Consumers' right to file class actions is in danger

By David Lazarus

Nov. 5, 2010 12 AM PT

It hasn’t gotten a lot of press, but a case involving AT&T that goes before the U.S. Supreme Court next week has sweeping ramifications for potentially millions of consumers.

If a majority of the nine justices vote the telecom giant’s way, any business that issues a contract to customers — such as for credit cards, cellphones or cable TV — would be able to prevent them from joining class-action lawsuits.

This would take away in such cases arguably the most powerful legal tool available to the little guy, particularly in cases involving relatively small amounts of money. Class-action suits allow plaintiffs to band together in seeking compensation or redress, thus giving substantially more heft to their claims.

The ability to ban class actions would potentially also apply to employment agreements such as union contracts.

Consumer advocates say that without the threat of class-action lawsuits, many businesses would be free to engage in unfair or deceptive practices. Few people would litigate on their own to resolve a case involving, say, a hundred bucks.

“The marketplace is fairer for consumers and workers because there’s a deterrent out there,” said Deepak Gupta, an attorney for the advocacy group Public Citizen who will argue on consumers’ behalf before the Supreme Court on Tuesday.

“Companies are afraid of class actions,” he said. “This helps keep them honest.”

The case is AT&T Mobility vs. Concepcion. 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.

High courts in California and elsewhere have ruled that class-action bans are unconscionable and contrary to public policy.

At issue at next week’s court hearing is whether the Federal Arbitration Act of 1925 preempts state courts from striking down class-action bans. The federal law requires both sides in a dispute to take their grievance to an arbitrator, rather than a court, if both sides have agreed in advance to do so.

Vincent and Liza Concepcion sued AT&T in 2006 after signing up for wireless service that they’d been told included free cellphones. The Concepcions alleged that they and other Californians had been defrauded by the company because the phones actually came with various charges.

AT&T asked the U.S. District Court for the Southern District of California to dismiss the case because its contract forbade class actions. The court declined, ruling that a class-action ban violates state law and is not preempted by the federal law.

The U.S. 9th Circuit Court of Appeals upheld the lower-court ruling last year. AT&T subsequently petitioned the Supreme Court to hear the case.

William B. Gould IV, a professor emeritus at Stanford Law School and former chairman of the National Labor Relations Board under President Clinton, said the high court was clearly interested in extending the reach of the Federal Arbitration Act.

“This is a very important issue,” he said. “And this Supreme Court has indicated a measure of hostility toward class actions.”

Matthew Kaufman, a Los Angeles attorney who focuses on arbitration law, agreed with that perspective.

“This is a very conservative court that’s pro-business, and class actions are not good for business,” he said.

Marty Richter, an AT&T spokesman, said the company’s arbitration agreement “includes fair, easy-to-use provisions” that reflect “an innovative and highly consumer-friendly dispute resolution process.”

He noted that AT&T’s arbitration clause allows for at least $5,000 in compensation and double attorneys’ fees if the arbitrator awards the consumer more than AT&T offered to settle a dispute. “And we pay the entire cost of the arbitration, except the filing fee if a customer is claiming $75,000 or more,” Richter said.

Be that as it may, why is the company so intent on denying customers the choice of joining a class action? Shouldn’t consumers be allowed to decide what avenue to pursue in resolving a grievance?

“AT&T can offer the benefits of its consumer-friendly arbitration system only if the company is able to avoid the burdensome costs of lawyer-driven class actions, in which most of the money goes to lawyers — both plaintiff and defense lawyers — and class members get little,” Richter replied.

In other words, the company says the only way it can be generous in arbitration is if customers give up the right to join others in suing. Otherwise, those “burdensome” legal costs will force AT&T to be a more hard-nosed negotiator.

AT&T earned $12.5 billion in profit last year.

Public Citizen’s Gupta said consumers can expect similar treatment from other companies if the Supreme Court rules in AT&T’s favor.

“If the court decides that the federal law trumps state law in this case, there’s no limit to what companies could do,” Gupta said. “All companies and employers would be able to put arbitration clauses in contracts that prevent people from joining class actions.”

Briefs supporting the right to class actions have been filed by a number of consumer groups and civil rights organizations, including the Consumer Federation of America and the Lawyers’ Committee for Civil Rights Under Law.

On the opposing side — that is, backing AT&T’s case — are other telecom companies, as well as such well-heeled corporate interests as the American Bankers Assn., the Financial Services Roundtable and the U.S. Chamber of Commerce.

This is a case you’ll want to follow. You have a lot on the line.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to [email protected].