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AT&T Mobility Under Discussion

By Russ Bleemer and Charles S. Hwang December 1, 2010
The Nov. 9 oral argument in AT&T Mobility v. Concepcion, No. 09-893, centered on how California can apply unconscionability laws.

Andrew Pincus, a Washington, D.C., partner of Mayer Brown, said repeatedly in his argument for the petitioner wireless provider that Federal Arbitration Act Sec. 2 doesn’t mean that arbitration and litigation must be treated in the exact same way.

FAA Sec. 2 deals with validity and enforceability of an arbitration contract, backing ADR provisions’ use “save upon such grounds as exist at law or in equity for the revocation of any contract”—the so-called savings clause that was at the heart of the case.

Pincus’s asked the Court to overturn the Ninth U.S. Circuit Court of Appeals’ unconscionability determination in Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009), to avoid grafting full litigation procedures into the arbitration setting—specifically, discovery.

That, argued Pincus, would hurt the FAA’s protections for expedited arbitration.

The state isn’t applying general principles of unconscionability, he argued. It is applying a three-pronged examination standard, according to Pincus: the existence of unconscionability at the time of the dispute, not at the contracting stage; the overall effect on third parties; and whether the arbitration provision shocks the conscience. Pincus said that California only deploys this standard in the context of the AT&T Mobility and Discover Bank cases.

Specifically, Pincus, in responding to the Court’s newest justice, Elena Kagan, said, “It is a doctrine that applies only in the context of class waivers. . . . If the State were to adopt a general statute that said, for unconscionability purposes henceforward we will look in assessing the unconscionability of every provision at third parties, at the impact on third parties and whether it’s fair to them, perhaps they could do that.”

Pincus urged the Court to review whether California had applied the three-pronged standard in other cases. “There are none,” said Pincus, “and that’s the problem.”

At the outset of the questioning of Deepak Gupta—attorney for the Concepcions, who is at the Public Citizen Litigation Group in Washington, D.C.—Chief Justice John G. Roberts Jr. used Pincus’s test, asking how California can analyze the effect on third parties to determine whether a class arbitration waiver is unconscionable.

Gupta responded that California has a history of looking to “the public effects[—] the effects of similarly situated people that are parties to the contract.” He mentioned an early 20th century banking contract case in which the contract’s fairness, he said, was judged by “the interests of the banking public.”

Roberts rejected Gupta’s analysis:

 

Well, it’s a general rule of contract law that contracts contrary to public policy could be unenforceable. It seems to me that’s quite different than saying we’re worried about third parties that are in the same position as these particular parties. In other words, it’s not simply adverse public consequences, but it’s a different mode of analysis than I’m familiar with under basic contract law.

Under questioning from Associate Justice Ruth Bader Ginsburg, Gupta said the Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (April 27, 2010), rule banning class arbitrations unless the parties agreed doesn’t apply.

AT&T Mobility “has specified in its arbitration agreement that if the class-action ban is invalidated, it would prefer to face any class-wide proceedings in court,” Gupta told Ginsburg, “and that choice is up to the defendant. . . . California law doesn’t impose any particular procedures on the party. It just insists that in circumstances where the ban would function as an exculpatory clause, that there is some avenue for class-wide proceedings, where claims wouldn’t feasibly be litigated individually.”

In his rebuttal, Andrew Pincus rejected, among other things, Deepak Gupta’s argument about public interest in a case for analyzing unconscionability. California case law focused on matters “in which public services are being performed and that are otherwise imbued with a public interest,” said Pincus. “It’s not looking at all at the effects on third parties.”


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