The Supreme Court on Wednesday limited the ability of people to combine forces and fight corporations together when they want to dispute contracts for cell phones, cable television and other services, a move consumer advocates called a crushing blow.
In a 5-4 ideological split, the high court's conservatives said businesses can block their customers from using class actions. The court said the federal arbitration law trumps state laws that invalidate contracts banning class actions.
The decision came in a dispute between AT&T Mobility and a California couple who objected to being charged around $30 in sales tax for what they were told was a free cell phone.
Businesses commonly require arbitration clauses in consumer contracts to protect them from facing their customers in court. The Supreme Court's decision means that corporations now won't need to worry about consumers, shareholders or even employees banding together and fighting them using lawsuits or arbitration, consumer groups said.
"Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices," said Deepak Gupta, a Public Citizen lawyer who argued the case.
Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, said the decision would hamper the rights of consumers to be protected by state laws.
"Class actions are an effective way to ensure consumer protection, but today's opinion by the Roberts court continued to move in a direction that undermines this access to justice for hard-working Americans," Leahy said.
Wireless provider AT&T Mobility, whose contracts brought about the decision, called it 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 in a news release.
Lawyer Jack E. Pace III said the ruling preserves arbitration for consumers.
"Arbitration can be an efficient, low-cost avenue for a consumer to bring a claim against a service provider, but if those claims easily could become sprawling class actions, what business would include an arbitration clause in its contracts?" said Pace, who works for the law firm White & Case.
Like many such contracts, the fine print of the agreement between AT&T and Californians Liza and Vincent Concepcion calls for all disputes to be settled by arbitration and prohibits customers from joining forces in a class action.
Under arbitration, two parties allow a third to resolve their dispute. Businesses prefer arbitration to lawsuits, which can be time-consuming and costly. Consumer groups prefer lawsuits over arbitration because of the openness of courtroom litigation.
A California law said that arbitration agreements that banned class actions could be considered unconscionable and unenforceable. The 9th U.S. Circuit Court of Appeals in San Francisco said that did not interfere with the federal law allowing arbitration, the Federal Arbitration Act.
But Justice Antonin Scalia, writing for the high court's majority, said it did. "The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly pre-empted," he said.
Scalia was joined in the judgment by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.
The court's four liberal-leaning justices, Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, dissented from the decision. Breyer said the high court should not have interfered with the state law.
"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," Breyer said.
The case is AT&T Mobility v. Concepcion, 09-893.