Coneff v. AT&T Corp.: Ninth Circuit Holds that FAA Preempts Oregon Analog of Discover Bank

In Coneff v. AT&T Corp., --- F.3d --- (3/16/12), the plaintiffs were AT&T customers from a number of states who filed a putative consumer class action. AT&T responded by moving to enforce the individual arbitration agreement contained in its contracts with the plaintiffs. The district court (W.D.Wa., Judge Ricardo S. Martinez) refused to enforce the arbitration agreement, finding that the agreement was substantively unconscionable under Washington law, primarily because of the agreement’s class-action waiver provision. AT&T appealed.

The Ninth Circuit reversed the district court’s substantive unconscionability ruling and remand for further proceedings related to the plaintiffs’ procedural unconscionability claims.

The Court began by reviewing Concepcion, which the Supreme Court issued after the district court opinion below. The Court then considered the plaintiffs' argument that Concepcion conflicts with earlier Supreme Court cases that require arbitration of statutory rights only if a prospective litigant “effectively may vindicate” those rights in the arbitral forum. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90 (2000) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985). The Court rejected the idea that Concepcion "permits state law to invalidate class-action waivers when such waivers preclude effective vindication of statutory rights." Slip op. at 3147.

The Court next held that the FAA preempts Washington state law on substantive unconscionability, like the "Rule of Discover Bank" addressed in Concepcion. Finding that the two concepts are based on the same public policy foundations, the Court held that "if California’s substantive unconscionability rule is preempted by the FAA, then so is Washington’s similarly reasoned rule." Slip op. at 3150.

Finally, the Court rejected the plaintiffs' argument that "class-action waivers are unconscionable under Washington law only on a case-by-case, evidence-specific finding of exculpation." Slip op. at 3150. Concepcion, the Court held, "forecloses this argument." Ibid.

The Court then addressed what it called the plaintiffs' procedural unconscionability argument.

As noted above, Plaintiffs also allege procedural unconscionability, an inquiry for which Concepcion gives little guidance beyond a recognition of the doctrine’s continued vitality. See 131 S. Ct. at 1750 n.6 (“States remain free to take steps addressing the concerns that attend contracts of adhesion—for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted.”) 

Slip op. at 3151. Noting that the plaintiffs hail from different states, the Court remanded to the district court to consider the plaintiffs' procedural unconscionability claims under Washington's choice of law rules.

The opinion is available here.