Supreme Court says arbitration agreements can ban class-action efforts

Large corporations won a substantial victory at the Supreme Court on Wednesday, as ideologically split justices ruled that consumers may not band together in class-action arbitration to pursue their complaints.

The specific case involved cellphones and a familiar contract that requires customers to press claims through arbitration rather than lawsuits. Such ubiquitous contracts, which mandate individual rather than group claims, are becoming standard for companies offering loans, cable service, credit cards and even employment.

(Don Heupel/ AP ) - U.S. Supreme Court Chief Justice John Roberts speaks during a lecture series at Canisius College in Buffalo, N.Y. on Tuesday, Oct. 19, 2010.
  • (Don Heupel/ AP ) - U.S. Supreme Court Chief Justice John Roberts speaks during a lecture series at Canisius College in Buffalo, N.Y. on Tuesday, Oct. 19, 2010.
  • (Paul Sancya/ ) - The AT&T Michigan headquarters is shown in Detroit in this Jan. 25, 2007 photo.

(Don Heupel/ AP ) - U.S. Supreme Court Chief Justice John Roberts speaks during a lecture series at Canisius College in Buffalo, N.Y. on Tuesday, Oct. 19, 2010.

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Business interests praised the 5 to 4 decision in AT&T Mobility v. Concepcion as a recognition that class-action efforts can defeat the purported advantage of arbitration: quick and efficient settlement of consumer complaints.

AT&T said in a statement that its arbitration program is “free, fair, easy to use and consumer friendly.”

But consumer and public interest groups said the decision is another example of the court under Chief Justice John G. Roberts Jr. — “the Corporate Court,” one group called it — siding with big business.

Deepak Gupta, who argued the case on behalf of cellphone customers Vincent and Liza Concepcion, called the ruling a “crushing blow to American consumers and employees” and said it leaves consumers powerless against arbitration agreements buried in fine print.

“Whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices,” Gupta, a lawyer with the public interest group Public Citizen, said in a statement.

The case raised a different class-action issue than the one the court is considering in a discrimination class-action lawsuit brought by female employees of Wal-Mart, which was argued last month.

At issue in Wednesday’s ruling was a California law that does not allow bans on class-action efforts in arbitration or litigation.

But Justice Antonin Scalia, writing for the majority, found the law — similar to ones in 18 states — at odds with the 1925 Federal Arbitration Act, whose “overarching purpose,” he said, was to “facilitate streamlined proceedings.”

He added: “Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

He was joined by the court’s most consistent conservatives: Roberts and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr.

Justice Stephen G. Breyer dissented along with the court’s other liberals, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan.

Breyer said that the majority had turned its back on states’ rights and that California’s law “is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration.”

The Concepcions signed up with AT&T Mobility in 2002, taking advantage of a deal for a Motorola cellphone and a free Nokia. But the couple complained that the company charged them $30.22 in sales tax and other fees for the “free” phone.

The couple filed a federal lawsuit, seeking class-action treatment. The company responded that the contract they had signed banned class-action efforts in arbitration and litigation.

A federal district judge and the U.S. Court of Appeals for the 9th Circuit disagreed. They cited a ruling from the California Supreme Court that said complete bans on class-action efforts were “unconscionable” because of the disproportionate power of the company.

But Scalia said such a view conflicts with federal law. He said that although individual arbitration can be a fast and efficient transaction for small claims, the situation is different for a class of claimants.

Arbitration offers less appellate review, and defendants are less likely to participate when faced with a “devastating loss.”

“Arbitration is poorly suited to the higher stakes of class litigation,” Scalia said.

Breyer countered that settling a class of complaints was more efficient than thousands of separate proceedings.

And he said that requiring each complaining customer to go through the process would most likely discourage participation and draw little attention from lawyers willing to help.

“What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” Breyer wrote.

 
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