United States: Supreme Court Docket Report - May 24, 2010

Originally published May 24, 2010

Keywords: Federal Arbitration Act, preemption, Concepcion, arbitration agreement, National Traffic and Motor Vehicle Safety Act

Today the Supreme Court granted certiorari in two cases of interest to the business community:

• Federal Arbitration Act—Preemption of State Law
• Federal Preemption of State-Law Claims—The National Traffic and Motor Vehicle Safety Act

Federal Arbitration Act—Preemption of State Law

Today, the Supreme Court granted certiorari in AT&T Mobility LLC v. Concepcion, No. 09-893, to decide whether the Federal Arbitration Act (FAA) preempts states from conditioning the enforcement of an arbitration agreement on the availability of class-wide procedures, when those procedures are not necessary to ensure that the parties to the agreement are able to vindicate their claims fairly and effectively. Mayer Brown LLP represents petitioner AT&T Mobility LLC (ATTM) in this matter.

Under the FAA, arbitration agreements must be enforced according to their terms, unless they are invalid under generally applicable state-law principles. The plaintiffs in Concepcion sought to bring a putative class action against ATTM, alleging that the company violated California consumer protection laws when, pursuant to California law, it charged sales tax on the full retail value of phones it offered for free as part of transactions bundled with wireless service. ATTM moved to compel the Concepcions to arbitrate their disputes on an individual basis in accordance with their service agreements. The district court found that "a reasonable consumer may well prefer [ATTM's] quick informal resolution with likely full payment over class litigation that could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars." But it nonetheless denied ATTM's motion, concluding that the arbitration agreement was unconscionable under California law and its policies favoring class actions. 

The Ninth Circuit affirmed. The panel recognized that ATTM's arbitration agreement "essentially guarantees" that customers will receive make-whole relief. But it nonetheless agreed with the district court that the requirement that arbitration proceed on an individual basis is unconscionable under California law and that the FAA does not preempt that law. 

ATTM petitioned for certiorari, arguing that California's policy preference for class actions is preempted by the FAA when, as here, the arbitration provision prescribes alternative procedures that enable consumers to vindicate their rights fully on an individual basis. The petition explains that California's rule conditioning the enforcement of arbitration provisions on the availability of class arbitration amounts to a functional ban on consumer arbitration provisions because businesses would sooner abandon arbitration altogether than subject themselves to the risk of a class arbitration, with its magnified stakes yet sharply limited standard of judicial review.

This case is of great interest to any business that includes arbitration provisions in its agreements with customers or is considering doing so. The case will likely determine whether arbitration agreements that ensure that customers are able to fully vindicate their claims on an individual basis will be enforceable under the FAA notwithstanding state law and policies that favor the use of the class-action device.

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on July 15, 2010, and amicus briefs in support of the respondents will be due on August 16, 2010.

* * * * * * * * * *

Federal Preemption of State-Law Claims—The National Traffic and Motor Vehicle Safety Act

The National Traffic and Motor Vehicle Safety Act (Safety Act) requires the Secretary of Transportation to prescribe "motor vehicle safety standards." 49 U.S.C. § 30111(a). One such standard is former Federal Motor Vehicle Safety Standard (FMVSS) 208, titled "Occupant crash protection," which, as amended in 1989, permitted automobile manufacturers to install either lap-only or lap/shoulder seatbelts in certain rear seating positions in passenger vehicles. Today the Supreme Court granted certiorari in Williamson v. Mazda Motor of America, Inc., No. 08-1314, to decide whether the Safety Act or FMVSS 208 preempts a state common-law tort claim that a vehicle manufactured in 1993 was defectively designed because it lacked a lap/shoulder seatbelt in a rear seating position. 

The petitioners in Williamson sued Mazda in California state court, alleging that a passenger wearing a lap-only belt in a rear aisle seat was killed in an accident involving their 1993 Mazda MPV Minivan. Petitioners asserted various state-law claims, including, as relevant here, that Mazda acted negligently by failing to install a lap/shoulder belt in the passenger's seat. The trial court ruled that the claim was preempted. The California Court of Appeal affirmed, holding, in agreement with every other court to consider the question, that petitioners' claim conflicts with, and is therefore preempted by, FMVSS 208, because imposing state-law liability under petitioners' theory would frustrate the policies underlying the regulation, including safety objectives. The California Supreme Court denied review. Petitioners filed a petition for certiorari, and the United States Supreme Court requested the views of the Solicitor General, who recommended that the petition be granted. The Court agreed with the Solicitor General's recommendation.

Because all cars manufactured on or after September 1, 2007 must have lap/shoulder belts in all forward-facing rear seating positions, the question presented in this case has diminishing prospective importance. The Supreme Court's decision will nevertheless be important to automobile manufacturers, because it will determine whether state-law claims of the type at issue here may proceed in cases involving older vehicles. Depending on the preemption analysis employed by the Court, the decision could also prove significant to companies in other regulated industries. 

Mayer Brown is co-counsel for respondents. Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on July 15, 2010, and amicus briefs in support of the respondents will be due on August 16, 2010.

* * * * * * * * * *

Within the past week, the Supreme Court has also invited the Solicitor General to file briefs expressing the views of the United States in the following cases of interest to the business community:

Louisiana Safety Ass'n of Timbermen – Self Insurers Fund v. Certain Underwriters at Lloyd's, London, No. 09-945: The question presented is whether Chapter 2 of the Federal Arbitration Act is an "Act of Congress" subject to the anti-preemption provision of the McCarran-Ferguson Act.

Maxwell-Jolly v. Indep. Living Ctr. of S. Cal., No. 09-958: The questions presented are (1) whether Medicaid recipients and providers may maintain a cause of action under the Supremacy Clause to enforce Section 1396a(a)(30)(A) of the Medicaid Act by asserting that the provision preempts a state law reducing reimbursement rates and (2) whether a state law reducing Medicaid reimbursement rates may be held preempted by Section 1396a(a)(30)(A) based on requirements that do not appear in the text of the statute.

PLIVA, Inc. v. Mensing, No. 09-993; Actavis Elizabeth, LLC v. Mensing, No. 09-1039: The questions presented concern whether the Hatch-Waxman Amendments to the Food, Drug and Cosmetic Act preempt claims that generic drug manufacturers are liable under state law for failing to strengthen warnings in the labeling for generic drugs.

Please visit us at www.appellate.net.

Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, Mayer Brown JSM and/or Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. All rights reserved.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.