Safeguarding Corporate Interests from America’s Citizenry One Terrible Decision at a Time

By Jeff Thorn

In an April 27, 2011 decision, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the Supreme Court dutifully returned to its most pressing recent work: sticking it to the little guy. The Court “green lighted” corporate contracts which bar consumer class actions nationally, and tilted the legal playing field toward corporate giants, even in advance of its Wal-Mart Stores, Inc. v. Dukes decision.

Background: AT&T v. Concepcion

AT&T v. Concepcion arose from AT&T’s charging Vincent and Liza Concepcion $30.22 in sales taxes for a phone the company advertised as free. The Concepcions alleged fraud and false advertising, bringing an eventual class action complaint in California federal court, rather than a bilateral arbitration as mandated in their AT&T sale and service contract. The Concepcions argued that California law barred such contract provisions as unconscionable.

Justice Antonin Scalia, writing for the five justice majority (the Chief Justice and Justices Kennedy, Thomas and Alito), opined that AT&T’s bilateral arbitration provision was entirely legal. Lower courts, in both the Southern District of California and the Ninth Circuit, had previously recognized that California state law (set forth in the California Supreme Court’s 2005 Discover Bank case) rejected, as unconscionable, contractual provisions barring class-wide arbitration in contracts of adhesion. The Supreme Court majority, however, reasoned that the Federal Arbitration Act [“FAA”] §2 – with its “principal purpose” to “ensure that private arbitration agreements are enforced according to their terms“ – preempted the California Discover Bank rule and allowed for exactly such contractual arbitration limitations.

The Ugly Innards

The Court’s majority lingered on the benefits of bilateral arbitration as an informal process, the danger of allowing consumers to demand class-wide arbitration ex post, and, tellingly, concerns that “class arbitration greatly increases risks to defendants.” The majority also made much of the “generous” benefits in AT&T’s arbitration provision. Those benefits – including a $7,500 premium for claimants winning an arbitration award greater than AT&T’s last settlement offer—might, or might not, be generous to individuals depending on implementation. But such benefits certainly help the everyday unrepresented, non-filing consumer less than a class action – whether in AT&T or future conflicts (where less attractive arbitration prizes will surely exist).
The majority opinion also unflinchingly dismissed the fact that California had limited the Discover Bank rule specifically to provisions in contracts of adhesion. In brutal honesty, Scalia acknowledged “the times in which consumer contracts were anything other than adhesive are long past.” In short, the majority recognized that consumers had neither bargaining power to alter terms before entering contracts, nor the right to challenge, effectively, those terms later by pooling resources.

The AT&T dissent, penned by Justice Stephen Breyer, emphasized that the California law “falls directly within the scope of the Act’s exception permitting courts to refuse to enforce arbitration agreements on grounds that exist ‘for revocation of any contract.’” Advancing – somewhat amusingly – under a federalist banner, the dissent further noted “we have not … applied the Act to strike down a state statute that treats arbitrations on par with judicial and administrative proceedings.” Pragmatically, the dissent also warned the decision would foster the abandonment of consumer claims, rather than supporting and streamlining generous corporate bilateral arbitration systems.

Dismantling the Class Action Mechanism: What Next?

Before the end of the day, America’s behemoth commercial law firms began publicly pushing clients to adopt AT&T-like arbitration provisions in consumer, employment, and other contracts.

In the meantime, just how far the AT&T decision reaches remains in question. Various commentators have declared the end of consumer class-action rights (or, precisely, class-action rights in consumer contract situations), and beyond. Other advocates have begun looking to other grounds (whether substantive federal laws, or other) for invalidating AT&T-esque class action waivers.

The AT&T decision in fact prompted immediate action by some members of Congress, who introduced The Arbitration Fairness Act of 2011, broadly banning mandatory pre-dispute arbitration agreements in consumer, employment and civil rights matters, and specifically eliminating class action waivers. Finally, others have noted the Consumer Financial Protection Bureau, newly operating as of July 21, 2011, has also been empowered to take action against anti-consumer provisions, though Congress may, in turn, upend any such decisions.

At present though, there’s just a tad less justice for the little guy.

Jeff Thorn is an Associate at Adkins, Kelston & Zavez, P.C. in Boston.