The U.S. Supreme Court handed big corporations a major win Wednesday, in the form of a 5-4 decision that allows companies to block customers from joining together in a class-action lawsuit. The ruling arose from a California lawsuit involving cell phones, but will likely have an impact on litigation nationwide.
In the past, consumers who bought a product or a service had been free to join a class-action lawsuit if they were dissatisfied or felt they had been cheated. By combining these small claims, they could bring a major lawsuit against a corporation, with the expectation of affecting desired changes on a broader scale.
But in Wednesday’s decision, the high court said that, under provisions in the Federal Arbitration Act, companies could force disgruntled customers to arbitrate their complaints individually, not as part of a group, essentially by requiring them sign away, as part of their service contracts, any ability to join or organize class-action lawsuits. Consumer-rights advocates immediately objected to the ruling, saying it could well spell the end for small claims involving products or services.
In the case before the court, AT&T Mobility v. Concepcion, a Southern California couple complained about getting charged $30.32 for a free Nokia phone (the charge was apparently to cover sales tax – but how could there be sales tax on something that’s free?) The California courts said they were entitled to join with others in bringing a class-action claim against the cell phone company, but the Supreme Court reversed that decision.
In his opinion, Justice Antonin Scalia wrote that companies are permitted to require buyers to sign arbitration agreements, and those agreements could contain language that precludes class-action claims. Chief Justice John G. Roberts Jr. and Justices Anthony Kennedy, Clarence Thomas and Samuel A. Alito Jr. sided with him to make up the majority.
But the opposition argued that a practical ban on class action “would be unfair to cheated consumers.” Justice Stephen G. Breyer wrote in his dissent that the California courts had insisted on permitting class-action claims, despite arbitration clauses that forbade them. “Otherwise, it would allow a company to ‘insulate’ itself from liability for its own frauds by deliberately cheating large numbers of consumers out of individually small sums of money,” Breyer said.
He added that such a ban would prevent lawyers from representing clients for small claims. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.32 claim?” Breyer asked, rhetorically. Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined his dissent.
Add’l sources: LA Times/NPR