The Corporate Court Strikes Again: By 5-4, Supreme Court Undermines Class Action Consumer Protection Suits

Yesterday at the Supreme Court, the five conservative Justices on the Corporate Court handed corporate interests even greater control than before over Americans' daily lives. In AT&T v. Concepcion, a narrow 5-4 majority used a federal arbitration law in a way wholly alien to its intent: to undermine state consumer protection laws across the country. Even worse, under yesterday’s precedent, employers may now be able to easily cut off anti-discrimination enforcement through class action lawsuits – often the only way to address employment discrimination – by simply refusing to hire anyone who does not agree to resolve future conflicts through arbitration clauses that contain a ban on class action.

This case started when AT&T allegedly scammed thousands of customers by offering a "free" second phone, then charging them for the taxes on the undiscounted price of the phone. One of its victims brought a class action suit against the company. However, AT&T had a service contract where consumers had to agree to resolve any future claims against the cell phone company through arbitration, rather than the courts. In addition, customers had to agree not to participate in any class action against the telecommunications giant. So AT&T asked the court to enforce the agreement it had imposed upon the Concepcions by throwing out the class action suit and forcing them into arbitration, one lone family against AT&T suing for a few dollars without the protections of courts of law or neutral judges.

Under California law, the contractual prohibition against class action is so outrageous as to be illegal. California recognizes that such provisions effectively protect companies from being held liable for their transgressions and that they are able to force them upon consumers only because of the corporations’ vastly superior bargaining position.

But the Roberts Court said this state protection of consumers is preempted by the Federal Arbitration Act, which generally encourages courts to compel arbitration in accordance with the terms of arbitration agreements.

Many of us have gotten incomprehensible bills from giant telecom companies with relatively small charges for services never ordered, or mysterious taxes or fees that the company should not be charging. Unfortunately, the vast majority of consumers who are cheated in these situations don't even realize it. Moreover, because the amounts at issue are relatively small, there is little incentive for consumers to undertake the significant expenses of recovering their loss. Even when the company pays out to the tiny percentage of defrauded customers who go to the trouble to engage in lone arbitration against the company, the overall scheme remains profitable.

That is why class actions are so important. They allow the entire universe of cheated consumers to recoup their losses, making possible the deterrent effect of a potentially significant financial loss to the deceptive corporation. In ruling for AT&T, the Roberts Court has devastated state-level consumer protections like California’s and essentially given corporations an instruction manual on how to commit rampant fraud against consumers. Beyond that, using the same interpretation of the Federal Arbitration Act, employers may be able to evade class-action discrimination lawsuits as well, putting all workers at risk.

Fortunately, unlike Citizens United, this Corporate Court gift to Big Business rests on an interpretation of a statute, not the Constitution. In other words, Congress can fix this problem with a simple bill. Senate Judiciary Committee Chairman Patrick Leahy has already called on Congress to do just that.

PFAW