The U.S. Supreme Court recently decided that a sex discrimination case
brought by female employees against Wal-Mart cannot go forward as a class
action (Wal-Mart v. Dukes). The case has attracted considerable public
attention. It is generally understood as a massive victory for big business.
However, Wal-Mart is not the only recent Supreme Court class action ruling
which represents a giant win for corporate America. On April 27, 2011,
the Court decided AT&T v. Concepcion. The court held that California
consumers could not bring a class action against AT&T for fraudulently
charging them sales tax on “free” phones. The decision in
that case was at least as extreme and harmful to consumers as the Wal-Mart
case, but it has received comparatively little attention.
AT&T began when Vincent and Liza Concepcion, a California couple, bought
a cell phone plan from AT&T. The plan supposedly included a free phone.
The problem was, the phone really wasn’t free – AT&T charged
them sales tax on the retail price of the phone. The Concepcions then
sued in California federal court. Their case was then consolidated into
a class action. That class action, not surprisingly, charged AT&T
with fraud and false advertising for charging sales tax on “free” phones.
AT&T’s response was straight out of the corporate playbook: it
trotted out the fine print in the Concepcion’s sales contract. That
fine print required disputes to be resolved in private arbitration and
prohibited class actions. AT&T then argued that the case could only
be decided through an individual and private arbitration.
The federal trial court and appeals court didn’t buy AT&T’s
argument. Both concluded that the arbitration provision was so unfair
under the circumstances (“unconscionable,” to use lawyer speak)
that it could not be upheld under California law. The class action was
permitted to go forward.
AT&T may not have had friends in California, but it did have friends
in Washington. AT&T appealed to the U.S. Supreme Court, arguing that
its arbitration requirements were perfectly acceptable and should be enforced
to thwart a class action. The Supreme Court agreed.
The Supreme Court’s AT&T decision is like a rotten onion: the
more layers you peel off it, the worse it smells. The court found that
federal law favoring arbitration is so strong that it obliterates the
requirement of basic fairness which has always been part of state law.
According to the court, no state laws should stand in the way of ensuring
“enforcement of arbitration agreements according to their terms.”
Of course, “terms” are whatever lopsided, anti-consumer provisions
AT&T’s legions of attorneys cram into their sales contracts.
But that didn’t bother the court either – it said “the
times in which consumers contracts were anything other than adhesive are
long past.” Translation: consumer contracts have been unfair as
hell for a long time, and we’re not going to do anything about it,
so get over it.
The court then addressed California state law, under which the arbitration
provision was too unfair to be enforced. The court found that no rules
of state law could survive if they “stand as an obstacle”
to federal law favoring arbitration. And any pesky state law giving consumers
minimal safeguards against overreaching, fine-print contracts is “an
obstacle” if it prevents a corporation from dragging a consumer
off to arbitration behind closed doors.
The federal law the Supreme Court relied on for these far-reaching conclusions
was a seemingly innocuous 1925 law called the Federal Arbitration Act.
The Act has long been recognized as placing “arbitration agreements
on an equal footing with other contracts.”
The problem is that the court’s ruling in AT&T does not put arbitration
agreements on “equal footing” with other agreements. It really
enshrines them and makes them untouchable. While other types of contracts
can still be challenged on basic principles of fairness entrenched in
state law, arbitration contracts cannot.
Many states, including Florida, have consumer protection laws that give
one the right to sue for false advertising, bait and switch tactics, and
other bad behavior by merchants and dealers. The AT&T decision opens
the door for corporations to circumvent those laws simply by requiring
disputes to be arbitrated. This may do more harm to consumers in the long
run than anything the Court said in the more publicized Wal-Mart case.