Imagine you have gone to the AT&T store to get a cellular phone, which was advertised as free if you sign up for service, but you later realize that they charged you $30 for it. Suppose you return to the AT&T store and they refuse to refund your $30, telling you you’re stuck with the phone and the service contract. Now imagine that you later find out AT&T has been screwing over other customers for the same $30. This is how a class-action lawsuit is born. Class-action lawsuits allow people who have suffered damages individually to come together to more effectively demand recourse from large companies.
The AT&T example actually happened, and AT&T refused to pay based on their contract, which prohibits class-action lawsuits and allows only for individual arbitration for disputes. The California Supreme Court eventually overruled the contract, stating that prohibiting class-action lawsuits and forcing customers to use arbitration instead was unconscionable. AT&T didn’t like that ruling and the case (AT&T Mobility v. Concepcion) went all the way to the U.S. Supreme Court. In April 2011, the Court ruled 5-4 that businesses absolutely have the right to ban class-action lawsuits in their contracts, and that state courts could not overturn it.
So why should you care, and what does this mean for consumers who are injured, defrauded, or discriminated against?
The Pros and Cons
Vanderbilt University law professor Brian T. Fitzpatrick called the ruling “a game changer” and “one of the most important and favorable cases for businesses in a very long time.” The reason for this is because, by federally upholding the ability of companies to disallow their customers from bringing class-action lawsuits, businesses have even less reason to worry about the repercussions of harmful, fraudulent, or discriminatory practices. Supporters say it will put a stop to frivolous class-action suits, or those where the lawyers get paid the bulk of the settlement and leave the actual victims with little. In addition, a representative from the U.S. Chamber of Commerce’s Institute for Legal Reform says that the class-action system is designed by and for lawyers and that individual arbitration can work.
Opponents, however, point out that many arbitration companies have a pro-business bias, and when cases are arbitrated individually, people who have a right to settlement are unlikely to even realize they have a claim.
Pending Lawsuits
The question after the Supreme Court’s decision is, what happens to pending class-action lawsuits? Unfortunately, even if they were filed prior to the Supreme Court’s decision, they are now likely to be thrown out if the defendant has the correct language in their contract. The New York Times cited the example of two servicemen who had been called to active duty in Afghanistan and had to return leased vehicles early to Nissan. Despite the Servicemembers Civil Relief Act, which states that Nissan was required to refund the several hundred dollars they had paid toward future installments, they did not receive the money that is rightfully theirs. Because of the language in the contracts, the lawsuit was shut down–even though the court agreed that the servicemen had a legitimate case against Nissan.
Several other class-action cases have also been halted by judges—at least 76, according to the Times—many of whom reported to have had no choice but to rule against the plaintiffs because of the Supreme Court’s decision. In other words, even when a judge finds a company’s practices oppressive or one-sided in favor of the plaintiff, he or she no longer has the power to award the plaintiff if the contract contains the necessary clause.
Consumer Rights
Many attorneys, judges, and consumer rights advocates protest the ruling, arguing that it preempts consumer law. When you realize that it applies to all consumer contracts, including credit card contracts, car sales and lease agreements, employment contracts, and all agreements involving every kind of consumer product and description, it becomes clear just how far-reaching the ruling can be. Additionally, consumer rights advocates point out that arbitration often costs more than one person’s claim, making it essentially impossible to seek damages, and also doesn’t allow for a jury decision.
Solutions
The Dodd-Frank Wall Street and Consumer Protection Act does ban the use of pre-dispute arbitration in consumer mortgages, and grants the Bureau of Consumer Financial Protection the power to regulate arbitration clauses in contracts for financial services. Legislation is also pending in Congress that would mostly eliminate the forced arbitration clauses elsewhere, though it’s unlikely to get much support in the current, pro-business Congress. Meanwhile, consumers should look for the arbitration clause in any contracts they sign, and realize that, if they end up with a legitimate claim against a company that has one, they’re unlikely to get anything for it.
