Supreme Court Upholds AT&T’s Ban on Customers’ Participation in Class Actions

In a major blow to consumer rights and to the power of class-action lawsuits to check corporate fraud, the Supreme Court has voted 5-to-4 in AT&T Mobility v. Concepcion to allow AT&T to require its customers to waive their right to participate in class-action lawsuits against the company. Class-action lawsuits are ones in which the plaintiff sues the defendant on behalf of all people similarly situated for harm the defendant has caused the group, or “class.” Class actions are indispensible for the protection of workers and consumers because they empower plaintiffs to sue in cases where corporate wrongdoing has not caused each member of the class enough monetary harm to justify individual lawsuits.

The Concepcion case concerns the couple Vincent and Liza Concepcion, who signed a two-year contract with AT&T for cell-phone service. A benefit of the contract was that it came with two free cell phones. Though the Conceptions were provided with the phones free of charge, they were billed $30.22 in sales tax, the amount they would have been charged in tax had they purchased the phones. The Concepcions sued AT&T for fraud in federal court on behalf of the class of similarly situated AT&T consumers. AT&T argued that the plaintiffs could not consolidate with the other plaintiff and sue on behalf of the class, since the contract they signed required all complaints to be submitted to individual arbitration. The trial court struck down the arbitration clause, calling it “unconscionable” under California law, and allowed the plaintiffs to proceed as a class. The trial court noted that the California Supreme Court had defined “unconscionable” contracts in 2005 as a contract in which companies “deliberately cheat large numbers of consumers out of individually small sums of money.” The United States Court of Appeals for the Ninth Circuit affirmed.

AT&T appealed the decision to the U.S. Supreme Court, which voted 5-to-4 in favor of AT&T, upholding the class action waiver in their contracts and denying the Concepcions’ right to proceed on behalf of a class. Writing for the majority, Justice Antonin Scalia argued that “class arbitration sacrifices the principal advantage of arbitration – its informality – and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.”

In allowing AT&T to continue requiring its customers to waive their right to partake in class action lawsuits, the Supreme Court has provided corporations with a model of how to avoid liability for the very types of wrongdoing that class-action lawsuits were uniquely equipped to defend against. Justice Stephen Breyer, writing for the minority, pointed out correctly that consumers will be without legal recourse if these contract requirements are allowed. “What rational lawyer,” Justice Breyer asked, “would have signed on the represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” Breyer also doubts that any rational consumer would bother pursuing the $30.22 claim individually if it meant “filling out many forms that require technical legal knowledge or waiting at great length while a call is placed on hold.” Leaving this avenue open to companies leaves consumers vulnerable to unconscionable contracts with no practical recourse.

Consumer and employee advocates who have played leading roles in the fight against mandatory, binding, pre-dispute arbitration clauses are not taking the Concepcion decision lying down.

The Public Justice Foundation (www.publicjustice.net), which supports the nation’s largest public-interest law firm, is organizing teleseminars to educate consumer lawyers on arguments that they can use to limit the impact of the Concepcion ruling.

The National Employment Lawyers Association (www.nela.org), which is the nationwide organization of lawyer representing employees in employment disputes and which has played a leading role in fighting against has issued a press release vowing to work to overturn the Concepcion decision through passage of the Arbitration Fairness Act of 2011.

The National Consumer Law Center (www.nclc.org), an advocacy group that has been at the forefront of consumer litigation, has issued a report entitled “Life After Concepcion” that details twenty areas in which consumers and their lawyers may still be able to use the class-action vehicle to combat unfair and deceptive trade practices despite the Supreme Court’s ruling in Concepcion.

David J. Marshall, a partner with KMB who has served as class counsel in a number of consumer class actions and who specializes in the representation of whistleblowers and other employees, praised these organizations for the work they are doing to challenge the victory that enemies of consumer and employee rights have won in the Concepcion ruling. “Public Justice, NACA and NCLC are doing great work to limit the effect of this anti-consumer, anti-worker ruling,” Marshall said. “Through the work they are doing, these organizations can make a huge difference in ensuring that class actions will continue as a viable method for protecting the rights of consumers and employees.” Marshall sits on the board of directors of the Public Justice Foundation.