The U.S. Supreme Court, in a recent ruling, handed businesses such as AT&T a major victory by upholding the use of arbitration for customer disputes rather than allowing claims to be brought together as a group.
By a 5-4 vote, the Supremes ruled that the corporation could enforce a provision in its customer contracts requiring individual arbitration and preventing the pooling together of claims into a class-action lawsuit or class-wide arbitration. The plaintiffs, Vincent and Liza Concepcion, filed their class-action lawsuit in 2006, claiming they were improperly charged about $30 in sales taxes on cell phones that the AT&T Mobility wireless unit had advertised as free.
Companies and large corporations love arbitration because it is a less expensive way of settling consumer disputes, as opposed to costly class actions, which allow customers to band together and protect their interests as consumers. Customer arbitration agreements are widely used by cell phone carriers, cable providers, credit card companies, stock brokerage firms and other businesses. These arbitration agreements are so common now, they appear in almost every contract between a corporation and a consumer. They usually appear buried in the fine print of a lengthy contract agreement and consumers typically do not understand what they are signing away when signing the contract.
This may be the most important class action case ever decided by the Supreme Court because it has the potential to permit companies to escape class action liability in almost all of their activities. Not surprisingly, shares of AT&T closed up 1.55 percent at $31.42 on the New York Stock Exchange after the recent Court announcement.
AT&T praised the ruling, saying the Supreme Court recognized that arbitration often benefits consumers. "We value our customers, and AT&T's arbitration program is free, fair, fast, easy to use, and consumer-friendly," the company said. Most consumer advocates denounced the decision because class actions have been an essential tool to achieve justice in our society.
AT&T had argued that a federal law that encourages the use of arbitration, the Federal Arbitration Act, trumped a California consumer protection law at issue in the case.
In its ruling, the Supreme Court's conservative majority agreed."The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly preempted," Justice Antonin Scalia said for the majority in reading his opinion from the bench. Scalia cited a federal judge's conclusion in the case that the couple was better off under the AT&T arbitration agreement than under a class action, which could take months or years and could result in their winning just a small amount of money.
The ruling, which reversed a decision by a U.S. appeals court in California, was the latest in a series by the Supreme Court in recent years that generally favored arbitration.
The court's four liberal justices dissented. "The Court is wrong to hold that the federal act preempts the rule of state law," Justice Stephen Breyer wrote in dissent. It is somewhat ironic that the majority, who claim to be advocates of States’ Rights, decided in favor or preemption.
The Supreme Court case is AT&T Mobility v. Concepcion, No. 09-893.
