On April 27 the U.S. Supreme Court issued its decision in AT&T Mobility v. Concepcion, overturning the Ninth Circuit and holding that a rule articulated in a Supreme Court of California case is preempted by the Federal Arbitration Act (FAA). The decision "cuts the heart out of class actions," which are an important mens of enforcing consumer rights, said John Montevideo, President of Consumer Attorneys of California.
“Folks with small claims against big corporations won’t be able to have their grievance heard anywhere," said Montevideo in a press release reacting to the decision on the CAOC website. "And corporations will be able to get away with wrongdoing that is wide in scope, but not individually severe enough to warrant a lawsuit by a single consumer.”
In Concepcion, a group of consumers sued AT&T for for charging them sales tax on cell phones that were advertised as "free." While each individual claim was only about $30, the aggregations of thousands of similar claims made the case worth millions. AT&T sought to compel the Concepcions to arbitration under the provisions of the agreement they'd signed with the cell phone company. A federal district court judge, who was later affirmed by the Ninth Circuit, interpreted California law to render the arbitration clause unenforceable because did not allow for class action arbitration proceedings. A majority of the high court's conservative justices have now ruled the California law is preempted by federal statutes.
An earlier California case, Discover Bank v. Superior Court, had ruled that arbitration clauses are unconscionable when they exempts a responsibility for its fraud or willful injury of another. This decision was frequently cited in California to strike down arbitration clauses that limited consumers' access to courts. The U.S. Supreme Court has now said in Concepcion that state laws, including decisions by state courts, cannot maintain a policy against arbitration and use this as the basis for striking down an arbitration clause.
Importantly, however, the Court left open the possibility that arbitration clauses could be struck down as unconscionable. There is still some uncertainty as to what effect this case will have on the ability of consumers to use the class action device. Whatever its effect, Montevideo views the decision as an example of the federal government overstepping its bounds. "The U.S. Supreme Court is telling us that our way of justice, which favors the rights of the individual over the wrongdoing of corporations, is the wrong way," he said. "They’re forcing upon us a creed that favors business over people, and puts ill-gotten profits ahead of justice." Organizations like the National Association of Consumer Advocates argue that the FAA should be amended to require arbitration agreements be signed after a dispute has arisen.
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