Sunday, May 8, 2011

Class Actions Limited as U.S. Supreme Court Supports AT&T

Class Actions Limited as U.S. Supreme Court Supports AT&T

A divided U.S. Supreme Court bolstered the ability of businesses to channel customer and employee complaints into arbitration, ruling that companies can block people from pressing those claims as a group.

Voting 5-4 along ideological lines, the court said an AT&T Inc. (T) unit can enforce a contract provision that requires its wireless customers to press any claims individually in arbitration. The majority said a U.S. arbitration statute trumps a California law that would have invalidated the provision.

The case may affect tens of millions of arbitration agreements in California alone, including provisions in employment agreements, consumer loan applications and cable- television contracts. The ruling will also help companies in at least 18 states where companies now are restricted or barred from requiring consumers to accept class-action bans.

“It changes the law completely” in those states, said Alan Kaplinsky, chairman of the consumer financial services practice at Ballard Spahr LLP in Philadelphia.

Justice Antonin Scalia said in his majority opinion that class actions would interfere with “fundamental attributes of arbitration,” including its streamlined nature.

“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,” Scalia wrote.

Customer Complaint

The fight stemmed from a complaint against AT&T Mobility LLC by Vincent and Liza Concepcion, who say they were improperly charged about $30 in sales tax on a mobile phone AT&T advertised as free. A federal appeals court said the class-action ban in their agreement with AT&T was “unconscionable” under California law.

The Supreme Court said the state law ran afoul of the 1925 Federal Arbitration Act, which says courts must enforce arbitration accords the same as any other contract.

The high court “dealt a crushing blow to American consumers and employees,” said Deepak Gupta, Concepcions’ Supreme Court lawyer.

“Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices,” said Gupta, a lawyer with Public Citizen, a consumer-advocacy group.

‘Victory for Consumers’

“This is a victory for consumers,” AT&T said in a statement. “The court recognized that arbitration often benefits consumers.”

The company said that its arbitration program is “free, fair, fast, easy to use and consumer-friendly.” Under its program, the company must pay a minimum of $7,500 if the arbitrator issues an award greater than AT&T’s last settlement offer.

Amazon.com Inc. (AMZN), Earthlink Inc. (ELNK), DirecTV (DTV) Inc., Comcast Corp. (CMCSA), Dell Inc. (DELL) and the U.S. Chamber of Commerce all filed briefs supporting AT&T.

The justices divided over the reach of the federal arbitration law. Scalia said earlier high court rulings “place it beyond dispute that the FAA was designed to promote arbitration.”

Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy and Samuel Alito joined Scalia in the majority. Thomas, a states-rights advocate in other contexts, said he joined the lead opinion “reluctantly” and would have preferred a greater focus on the federal statute’s language.

Arbitration Benefits

The court’s four Democratic appointees -- Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan -- dissented. Breyer said California’s law was “of no federal concern so long as the state does not adopt a special rule that disfavors arbitration.”

Scalia spent much of his 18-page opinion making the case that class actions would undermine the benefits of arbitration. He said class arbitration “greatly increases risks to defendants” because it involves less rigorous appellate review than traditional litigation.

“Arbitration is poorly suited to the higher stakes of class litigation,” Scalia wrote.

Breyer said class arbitration was more efficient than a traditional court class action. “And a single class proceeding is surely more efficient than thousands of separate proceedings for identical claims,” he wrote.

Breyer raised the prospect that many customers won’t press claims if forced to do so individually. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” he asked.

Increase Predicted

The ruling probably will mean that more companies will require workers to go to arbitration and to press claims there as individuals, said Gupta, the Concepcions’ lawyer.

“They’re increasingly common, and I hate to say this, but they’re going to be much more common now,” Gupta said.

Already, so-called class action waivers are ubiquitous in consumer arbitration agreements, said Kaplinsky, who began drafting that type of provision for corporate clients a decade ago.

“If you were to find a consumer arbitration agreement today that didn’t have a class action waiver, it would be shocking,” Kaplinsky said. “Just about all of them have that language.”

The case is AT&T Mobility v. Concepcion, 09-893.

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