In 2002, the Concepcions purchased AT&T's cellular phone service, which advertised the inclusion of free phones. Although they were not charged for the phones, they were charged $30.22 in sales tax based on the retail value of the phones. The contract provided for arbitration of all disputes, but required that claims be brought in the parties' "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." The Concepcions eventually filed suit against AT&T. Included in the suit was the allegation that AT&T had engaged in false advertising and fraud by charging sales tax on phones it had advertised as free. The complaint was later consolidated into a class-action suit.
AT&T moved to compel arbitration under the terms of the contract. The Concepcions opposed the motion, contending that the arbitration agreement was unconscionable and unlawfully exculpatory under California law because it disallowed class proceedings. In particular, the plaintiffs cited the California Supreme Court's decision in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), in which the court ruled that a ban on class proceedings is an unconscionable, and therefore unenforceable, waiver of liability when it occurs in a consumer contract of adhesion, which is not subject to negotiation; the amounts involved are small; and it is alleged that "the party with the superior bargaining party carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money." Is the arbitration clause enforceable? Is it ethical?