The Ninth Circuit recently relied on Concepcion to preempt state law and vacate a lower court’s denial of a motion to compel arbitration. See Mortensen v. Bresnan Communications, No. 11-35823 (9th Cir. July 15, 2013). Click here to see a copy of the opinion.
The plaintiffs in this case filed a class action in federal court against a commercial provider of internet services, and the defendant moved to compel arbitration. The lower court denied the defendant’s request because Montana law invalidates adhesion agreements that run contrary to the reasonable expectations of a party, and involuntary waivers of fundamental rights are contrary to the reasonable expectations of consumers. As explained by the Ninth Circuit, Montana law requires waivers of fundamental rights, like the right to a jury, to be knowing and voluntary, and this state law in effect requires that arbitration agreements must be explained to consumers and initialed by consumers in order to be valid.
The Ninth Circuit relied on the Supreme Court’s preemption analysis from Concepcion to find that the FAA preempted Montana’s fundamental rights/reasonable expectations rule. The Ninth Circuit interpreted Concepcion to mean that “[a]ny general state-law contract defense, based in unconscionability or otherwise, that has a disproportionate effect on arbitration is displaced by the FAA.” With such a broad (and in my opinion vague) preemptive power, the Ninth Circuit easily struck down the Montana rule. The Ninth Circuit found that the Montana rule “runs contrary to the FAA as interpreted by Concepcion because it disproportionally applies to arbitration agreements, invalidating them at a higher rate than other contract provisions.”
It is interesting to note how the Ninth Circuit described the FAA’s preemptive power as set forth in Concepcion; basically, the Ninth Circuit portrayed the Supreme Court as changing or expanding the intent behind the FAA through Concepcion. The Ninth Circuit recognized that some people may be troubled by its decision in this Mortensen case because the initial purpose of the FAA was to place arbitration agreements on the “same footing” as other contracts. The Ninth Circuit explained that the result in Mortensen is required by Concepcion, which the Ninth Circuit describes as setting forth a directive that the “FAA’s purpose is to give preference (instead of mere equality) to arbitration provisions.”
In my new book, Outsourcing Justice, I give some examples of how the reformers wanted the FAA to be enacted in order to place arbitration clauses on the same footing as other clauses in a contract. However, the Ninth Circuit’s description of recent Supreme Court cases is accurate. Supreme Court cases are using the FAA to elevate and insulate arbitration clauses as a special type of contract provision deserving of the highest protection.