On April 27, 2011, the Supreme Court of the United States once again ruled in favor of big business. In the highly anticipated case of AT&T Mobility v. Concepcion, the Roberts led conservative block of the Supreme Court ruled 5-4 that federal law trumps state law in allowing companies to use arbitration clauses to prohibit consumers from joining class actions against the companies.
The case involved a California couple, Vincent and Liza Concepcion, who were charged $30.22 sales tax on the full retail price of a cellphone that was advertised as “free.” They filed a lawsuit against AT&T for deceptive practices on behalf of a class of consumers who had also overpaid. But the couple, along with their fellow plaintiffs, had signed a contract with AT&T that contained a “mandatory arbitration clause” which required them to settle any disputes through arbitration (a private legal proceeding) and barred them from seeking class-action treatment with other consumers, whether through arbitration or in a lawsuit brought in a traditional court.
Initially, both a federal district court and the Ninth Circuit Court sided with the Concepcions, saying it was unfair under a 2005 California Supreme Court ruling, for contracts to ban class-action litigation. However, this was overturned by the recent Supreme Court decision, which says federal law, specifically the Federal Arbitration Act of 1925, trumps state law.
Aside from the fact that the conservative Justices who purport to be staunch defenders of “states rights” abandoned their principles for corporate interests, this ruling has chilling implications for future corporate accountability. Corporations are now free to legally bar victims of their abuse from collectively suing in a court of law if the abused have signed a contract that includes a mandatory arbitration clause, regardless of state laws to the contrary. This could literally render companies immune from class actions and overall accountability.
At first glance, it seems reasonable to conclude that individuals should simply steer clear of these types of contracts in order to avoid waiving their rights. But most people are unaware that mandatory arbitration clauses are commonly used in product and service contracts, and sometimes in employment contracts–usually found buried in the fine print of billing inserts, employment handbooks, health insurance plans, and dealership agreements.
In a statement after the ruling, Deepak Gupta, a lawyer with the public interest group Public Citizen who argued the case on behalf of the Concepcions, called the decision a “crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts. Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices. Class actions are an essential tool for justice in our society. Brown v. Board of Education was a class action. The fate of class actions should not be decided through the fine print of take-it-or-leave-it contracts.”
Pro-Business groups, most notably the US Chamber of Commerce’s Institute for Legal Reform, argue that arbitration is an efficient, effective, and less expensive means of resolving disputes for consumers as well as businesses. Of course, what they mean is that it’s efficient, effective and less expensive for corporations, since companies are far less likely to use arbitration clauses in contracts with each other than they are in contracts with consumers. And if arbitration is truly superior to the courts, it should be up to consumers and employees to voluntarily choose their preferred method of redress should a dispute arise.
In reality, arbitration is a closed, private process often with little or no written record. When California changed its law to require that arbitration results be publicly recorded, Public Citizen reviewed 34,000 California cases, and the results were stunning. The study found that consumers had lost more than 94 percent of cases in an arbitrations plagued by conflicts of interest, with arbitrators benefiting financially from ruling in favor of businesses. Overall, they found that forced arbitration creates a systemic bias in favor of businesses while offering few, if any, meaningful deterrents against negligence or even foul play.
Needless to say, these contracts are intended to undermine consumer protection, civil rights, and other laws that level the playing field between big business and individuals. And because arbitration clauses are presented on a take-it-or-leave-it basis, individuals are left with no choice but to waive their rights. Given these circumstances, it’s no suprise that AT&T had the backing of the Chamber of Commerce, Comcast, Dell, and DirectTV. A clear pattern of the Supreme Court’s conservative majority ruling in favor of corporations while stripping away the power of individuals has emerged, and AT&T Mobility is icing on the Chamber’s eight layer cake.
In an article that appeared in Mother Jones late last year, Stephanie Mencimer quoted Paul Bland, a lawyer with the public interest law firm Public Justice, who argued that “In Concepcion, AT&T and the Chamber of Commerce are asking the Supreme Court to do the same thing for consumer protection that Citizens United did for election law…the Chamber wants the Court to overturn a number of precedents and eliminate the most important safeguards that have limited corporate abuse in the past.”
Mencimer points out that the Chamber has been systematically fighting to limit consumers access to the courts for years, particularly through class actions. She goes on to say, “In 2005, it finally succeeded in winning legislation that made it much harder to bring such cases in state courts, after investing more than $20 million in lobbying Congress. But it didn’t stop there. It has defended the right of big companies to use contracts to wipe out whatever legal rights for consumers remained.”
At the behest of their corporate overlords, the Supremes have stripped away consumers last remaining recourse against corporate wrongdoing: class actions. Corporations are actively rigging our civil justice system to shield themselves from accountability for fraud, discrimination, and other illegal practices, and so far they have been successful.
If you believe the effects of these contracts are isolated to small dollar rip-offs, then think again. There are a plethora of horror stories about individuals that have been victimized by forced arbitration. Take the case of Jamie Leigh Jones. She was 19 when she signed a job contract with Halliburton and went to work in Iraq, where she was drugged and gang raped by her co-workers. After actively participating in the cover-up, Halliburton used the mandatory arbitration clause in her contract against her filing suit, eventually leading to legislation ordering the federal government not to work with contractors who force employes to sign arbitration agreements involving cases of sexual assault or Title VII violations.
In an article for the Boston globe, Beth Healy highlights the heart-wrenching plight of Philip Grossman, who committed suicide after his family lost much of their savings from its encounter with a Bank of America broker. The family tried to sue Bank of America but was denied access to the court because of an arbitration clause in Mr. Grossman’s brokerage account documents. As Healy observed, “The Grossmans’ case shows how entrenched arbitration has become in the financial industry, demonstrating that even in an extreme case alleging wrongful death, aggrieved clients have no recourse other than a system that critics say favors investment firms.”
Keep in mind these cases took place before the current ruling. In the aftermath of AT&T Mobility, class action waiver provisions in arbitration agreements will almost always be found enforceable. Except that now, these types of abuses are likely to be system-wide, since companies have no reason to fear potential class actions, and therefore little incentive to act ethically from the get-go.
Corporate attorneys recognize the significance of this ruling and are advising their clients to include class action bans in their arbitration clause. This explains why companies, thrilled at the opportunity to avoid liability, are rushing to review and revise existing arbitration clauses in standard contracts to include class action bans.
The good news is efforts are underway to reverse this disgraceful Supreme Court ruling. Senators Al Franken (D-MN) and Richard Blumenthal (D-CT), along with Rep. Hank Johnson (D-GA), have announced their plan to reintroduce the Arbitration Fairness Act. The bill, which was first introduced in 2007, would ban forced arbitration clauses in employment, consumer, and civil rights cases, and immediately faced heavy opposition from business interests, including the Chamber of Commerce.
Another ray of hope is Elizabeth Warren, head of the Consumer Financial Protection Bureau (CFPB). According to Reuters, the Dodd-Frank law gives Warren’s consumer agency the power to regulate arbitration in consumer financial-services contracts, and the agency could conclude that class-action bans are harmful to consumers. Given Warren’s vocal support of consumer safeguards, businesses are already nervously anticipating what her new agency may have in store.
In the meantime, I suggest you visit Fair Arbitration Now for ways to join fight against forced arbitration and end the abuse once and for all.