9th Circuit Rejects Constitutional Argument Against Arbitration

The Ninth Circuit enforced an arbitration clause in a contract between a telecommunications company and its customers, affirming the lower court’s order compelling arbitration and rejecting the argument that the Petition Clause of the First Amendment somehow gave consumers the right to have their private dispute heard in court.

The Ninth Circuit appeal concerned the district court’s order compelling arbitration of putative class action claims against a telecommunications company by customers who alleged that the company falsely advertised their mobile service plans as “unlimited” although it intentionally slowed data at certain usage levels.  The company moved to compel arbitration in light of the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, which stated “that the Federal Arbitration Act preempts state law deeming [the telecomm company’s] arbitration provision to be unconscionable.”  The plaintiffs opposed on First Amendment grounds, arguing that “state action” was present, and that the compelled arbitration violated their First Amendment’s Petition Clause because they “did not knowingly and voluntarily give up their right to have a court adjudicate their claims,” and could not “bring their claims in small claims court.”

As background, in order for a private party to be a state actor, there must be a “sufficiently close nexus between the State and the challenged action of the private entity.”  Whether a “close nexus” exists depends on whether the State has coerced the private actor or provided “such significant encouragement” that the choice must be deemed as that of the State.

Plaintiffs raised two arguments to support their “state action” argument.  First, they claimed that under the Supreme Court’s decision in Denver Area Educational Telecommunications Consortium, Inc. v. FCC, state action exists whenever a party asserts a direct constitutional challenge to a permissive law—a law which allows, but neither requires nor forbids, specific acts.  Second, plaintiffs claimed that state action existed because the government “significantly encouraged” the telecommunications company to arbitrate through a statutory “mandate” and the Supreme Court’s subsequent “enforcement of consumer adhesion forced arbitration contracts” in its Concepcion decision.

The Ninth Circuit rejected both arguments.  First, the panel held that Denver Area did not broadly rule that the government is the relevant state actor whenever there is a direct constitutional challenge to a “permissive” statute, and further, stated that the opinion did not support a finding of state action in this case.  Rather, the permissive provisions of the statute simply reaffirm the Federal Arbitration Act’s authority to pick and choose programming that a private entity may have otherwise engaged in without a governmental entity’s interference.  Second, the court found that Federal Arbitration Act regulation of private action and courts’ enforcement of arbitration agreements provided “insufficient encouragement” under the state action standard, and that the telecomm company’s conduct was not attributable to the state.  The panel wrote that although telecom companies began using arbitration clauses more frequently after the Supreme Court’s decision in Concepcion, that case only provided “subtle encouragement” to arbitrate, which was no more significant than the kind found in other legal remedies created or modified by the state.  The court found it dispositive that there was no federal law which required the Plaintiffs to waive their right to litigate, the federal statute merely regulated private conduct, and the private parties themselves drafted and agreed to the adhesive consumer arbitration clause—not the government.  The panel found that the government’s actions were not “coercive,” rather, it simply decided not to interfere with private parties’ choices to arbitrate.  In other words, “permission of a private choice cannot support a finding of state action.”  Accordingly, the court reasserted the previous judgments of other courts by deciding that “neither private arbitration, nor the judicial act of enforcing it under the Federal Arbitration Act constituted state action,” and affirmed the district court’s order for compelled arbitration.

The case is Roberts v. AT&T Mobility.