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The Spectacle Blog
The Supreme Court handed down a ruling today in AT&T Mobility v. Concepcion, holding that the Federal Arbitration Act preempts a rule in California state contract law that nullifies class-action waiver clauses (I know, your eyes are glazing over already, but bear with me). You wouldn’t know it from much of the coverage, which portrays this as a victory for corporations over consumers, but it is in fact a victory for consumers over attorneys.
The issue is whether a company can write a contract in which customers waive their right to join class action lawsuits in favor of arbitration under the FAA. The arguments against this assume that the class action lawsuits are inherently superior to arbitration. In fact, class action lawsuits have proven extremely prone to abuse; settlements often lead to massive paydays for the lawyers while members of the class receive trivial compensation (sometimes just a coupon). Ted Frank of the Center for Class Action Fairness, which regularly sues to rectify such abuses, explained this in November when the Court heard arguments in this case:
The general argument against arbitration is that it forces consumers into uneconomic proceedings, but no one can make that complaint about the AT&T Mobility contract, where the company agrees to pay the cost of the arbitration, not to seek attorney’s fees, and to pay a bounty if the arbitral award exceeds a written settlement offer. (And it’s telling how bad the class-action system is if a corporation is willing to agree to such consumer-friendly dispute resolution procedures in an effort to avoid it.) Nevertheless, the Ninth Circuit considered it “unconscionable.”
…In every single one of my cases, my clients would have been better off, ex ante, with the AT&T Mobility arbitration provision than with what class action attorneys negotiated for them-even aside from the lower prices they would have realized in 90% of those cases. The fact that the arbitration provision does not provide classwide relief is hardly relevant: if hundreds of consumers bring identical claims under arbitration because the company is treating consumers uniformly unfairly, AT&T Mobility will eventually find it profitable to accommodate those complaints.
For a trip to Bizarro World, check out the absurd spin at the Center for American Progress’s site ThinkProgress, which claims the Court has “Nuke[d] Consumers’ Rights.” I hope CAP gets plenty of money from tort lawyers; they’re certainly earning it.
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More Blog Posts by John Tabin
http://spectator.org/blog/2011/04/28/consumers-win-in-allegedly-ant
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George S| 4.28.11 @ 12:19PM
Yes, my eyes did glaze over, not of boredom but resignation. Here we have federal act superseding state law where there is no interference of interstate commerce. In a sane world, SCOTUS would have struck down the Federal Arbitration Act where it interferes with state laws.
Jeff| 4.28.11 @ 12:27PM
Except Ted's clients couldn't afford to pay him to go to arbitration and the object of class actions isn't the payment, it's deterring illegal business practices. This ruling effectively puts a barrier on any consumer recovery at all for such practices.
Dave| 5.3.11 @ 7:26PM
Jeff gets it, too bad John Tabin does not.
United States of Corporations.
cb72| 4.28.11 @ 1:19PM
Class actions are fully consistent with individual arbitration. If you want to arbitrate your cell phone dispute with AT&T, you have always been free to do so, and opt out of the class action if one is pending. The question is whether there should be a collective remedy for something that few people are going to take on individually. Many states have said yes. But the Supreme Court says no.
True federalists should be outraged by this federal usurpation of states' rights. But they won't be, because they aren't really federalists, they just don't want business to have to answer for its wrongs. If you like unregulated capitalism, you should like this Supreme Court very much.
Willy| 4.28.11 @ 5:55PM
I like it.
urban legend| 5.5.11 @ 2:03PM
I.e., the ability of corporations to lie, cheat and steal with impunity. But people aren't able to do that with impunity, and I doubt you think they should be. Yet I thought corporations are now the same as people. Very confusing -- and confused.
Willy| 4.28.11 @ 5:55PM
After numerous "strike" suits filed by the plaintiff's bar involving common stocks which I owned, I have become a proponent of some other way to resolve these disputes. The current system only enriches the lawyers while the plaintiffs receive some marginal compensation, usually paid by the company involved just to avoid huge defense legal fees, regardless of liability. We need to pass "loser pays" laws to stop this. Until we do, the trial lawyers will continue to get rich at our expense(and continue to fund politicians who pretend to be for the little guy while pocketing millions screwing us).
San Diego Lemon Law Lawyer | 4.28.11 @ 11:25PM
The post doesn’t accurately capture issue at hand and the problem with the Supreme Court’s decision. While it is true that class action litigation has problems and in some (but not all) cases has been abused, there is a larger issue here, namely: whether ordinary people should be able to have their day in court if they think a business has tricked them, defrauded them, or otherwise treated them illegally.
Over the last 20 years many types of businesses that sell products to consumers (including car dealerships, cell phone companies, gyms, etc.) have been increasing their reliance on arbitration agreements to allow them to escape liability for their unfair and/or illegal business practices. They have inserted arbitration clauses into the fine print of their contracts (which no one ever reads, or is given the opportunity to negotiate) that include provisions that tilt the playing field in the businesses’ favor. Class action waivers (like the one the SCOTUS recently upheld) are only one of many attempts to prevent consumers from exercising their otherwise applicable legal rights.
Despite the fact that most Americans would find it unthinkable that a business could unilaterally prohibit them from seeking redress in a court of law, courts have slowly but surely permitted businesses to trick consumers into signing away their constitutional right to a jury trial.
In just the last month, I represented two consumers in California who were treated horribly by car dealerships (I am a “lemon law” attorney in San Diego, CA). In one case, the dealership literally stole the car owned by poor college student (who also happened to be a fine young man). The dealer “repossessed” his vehicle even though the student had never missed a single payment. The dealer did this because the student was a former employee, and the dealer was upset that he had traded in a car that later had mechanical problems, which the dealer had to pay to get fixed because the student (quite rightly) told them that a “deal was a deal” and the car belonged to the dealership now.
Is what the dealer did legal – no way. But the dealership had snuck an arbitration clause into the student’s contract saying that the case had to be arbitrated. When the court threw the student’s lawsuit out of court and said that the case had to be arbitrated, the student had no choice but to essentially give up. In order to prove that the dealership did what it did intentionally, he needed to conduct depositions in order to uncover evidence proving that the dealership’s conduct was an intentional act or retaliation. But since depositions are NOT allowed in arbitration, the dealership got away with it.
That is the primary reason why businesses like arbitration, it does not permit significant discovery. So consumers cannot prove their case.
A similar situation happened last month to a young family whose father is in the military. After the dealership defrauded him, I had to tell him that the system of justice he fought to defend wasn’t going to let him prove his legal claims against the dealer in Court. It’s just too unfair for words.
My point: there are valid criticisms about the laws that permit class actions and determine how they are conducted, but the proper response to those problems is to address them directly – don’t prevent ALL consumers from having their day in court if they claim they have been tricked or defrauded.
Ed in North Texas| 5.2.11 @ 11:48AM
San Diego Lemon Law Attorney believes arbitration agreements will enable corporations to avoid the consequences of their illegal activities. I'm not sure what law school this person allegedly attended, but I don't believe I can recollect an instance where arbitration agreements enabled avoidance of criminal prosecution. But maybe in California...
urban legend| 5.5.11 @ 2:11PM
What is there in the words "their day in court" you don't understand? Did Lemon Law Lawyer say anything whatsoever about criminal proceedings?