Marygrace Coneff, et al v. AT&T Corp, et al

Filing

FILED OPINION (SUSAN P. GRABER, RAYMOND C. FISHER and JOHNNIE B. RAWLINSON) REVERSED AND REMANDED. Judge: SPG Authoring, FILED AND ENTERED JUDGMENT. [8106428]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MARYGRACE CONEFF; CHRISTINE
ASCHERO; JOANNE ASCHERO; ALEX
ASCHERO; JENNIE BRAGG; GINA
FRANKS; AMY FRERKER; ADDIE
CHRISTINE LOWRY; STEVEN
SHULMAN; S. LEONARD SHULMAN;
MICHELLE JOHNS; STEVEN KNOTT;
LIESA KRAUSSE; DEVIN GILKER;
STEPHEN PAPALEO; ANDREW RUDICH;
and KELLY PETERSEN, on behalf of
themselves and all others similarly
situated,
Plaintiffs-Appellees,
v.
AT&T CORP.,
Defendant,
and
NEW CINGULAR WIRELESS SERVICES,
INC., f/k/a AT&T Wireless
Services Inc.; NEW CINGULAR
WIRELESS SERVICES, INC.; AT&T
CORP., a New York Corporation;
AT&T MOBILITY LLC, f/k/a
Cingular Wireless, LLC,
Defendants-Appellants.





No. 09-35563
D.C. No.
2:06-cv-00944-RSM
OPINION



Appeal from the United States District Court
for the Western District of Washington
Ricardo S. Martinez, District Judge, Presiding

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CONEFF v. AT&T CORP.

Argued and Submitted
January 9, 2012—Seattle, Washington
Filed March 16, 2012
Before: Susan P. Graber, Raymond C. Fisher, and
Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Graber

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COUNSEL
Evan M. Tager, Mayer Brown LLP, Washington, D.C., for the
defendants-appellants.
F. Paul Bland, Jr., Public Justice, P.C., Washington, D.C., and
Leslie A. Bailey, Public Justice, P.C., Oakland, California, for
the plaintiffs-appellees.

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CONEFF v. AT&T CORP.

Michael D. Kinkley, Michael D. Kinkley, P.S., Spokane,
Washington, for the amicus curiae.

OPINION
GRABER, Circuit Judge:
Plaintiffs are current and former customers of Defendants,
New Cingular Wireless Services, Inc., and AT&T Mobility,
LLC (collectively, “AT&T”). Plaintiffs filed a class action
against AT&T, which responded by seeking to enforce an
arbitration agreement contained in its contracts with Plaintiffs.
The district court refused to enforce the arbitration agreement
on state-law unconscionability grounds, relying primarily on
the agreement’s class-action waiver provision. AT&T
appeals. We reverse the district court’s substantive unconscionability ruling and remand for further proceedings related
to Plaintiffs’ procedural unconscionability claims.
FACTUAL AND PROCEDURAL HISTORY
In this putative class action, the named plaintiffs are residents of eight different states: California, Washington, Alabama, Arizona, Florida, Illinois, New Jersey, and Virginia.
Plaintiffs initially filed several separate nationwide class
actions, which were consolidated. Plaintiffs assert diversity
jurisdiction under 28 U.S.C. § 1332(d) and allege unjust
enrichment and breach of contract; they also allege violations
of the Federal Communications Act and various state
consumer-protection statutes.
Well before filing the lawsuits, each Plaintiff had entered
into a service agreement, which included an arbitration clause,
with AT&T. Plaintiffs acknowledge that a 2006 version of the
arbitration provision applies. It requires individualized arbitration of “all disputes and claims,” and it prohibits both class

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actions and class arbitrations. At the district court, the parties
agreed that the relevant service agreements contained a
choice-of-law clause that selected the law of the state in
which an individual plaintiff ’s billing address is located.
Citing the arbitration provision, AT&T moved to compel
arbitration. Plaintiffs argued that the arbitration provision was
unenforceable due to both substantive and procedural unconscionability.
The district court denied AT&T’s motion, applying Washington law and finding the class-action waiver substantively
unconscionable and therefore unenforceable. Because it concluded that substantive unconscionability alone was a sufficient basis to void a contract under Washington law, the
district court did not rule on Plaintiffs’ alternative, procedural
unconscionability argument. Because the arbitration provision
stated that it would be unenforceable in its entirety if the
class-action waiver were struck, the district court invalidated
the entire arbitration agreement.
STANDARD OF REVIEW
The validity of an arbitration provision, like that of any
contract, is subject to de novo review. Bridge Fund Capital
Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1000 (9th
Cir. 2010); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719
(9th Cir. 1999). On choice-of-law matters, we also review de
novo. Bridge Fund Capital, 622 F.3d at 1000.
DISCUSSION
A.

Substantive Unconscionability and Preemption Under
the Federal Arbitration Act

[1] When the district court denied the motion to compel
arbitration, this court had held that the Federal Arbitration Act

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(“FAA”),1 codified at 9 U.S.C. §§ 1-16, does not preempt
state unconscionability law pertaining to class-action waivers
in arbitration clauses. Laster v. AT&T Mobility LLC, 584 F.3d
849, 852 (9th Cir. 2009). The district court understandably
followed our precedent. But the Supreme Court later reversed
our holding, in AT&T Mobility LLC v. Concepcion, 131 S. Ct.
1740 (2011). There, the Court considered California’s judgemade rule classifying “most collective-arbitration waivers in
consumer contracts as unconscionable.” Id. at 1746. The
Supreme Court held that the FAA preempts the California
rule. Id. at 1753.
[2] Concepcion is broadly written. The Court framed the
question as “whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on
the availability of classwide arbitration procedures.” Id. at
1744. The Court answered that question in the affirmative. By
requiring arbitration to maintain procedures fundamentally at
odds with its very nature, a state court impermissibly relies on
“the uniqueness of an agreement to arbitrate” to achieve a
result that the state legislature cannot. Id. at 1747 (internal
quotation marks omitted). The Court observed that individualized proceedings are an inherent and necessary element of
arbitration, id. at 1750-52, and concluded that a rule banning
class-action waivers is therefore impermissible: “Requiring
the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme
inconsistent with the FAA.” Id. at 1748.
In reaching that conclusion, the Court’s majority expressly
rejected the dissent’s argument regarding the possible exculpatory effect of class-action waivers: “The dissent claims that
class proceedings are necessary to prosecute small-dollar
1

The FAA declares “ ‘a national policy favoring arbitration’ ” and
supersedes “ ‘state legislative attempts to undercut the enforceability of
arbitration agreements.’ ” Preston v. Ferrer, 552 U.S. 346, 353 (2008)
(quoting Southland Corp. v. Keating, 465 U.S. 1, 10, 16 (1984)).

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claims that might otherwise slip through the legal system. But
States cannot require a procedure that is inconsistent with the
FAA, even if it is desirable for unrelated reasons.” Id. at 1753
(citation omitted) (emphasis added).
Plaintiffs argue that Concepcion is distinguishable. None of
their arguments is persuasive.
First, Plaintiffs argue that Supreme Court precedents
require arbitration of statutory rights only if a prospective litigant “ “‘effectively may vindicate”’ ” those rights in the arbitral forum. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S.
79, 90 (2000) (quoting Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 28 (1991) (quoting Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637
(1985))). As Plaintiffs note, the Supreme Court in Green Tree
went on to observe that “the existence of large arbitration
costs could preclude a litigant . . . from effectively vindicating
her federal statutory rights in the arbitral forum.” Id. Plaintiffs
cite Green Tree and other similarly reasoned decisions as
being in tension with Concepcion. They argue that this tension must be resolved by reading an implied exception into
Concepcion; specifically, they suggest that Concepcion’s rule
permits state law to invalidate class-action waivers when such
waivers preclude effective vindication of statutory rights.
We do not read Concepcion to be inconsistent with Green
Tree and similar cases.2 Although Plaintiffs argue that the
2

Plaintiffs assert primarily state statutory rights, but Mitsubishi, Gilmer,
Green Tree and similar decisions are limited to federal statutory rights.
Kilgore v. KeyBank, Nat’l Ass’n, No. 09-16703, slip op. at 2651-52 (9th
Cir. Mar. 7, 2012); accord Stutler v. T.K. Constructors Inc., 448 F.3d 343,
346 (6th Cir. 2006); see also Kaltwasser v. AT&T Mobility LLC, No. C07-00411, 2011 WL 4381748, at *5 (N.D. Cal. Sept. 20, 2011) (order)
(stating that “it is not clear that Green Tree’s solicitude for the vindication
of rights applies to rights arising under state law”). But see Kristian v.
Comcast Corp., 446 F.3d 25, 29 (1st Cir. 2006) (invalidating elements of
an arbitration agreement “because they prevent the vindication of statutory

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claims at issue in this case cannot be vindicated effectively
because they are worth much less than the cost of litigating
them, the Concepcion majority rejected that premise. Significantly, the arbitration agreement here has a number of feeshifting and otherwise pro-consumer provisions, identical to
those in Concepcion. As the Eleventh Circuit said in another
case involving a nearly identical arbitration provision, “the
Concepcion Court examined this very arbitration agreement”
and concluded “ ‘that aggrieved customers who filed claims
would be essentially guaranteed to be made whole.’ ” Cruz v.
Cingular Wireless, LLC, 648 F.3d 1205, 1215 (11th Cir.
2011) (emphasis omitted) (quoting Concepcion, 131 S. Ct. at
1753).
The dissent in Concepcion focused on a related but different concern—even if the arbitration agreements guaranteed
(via fee-shifting provisions) that complaining customers
would be made whole with respect to damages and counsel
fees, most customers would not bother filing claims because
the amounts are too small to be worth the trouble. See 131 S.
Ct. at 1761 (Breyer, J., dissenting) (observing that small-value
claims will not be made, for example, when they involve
“waiting at great length while a call is placed on hold”). That
is, the concern is not so much that customers have no effective means to vindicate their rights, but rather that customers
have insufficient incentive to do so.3 That concern is, of
rights under state and federal law” (emphasis added)); Booker v. Robert
Half Int’l, Inc., 413 F.3d 77, 79-81 (D.C. Cir. 2005) (applying Green Tree
to statutory rights under the law of the District of Columbia, but without
exploring whether that case was limited to federal statutory rights).
But, because Plaintiffs raise at least one federal claim in their complaint, we decide the case with Green Tree in mind; Plaintiffs’ federal
claim fails under Green Tree.
3
It is on this reasoning that we distinguish this case from a recent decision of the Second Circuit on a similar question. See Italian Colors Rest.
v. Am. Express Travel Related Servs. Co. (In re Am. Express Merchants’

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course, a primary policy rationale for class actions, as discussed by the district court in terms of deterrence. Coneff v.
AT&T Corp., 620 F. Supp. 2d 1248, 1259 (W.D. Wash.
2009). But as the Supreme Court stated in Concepcion, such
unrelated policy concerns, however worthwhile, cannot
undermine the FAA. 131 S. Ct. at 1753.
Even if we could not square Concepcion with previous
Supreme Court decisions, we would remain bound by Concepcion, which more directly and more recently addresses the
issue on appeal in this case. Cf. Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484 (1989) (“If a precedent of this Court has direct application in a case, yet appears
to rest on reasons rejected in some other line of decisions, the
Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its
own decisions.”).
[3] Next, Plaintiffs argue that the Washington Supreme
Court’s rule on unconscionability of class-action waivers,
announced in Scott v. Cingular Wireless, 161 P.3d 1000
(Wash. 2007), is meaningfully different from California’s
rule, announced in Discover Bank v. Superior Court, 113 P.3d
1100 (Cal. 2005), and rejected in Concepcion. But, as we
have observed, the concerns underlying those two states’ rules
are “almost identical.” Lowden v. T-Mobile USA, Inc., 512
F.3d 1213, 1221 (9th Cir. 2008). Indeed, Scott contains reasoning similar to the reasoning of Discover Bank, on which
it relies heavily. See In re Apple, No. C-10-02553, 2011 WL
2886407, at *4 (N.D. Cal. July 19, 2011) (order) (“[T]he leading case in Washington on the enforceability of provisions
Litig.), 667 F.3d 204, 206 (2d Cir. 2012). There, the Second Circuit specifically found that “the only economically feasible means for plaintiffs
enforcing their statutory rights is via a class action.” Id. at 218 (emphasis
added). To the extent that the Second Circuit’s opinion is not distinguishable, we disagree with it and agree instead with the Eleventh Circuit, as
discussed below in text.

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that require individual arbitration borrowed heavily from Discover Bank. Because Concepcion overruled Discover Bank, it
also overruled decisions based on Discover Bank.” (citing
Scott, 161 P.3d at 1006-08)). Thus, if California’s substantive
unconscionability rule is preempted by the FAA, then so is
Washington’s similarly reasoned rule.
Undaunted, Plaintiffs argue that class-action waivers are
unconscionable under Washington law only on a case-bycase, evidence-specific finding of exculpation. Essentially,
Plaintiffs argue that Concepcion would not apply to a sufficiently narrow, fact-based state-law rule for voiding classaction waivers.
Concepcion, particularly the section responding to the dissent, forecloses this argument. 131 S. Ct. at 1753. The Eleventh Circuit agrees. See Cruz, 648 F.3d at 1214
(acknowledging a factual record regarding the costeffectiveness of individual pursuit of claims, but concluding
that such evidence “goes only to substantiating the very public policy arguments that were expressly rejected by the
Supreme Court in Concepcion—namely, that the class action
waiver will be exculpatory, because most of these small-value
claims will go undetected and unprosecuted”).
The Eleventh Circuit also easily rejected the same argument that Plaintiffs now make in a final attempt to distinguish
Concepcion—Washington law would enforce the “blow-up”
provision to invalidate the entire arbitration agreement,
whereas Concepcion dealt with a state-law rule that would
have forced parties into non-consensual class-wide arbitration. Id. at 1213. As the Eleventh Circuit stated:
It would be anomalous indeed if the FAA—which
promotes arbitration—were offended by imposing
upon arbitration nonconsensual procedures that
interfere with arbitration’s fundamental attributes,
but not offended by the nonconsensual elimination

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of arbitration altogether. In fact, the parties in Concepcion faced no risk of being forced into class arbitration either, because nonconsensual class
arbitration was already prohibited under [StoltNielsen S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct.
1758, 1775 (2010)]. Moreover, the arbitration agreement in Concepcion contained the very same blowup clause that is present here—further assuring that
ATTM was at no greater risk of being forced into
class arbitration in Concepcion than it is here. Even
a cursory reading of the opinion reveals that the
Concepcion Court described the “fundamental”
changes brought about by the shift from bilateral to
class arbitration to show that nonconsensual class
procedures are inconsistent with the FAA—not to
argue for increased class action litigation. Accordingly, Concepcion cannot be distinguished on this
ground.
Id. at 1213-14 (citations omitted). Pointedly, by invalidating
arbitration agreements for lacking class-action provisions, a
court would be doing precisely what the FAA and Concepcion prohibit—leveraging “the uniqueness of an agreement to
arbitrate” to achieve a result that the state legislature cannot.
131 S. Ct. at 1747.
[4] In conclusion, Concepcion controls, the FAA preempts
the Washington state law invalidating the class-action waiver,
and we reverse the district court’s conclusions regarding preemption and substantive unconscionability.
B.

Procedural Unconscionability and Choice of Law

As noted above, Plaintiffs also allege procedural unconscionability, an inquiry for which Concepcion gives little
guidance beyond a recognition of the doctrine’s continued
vitality. See 131 S. Ct. at 1750 n.6 (“States remain free to take
steps addressing the concerns that attend contracts of adhesion

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—for example, requiring class-action-waiver provisions in
adhesive arbitration agreements to be highlighted.”).
[5] Like substantive unconscionability, procedural unconscionability is a defense to contract formation, and so state law
applies. See Marmet Health Care Ctr., Inc. v. Brown, No. 11391, 2012 WL 538286, at *2 (U.S. Feb. 21, 2012) (per
curiam) (remanding case for state court determination of
whether an arbitration clause is unconscionable and “unenforceable under state common law principles that are not specific to arbitration”); Concepcion, 131 S. Ct. at 1746 (stating
that 9 U.S.C. § 2 “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud,
duress, or unconscionability” (internal quotation marks omitted)); see also Ferguson v. Countrywide Credit Indus., 298
F.3d 778, 782 (9th Cir. 2002) (“In determining the validity of
an agreement to arbitrate, federal courts should apply ordinary
state-law principles that govern the formation of contracts.”
(internal quotation marks omitted)).
[6] But Plaintiffs hail from different states,4 and the contracts contain choice-of-law provisions. Procedural unconscionability, then, presents a threshold choice-of-law question.
When sitting in diversity, we apply the choice-of-law rules of
the forum state. Love v. Associated Newspapers, Ltd., 611
F.3d 601, 610 (9th Cir. 2010). Washington courts do not
engage in a choice-of-law analysis unless there is “an actual
conflict between the laws or interests of Washington and the
laws or interests of another state.” Erwin v. Cotter Health
Ctrs., 167 P.3d 1112, 1120 (Wash. 2007) (internal quotation
marks omitted).
[7] Thus, we remand to the district court to apply Washington choice-of-law rules to Plaintiffs’ procedural uncons4

The parties dispute whether Missouri law, as opposed to Washington
law, applies to one of the named plaintiffs. The district court is in the best
position to resolve this dispute.

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cionability arguments. The first step of that analysis will be
to determine whether an actual conflict exists among the laws
of the various states involved in this case. That analysis
requires the court first to determine whether any of the relevant states allow voiding a contract on grounds of freestanding procedural unconscionability.5 If the laws all require at
least some showing of substantive unconscionability, then
Plaintiffs’ claim necessarily fails because of our holding that
the arbitration clause at issue is not substantively unconscionable. But if a showing of procedural unconscionability
would result in success for Plaintiffs under some of the relevant state precedents, the district court must complete the
conflict-of-law analysis and decide which Plaintiffs, if any,
may benefit.
REVERSED and REMANDED.

5

In at least some of the other states relevant to this case, courts require
both procedural and substantive unconscionability before they will invalidate a contract. See, e.g., Concepcion, 131 S. Ct. at 1746 (summarizing
California unconscionability law as requiring “a ‘procedural’ and a ‘substantive’ element”) (quoting Armendariz v. Found. Health Psychcare
Servs., Inc., 6 P.3d 669, 690 (Cal. 2000)); Blue Cross Blue Shield of Ala.
v. Rigas, 923 So. 2d 1077, 1087 (Ala. 2005) (“To avoid an arbitration provision on the ground of unconscionability, the party objecting to arbitration must show both procedural and substantive unconscionability.”).
Under Washington law, by contrast, the question is not settled. See AlSafin v. Circuit City Stores, Inc., 394 F.3d 1254, 1259 (9th Cir. 2005) (noting that the Washington Supreme Court has declined to resolve whether
procedural unconscionability, standing alone, is sufficient). New Jersey
courts have also expressed a measure of uncertainty. See Stelluti v. Casapenn Enters., LLC, 1 A.3d 678, 687 n.10 (N.J. 2010) (stating that “a high
level of procedural unconscionability alone may not render an entire
agreement unenforceable”) (emphasis added); see also Sitogum Holdings,
Inc. v. Ropes, 800 A.2d 915, 921 n.13 (N.J. Super. Ct. Ch. Div. 2002)
(“There do not appear to be any decisions where procedural unconscionability was present but not substantive unconscionability.”).