Another Big Business Win in the U.S. Supreme Court

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The U.S. Supreme Court's conservative majority granted big business another win on April 27 by granting corporations the "right" to suppress class actions challenging unfair practices. In a decision that has serious implications for consumer and employment rights, Justice Scalia's majority decision ignores traditionally-conservative judicial principles to get to the pro-business end it seeks.

In AT&T v. Concepcion, the Court held that federal law preempted states from refusing to enforce class action bans in adhesion contracts, the take-it-or-leave-it contracts we enter into when signing up for cell phone service or are hired by a large corporate employer. We can't bargain over the terms for dispute resolution, so the contract "adheres" to the purchase or hire.

David Arkush of Public Citizen writes:

The case's potential impact is breathtaking. Corporations can now prevent consumers and small business owners from exercising what is often their only real option for challenging companies that defraud them by millions or even billions of dollars: banding together to file class action lawsuits. The case could be equally devastating to millions of non-union employees, who need class actions to challenge systemic discrimination by their employers. The Supreme Court has given major corporations the green light to engage in nearly limitless wrongdoing against others, so long as they do it in relatively small dollar amounts, which ensures that no one can afford to challenge the misconduct without a class action.

AT&T v Concepcion

The AT&T v Concepcion case arose when individuals in California signed adhesion contracts for wireless service after being promised free cell phones by AT&T, only to be later charged around $30 in taxes and fees. Consumers brought a class action alleging AT&T engaged in false advertising and fraud for charging tax on the "free" phones, and AT&T claimed the suit should be thrown out since the wireless contract banned class actions and required arbitration to settle disputes.

California, like 19 other states, held that class-action bans in form contracts would not be enforced if (1) the agreement is in an adhesion contract, (2) disputes between the parties involved small amounts of damages, and (3) the party with inferior bargaining power alleged a deliberate scheme to defraud. Based on this so-called Discover Bank rule, the District Court threw out AT&T's claim and the 9th Circuit Court of Appeals upheld the decision. The U.S. Supreme Court reversed in its April 27 decision.

Justice Scalia's "Purposed" Decision

Writing for the majority, Justice Antonin Scalia deviated from his professed judicial principles in favor of a pro-business outcome. The conservative majority abandoned federalism and the self-proclaimed "textualist" Justice Scalia based his decision on anything but the law's text.

Because the Federal Arbitration Act (FAA) requires arbitration agreements be enforced according to their terms, Justice Scalia wrote, state laws that strike down contractual class action bans are preempted. Even though California's Discover Bank rule applied equally to all contracts, the Court held it did not fall under the FAA exemption permitting non-enforcement "upon such grounds that exist at law or in equity for the revocation of any contract." Additionally, the Court's majority held that it not only is impermissible for states to prohibit bans on class action lawsuits, states also cannot prohibit bans on class action arbitrations.

Textualist Backpedaling

In so doing, Justice Scalia decided the "purpose" of the FAA is not only to uphold arbitration agreements, but also to promote informal, quick resolution of claims. He goes on to cite statistics showing that class action arbitration takes much longer than individual-case arbitrations, and therefore, state laws overturning a contract's class action ban would frustrate the FAA's purposes. Justice Scalia's reasoning here is questionable: even if a class action takes four times as long as an individual arbitration, it may be resolving hundreds or even thousands of cases in that single action.

More importantly, Justice Scalia has long insisted that laws be interpreted based on their text, and that convoluted efforts to ascertain legislative intent allows judges to import their own biases into decisionmaking. ("The text is the law, and it is the text that must be observed," he has written, citing Justice Holmes.) Had Justice Scalia stayed true to his alleged principles, the case could have come out in favor of consumers. Instead, he votes for corporate power by unabashedly participating in the subjective search for legislative purpose he claims to despise.

The FAA permits non-enforcement of arbitration agreements "upon such grounds that exist at law or in equity for the revocation of any contract," and California's Discover Bank rule falls under a textual interpretation of that exemption. The four dissenting justices agreed, with Justice Breyer writing that "linguistically speaking, it falls directly within the scope of the Act's exception." Justice Scalia also acknowledged the exemption's text would cover California's rule, but he sidestepped the issue by claiming upholding it would "stand as an obstacle to the accomplishment of the FAA's objectives."

But in defining the FAA's objectives, he violates his own statement that to determine statutory intent, "begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose." He deems "informality and efficiency" a purpose of the FAA without reference to the law's text, citing instead past cases where the U.S. Supreme Court mentions that arbitration is often more streamlined than litigation, and making conclusory statements about the intent of Congress ("We find it unlikely that in passing the FAA Congress meant..." "We find it ... even harder to believe that Congress would have intended...") What's worse, the man who once wrote "[o]n balance, [legislative history] has facilitated rather than deterred decisions that are based upon the courts' policy preferences, rather than neutral principles of law," now resorts to using legislative history to support his conclusion.

A "decision ... based upon the courts' policy preferences," indeed.

Big Government When it Helps Big Business

Scott Lemieux at American Prospect notes that:

The Court's conservatives are allegedly committed to federalism -- that is, states' rights -- but here they called for federal uniformity. (Some of these same justices are likely to argue against federal uniformity when the Affordable Care Act and its alleged intrusion on state sovereignty comes up). From the Fugitive Slave Act to the Federal Partial-Birth Abortion Act, alleged conservative commitments to "federalism" rarely survive clashes with cherished conservative interests, and [the AT&T] ruling is another case in point.

Arbitration is Rarely Consumer Friendly

Supporters of the decision point out that the AT&T arbitration agreement was actually very consumer-friendly. An easy-to-file online form gave an aggrieved customer a chance to settle with AT&T; if the case proceeded to arbitration it would cost the customer nothing; and if the arbitration award exceeded the settlement offer, the customer would be given a substantial premium. The problem is that relatively few individuals will have the time or resources to enter arbitration over a relatively small claim, much less know that pursuing a claim is possible.

As Justice Breyer wrote in dissent, "[w]hat rational lawyer would have signed on to represent the [plaintiffs] in litigation for the possibility of fees stemming from a $30.22 claim?" "Class arbitrations," he wrote, "are perfectly appropriate ways to resolve claims that are minor individually but significant in the aggregate."

The majority decision also does not address how the arbitration process is usually stacked against the little guy. Arbitrators are hired by the parties, not randomly assigned like judges. Corporations will hire arbitrators many times each year, where individual consumers or employees are one-time-customers (if given the opportunity to select an arbitrator at all): an arbitrator interested in future employment will favor corporate interests.

Additionally, in contrast with individual suits, class actions can more effectively identify patterns of discrimination or wrongful practices. Because a class action is brought on behalf of an entire class of people, and not just the individual plaintiffs, the relief in a class action settlement can be far-ranging and aimed at changing the wrongful practice itself. Class actions also play a valuable role in raising public awareness of wrongful practices and deterring other corporations from acting similarly.

Aftermath and Response

As noted above, this decision will not only impact consumer rights, but also the ability to challenge a corporation's unfair hiring practices, product defects, toxic pollution, civil rights violations, and other abuses. Already, lawyers are advising employers to insert class-action-waivers into their employee's contracts.

A bill introduced by former Wisconsin Senator Russ Feingold in 2007 and again in 2009 would have likely prevented this dispute from arising in the first place. The Arbitration Fairness Act would have amended the FAA to outlaw mandatory arbitration clauses for employment, consumer, and civil rights disputes, requiring that parties decide on a means of adjudication once the dispute actually arises.

Senators Franken and Blumenthal and Rep. Hank Johnson are planning to introduce a version of the bill in the wake of the AT&T v Concepcion decision. Additionally, the newly-created Consumer Financial Protection Bureau may have the authority to limit arbitration agreements it deems "anti-consumer."