At Supreme Court, another ruling in favor of corporations, critics say

The US Supreme Court on Wednesday embraced a strict reading of a federal arbitration law, making it more difficult for individuals with small claims to join together in a class action against large companies accused of fraud or other wrongdoing.

The 5-to-4 decision is a victory for corporations and business groups that favor tough enforcement of arbitration agreements as a more efficient means of resolving disputes than reliance on an overburdened, expensive, and sometimes unpredictable court system.

Analysts say the decision provides a blueprint for businesses and corporations to avoid class-action liability by requiring customers, employees, and others to sign arbitration agreements barring class actions.

“Today’s decision reduces corporate accountability by making it impractical, if not impossible, for consumers to hold corporations accountable for their wrongdoing,” said class action attorney Mark Rifkin of the New York law firm Wolf Haderstein Adler Freeman & Herz.

The decision “continues a disturbing trend favoring large public companies at the expense of individuals,” he said in a statement.

Doug Kendall, president of the Constitutional Accountability Center, denounced the ruling as “judicial policymaking in its most naked form.”

The facts of the case

The decision stems from the case of Vincent and Liza Concepcion. In 2002, the couple entered an agreement with AT&T Mobility for cell phone service.

The contract included a requirement that any disputes be submitted to arbitration on an individual basis (rather than as a class action).

AT&T’s promotion promised free phones. But when the Concepcions received their first bill they were charged $30.22 in sales tax based on the phones’ retail value.

Feeling cheated, they filed a lawsuit in federal court. The suit was later consolidated as a class action charging AT&T with false advertising and fraud for charging tax for phones it advertised as free.

AT&T sought to enforce its arbitration requirement, and asked the court to dismiss the case. The federal judge refused and a panel of the Ninth US Circuit Court of Appeals upheld that decision.

At issue before both courts was whether consumers in California could bypass the terms of an arbitration agreement because that agreement had required the arbitration be conducted individually rather than in concert with a class of complaining customers.

The California Supreme Court had earlier ruled that arbitration agreements that require individuals to waive the opportunity for class arbitration are unenforceable because they generally disadvantage one party to the agreement.

The federal judge and the appeals court agreed with this reasoning, ruling in favor of the Concepcions.
AT&T appealed, asking the nation’s highest court to examine the case.

How the Supreme Court ruled

On Wednesday, the US Supreme Court reversed the federal appeals court’s decision, concluding that the California rule is preempted by the Federal Arbitration Act.

The decision means those who sign arbitration agreements calling for individual hearings will be bound by those terms and may not seek recourse in the courts.

“Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations,” Justice Antonin Scalia wrote in the majority opinion.

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