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Consumers and Employees Need Class Actions

11/07/2010 by Andrew M. Milz

It stings to get ripped-off, even for a few bucks. That said, no sane person would sue individually over a $30 excessive charge. Hiring a lawyer and going to court are expensive, and suing for such a small amount just isn’t practical. But, when you and a hundred thousand of your neighbors are ripped-off in the same way, and the company ripping you off is unfairly pocketing millions at your expense, you might feel differently. Class actions are the way for us to vindicate our small claims and to deter such corporate cheating.

On November 9, 2010, the U.S. Supreme Court heard oral argument on a case that, if wrongly decided, threatens to end consumer class actions and would give corporate wrongdoers a “get out of jail free” pass when they violate the law. In AT&T v. Concepcion, the question before the high court is whether corporations can insert a clause preventing class actions into the fine print of their standard (“take-it-or-leave-it”) contracts with consumers. The Court’s decision can ultimately affect employment contracts as well.

In Pennsylvania, class action bans like the one before the Court are illegal. More precisely, Pennsylvania courts have considered such bans “unconscionable” contract terms as they serve to completely cut off the only real avenue of legal relief for small dollar value claims, are so one-sided in favor of the drafter (usually a corporation) as to be oppressive, and effectively immunize corporations from any accountability for their misdeeds – providing them with a version of Monopoly’s “get out of jail free” card. The courts of 20 other states agree.

But, powerful corporations have figured a way to force class action bans on us by inserting them into mandatory arbitration clauses. Arbitration is governed by the Federal Arbitration Act (“FAA”), an ancient law intended to encourage out-of-court dispute resolution between equally matched commercial parties. The FAA was never meant to cover controversies between individuals and well-funded corporations, David versus Goliath style. However, the conservative U.S. Supreme Court in recent years has interpreted the FAA to apply to these very disputes and to “preempt” (or prevent the application of) state consumer protection laws and rules the Court perceived to be hostile toward arbitration. If the FAA preempts state law prohibiting the class action ban, the argument proceeds, the class action ban is enforceable and the corporation can squash any attempt at class relief (and thus, any relief at all for those harmed). Just think, where would David be without his slingshot?

In this manner, AT&T inserted a class action ban in the arbitration clause of its service agreement with consumers in the effort to sneak in a contractual term that would be illegal under California law. Vincent and Liza Concepcion sued AT&T in 2006, alleging that the wireless carrier defrauded millions of customers in California by advertising phones as “free” and then tacked on an undisclosed $30 charge for the phone. No individual consumer would bother with formal legal process to recover just $30. But, if multiplied across millions of AT&T California customers, the $30 charge would amount to tens of millions of dollars in allegedly wrongful gains. The Concepcion’s sued on behalf of a class and AT&T invoked its arbitration clause and class action ban. The court rejected AT&T’s argument, finding that the class action ban was unconscionable under California law. An appeals court agreed. Now AT&T is asking the Supreme Court to overturn California law and the courts applying the law of the other states (including Pennsylvania) which have held that class action bans may be found unenforceable. Concepcion may be the most important consumer case in decades.

The Roberts Court should buck its long trend of favoring corporate special interests and align with the lower courts that have found class action bans illegal. Class actions have uncovered and forced an end to instances of widespread discrimination in employment, fair housing, mortgage lending, auto financing, insurance and other areas. Class actions have compensated workers deprived of employment rights, civil rights, and statutory rights such as overtime pay required by wage and hour laws. Class actions reinforce government efforts to protect consumers from fraud, deception, and unfair business practices when government agencies lack the resources to adequately police corporate misconduct. Class actions allow citizens like you and me to act as “private attorneys general” who help fill this enforcement gap, providing a benefit to the public and reducing the strain on federal and state budgets.

Consumers and employees need class actions to right corporate wrongdoing and to ensure a fair marketplace. If arbitration clauses with class action bans in contracts are enforceable, corporations will use the fine print of contracts to further eradicate consumers’ and employees’ legal remedies. In Concepcion, the U.S. Supreme Court should reject this end-run around fair play and justice.