Alert June 12, 2012

California Federal Judge Denies Motion to Compel Arbitration

The United States District Court for the Northern District of California denied a motion to compel arbitration in a putative class action alleging that defendant had a practice of recording telephone calls with persons in California without their consent. Defendant moved to compel arbitration pursuant to an arbitration agreement, arguing that the Federal Arbitration Act preempted claims that the arbitration agreement was unconscionable under California law.

The Court dismissed defendant’s motion, holding that the claims were not preempted by the FAA. The Court ruled that it was not bound by the Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), because “the finding does not undermine the fundamental attributes of arbitration as an alternative form of dispute . . . [but rather] applies the generally applicable contract principle of unconscionablility.”  Based on that finding, the Court held that the arbitration agreement was both procedurally and substantively unconscionable. On the procedural threshold, the Court gave minimal weight to the fact that it was a contract of adhesion. However, the Court found that many of the agreement’s provisions (e.g., arbitration not waived by self-help remedies, including filing suit; the right to appeal an award in excess of $100,000 or an award of injunctive relief) were substantively unconscionable because they each overwhelmingly benefited defendant.  Click here for the opinion.