Arbitration v. Class Action: The Supreme Court Hears AT&T v. Concepcion

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Illustrator Izhar Cohen's take on Class Action Lawsuits

The AT&T class action case being tried in the Supreme Court is starting to get more media coverage. Initially, though, it got about as much attention as the fine print in a cell phone contract—which, coincidentally, is what this case is about. And this case is certainly worthy of attention: the ruling could ultimately affect anyone who has ever created or signed a contract with a business.

The Case
The question at hand in AT&T Mobility v. Concepcion is whether companies can use arbitration clauses to prohibit class actions. The case revolves around Vincent and Liza Concepcion, who purchased an AT&T wireless plan that came with a free phone, only to find they had been charged $30.22 in sales tax on the “free” phone.

According to the Wall Street Journal, the Concepcions sued AT&T for deceptive practices, “because the company allegedly advertised discounted cell phones but charged sales tax on the full retail price.” But since lawyer’s typically don’t take cases for $30.22, the Concepcions sued “on behalf of a class of consumers who’d also allegedly overpaid.”

AT&T says the case should never have gone to court, because of the clause in the Concepcion’s contract dictating that any disputes should be solved in arbitration, and that the arbitration could not “move forward as a class”.

If it were just a simple case of breach of contract, it would hardly have made it to the Supreme Court. AT&T Mobility v. Concepcion gets complicated by the fact that both a California a federal district court and the federal 9th circuit court heard the case, and struck down the contract. However, Andrew Pincus, the lawyer representing AT&T, says that even this decision is unfair given the existing Federal Arbitration Act.

The Impact
So can state laws trump federal arbitration rules? Currently, the 1925 Federal Arbitration Act requires two sides to solve their dispute through arbitration rather than in court if they have previously agreed to do so. Meanwhile, the LA Times reports that “high courts in California and elsewhere have ruled that class-action bans are unconscionable and contrary to public policy.” The Supreme Court judges are currently deciding whether California applied its laws unfairly, which will determine the reach of the arbitration act.

Many have commented that this court often rules in favor of arbitration and is wary of class actions, but from early reports the justices seem to be in favor of deferring to State courts.

A ruling in AT&T’s favor could signal the death of class action suits as we know them. That’s because, according to Vanderbilt Law associate professor Brian Fitzpatrick, “previous court decisions mak[e] personal injury class actions very difficult to certify”, meaning that the majority of all remaining class action lawsuits are “between parties who are in transactional relationships with one another.”

Consumers and employees risk being put in an all-or-none situation where they must sign a contract and waive their rights to a class action suit. And class action suits are important, as they give consumers recourse to take a company to court for a defective product or faulty practices, and they give lawyers incentive to take on cases that wouldn’t be worth it.

Public Citizen attorney Deepak Gupta, who is representing the Concepcions, claims that the threat of class actions keeps companies in line: “the marketplace is fairer for consumers and workers because there’s a deterrent out there.”

Then again, a ruling against AT&T could signal the death of arbitration provisions that are commonly found in many standard contracts. If companies can’t be guaranteed the right to  arbitration once they’ve contractually agreed to it, they may add more stipulations or clauses to protect themselves, and even drive up their prices to secure themselves against class actions.  Those on the side of arbitration— companies in particular— say that filing claims with a private arbiter is cheaper and more efficient than a lawsuit.

While the arguments have already been heard, we won’t hear the justices’ decision till 2011. Whichever way the court decides, you can be sure it’ll affect your business and personal life.

You can find the illustration on Izhar Cohen’s blog, My Window.

Posted in: Consumer, Law