In February 2002, Vincent and Liza Concepcion bought an AT&T cell phone that was advertised as "free." Indeed, they weren't charged for the phones, but they were charged $30.22 in sales tax based on the phones’ retail value. Alleging false advertising and fraud by charging sales tax on phones advertised as free, the Concepcions sued AT&T in their home state of California, and the suit was consolidated as part of a putatitve class action on behalf of thousands of purchasers similarly screwed.
[Why a class action? Because it's not worth your individual time to fight with them over $30.22. But bring together every victim in one case, and it makes sense for someone to devote the time to winning it.]
But when you read the fine print of the sales agreement with AT&T (and who does, other than lawyers?), one of the provisions requires arbitration of all disputes, and that such disputes be brought in the parties’ 'individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” So AT&T sought to have the class decertified and force every individual into separate arbitration. Both lower federal courts who reviewed it, however, hung up on AT&T's efforts, citing a California state court precedent requiring that waivers of class action rights be deemed unconscionable without a showing that individual arbitration adequately substituted for the deterrent effects of class actions.
And now I get to quote a June 2010 diary of mine on an employment-related arbitration provision, word-for-word:
In a 5-4 decision today authored by Justice Scalia -- and stop me if you've heard this one before, or if you need the list of who the five are -- the Supreme Court reversed the decision of the Ninth Circuit.
Here's the decision, and it pretty much comes down to "federal law supports arbitration, and this isn't so bad":
First, the switch from bilateral to 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.
... [C]lass arbitration greatly increases risks to defendants. Informal procedures do of course have a cost: The absence of multilayered review makes it more likely that errors will go uncorrected. Defendants are willing to accept the costs of these errors in arbitration, since their impact is limited to the size of individual disputes, and presumably outweighed by savings from avoiding the courts. But when damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will often become unacceptable. Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.
... Indeed, the District Court concluded that the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which “could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.”
And say it with me again --
Justice Thomas, in a concurrence would have gone further, and if you care about arbitration law you should read it.
As to why this is a bad thing, let's start with Justice Breyer's dissent on behalf of himself and Justices Ginsburg, Sotomayor and Kagan:
When Congress enacted the Act, arbitration procedures had not yet been fully developed. Insofar as Congress considered detailed forms of arbitration at all, it may well have thought that arbitration would be used primarily where merchants sought to resolve disputes of fact, not law, under the customs of their industries, where the parties possessed roughly equivalent bargaining power. ... This last mentioned feature of the history—roughly equivalent bargaining power—suggests, if anything, that California’s statute is consistent with, and indeed may help to further, the objectives that Congress had in mind....
What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? See, e.g. , Carnegie v. Household Int’l, Inc. , 376 F. 3d 656, 661 (CA7 2004) (“The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30”). In California’s perfectly rational view, nonclass arbitration over such sums will also sometimes have the effect of depriving claimants of their claims (say, for example, where claiming the $30.22 were to involve filling out many forms that require technical legal knowledge or waiting at great length while a call is placed on hold). Discover Bank sets forth circumstances in which the California courts believe that the terms of consumer contracts can be manipulated to insulate an agreement’s author from liability for its own frauds by “deliberately cheat[ing] large numbers of consumers out of individually small sums of money.” Why is this kind of decision—weighing the pros and cons of all class proceedings alike—not California’s to make?
Alliance for Justice President Nan Aron released the following statement on the decision:
The Supreme Court’s decision today in AT&T Mobility v. Concepcion is a devastating and far-reaching betrayal of the most fundamental principles of American justice. Through this ruling, the Court’s ultra-conservative majority continues its relentless effort to shift power to corporate interests while hobbling the ability of everyday Americans to band together within the legal system to fight back against corporate misbehavior.
After today’s ruling, corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to find redress. By including fine-print provisions in consumer and employment contracts that compel binding arbitration and restrict the ability to file class-actions, the Court has ensured that victims of consumer abuse or civil rights violations will always be at a disadvantage in the fight for justice. Even worse, not only has the radical conservative majority damaged the ability of consumers or employees to find justice, it has effectively removed any incentive for corporations to behave within the law in the first place.
The Corporate Court, at the behest of big-business interests, has once again willfully undermined our most cherished and hard-fought rights and its misguided decision must not be allowed to stand. Congress should act swiftly to end forced arbitration in civil rights, consumer, and employment disputes and restore the ability and right of every citizen to use the courts to find justice.
Ian Milhiser, ThinkProgress:
[T]he Supreme Court effectively eliminated all consumer class actions and left corporate America free to cheat every single one of their customers a few dollars at a time. Scalia’s opinion in AT&T Mobility v. Concepcion permits corporations to refuse to do business with anyone who refuses to sign away their right to bring a class action lawsuit if the corporation breaks the law. After Concepcion, it is only a matter of time before nearly every credit card provider, cell phone company, mail-order business or even every potential employer requires anyone who wants to do business with them to first give up their right to file a class action.
Learn more about the case
here.
[HT: mrbeen38 got here first.]
