Supreme Court hears challenge on class-action arbitration suits
Tuesday, November 9, 2010; 10:32 PM
Vincent and Liza Concepcion were looking for a phone, not a lawsuit, when they decided in 2002 to go with AT&T Mobility. At a California store, they got a deal for a Motorola and a "free" Nokia - and, according to AT&T, signed away their right to initiate a class-action suit against the company.
In the fine print of the service agreement, the couple said they would settle disputes through arbitration and as individuals, not as part of a class of complaining customers. Such arbitration agreements are common for "transactional" contracts, such as those for credit cards and cellphones, and increasingly for employers and their workers.
On Tuesday, the Supreme Court took up the Concepcions' complaint that they were charged $30.32 for a phone that was supposed to be free.
The case has been billed as one of the court's most important on consumer rights in years, with civil rights organizations and consumer groups on one side and, on the other, businesses worried about the costs of lawyer-driven class-action suits.
The first group said individual claims such as the Concepcions' are too small to interest lawyers or even other consumers who may have been cheated. But the overcharges could add up to millions of dollars for the company, and the only way to stop such and to punish the company is for customers to band together.
The businesses, on the other hand, argue that the costs that come with such suits are so great that companies must settle even when they have done nothing wrong, and that lawyers, rather than consumers, benefit from the huge settlements.
But what had been billed as an epic battle played out during the one-hour oral argument more like a law school seminar on contract law: Phrases such as "contract of adhesion," "obstacle preemption" and "unconscionability" dominated the debate.
The justices' questions suggested a more limited ruling on the facts of the specific case rather than the broad decision on class-action suits that the 26 groups submitting friend-of-the-court briefs had addressed.
The arguments also raised questions about states' rights. State and federal courts in California agreed with a state law that said businesses' attempts to ban arbitration class-action suits unfairly tilt the field against consumers. And some justices indicated that the decision should be up to the states.
"Who are we to say that the state is wrong about that?" Justice Elena Kagan asked.
But Washington lawyer Andrew Pincus, representing AT&T, said the California ruling undermines the the Federal Arbitration Act, which was designed to keep states and courts from erecting barriers to arbitration. Businesses say arbitration is a more economical way than lawsuits to handle disputes.
The groups backing AT&T say that class-action suits open a business to unlimited liability and that there would be no reason for a company to choose arbitration, because adverse decisions cannot be appealed.