AT&T Could Legally Block Class-Action Suits, Other Companies Too

By April 29, 2011
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The Supreme Court ruled that a section of AT&T's contract was valid when it bound customers to individual arbitration and prohibited class-action suits.

The Supreme Court established precedence based on their ruling on a case yesterday that "could block class-action suits arising from disputes with customers and instead force those customers into binding arbitration." Lower courts had ruled that a section of AT&T's service contract which prevented customer class arbitration was "unconscionable," and therefore viable for the Federal Arbitration Act. Section 2 of this legislation states, much condensed from the legalese, that arbitration agreements are valid and binding except when there are legal grounds for revoking any contract.

In this instance, California and Washington have waivers for contracts that have been legally deemed "unconscionable," based on these states' consumer protection laws. AT&T and other companies have tried to have class action cases dismissed because of these agreements, only to have the FAA used against them and their agreement contracts.

But AT&T appealed to the Ninth Circuit, where a 5-4 ruling was cast in its favor. In Ars Technica's coverage, the majority opinion of Justice Scalia defined the FAA's purpose to "promote arbitration over more costly and lengthy litigation." He also explained that "[a] prime objective of an agreement to arbitrate is to achieve ‘streamlined proceedings and expeditious results,'" and, as article author Chris Foresman continues, that "requiring the class-action litigation to proceed would be at odds with the intent of the FAA and the benefits that arbitration agreements ostensibly provide."

Judge Breyer disagreed in his opinion, and noted that the quoted FAA clause specifically leaves it to states to determine what contracts and clauses to revoke. Foresman suggests that this ruling could affect consumer ability to challenge corporations - individual claims have comparatively little punitive effect on bad business practices.

AT&T Mobility LLC v. Concepcion began after a California couple filed a lawsuit when they were charged sales tax on handsets advertised as free. The couple believed this was false advertising and the lawsuit was soon promoted to class-action status.

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