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.