A case that has quietly made its way up to the Supreme Court’s docket threatens to unhinge one of America’s key consumer protections: the class action lawsuit.
Telecommunications provider AT&T is pursuing an argument in front of the nation’s highest court that would permit companies which require service or employment contracts to explicitly forbid signatories from joining class action lawsuits.
If they succeed, any company which requires contracts could implement the prohibition on lawsuits, effectively shielding the grandest abuses of corporate America from judicial reprisal if customers or workers were to band together. Instead, AT&T seeks to force signatories into an arbitration process through a preselected, privately owned firm.
In the world of binding mandatory arbitration (BMA), firms almost always find for their employers.
A 2007 report [PDF link] by consumer advocacy group Public Citizen looked at 34,000 arbitration cases in the state of California over an eight-month period and found that the largest BMA company retained by the credit card industry decided in favor of corporate interests 94 percent of the time. Out the 34,000 arbitration proceedings, corporate clients initiated all but 118 of the cases.
“Binding mandatory arbitration is a systematic, privately funded denial of justice for consumers,” Public Citizen’s Laura MacCleery said in a media advisory. “It is a get-out-of-jail-free card for corporate hucksters.”
And it’s not just consumers who could be dramatically affected if AT&T is successful: it’s workers too. Employment agreements and union contracts could also take to banning class action litigation by forcing individuals into a BMA agreement.
Currently, bans on class action lawsuits are illegal under most state contract laws, but there are many circumstances where BMA agreements are permitted. Attorneys for AT&T argue that their contracts should trump state laws under the Federal Arbitration Act of 1927, which holds that prohibiting litigation in a contract is acceptable so long as the arbitration process is as fair as a courtroom.
While there is hope that the court will decide against AT&T — it shut out a similar claim by rival telecom provider T-Mobile in 2008 — the Roberts court, largely seen as sympathetic to big business, may yet side with the telecom.
The suit comes out of California, where Vincent and Liza Concepcion sued AT&T in 2006 after discovering a series of fees attached to a pair of allegedly free mobile phones. Other citizens across the state joined their class action, eventually convincing the Ninth Circuit Court of Appeals that AT&T should be sanctioned. AT&T asked the nation’s highest court for a review earlier this year.
Class action lawsuits in recent years have prevented phone companies from secretly extending contracts every time a customer makes small changes to their monthly service; stopped hidden monthly charges by mobile content providers who falsely advertised their services; and forced Internet search provider Google to take additional steps to protect users’ privacy.