California federal court applies AT&T Mobility v. Concepcion to compel arbitration

In In re Apple & AT&TM Antitrust Litig., 2011 U.S. Dist. LEXIS 138539 (N.D. Cal. Dec. 1, 2011), a California federal District Court recently had the opportunity to directly apply the Supreme Court’s holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011). In a case involving an AT&T arbitration agreement, the Court not only permitted AT&T to pursue arbitration, but also permitted AT&T’s co-Defendant—Apple—to join them in the arbitration. This holding demonstrates that under the right circumstances, the ripple effect of Concepcion could have affect even co-defendants who were not parties to the arbitration agreement at issue.

Here, the proposed class of plaintiffs included purchasers of Apple iPhones and subscribers to cellular service from AT&T Mobility. Plaintiffs alleged that Apple and AT&T entered into an undisclosed agreement under which the two companies agreed that for a period of time, all iPhones sold by Apple would be configured so that purchasers in the United States would be required to sign a cellular service agreement with AT&T. Plaintiffs allege that although they knew they would be under contract with AT&T for two years, they did not know that Apple and AT&T had agreed, without Plaintiffs' knowledge or consent, to make AT&T the exclusive provider of voice and data services for the iPhone for five years.

AT&T’s Motion to Compel Arbitration

AT&T originally brought its motion to compel arbitration back in October of 2008, which was denied on the ground that AT&T's arbitration agreement was unconscionable under California state law.  Then, in July of 2010, the Court granted Plaintiffs’ motion to certify the class.

In December of 2010, the Court stayed the case pending the Supreme Court's then-pending decision in Concepcion. After Concepcion was decided in favor of AT&T, AT&T renewed its motion to compel arbitration based on the Supreme Court’s decision. The Court agreed and entered an order compelling arbitration as to AT&T.

Apple’s Motion to Compel Arbitration

Apple also asked that the Court to compel arbitration on the claims brought against it.  In response, Plaintiffs argued that arbitration should be denied because Apple did not sign the arbitration agreement.

The Court held in favor of Apple.  Although arbitration generally cannot be invoked by a non-signatory, "under principles of equitable estoppel a non-signatory may compel a signatory to an arbitrate." Id. at *20.  Specifically, in the Ninth Circuit, a non-signatory may compel a signatory to arbitrate based on equitable estoppel, so long as two requirements were met: (1) the subject matter of the dispute is "intertwined" with the contract, and (2) there is a sufficient "relationship" between the parties. Id. at *23.

The Court found that both requirements for equitable estoppel were met because: (1) Plaintiffs’ antitrust and related claims against Apple and AT&T arose from their respective AT&T service contracts, and (2) there was a "relationship" between AT&T and Apple based on the allegedly undisclosed agreement to lock in AT&T as the exclusive service provider for the iPhone. The Court held: "Having agreed to arbitrate any claim growing out of their respective contractual relationships with AT&T, and having made a claim arising from that contractual relationship against both AT&T and Apple in which they allege that both Defendants jointly subverted rights under the contract, Plaintiffs are now estopped from refusing to arbitrate against Defendants [AT&T] and Apple, jointly." Id. at *28.

Thus, the Court granted both Apple and AT&T's Motions to Compel Arbitration and accordingly decertified the class. The lessons to be learned are these: (1) Concepcion appears to remain strong in the district courts, and (2) even if one defendant does not sign the arbitration agreement at issue, it might still be able to enforce the terms of the agreement under estoppel principles.

Arbitration, Federal Class Action Law