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AT&T v. Concepcion Ruling and Federal Aribtration Act: Goodbye to Class Action Litigation?

Posted by: Tess Ranahan
June 27, 2011
Topic: Consumer Rights and Protections

Contributing Attorney: Aaron Kaufmann 

On April 27, 2011, the United States Supreme Court delivered a decision in the AT&T Mobility LLC v. Concepcion that was not only a "devastating blow to consumer rights," but also one that will significantly alter the landscape of consumer and potentially employment law practice. In a divided opinion, the Supreme Court upheld defendant AT&T Mobility's right to compel plaintiff consumers to proceed in individual arbitrations and to prohibit recourse to consumer class action lawsuits. Since the landmark ruling, many commentators, lawyers, and consumers have been left wondering: is this an end to class action litigation? Before attempting to understand the potentially fatal implications of the Concepcion decision, we should delve into a background of the case, make clear the difference between arbitration and class action litigation, and explain why this issue is of critical importance to you, as consumers and employees.

Background on AT&T Mobility LLC v. Concepcion

AT&T Mobility LLC v. Concepcion arose after Lisa and Vincent Concepcion sued AT&T, on behalf of all consumers, for engaging in false advertising and fraud when charging customers $30.22 in sales tax for a phone advertised as "free." AT&T argued that the cell phone service contract required the Concepcion's to resolve the dispute via individual arbitration with a "class action waiver." Both lower courts, the District Court and the Ninth Circuit Court of Appeals, rejected AT&T's motion to compel arbitration, citing Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005) to support the position that the arbitration clause in the contract was "unconscionable" under California law. The United States Supreme Court overturned the lower courts ruling in a 5-4 decision, coming down in favor of big business. Justice Scalia, who delivered the opinion of the majority, concluded that the state contract law interfered with federal law, specifically the Federal Arbitration ACT (FAA). In short, the majority stated that the "overarching purpose of the FAA... is to ensure the enforcement of arbitration agreements" and disallowing a class-action waiver in an arbitration agreement was anti-thetical to the FAA's support of arbitration agreements.

What is the difference between arbitration and class action lawsuits?

Arbitration is a resolution technique that serves as an alternative to litigation in court. Under arbitration, an impartial third party known as the "arbitrator" (usually an attorney or retired judge), decides the outcome of a case instead of a judge or jury. Companies often seek to resolve disputes via arbitration for several reasons. Arbitration can be cheaper for businesses that are seeking to evade the high costs of litigation. Also, arbitration contracts often favor businesses, as the corporations are the sole authors of the stipulated contracts.

In contrast to arbitration, a class action is a form of lawsuit in which a consumer, employee, or individual can band together with "similarly situated individuals" - legalese for others who share a common grievance or grievances - to pursue a claim in court. Class actions enable attorneys, on behalf of consumers or employees, to prosecute small-dollar claims and enforce workplace rights that may not be financially feasible in an individual case, but which amount to significant money when multiplied by the large numbers of consumers or employees affected by the company's behavior. Class actions can also bring about wide-spread reforms in the work place that benefit large groups of employees. As such, the difference in the Concepcion case might be a $30 arbitration claim and perhaps a multi-million dollar class action. Because the damages and other relief recovered can be exponentially more in a class action lawsuit, class actions serve as deterrents to egregious or unlawful corporate behavior.

So what now?

While the implications of the Concepcion decision are still nebulous and will not emerge in clear form for a few years, it is true that this ruling is a "devastating blow" to consumer and potentially employee rights. However, it is our experience that on a number of existing cases, including one of ours, the defense is already utilizing the Concepcion case to seek dismissal of pending employment and consumer class action litigation. We also suspect that there will be a significant decrease in the number of class actions filed because of the Concepcion decision.

Why is it important to you?

The Concepcion decision is both alarming and worrisome for consumers and employees. Without recourse to class actions, your rights as a consumer and employee are significantly limited. Because many attorney and their plaintiffs will not find worthwhile prosecuting small claims, like the $30 fee in Concepcion, corporations and employers will be unaccountable for unlawful behavior and potentially cheat consumers and employees out of millions of dollars.

What is being done in response?

Since the Concepcion decision, many have turned their attention to what action can be taken in Congress to restore access to the civil justice system and to protect consumer and civil rights jeopardized by the recent Supreme Court decision. In response, Senators Al Franken and Richard Blumenthal and Representative Hank Johnson of George have reintroduced the Arbitration Fairness Act. This bill will eliminate "forced" arbitration clauses in employment, consumer and civil rights cases so that individuals will have a choice whether they want to pursue a claim via arbitration or court. As Senator Al Franken said in response to the Concepcion decision, "the Arbitration Fairness Act would help rectify the Court's most recent wrong by restoring consumer rights. Consumers play an important role in holding corporations accountable, and this legislation will ensure that consumers in Minnesota and nationwide can continue to play this crucial role."

What can you do?

Our team of lawyers at Hinton Alfert Sumner & Kaufmann strongly support the Arbitration Fairness Act of 2011 and encourage others to display their support for the crucial bill as well. It is imperative that we, as consumers and employees, show public support for the Arbitration Fairness Act. You can help by writing a letter to your Congressman vocalizing your support of the Arbitration Fairness Act. You can also show your support by "Liking" the "Support-the-Arbitration-Fairness-Act" Facebook page, which will offer updates about the status of the bill. It is also important to spread the word to friends, family, and colleagues about the urgent need to keep fighting to protect all Americans right to go to court if they have been wronged by a company.