Thursday, May 05, 2011
AT&T's Long Game on Unconscionability
Thanks to the Prawfs team for inviting me back to guest blog. I'll plan to blog on recent Supreme Court cases, my current scholarly projects, and other miscellaneous topics.
Last week the Supreme Court decided AT&T Mobility v. Concepcion, which held (5-4) that the Federal Arbitration Act preempted a state-law unconscionability rule that deemed an arbitration clause's ban on class proceedings unconscionable. If you wanted this result, this case presented a favorable vehicle through which to reach it. As Justice Scalia emphasized in his majority opinion, the arbitration clause at issue here had a number of interesting pro-consumer features: AT&T would pay the arbitration costs, the arbitration would take place in the customer's county, AT&T would pay a $7500 minimum recovery plus double attorneys' fees if the arbitrator awarded more than AT&T's final settlement offer, etc. (One could genuinely question, as many have questioned, whether these features actually make individual arbitration of small claims viable in practice, but at least in relative terms this clause looks a lot better than those that strictly limit remedies, impose potentially high arbitration costs, and the like.) It seems likely to me that (1) these favorable facts helped the majority reach its preemption result and (2) now that this preemption holding is on the books, it will apply broadly, including to many less favorable clauses -- i.e., it seems preemption will be the rule rather than an exception. The vehicle matters to the development of the law.
And the vehicle probably wasn't an accident.
Those who have been following the issue know that the last decade or so has seen lots of cases in which various state and federal courts have found arbitration clauses (or restrictive aspects of them) unconscionable. The companies trying to enforce the clauses filed plenty of petitions for certiorari during that time asking the Supreme Court to slam the door on unconscionability challenges. They were all denied. One denial that, today, looks especially noteworthy came a few years ago in T-Mobile v. Laster. Laster was a lot like Concepcion. In fact, AT&T was initially T-Mobile's co-defendant in the case. T-Mobile filed a cert petition after the Ninth Circuit struck down its arbitration clause. The trade association filed an amicus brief in support. AT&T didn't seek certiorari, for they had given up back when they saw the writing on the wall in the Ninth Circuit. Indeed, AT&T filed an amicus brief telling the Court not to review the case! (Briefs available here.) My (second-hand, hearsay) understanding is that this move made AT&T's attorneys very unpopular at cocktail parties for a while. AT&T's argument in the brief, though they don't put it this way, was essentially that the arbitration clause that had been struck down really wasn't that great. But it told the Court that it had developed a brand new arbitration clause that was so amazingly consumer-friendly that if any court struck it down, such a ruling would have to be preempted because it would represent a per se bar against class waivers even when consumers could profitably pursue individual arbitration. The new clause would make for a much less messy case, which the Court would probably welcome given the difficulty of reviewing state unconscionability rulings. Concepcion involved the clause AT&T had promised.
Perhaps this is just another illustration of the way a sophisticated repeat player can fashion a long-term litigation strategy in which it sacrifices some cases and waits for the right set of facts to develop. This is something that civil rights groups have done effectively in various instances. But it is also worth remembering that, like the tango, a long-term litigation strategy takes two. The Supreme Court's docket is discretionary, so it too can wait for the right vehicles in which to make law. By providing some key information at a critical time, AT&T might have helped the Court advance the Court's agenda, not just AT&T's.
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Great post Aaron! I look forward to your other thoughts, including your current research projects!
Posted by: Sergio Campos | May 5, 2011 11:16:50 AM
Great post, as always. I'm curious, though: do you really see this as a "two to tango" story or more of a case of AT&T going out of its way to force an issue down the Court's throat? Concepcion must have been an extraordinarily difficult opinion to write. Even putting aside the fact that Justice Scalia doesn't believe that the FAA preempts state law, as a staunch federalist I'm sure he didn't want to seem to be second-guessing whether California courts were faithfully applying their own contract law. (Notably, the specifics of AT&T's clause barely factor into the opinion). Similarly, Justice Thomas ties himself in knots explaining how he'd reach the same result by applying the FAA's text (instead of purposes and objectives preemption). I totally agree that the five Justices in the majority want to limit class actions and curb what they probably see as lower courts' abuse of unconscionability principles. I just think that Concepcion probably wasn't as good as a vehicle from their perspective than, say, a case that teed up the pure issue of whether unconscionability relates to the "making" of the arbitration clause under section 4.
Posted by: David Horton | May 5, 2011 11:58:20 AM
Good points, David. How about this, to continue with the dance metaphor: One person leads (here AT&T), but to succeed one needs a competent and cooperative partner. The Court would like to do something about what it would perceive as an epidemic of unconscionability rulings. But it is having trouble doing so for the federalism and administrability reasons you mention and about which I have written at length elsewhere (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1114977). So, it has a problem because an obstacle stands in front of its goal.
What to do? I suppose the Court could have kept denying cert (which equals leaving the dance floor?). Or it could have screwed up (stepped on its partner's feet?) by taking a case in which it would end up coming out the anti-FAA direction (such as a case from a state court, or a case that required a deeper case-specific engagement with the facts and the details of state law, etc.) I think that a pro-state-law result really was possible, by the way, precisely because of the competing values here. In a different case (or even in this one), the FAA's long winning streak could have come to an end. But AT&T (and all the amici that joined them at the cert stage -- the Chamber of Commerce et al.) gave the signal that this was the time to dance, and the Court followed the lead?
You're quite right that AT&T was in the lead here. I don't think the Court had this all orchestrated years ago.
Posted by: Aaron Bruhl | May 5, 2011 2:42:31 PM