131 S. Ct. 1740 (2011)
In February 2002, Vincent and Liza Concepcion entered into an agreement for the sale and servicing of cellular telephones with AT&T Mobility LLC.1 The contract provided for arbitration of all disputes between the parties but required that claims be brought in the parties' individual capacity and not as a plaintiff or class member in any purported class or representative proceeding.2 The agreement authorized AT&T to make unilateral amendments, which it did to the arbitration provision on several occasions. The parties agree that the December 2006 revisions control.3
The revised agreement requires customers to complete a one-page Notice of Dispute form. It allows AT&T to offer settlement. It provides that AT&T must pay all costs for nonfrivolous claims. Arbitration must take place in the county where the customer is billed. For claims of $10,000 or less, the customer may choose in-person, telephone, or submission-based proceedings. The agreement preserves the right to bring claims in small claims court. It requires AT&T to pay a $7,500 minimum recovery plus twice the claimant's attorney's fees if the arbitration award exceeds AT&T's last written settlement offer.4
The Concepcions purchased AT&T service advertised as including free phones but were charged $30.22 in sales tax based on the phones' retail value.5 In March 2006, the Concepcions filed a complaint against AT&T in the United States District Court for the Southern District of California.6 Their suit was consolidated with a putative class action alleging that AT&T had engaged in false advertising and fraud by charging sales tax on phones it advertised as free.7
In March 2008, AT&T moved to compel arbitration under the terms of its contract with the Concepcions.8 The Concepcions opposed the motion on the ground that the arbitration agreement was unconscionable under California law because it disallowed classwide procedures.9 The District Court denied AT&T's motion. It described the arbitration agreement favorably in several respects. Nevertheless, the court found the provision unconscionable under the California Supreme Court's Discover Bank decision because AT&T had not shown that bilateral arbitration adequately substituted for the deterrent effects of class actions.10
The Ninth Circuit affirmed. It also found the provision unconscionable under California law as announced in Discover Bank. The court held that the Discover Bank rule was not preempted by the Federal Arbitration Act because the rule was simply a refinement of the unconscionability analysis applicable to contracts generally in California.11 The Supreme Court granted certiorari.12
Whether the Federal Arbitration Act prohibits States from conditioning the enforceability of arbitration agreements on the availability of classwide arbitration procedures?13
Section 2 of the Federal Arbitration Act makes agreements to arbitrate valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract, reflecting a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract, so that courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.14
Yes. The Discover Bank rule conditions the enforceability of arbitration agreements on the availability of classwide arbitration procedures.15 In the established facts the contract between the Concepcions and AT&T required claims to be brought in individual capacity and not as a plaintiff or class member in any purported class or representative proceeding.16 The District Court denied the motion to compel arbitration by applying the Discover Bank rule after finding the provision unconscionable because AT&T had not shown that bilateral arbitration adequately substituted for the deterrent effects of class actions.17
The Ninth Circuit affirmed that holding and concluded the rule was not preempted because it was merely a refinement of the unconscionability analysis applicable to contracts generally in California.18 This application of state law disfavors arbitration by requiring class procedures that the parties never consented to in their agreement and that interfere with the streamlined bilateral proceedings the contract contemplated.19
The Federal Arbitration Act prohibits States from conditioning the enforceability of arbitration agreements on the availability of classwide arbitration procedures.20
Whether California's Discover Bank rule is a ground that exists at law or in equity for the revocation of any contract under Section 2 of the Federal Arbitration Act?21
The saving clause of section 2 permits arbitration agreements to be invalidated by generally applicable contract defenses such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.22
No. Although the Discover Bank rule originates in California's generally applicable unconscionability doctrine, it is applied in a manner that disfavors arbitration by conditioning enforceability on classwide procedures.23 In the established facts the Concepcions opposed the motion to compel arbitration solely on the ground that the agreement was unconscionable under Discover Bank because it disallowed classwide procedures.24 The District Court and Ninth Circuit accepted that argument even while acknowledging the agreement's favorable features such as the $7,500 premium and cost-free nonfrivolous claims.25 Because the rule effectively requires class arbitration that the parties' contract never authorized, it is not a ground that exists for the revocation of any contract within the meaning of section 2.26
California's Discover Bank rule is not a ground that exists at law or in equity for the revocation of any contract under Section 2 of the Federal Arbitration Act.27
Related opinions on this issue
Justice Thomas concurs in the judgment. He would interpret section 2 of the Federal Arbitration Act to require enforcement of an arbitration agreement unless a party challenges its formation on grounds such as fraud or duress.28 Under that reading the Discover Bank rule does not relate to defects in the making of an agreement and therefore cannot supply a ground for revocation.29
The California Supreme Court refused enforcement on the ground that the waivers operated to insulate a party from liability under public policy.30 The rule therefore falls outside the subset of defenses preserved by section 2 when read in light of section 4.31 He joins the majority opinion only because it often reaches the same result and supplies needed guidance to lower courts.32
Whether the Discover Bank rule stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the Federal Arbitration Act?33
A state law that stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress is preempted, and the overarching purpose of the Federal Arbitration Act is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate informal, streamlined proceedings.34
Yes. The Discover Bank rule stands as an obstacle because it permits any party to a consumer contract to demand classwide arbitration after the fact even though the agreement requires individual proceedings.35 In the established facts the contract authorized unilateral amendments and the December 2006 version controlled, yet the lower courts used Discover Bank to override the individual-capacity requirement.36 Class arbitration sacrifices the informality and efficiency of bilateral arbitration, introduces procedural complexity such as class certification and notice to absent parties, and greatly increases risks to defendants by aggregating claims without the multilayered review available in litigation.37
These effects conflict with the Federal Arbitration Act's objective of streamlined, consensual dispute resolution.38
The Discover Bank rule stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the Federal Arbitration Act.39
Related opinions on this issue
Joined by Ginsburg, Sotomayor, Kagan
Justice Breyer dissents. He contends that the Discover Bank rule reinforces rather than obstructs the Act's objectives because class arbitration can be more efficient than thousands of separate individual proceedings and because the rule imposes equivalent limitations on litigation.40 Weighing the advantages and disadvantages of class proceedings is a decision properly left to the States when the rule applies equally to arbitration and judicial contracts.41
The rule is consistent with the language and primary objective of the Federal Arbitration Act because it applies equally to class-action waivers in litigation and arbitration contracts.42 Congress did not intend to displace state unconscionability doctrines that treat arbitration and litigation alike.43