Supreme Court Considers Corporate Right to Mandatory Arbitration

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The U.S. Supreme Court may continue its march towards permitting greater corporate "rights" in the case AT&T Mobility vs. Concepcion, scheduled for oral argument on Tuesday. If the Court sides with the telecom giant, it will greatly weaken rules regarding an individual's right to join class-action lawsuits, one of the most powerful legal tools available to citizens and consumers.

Class actions allow everyday Americans to join together and bring a single lawsuit in cases of widespread violations of individual rights. These suits are particularly useful when individual damages are relatively small, making it difficult or cost-prohibitive to bring an individual suit. A class action lawsuit allows wronged persons to band together, thereby making their claims more effective and efficient. Such aggregated lawsuits aim at deterring corporate misconduct regarding misleading consumer practices, unfair hiring practices, product defects, toxic pollution, civil rights violations, and other abuses. Class action suits have been highlighted in popular culture in films like Michael Clayton, (which dealt with a corporation’s violent reaction to a class action lawsuit filed by persons sickened by health effects from its lethal pesticides) or Erin Brockovich, involving a class-action suit against the world's largest utility company for contaminating the water supply with cancer-causing chemicals.

Class Action Against AT&T

The AT&T Mobility vs. Concepcion case arose from a class-action lawsuit against AT&T by consumers alleging unfair trade practices. Individuals in California signed a contract with AT&T for wireless service because they were promised free cell phones, but were later hit with hidden fees and charges. The wireless contract stated that disputes with AT&T must be resolved by an arbitrator, not through litigation; however, California law requires that so-called “arbitration clauses” do not prohibit individuals from joining with other similarly-affected persons and bringing a class-action claim. Specifically, AT&T is challenging the California law on grounds that the Federal Arbitration Act (passed in 1932 to allow an alternative forum to resolve disputes besides courts) prohibits states from mandating that class arbitration be available as a part of every arbitration agreement.

However, as stated by the Los Angeles Times’ David Lazarus, “The basic question before the court is whether companies can bar class actions in the fine print of their take-it-or-leave-it contracts with customers and employees.” If the court decides in favor of AT&T, corporations could effectively prevent consumers from bringing class action lawsuits by including arbitration clauses in all contracts, removing a legal tool that deters businesses from engaging in unfair, deceptive, or harmful practices. AT&T’s case is backed by other telecom companies, as well as financial and business interests such as the American Bankers Association, the Financial Services Roundtable and the U.S. Chamber of Commerce.

Arbitration Inherently Unfair?

Arbitration clauses are very common-- take a look at your health care coverage, credit card or internet contracts, or read the “terms and conditions” next time you download ITunes. Many feel they are inherently unfair because consumers have no chance to negotiate a contract’s terms. Businesses include these clauses in contracts because few individuals will make the effort to enter arbitration with a major corporation over disputes involving a few hundred dollars. What's more, because arbitrators are private adjudicators, they are selected by the parties (rather than assigned to a case, like a judge). Therefore, some argue that arbitrators are more likely to favor corporations in a dispute, as they are most likely to be “repeat customers.”

Class actions, though, provide consumers and workers a better chance to right wrongs. "The marketplace is fairer for consumers and workers because there's a deterrent out there,” Deepak Gupta, a Public Citizen attorney arguing on behalf of consumers, told the LA Times. "Companies are afraid of class actions ... this helps keep them honest." Without the threat of class-action lawsuits, businesses will be more likely to engage in unfair or deceptive practices.

The Court Marches On

Class actions were limited by the corporate-backed Class Action Fairness Act of 2005, and could be entirely extinguished if the Roberts court sides with AT&T. What’s more, the pro-business Roberts court has expanded the reach of arbitration clauses in recent years, limiting employee and consumer protections in the process.

A bill introduced in 2007 by soon-to-be-ex Senator Russ Feingold (D-WI), the Arbitration Fairness Act, would likely have prevented this suit from arising in the first place. The bill would have outlawed mandatory arbitration clauses, requiring that parties decide on a means of adjudication once the dispute actually arises.

The Roberts court has paved the way for increased corporate rights at the expense of individual rights and liberty, and they will likely continue doing so in the AT&T Mobility v. Concepcion case. With Feingold leaving office, we can only hope that new champions of the people will emerge in the 112th Congress.

Links to the briefs and other filings in AT&T Mobility v. Concepcion can be found here.