The Lost Call of Justice: The Erosion of Consumer Class Action Rights

May 01 2011 Published by under Uncategorized

The Supreme Court brought us one step closer to a fully corporatized world in Wednesday’s ruling that corporations can do away with consumer class action litigation.

Just about a year ago, in Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., the Court held that under the Federal Arbitration Act, class action arbitration cannot be forced on a defendant unless the parties have specifically authorized its use. This week, in  AT&T Mobility v. Concepcion, the Court held that under the Act, consumers may waive their right to all class action redress.

In Concepcion, a cell phone customer claimed that AT&T’s contract promising a free cell phone did not mention a $30.22 sales tax charge.  The California court allowed Concepcion to join a class action court proceeding (not a class arbitration) and held that the arbitration clause in the AT&T contract that denied access to class action relief was “unconscionable” and thus unenforceable.  The Supreme Court said that there was nothing unconscionable about denying access to class action relief, and that AT&T had the right to insist that each plaintiff file a separate arbitration complaint.

Justice Antonin Scalia’s majority opinion was joined by the usual conservative block of Roberts, Thomas, Alito and Kennedy. Classwide arbitration, Scalia said, is slower and more procedurally complicated than individual arbitrations. The aggregation of claims in class arbitration “greatly increases the stakes for defendants,” he added, and that, in turn, makes the informality of arbitration less appealing because there is little opportunity for judicial review.

Previous judges hearing consumer cases acknowledged the difference in power between giant corporations and consumers and tried to equalize things. Scalia completely ignores this tradition.  His concern for the defendant would be appropriate if the parties’ roles were reversed, which is to say he is concerned primarily with the impact on corporations.

In contract law, judges have held that where only one party has had control over the terms of a contract, that party can’t later come back and say they don’t like the results.  You must lie in the bed you make, so to speak.  The Court could have held that by choosing arbitration, AT&T also subjected itself to class arbitration. But the Court did not hold this. It allowed AT&T to narrowly sculpt the circumstances under which it may be sued and choose only those venues and types of actions it wants.

That is the formal holding, but in Supreme Court cases, there are often unofficial statements and things unsaid that, while not binding, give clues to how the Court would settle other issues. Unofficially, the Court has:

  • Shown corporations how to shut down all class action suits: by requiring customers to sign contracts that include an arbitration clause.  Class action is a form of redress that allows plaintiffs to aggregate big resources to litigate complex claims against big corporations.  It allows people redress for being nickel-and-dimed. As  Justice Stephen Breyer wrote for the minority, “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?”  Class actions are also efficient for the court system, which can dispatch many claims with only one trial.  Scalia claims that aggregating claims “greatly increases the stakes for defendants” even given the cost savings to parties and to the court system, which Scalia doesn’t even mention.  But then, Scalia is considering this:  Class action litigation has been a thorn in the side of corporations. Class action suits have resulted in large awards against corporations, bad publicity, and have driven consumer safety legislation and other business regulation.  Corporations would love for them to go away, and so, it seems, would the Supreme Court.
  • Given corporations the go-ahead to include more restrictive clauses in a contract of adhesion, an extremely one-sided contract that the other party is presented on a take-it-or-leave-it basis.  A court may hold that terms in such a contract–or the whole contract–are unconscionable and thus unenforceable. That is how the California courts treated the arbitration contract clause in Concepcion. But this Court isn’t likely to find terms unconscionable.
  • Indicated a willingness to privatize public causes of action, here to apply arbitration clauses to preclude causes of action that arise outside of disputes over the product or service itself. Concepcion could have been treated as a false advertising claim—a wrong that would fall outside the scope of the contract, and thus the arbitration clause.  Last year’s Stolt-Nielsen case was a class arbitration for price-fixing, an antitrust violation that also could have been treated as a public harm outside the scope of any individual contract. But the Court did not do that. In essence, the Court is choosing to privatize public causes of action and thereby to narrow them. If the Court is out to apply arbitration clauses very broadly, what might be their next step?  Fraud? Civil rights violations? These days, employees are often required to sign employment contracts with arbitration clauses. The Court has already agreed to hear Wal-Mart Stores Inc. vs. Dukes, the largest class action employment discrimination case in history. Will it go the same way as Concepcion?

Because the rule in this case is based on an interpretation of the Federal Arbitration Act, Congress is free to amend the Act to make clear that it should not preclude class action litigation. Senate Judiciary Chairman Patrick Leahy (D-Vt.) said that Congress should do just that. “Now more than ever, Congress needs to respond with legislation to clarify the original intent of the Federal Arbitration Act.  In arbitration, there is no transparency, nor is there an independent arbitrator.”

This is the latest in a series of cases that have steadily chipped away at consumer remedies.  For example, a plaintiff used to be able to sue a corporation in any state in which the corporation did substantial business–usually the plaintiff’s own state. The rationale was that if a corporation did business in a state, it should be held accountable to that state’s laws and it should be “available” for legal appearances. Last year in Hertz Corp. v. Friend, the Court held that a plaintiff had to bring suit in the state of a corporation’s “nerve center” (the nerve center test).  This did several things. It forced most consumers to travel to an unfamiliar jurisdiction to sue.  It allowed the corporation to hear all cases against it in the same jurisdiction. It gave states another lure to attract corporations–business-friendly courts.  While the class action remedy existed, distant plaintiffs could still seek redress without the burden of traveling. Now that option is gone as well.


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