Gutting Class Action

The Supreme Court’s 5-to-4 vote in AT&T Mobility v. Concepcion is a devastating blow to consumer rights. By upholding the arbitration clause in AT&T’s customer agreement requiring the signer to waive the right to take part in a class action, the court provided other corporations with a model of how they can avoid class actions. It gave companies even more power when it also ruled out class-based arbitrations.

These are major setbacks for individuals who may not have the resources to challenge big companies in court or through arbitration.

When Vincent and Liza Concepcion signed a two-year contract for AT&T cellphone service, they received what they were told were two free phones. AT&T then charged them $30.22 in sales tax for the phones. They sued the company for fraud in federal court and their case and another were consolidated as a class action.

AT&T argued that the contract required the Concepcions to submit their claim to individual arbitration. A federal trial court, upheld by the United States Court of Appeals for the Ninth Circuit, struck down the AT&T arbitration clause as unconscionable under California law and allowed the plaintiffs to move forward against the company in a class action in federal court.

With Justice Antonin Scalia writing for the majority, the Supreme Court reversed that decision and, in a dramatic example of judicial activism, ruled that class-based arbitrations also would not be permitted.

Justice 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 his dissent, Justice Stephen Breyer highlights the damage to consumers: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” And he made clear that many rational couples would not press their own case for that amount if it meant “filling out many forms that require technical legal knowledge or waiting at great length while a call is placed on hold.”

In 2005, the California Supreme Court defined a rule of “unconscionability” for consumer contracts: when they “deliberately cheat large numbers of consumers out of individually small sums of money.” The federal trial court and the Ninth Circuit applied the rule in this case.

Writing about why the Federal Arbitration Act of 1925 pre-empts the California law in question, Justice Scalia demonstrates both his pro-business bias and the selective nature of his brand of originalism.

Contrary to what he suggests, when the law favoring arbitration was enacted, arbitration’s purpose was to resolve disputes between businesses — not businesses and consumers. He doesn’t try to trace his view on class arbitration to the 1925 law because it is mute on the subject. Instead, he provides his own definition of what arbitration should and should not be — with “no meaningful support,” as Justice Breyer writes, in Supreme Court precedent.

In a welcome effort to protect consumers, employees and others, Senators Al Franken and Richard Blumenthal and Representative Hank Johnson have just introduced the Arbitration Fairness Act. It would make required arbitration clauses unenforceable, although its chances aren’t great in the current political environment.

Unless Congress fixes the problem, the Supreme Court’s decision will bar many Americans from enforcing their rights in court and, in many cases like this one, bar them from enforcing rights at all.