Consumer Law & Policy Blog

The New York Times on AT&T Mobility v. Concepcion

This editorial appears in today's New York Times:

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.

Erwin Chemerinsky on AT&T v. Concepcion

Erwin Chemerinsky -- dean of the UC Irvine School of Law, scholar of federal jurisdiction, and an accomplished appellate advocate -- has this op-ed in the Los Angeles Times on the Supreme Court's decision in AT&T Mobility v. Concepcion.  Here's a taste:

The Supreme Court, with the five conservative justices constituting the majority, held that the Concepcions could not be part of a class-action suit but instead had to go to arbitration. The practical reality is that no such claim is ever likely to be brought. As Justice Stephen G. Breyer noted in the dissent: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? . . . ' 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.'"

Class actions exist precisely for this situation, in which a large number of people lose a small amount of money and none is likely to bring an individual claim. The effect of the Supreme Court's decision is to make it far less likely that corporations engaged in even massive fraud will be held accountable when many people lose a little.

Diane Rehm Roundtable on the CFPB's Future

This morning, the Diane Rehm show on NPR hosted a roundtable discussion on "The Future of the Consumer Financial Protection Bureau," featuring Travis Plunkett of the Consumer Federation of America; Maya Jackson Randall, a financial reporter for Dow Jones Newswires; and Mark Calabria, director of financial regulation studies at the Cato Institute.  The show also features a call-in interview with Rep. Barney Frank. Listen here.

The Onion on AT&T v. Concepcion

The Onion asks people on the street for their take:

The U.S. Supreme Court ruled last week that companies could force dissatisfied customers into individual arbitration and prevent them from banding together in a class-action lawsuit. What do you think?

More coverage of AT&T v. Concepcion

Despite the jam-packed news cycle -- the royal wedding, the birth certificate, tornadoes, Osama bin Laden -- there's been a flood of outraged coverage of the Supreme Court's decision in AT&T v. Concepcion. SCOTUSblog rounded up some of the coverage here and here.  Here's a small sampling:

• Byron Williams, While you were away, the Supreme Court did it again, San Jose Mercury News
• Nan Aron, The Corporate Court Does It Again, Huffington Post
• Sacramento Bee editorial
• San Francisco Chronicle editorial
• Times-Union editorial
• Kansas-City Star editorial
• Steve Berk, Consumers Lose Again, The Corporate Observer
• Jeff Gelles, Supreme Court takes a big step toward shutting consumers out, Philadelphia Inquirer
• Nathan Koppel, Will Federal Consumer Bureau Ride to the Rescue of Class Actions?, The Wall Street Journal
• Lawrence Cunningham,SCOTUS AT&T Opinion Par for the Rhetorical Course, Concurring Opinions

Return of the Arbitration Fairness Act

Senators Al Franken and Richard Blumenthal, along with Rep. Hank Johnson, announced today their plan to reintroduce the Arbitration Fairness Act in response to today's Supreme Court's decision in AT&T v. Concepcion. The bill, first introduced in 2007, would ban forced arbitration clauses in employment, consumer, and civil rights cases. It has faced heavy opposition from business interests, including the Chamber of Commerce.

In a statement, Franken said that the Supreme Court's decision in Concepcion "essentially insulates companies from liability when they defraud a large number of customers of a relatively small amount of money," and that the law would allow consumers to continue to "play an important role in holding corporations accountable."

In AT&T v. Concepcion, U.S. Supreme Court Deals Crushing Blow to Consumers

by Deepak Gupta

This morning, the U.S. Supreme Court dealt a crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts.

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.

In a 5-4 vote, the justices held that corporations may use arbitration clauses to cut off consumers and employees’ right to band together through class actions to hold corporations accountable.

Class actions are an essential tool for justice in our society. Brown v. Board of Education was a class action. The fate of class actions should not be decided through the fine print of take-it-or-leave-it contracts.

The court’s decision today turns the Federal Arbitration Act of 1925 – a law that was intended to facilitate private arbitration between sophisticated companies – into a shield against corporate accountability.

Today's decision will make it harder for people with civil rights, labor, consumer and other kinds of claims that stem from corporate wrongdoing to join together to obtain their rightful compensation. 

Justice Breyer asks the critical question:  "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? Why is this kind of decision—weighing the pros and cons of all class proceedings alike—not California’s to make?"

A Pair of Arbitration Articles

Thomas V. Burch of Florida State University has written Regulating Mandatory Arbitration, Utah Law Review.  Here's the abstract:

Over the last twenty-five years, the Supreme Court has relied on party autonomy and the national policy favoring arbitration to expand the Federal Arbitration Act’s scope beyond Congress’s original intent. Choosing these loaded premises has allowed the Court to reach the outcomes it desires while denying that it is making any political or moral judgments in its decisions – a type of bureaucratic formalism. One controversial outcome of the Court’s formalism, overall, has been the increased prevalence of mandatory arbitration. Although it reduces judicial caseloads and lowers companies’ dispute-resolution costs, it also restricts or eliminates individual rights and reduces public regulation of the companies that require it. The Court has supported the spread of mandatory arbitration despite these negative effects.

Because of the Court’s support, the parties being subjected to mandatory arbitration began asking lower courts for relief through the unconscionability doctrine in the early 1990s. And because the unconscionability doctrine could not provide the wide-scale relief they wanted, they also turned to Congress, convincing its members to introduce 139 anti-arbitration bills since 1995 – the majority of which proposed eliminating mandatory arbitration. A review of these efforts, including an original survey of these bills, reveals that these parties have been disregarding mandatory arbitration’s public benefits in favor of a rights-oriented, liberal approach that rejects regulation as a possible way to improve mandatory arbitration’s overall fairness.

This Article shows that both the Supreme Court’s and the reform advocates’ approaches to mandatory arbitration are flawed. It makes more sense, at least for now, to continue mandatory arbitration’s use while improving its overall fairness through legislative or agency regulation. Regulating mandatory arbitration with the goal of improving its fairness is consistent with pragmatic principles and is superior to the Supreme Court’s formalism and the reform advocates’ liberalism in the current mandatory-arbitration context. Taking this approach will allow us to study mandatory arbitration over time before deciding whether to eliminate it – a fair way to proceed given the importance of the rights at stake and the positive effects that mandatory arbitration can (possibly) have on the public good.

And Hiro N. Aragaki of Fordham Business adds Equal Opportunity for Arbitration, 58 UCLA Law Review.  The abstract follows:

Despite talk of a “federalism revival,” state law is quietly losing ground in the Supreme Court, and the arbitration area has proven to be no exception. As currently interpreted by the lower courts, the Federal Arbitration Act (FAA) is on course to preempt a vast array of state laws that serve important public interests, often with minimal intrusion on the arbitral process. Numerous petitions for certiorari have recently been filed in the wake of these developments. But except in the case of AT&T v. Concepcion (currently pending on the merits), the Supreme Court has denied all of them, leading many to call for Congressional intervention. The bitterly debated “Arbitration Fairness Act of 2009” is just the latest response to this controversy.

This Article offers a new theory for thinking about the extent to which the FAA should preempt state law. It deepens the work I began elsewhere, which is to reinterpret the Court’s FAA preemption jurisprudence as a principle of equal opportunity for arbitration. This enables me to reframe the current phenomenon of overpreemption in terms of a basic misapprehension of that principle rather than, as is traditionally supposed, in terms of the courts’ dogmatic “favoritism” toward arbitration.

I argue that a more sophisticated engagement with that logic will help courts fulfill the FAA’s mandate without inevitably displacing state law just because it happens to invalidate arbitration agreements. Considering controversial examples from the recent past, I conclude with concrete guidance for how my proposed model might be implemented in practice.

 

Supreme Court Rules 5-4: Cell Phone Provider May Not Ban Class Actions By Consumers

by Deepak Gupta

In a 5-4 decision, the Supreme Court has ruled that a consumer class action against a cell phone company may proceed -- despite a contract that purports to require arbitration and ban class actions. 

This is a big victory for consumers. The opinions of the Justices are available here.  Here are some of the latest headlines:

• Contracts can't stop class actions, top court says 
• Supreme Court says . . . consumers can join class actions despite signed contracts
• Consumers can't sign away class-action right

Read on for more details...

Conference on The Future of Arbitration (March 17th and 18th at GWU)

On March 17th and 18th, Alan Morrison and Roger Trangsrud of George Washington University Law School are hosting a conference on "The Future of Arbitration." 

I'll be speaking (on class-action bans), along with co-bloggers Brian Wolfman and Paul Bland. If you're based in D.C., or if you're in town for the Consumer Assembly, I hope you'll attend. Here's a description of the program:

Over the past several decades, the Federal Arbitration Act (FAA) has been increasingly used by businesses to divert claims from the courts into the arbitral forum that they consider more favorable to them, which in many cases means that, as a practical matter, the claims will never be brought.  In almost every case, the Supreme Court has upheld the position of the person arguing that unwilling parties who signed agreements containing a mandatory pre-dispute arbitration provision can be required to pursue their claims in arbitration. 

Since the enforceability of such agreements is governed by the FAA, Congress can amend the FAA if it believes that those decisions produce undesirable results. The purpose of this conference is to debate the key policy questions surrounding various aspects of arbitration. The program will not be about what the FAA now permits and requires, but what it should permit and require.

A list of panel discussions and times is below the jump.  All sessions will be held in the Jacob Burns Moot Courtroom.