The Court upheld a class action ban included in a pre-dispute mandatory binding arbitration agreement, despite it violating state law.
Designed to resolve business-to-business disputes quickly and outside the court system, arbitration is now required routinely in credit card, employment, cellphone, internet, home construction, medical, nursing home admission, and many other consumer contracts. Arbitration does not provide the same protection as court, can be prohibitively expensive, and usually requires participants to waive important legal rights. Many arbitration agreements specifically ban class actions, which are often the only way to redress illegal practices that cost individuals small amounts but in the aggregate may reap huge ill-gotten profits.
The Concepcions filed a class action lawsuit over an advertised “free” phone that actually cost $30.22 in taxes. AT&T sought to compel arbitration on an individual basis, citing the class action ban in the arbitration clause in the contract to purchase the cellphone.
AARP joined other consumer advocates in a “friend of the court” brief arguing that the federal law favoring arbitration does not preempt state law, traditionally applied to interpret and enforce contracts. Filed by attorneys with AARP Foundation Litigation, the brief provided examples of laws preventing fraud, unfair, abusive, and deceptive practices in the marketplace, or prohibiting discrimination that are impossible to enforce unless litigated as class actions, because the effort and expense of litigation far exceeds the possible recovery for an individual claim. Class actions bans will likely eliminate enforcement of laws designed to protect people through private enforcement of those laws.
A bare 5-4 majority of the Court extolled the virtues of individual arbitration for a corporate defendant, and declared the supremacy of the Federal Arbitration Act (FAA) over state laws meant to protect their citizens from arbitration clauses that unfairly exculpate corporations. Ironically, the majority recognized that the informal procedures and lack of judicial review in arbitration may result in uncorrected errors, which when aggregated in class actions “greatly increases the risks to defendants” and expressed concerns that an arbitrator cannot be entrusted to protect the due process rights of absent class members. The majority failed, however, to give any consideration to the risk its decision will have on consumers.
The dissent echoed many of the arguments made in AARP’s brief. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” it asked, and reiterated longstanding legal principles that protect state contract and unfair business practices laws from preemption.
What’s at Stake
The ruling permits businesses to force consumers and employees into an individual arbitration process. Most people will be precluded from challenging wrongs because of the time and expense of individual cases. Worse, corporations will not be deterred by the prospect of having to repay ill-gotten gains AARP is involved in litigation seeking to protect consumers and employees, all of whom could now be forced into arbitration on an individual basis, in cases involving nursing homes, cruise lines, payday lending, and cell phones..
It is now up to Congress to protect consumers and employees.
AT&T Mobility LLC v. Concepcion is remanded to the state court.