Ark. Sup. Ct. Strikes Alltel Arbitration Agreement for Non-Mutuality
In AT&T Mobility v. Concepcion, the U.S. Supreme Court told us that the Federal Arbitration Act overrides state contract law if a contract contains an arbitration clause. In American Express v. Italian Colors Restaurant, the Court upheld an arbitration agreement's class action waiver even when the cost of arbitrating a federal antitrust claim would exceed the recovery amount.
This approach has it critics. Notably, Judge Richard Posner said that class action waivers effectively eliminate litigation: "The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30."
Looking into my crystal ball, I foresee Alltel Communication v. Rosenow to be the Supreme Court's next class action/arbitration case.
Another Arbitration Act Case
Alltel, like Concepcion, comes from a state supreme court; in this case, Arkansas'. At issue was a piddly amount of money individually, relating to early termination fees. But the heart of the matter is that Alltel's terms of service agreement required customers to use binding arbitration to resolve disputes with Alltel; Alltel, on the other hand, could choose to compel arbitration or go to the court system.
Sounds unfair, right? The agreement forced customers to use arbitration in disputes they initiated against Alltel, but not Alltel in disputes against customers. For this reason, Rosenow and other members of the class claimed the arbitration agreement lacked mutuality. "Mutuality" is a contract law doctrine that requires a valid contract to impose mutual obligations on both parties; in other words, what's good for the goose must be good for the gander.
The Arkansas Supreme Court found that the arbitration agreement allowed Alltel to escape from the provisions of the contract while not allowing the customers a similar way out: "If we do not enforce any right or remedy available under this Agreement, that failure is not a waiver," the contract said -- meaning that even if Alltel chose to pursue a judicial remedy, customers still had to use arbitration. Consequently, the agreement was void ab initio for lack of mutuality.
Does State Law Even Matter to the Federal Arbitration Act?
Of course, when the California Supreme Court decided Concepcion, it too applied state law doctrines, though of unconscionability instead of mutuality. The U.S. Supreme Court wasn't impressed and declared the primacy of the Federal Arbitration Act über alles. The Arkansas Supreme Court believed that Concepcion wasn't applicable here, as the question was "whether there has even been a valid agreement to arbitrate in the first instance." (Concepcion, by contrast was about the use of unconscionability as a defense to a seemingly valid arbitration agreement.)
Three justices, led by Justice Courtney Hudson Goodson, dissented. For one thing, the lower court decided the case based on mutuality of assent, not mutuality of obligation; the court didn't rule on the former. Second, no party advanced the mutuality of obligation argument; the court simply crafted that rule sua sponte. The dissent would have reversed the lower court's ruling on mutuality of assent and remanded.
Whenever the Federal Arbitration Act gets invoked against regular consumers, they lose. Because this is another case of state law affecting the FAA, expect to see it on the U.S. Supreme Court's docket sooner rather than later.
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