Are Consumer Class Actions In Danger of Becoming Obsolete?: Supreme Court Hears Oral Argument on the Pivotal Issue of Contractual Class Action Bans
On November 9th the business-friendly Roberts Court heard oral argument on the pivotal issue of whether the Federal Arbitration Act of 1925 preempts a state court’s ability to strike down a contractual class action ban. If the Court ultimately rules in AT&T’s favor, corporations will have the right to contractually prohibit consumers from pursuing class action relief. Meaning that, as confounding as it may sound, the next time you are presented with pages of endless fine print in connection with a purchase or service agreement, you could be unwittingly signing away certain legal rights, and be doing so as part of a perfectly legal transaction.
The case at issue, Concepcion v. AT&T Mobility, LLC was initially brought as a straightforward class action claim by a husband and wife who signed a contract with AT&T for wireless service under the guise that the contract would include two “free” cell phones, which in reality came with a litany of undisclosed service charges amounting to roughly $30. However, the seemingly simple case took on new and far more significant meaning when the U.S. District Court for the Southern District of California declined to dismiss the case on the grounds proffered by AT&T- that the Concepcions, in signing a fine print laden contract for their wireless service, had agreed to pursue arbitration and forego class action litigation in the event of a legal dispute.
When AT&T appealed the ruling in the 9th Circuit Court of Appeals the issue at hand was not whether or not the company had defrauded a class of consumers to the tune of $30 each, but whether a Federal Act reaching back to 1925 trumps a state’s court’s ability to rule that a ban on class action litigation is unconscionable. The subject Act protects arbitration provisions which are common in consumer contracts and require that a consumer resolve their legal disputes in the more informal arena of arbitration rather than seeking relief through the court system. However, this seemingly innocuous tool often translates in practice to an unfair advantage to corporations who, as was the case with AT&T's provision, can force plaintiffs to arbitrate at pre-selected, privately owned firms that may or may not be in the corporation’s back pocket. At the very least, such a provision denies consumers the right to select the vehicle with which to pursue their grievance. For these reasons, California courts have consistently found such binding arbitration provisions are unconscionable, and not surprisingly the 9th Circuit adhered to California precedent and affirmed the lower court’s ruling.
However, it is equally unsurprising that AT&T was not content to let the 9th Circuit’s ruling stand and sought Supreme Court review. While the Supreme Court granting review of the decision was a blow to consumers in and of itself, it remains unclear how the Court will rule following yesterday’s oral argument. This is a promising sign given the Court’s history of skepticism towards class actions and tendency to protect arbitration provisions. Fueling the Court’s uncertainty may be the fact that ruling in favor of AT&T’s preemption argument would require it to affirmatively reject the California Supreme Court’s holding that class action waivers in form contracts are unconscionable, a proposition that prompted the notoriously conservative Justice Scalia to ask “are we going to tell the State of California what it has to consider unconscionable?”.
That said, the conservative Court could go either way and a victory for AT&T could have devastating and far-reaching consequences for consumer rights as it would leave many consumers with no legitimate redress for corporate harms. Although, perhaps even more concerning is the likelihood that deceptive business practices will increase exponentially without the threat of class action litigation to serve as a deterrent.
I think it would be a violation to ban consumer class actions. Class action suits are a legitimate way of keeping big businesses in check.