In a decision with broad application, the Supreme Court held last Wednesday that the Federal Arbitration Act preempts state law rules that classify class action waivers in consumer contracts as unconscionable and therefore unenforceable.  The holding in AT&T Mobility LLC v. Concepcion, No. 09-893 (April 27, 2011) sweeps away a major barrier to enforcing arbitration agreements between businesses and consumers that had been erected by judicial decisions in California and several other states. The Supreme Court has made clear that where a consumer has entered into a contract that contains an arbitration provision, that consumer must submit to arbitration any dispute that falls within the scope of that agreement – even where the arbitration provision contains the type of class action waiver that many states had previously disfavored as unconscionable.

The Supreme Court’s decision may have significant implications for web publishers, many of whom require users to agree to arbitration of claims arising out of terms of use and/or privacy policies as a condition of using their sites.  For instance, courts in California–whose law was specifically at issue in AT&T Mobility–had taken the approach that the presence of a class action waiver in an arbitration clause was almost sure to render the clause unconscionable and unenforceable.  Some cases in California that have considered whether arbitration clauses in “clickwrap” agreements are enforceable have relied heavily on California’s law regarding class waivers.  Those decisions no longer appear to state good law after AT&T Mobility. 

For more information about the AT&T Mobility decision, please see our Client Alert.