Citing Concepcion, Ninth Circuit Holds that FAA Preempts Montana State Law that Invalidates Mandatory Arbitration Clause

In Mortensen v. Bresnan Communications, LLC, the plaintiffs filed a putative class action against Bresnan Communications alleging violations of various federal and Montana state laws in connection with targeted advertising that they received as customers of high-speed, broadband Internet service. When signing up for the service, the plaintiffs had entered into a subscriber agreement that contained a mandatory arbitration provision and designated the application of New York law to all disputes. Applying the U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, the Ninth Circuit found that the Federal Arbitration Act (“FAA”) preempted a Montana state law that the District Court had relied on to invalidate the mandatory arbitration clause.

The District Court had found that the arbitration provision was unenforceable because it violated Montana’s reasonable expectations/fundamental rights rule, which, in the context of consumer contracts, says that “only arbitration agreements explained to and initialed by customers are valid and enforceable.” On appeal, the Ninth Circuit acknowledged that this was “not an easy case” because it required the Court to interpret Concepcion’s “meaning and breadth” and then apply Concepcion to “an established Montana rule that governs the validity of contracts generally, but has a disproportionate impact on arbitration agreements.” The Ninth Circuit interpreted Concepcion to mean that “even generally applicable state-law rules are preempted if in practice they have a ‘disproportionate impact’ on arbitration or ‘interfere[] with fundamental attributes of arbitration and thus create[] a scheme inconsistent with the FAA.’” The Ninth Circuit noted that the FAA embodied “a liberal federal policy favoring arbitration” and that “Concepcion crystallized the directive . . . that the FAA’s purpose is to give preference (instead of mere equality) to arbitration provisions.”

Based on this analysis, the Ninth Circuit determined that the Montana law “runs contrary to the FAA as interpreted by Concepcion because it disproportionately applies to arbitration agreements, invalidating them at a higher rate than other contract provisions.” This case is significant because of the Ninth Circuit’s recognition that Concepcion expanded the scope of the FAA when it comes to preempting state laws that stand as barriers to the enforcement of mandatory arbitration provisions. It is now clear that after Concepcion, even generally applicable state laws will be preempted by the FAA if they disproportionately affect arbitration agreements. By removing yet another possible challenge to such agreements, this most recent decision by the Ninth Circuit continues the overwhelming trend of favoring arbitration.