Supreme Court case could end class-action suits

Brian Fitzpatrick in The San Francisco Chronicle, November 07, 2010

Media Source

November 07, 2010 | By Brian T. Fitzpatrick

The Supreme Court began a new term last month, and, as usual, its docket is filled with high-profile cases. Sometimes, however, the cases that are the most important keep the lowest profiles. That's true this term. This week, the court will hear what could be its most important case in years, and I'll bet you have never even heard of it.

The case is AT&T Mobility Services vs. Concepcion. If the case is decided the way many observers predict, it could end class-action litigation in America as we know it.

Vincent and Liza Concepcion sued AT&T for deceptive practices because it advertised discounted cellular phones while charging sales tax on the full retail price. In light of the small amount of money at stake per phone ($30), it made no sense for the Concepcions (or their lawyer) to sue alone; thus, they sued on behalf of a class of other purchasers.

But the contract the Concepcions signed with AT&T required any claim to be resolved through arbitration. Moreover, the contract said the arbitration could not proceed as a class action. In other words, AT&T had tried to exempt itself from class action proceedings.

The federal courts in California said AT&T could not do that. They said that, although people are usually free to contract with one another as they wish, under California law sometimes a contract can be so one-sided or otherwise violate public policy that it is unenforceable. They said this was one of those contracts.

But AT&T contends that a federal law - the Federal Arbitration Act, enacted by Congress in 1925 - pre-empts state contract law and makes class-action exemptions enforceable when they are combined with arbitration. Many observers believe the Supreme Court will agree with AT&T. The current court is very friendly to businesses, and there is nothing businesses would like more than to exempt themselves from class action proceedings.

If the court goes down AT&T's path, the consequences could be staggering. It could be the end of class action litigation. In light of Supreme Court decisions in the 1990s that made it difficult to certify personal-injury class actions, virtually all class actions today occur between parties who are in transactional relationships with one another: shareholders and corporations, consumers and merchants, employees and employers. Because they are in transactional relationships, they are able to enter arbitration agreements with class action waivers.

Once given the green light, it is hard to imagine any company would not want its shareholders, consumers and employees to agree to such provisions. With respect to consumers and employees, there is nothing to stop them; arbitration is already well accepted. Although things are less clear with respect to shareholders - the Securities and Exchange Commission has frowned upon arbitration here - federal law does not explicitly prohibit arbitration, and a future, business-friendly commission could easily change course.

It is true that Congress could overrule the Supreme Court's interpretation of the Federal Arbitration Act, but, in light of the power of business lobbyists in Congress - especially after last Tuesday's election - this seems improbable. If the Supreme Court decides to end class action litigation, no one is likely to resurrect it.

All of this would be a terrible mistake. There is a reason we created the class action device 40 years ago: Sometimes businesses inflict injuries too small to sue over. How many people will sue when someone cheats them out of $100? How many lawyers will take a case worth $1,000? Not many. But, if people don't sue, businesses know they can cheat people out of small amounts with impunity.

Class actions band individuals together so businesses cannot escape accountability, and they level the playing field of litigation by enabling plaintiffs to reap the same economies that defendants who face multiple suits can reap without class actions. When businesses face the threat of viable class actions, they are less likely to commit misdeeds in the first place.

It is true that the agreement signed by the Concepcions offered incentives (like a $7,500 bonus in some circumstances) to bring small claims in arbitration. This might induce some consumers to do so, but class actions hold businesses accountable for the injuries they inflict on all consumers, not just some. If some consumers do not pursue claims, businesses are not adequately deterred from wrongdoing.

It may be hard to believe that, in one largely unknown case, the Supreme Court could end a class action system that has existed for decades, but, five years ago, a law professor, Myriam Gilles, predicted that this day would come. Now we know: The day is Tuesday.

Brian T. Fitzpatrick is an associate professor of law at Vanderbilt Law School and a visiting professor of law at Fordham Law School, where he studies class action litigation. He previously served as a law clerk to the U.S. Supreme Court.