One of the reasons the class action lawsuit is such an effective tool at stemming corporate overreach is that it forces guilty parties to bear the consequences of their bad business decisions en masse. A gentle fleecing of one customer for $40 a year may not seem like a big deal until tens of thousands of fleeced customers are able to aggregate their claims and place an overarching cost to the bad practice.
But thanks to the Roberts Court, businesses have much less to fear from the class action lawsuit. That’s because, according to the holding in AT&T v. Conception, companies should be free to ban class actions in the fine print of their contracts.
The 5-4 ruling, authored by Justice Scalia, holds that corporations may use arbitration clauses to cut off consumers and employees’ right to band together through class actions to hold corporations accountable.
The decision is the most recent in a series of systematic efforts to roll back consumer protections and class action rights. In Concepcion, a cell phone customer claimed that AT&T’s contract promising a free phone did not mention a $30.22 sales tax charge. The customer sued, but AT&T argued the suit customer’s claim was barred by the arbitration provision in his contract.
Relying on a California Supreme Court decision, the California district court ruled the arbitration clause was unconscionable under California law because it prohibited class action proceedings.
Writing for the majority, Justice Scalia said that the California law was trumped by the Federal Arbitration Act and stood in the way of federal interests. Even though the FAA contains a “savings clause” that permits arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract”, Justice Scalia said that the statute “does not give states free rein to adopt policies that discriminate against arbitration or interfere with its central mechanisms.”
Once again, the Court’s conservative majority is for states rights, except when he’s against them.
The decision may not bode well for the other big class action under the Court’s consideration, Wal-Mart v. Dukes, the nation’s largest ever employment discrimination class action, and threatens to reach even further.
One potential result could be that virtually no consumer or employee cases involving small claims get heard anywhere. Many states have consumer protections laws that have deemed provisions banning class actions as unconscionable. But in finding those laws preempted the Roberts Court has effectively given the green light to business to force consumers to sign away rights as part of doing business.
photo courtesy of steakpinball via Flickr