature of arbitration is not just an academic issue. Instead, it is central to the outcome of AT&T Mobility. If class arbitration is viewed as a legitimate type of arbitration, then the FAA is in no way thwarted by the California law deeming certain waivers unconscionable. Even if a California court were to strike a particular waiver as unconscionable, the decision would nevertheless still uphold “arbitration,” because individual and class arbitration are both equally valid forms of arbitration. Only those who believe that individual and class arbitration are in some way unequal have difficulty with the California provision, since the striking of the waiver could result in a class proceeding which is, of course, not considered “arbitration.”
Although this is an extremely important point, very little has been written, academically or judicially, about the jurisprudential nature of class arbitration, an oversight that I attempt to cure in my upcoming First Principles article. The majority in AT&T does not engage with the issue, leading Justice Breyer to note that the majority does not explain how it arrives at the conclusion “that individual, rather than class, arbitration is a ‘fundamental attribut[e]’ of arbitration.” Id. at 1759 (Breyer, J., dissenting). Instead, the majority’s cursory and somewhat conclusory discussion relies simply on a number factual and legal allegations that appear, on closer inspection, to be either unsupported or unsupportable.
For example, the majority suggests that it might have come out differently on certain issues if it could be established that “parties are willing to submit large claims before an arbitrator.” Id. at 1752 n.8. In fact, arbitration routinely handles very large disputes, as outlined in detail my First Principles article and noted by Justice Breyer. Id. at 1760 (Breyer, J., dissenting).
Furthermore, Justice Scalia interprets several precedents in what can only be termed a highly unusual way. For example, he cites the seminal case of Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), to support the allegation that “parties may agree to limit the issues subject to arbitration,” AT&T, 131 S.Ct. at 1748, even though Mitsubishi has long been understood to have expanded, rather than restricted, the realm of arbitrable issues. See Mitsubishi, 473 U.S. at 625-26.
Justice Scalia also demonstrates a fundamental misunderstanding of class arbitration when he suggests that class treatment arises when “any party to a consumer contract . . . demand[s] it ex post.” AT&T, 131 S.Ct. at 1750. As Stolt-Nielsen indicated just last term, class arbitration requires all parties to have consented to the procedure (i.e., in cases where “the parties agreed to authorize class arbitration,” Stolt-Nielsen, 130 S.Ct. at 1776), although that consent may be demonstrated implicitly. Thus, when the parties have not “reached any [explicit] agreement on the issue of class arbitration, the arbitrators’ proper task [is] to identify the rule of law that governs in that situation,” which in Stolt-Nielsen would have required reference “either to the FAA itself or to one of the two bodies of law that the parties claimed were governing, i.e., either federal maritime law or New York law.” Id. at 1768; see also S.I. Strong, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Mich. J. Int’l L. 1017, 1059-83 (2009).
[This is the second installment in a three-part series on the Guest-Post: States’ Rights, Big Business and the Nature of Arbitration: AT&T Mobility LLC v. Concepcion. Read part One here and Three here.]
S.I. Strong is currently Associate Professor of Law at the University of Missouriand Senior Fellow at the award-winning Center for the Study of Dispute Resolution, having previously taught law at the University of Cambridge and the University of Oxford in the United Kingdom. Prior to joining the faculty at Missouri, Dr Strong was Counsel specializing in international dispute resolution at Baker & McKenzie LLP and a dual-qualified practitioner (U.S.-England) in the New Yorkand London offices of Weil, Gotshal & Manges LLP. Dr Strong has acted in arbitral proceedings under a wide range of institutional rules and is listed as a neutral on various national and international rosters. Dr Strong is the author of numerous works on international arbitration, including the award-winning article, The Sounds of Silence: Are U.S. Arbitrators Creating Internationally Enforceable Awards When Ordering Class Arbitration in Cases of Contractual Silence or Ambiguity? 30 Michigan Journal of International Law 1017 (2009), as well as the books Research and Practice in International Commercial Arbitration: Sources and Strategies (2009) and Class Arbitration and Collective Arbitration: Mass Claims in the National and International Sphere (forthcoming), both from Oxford University Press. Dr Strong, who is qualified as a lawyer at the New York and Illinois bars and as a solicitor of the Supreme Court of England and Wales, holds a Ph.D. in law from the University of Cambridge, a D.Phil. from the University of Oxford, a J.D. from Duke University, an M.P.W. from the University of Southern California and a B.A. from the University of California.