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US Supremes deal death blow to class action lawsuits

States' rights turned on their head

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The US Supreme Court has granted a whopping victory to AT&T, the US Chamber of Commerce, and supportive corporations, by reversing previous court decisions that had prevented corporations from requiring individual arbitration of customers' complaint.

By issuing its 5-4 decision on Wednesday, the Court has essentially stripped away individuals' rights to band together in class-action lawsuits should a corporation choose to include an arbitration requirement in its contracts or licensing agreements.

At core, the Court has ordered that the decisions of the lower courts, which were based on a previous California Supreme Court decision in Discover Bank v. Superior Court of Los Angeles, are preempted by the US Federal Arbitration Act – a sort of states-rights-in-reverse decision by the Court's conservative majority.

The Court's 18-page decision was written by Justice Antonin Scalia and joined by Chief Justice John Roberts and Justices Anthony Kennedy, Samuel Alito, and Clarence Thomas, who also supplied his own six-page concurring opinion. Justice Steven Breyer, joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan, provided a 12-page dissenting opinion.

The lawsuit that wound its way through lower courts only to finally make it to the black-robed justices in Washington DC was fundamentally a dumb one – and a textbook case in how a seemingly insignificant issue can morph into a dispute with a much more far-reaching effect.

In early 2002, California residents Vincent and Liza Concepcion signed up with AT&T Mobility. In 2006, the Concepcions took advantage of an AT&T service that advertised free phones, but for which AT&T charged the Concepcions $30.22 in sales tax for those handsets. The couple then filed a complaint with the US District Court for the Southern District of California, and their complaint was soon lumped into a larger "putative class action", as the US Supreme Court called it, which among other things charged AT&T with false advertising – and the saga began.

The contract that the Concepcions had signed had buried deep inside it the requirement that any such complaints would be handled in one-on-one arbitration. In response to the Concepcions moving their complaint into a class action, AT&T called upon the district court to compel arbitration. That court denied AT&T's motion, saying that the arbitration agreement was "unconscionable and unlawfully exculpatory under California law because it disallowed classwide procedures."

An appeals court upheld the district court's ruling, and AT&T took the matter to the US Supreme Court – which is how $30.22 became the beginning of the end for class-action complaints against corporate entities who'd prefer to shield themselves from them by requiring one-on-one arbitration.

And what corporation wouldn't? A study reported by the consumer-advocacy group Public Citizen has shown that businesses prevailed a rather impressive 96.8 per cent of the time in "Business-initiated contract cases handled by the National Arbitration Forum in which an arbitrator was appointed."

As TechDirt's legal-issues blogger – the even-handed Mike Masnick – points out, businesses get to choose or approve the arbitrator in the vast majority of such arbitrations. "Unlike the court system, the arbitrator is being paid for by the parties," Masnick writes, "and if that arbitrator wants to get more business, he or she is going to view the party likely to hire him or her in the future more favorably."

Class-action suits, on the other hand, are commonly trial-by-jury affairs, and juries tend to be far more sympathetic to stories of the "little guy" being railroaded by "big money".

AT&T told CBS news that the Supreme Court's ruling was a victory for consumers. "We value our customers, and AT&T's arbitration program is free, fair, fast, easy to use, and consumer-friendly," the company said.

Deepak Gupta of Public Citizen was less sanguine. "The U.S. Supreme Court dealt a crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts," he said.

In his dissent, Jusctice Breyer wrote that "the Court is wrong to hold that the federal Act pre-empts the rule of state law," and that "we should think more than twice before invalidating a state law..."

More specifically, Breyer argues that "California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the State does not adopt a special rule that disfavors arbitration."

We find it ironic that at a time when the US Chamber or Commerce and other conservative organizations are using states'-rights arguments against the Obama Administration's Patient Protection and Affordable Care Act, which they shorten to the pejorative of "Obamacare", the conservative wing of the US Supreme Court, joined by putative centrist Justice Kennedy, has voted to invalidate a state law – and, by extension, all such state laws – that is objectionable to a large swath of corporate America. ®

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