Executive Summaries » Has the Supreme Court Cleared the Tracks for Mandatory Arbitration in Consumer Contracts?

Has the Supreme Court Cleared the Tracks for Mandatory Arbitration in Consumer Contracts?

March 15, 2013

Bilateral arbitration clauses (clauses that require arbitration and waive class proceedings), which have become common in standard consumer and employment contracts, have been targeted by class action lawyers and consumer groups. In the past two terms, the Supreme Court bolstered private arbitration of consumers’ and employees’ commercial disputes. In 2011, AT&T Mobility LLC v. Concepción rejected the argument that a class waiver in a service contract’s arbitration provision was “unconscionable” because only a class action could vindicate small-value consumer claims.

Nevertheless, consumers continue to challenge arbitration agreements on a number of grounds, some of which might find their way to the Supreme Court for another round. Plaintiffs have attempted to identify distinctions between the California law that the Federal Arbitration Act preempted in Concepción and other state laws. They have also attacked arbitration agreements at the contract formation level. Some lower courts have held arbitration provisions unenforceable owing to provisions allowing the contracts to be changed without notice.

Congress could reverse the Supreme Court’s pro-arbitration jurisprudence by passing legislation to curtail the Court’s broad interpretation of the FAA. Several bills were introduced post-Concepción but stalled in committees.

The Court’s interpretation of the FAA and corresponding support of agreements to forgo the courthouse in favor of a private arbitral forum seem unwavering. Nevertheless, plaintiffs have been persistent and creative in attacking arbitration agreements. It seems unlikely that the matter is settled.

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