HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.
![handle is hein.crs/goveqpy0001 and id is 1 raw text is: Con gressional Research Service
Informing the IegisI9tive debate since 1914
September 13, 2024
The Federal Arbitration Act and Class Action Waivers
Arbitration agreements have become ubiquitous and are
used in a wide range of contexts, including business-to-
business contracts, employment contracts, collective
bargaining agreements, and consumer contracts. For
example, arbitration agreements can be found in contractual
terms of service for credit cards, cell phones, online
retailers, social media platforms, and ridesharing apps, as
well as in warranty terms printed on product packaging.
Arbitration agreements typically waive the parties' right to
litigate disputes in court and instead require them to submit
disputes to a neutral third party for a binding decision.
These arbitration agreements often contain a provision that
waives each party's right to bring claims in a class action
lawsuit or class action arbitration, limiting each party to
arbitrating the individual party's claims.
The Federal Arbitration Act (FAA; 9 U.S.C. §§ 1 et seq.)
generally makes covered arbitration agreements enforceable
in state and federal courts. This In Focus provides
background on arbitration and the FAA, and briefly
examines select Supreme Court decisions that address class
action waivers and the ability to arbitrate on a classwide
basis under the FAA.
Arbitration
The terms of an arbitration agreement can be customized to
address such issues as what types of disputes are subject to
arbitration, how the arbitrator or arbitrators are selected, the
location and format of the arbitral hearing, and the
procedural rules that will govern the proceeding.
Arbitral proceedings may differ from court proceedings in a
number of ways. First, arbitration is typically less formal
than litigating in court, although the specific procedures can
vary widely based on the choices the parties make in their
agreement. For example, whereas parties litigating in court
usually have to comply with formal rules of civil procedure
and evidentiary rules, arbitration agreements often forgo
application of such rules. The type and scope of fact
discovery permitted in arbitration also is often more limited
than that available in litigation. Second, whereas court
proceedings are generally open to the public and court
filings are usually publicly available, arbitration hearings
are usually private, and the parties may be contractually
obligated to keep the proceedings and arbitration award
confidential. Third, cases in court are often assigned at
random to generalist judges, but in arbitration the parties
may have a direct role in choosing the arbitrator who will
adjudicate the dispute, and parties often select arbitrators
with specialized experience. Also, whereas a trial court's
judgments are generally subject to review by an appellate
court with authority to correct erroneous rulings, arbitration
awards under the FAA are usually not reviewable by courts
except on very narrow statutory grounds that focus on
arbitrator misconduct rather than legal or factual errors.
The Federal Arbitration Act
Enacted in 1925, the FAA provides that written arbitration
agreements in a contract evidencing a transaction
involving commerce . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract. The Supreme
Court has explained that Congress enacted the FAA to
overrule the judiciary's longstanding refusal to enforce
agreements to arbitrate . . . and [to] place such agreements
upon the same footing as other contracts. Courts therefore
generally must rigorously enforce the agreements
according to their terms. Although the FAA's savings
clause permits courts to apply generally applicable
contract defenses such as fraud, duress, or
unconscionability to invalidate arbitration agreements, the
FAA preempts state laws that disfavor arbitration or
interfere with its fundamental attributes.
Arbitratdon Agreements and Class
Action Waivers
A class action is a procedure used to aggregate the claims
of numerous individuals or entities into a single litigation or
arbitration. In a series of sharply divided opinions, the
Supreme Court has interpreted the FAA as making class
action waiver provisions in arbitration agreements generally
enforceable, even when a plaintiff's claims for damages
might be too small to justify the expense of arbitrating on
an individual basis. The Court has also held that parties to
an arbitration agreement under the FAA may not be
compelled to arbitrate on a classwide basis unless the
agreement affirmatively provides for class procedures.
AT&T Mobility LLC v. Concepcion
In AT&TMobility LLC v. Concepcion, 563 U.S. 333
(2011), the Supreme Court held that the FAA preempted a
state from conditioning the enforceability of certain
arbitration agreements on the availability of classwide
arbitration procedures. Under a California judicial rule
established in Discover Bank v. Superior Court, 36 Cal.4th
148 (2005), courts applying California law often deemed
class action waiver provisions in standard-form consumer
contracts unconscionable and thus unenforceable. One of
the central concerns expressed by the California Supreme
Court in Discover Bank was that class action waivers could
thwart what the U.S. Supreme Court has identified as the
policy at the very core of the class action mechanism.
Whereas small recoveries do not provide the incentive for
any individual to bring a solo action prosecuting his or her
rights, a class action solves this problem by aggregating
the relatively paltry potential recoveries into something
worth someone's (usually an attorney's) labor. Applying](ViewImageLocal?handle=hein.crs/goveqpy0001&div=1&collection=&method=preview&ext=.png&size=3)