The Supreme Court on Wednesday limited the ability of people to combine forces and fight corporations together when they want to dispute contracts for cellphones, cable television and other services, a move consumer advocates called a crushing blow.
In a 5-4 ideological split, the high court’s conservatives said businesses can block their customers from using class actions. The court said the federal arbitration law trumps state laws that invalidate contracts banning class actions.
The decision came in a dispute between AT&T Mobility and a California couple who objected to being charged around $30 in sales tax for what they were told was a free cellphone.
Businesses commonly require arbitration clauses in consumer contracts to protect them from facing their customers in court. The Supreme Court’s decision means that corporations now won’t need to worry about consumers, shareholders or even employees banding together and fighting them using lawsuits or arbitration, consumer groups said.
“Now, whenever you sign a contract to get a cellphone, 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,” said Deepak Gupta, a Public Citizen lawyer who argued the case.
Sen. Patrick J. Leahy, Vermont Democrat and chairman of the Senate Judiciary Committee, said the decision would hamper the rights of consumers to be protected by state laws.
“Class actions are an effective way to ensure consumer protection, but today’s opinion by the Roberts court continued to move in a direction that undermines this access to justice for hard-working Americans,” Mr. Leahy said.
Wireless provider AT&T Mobility, whose contracts brought about the decision, called it a victory for consumers. “We value our customers, and AT&T’s arbitration program is free, fair, fast, easy to use and consumer friendly,” the company said in a news release.
Lawyer Jack E. Pace III said the ruling preserves arbitration for consumers.
“Arbitration can be an efficient, low-cost avenue for a consumer to bring a claim against a service provider, but if those claims easily could become sprawling class actions, what business would include an arbitration clause in its contracts?” said Mr. Pace, who works for the law firm White & Case.
Like many such contracts, the fine print of the agreement between AT&T and Californians Liza and Vincent Concepcion calls for all disputes to be settled by arbitration and prohibits customers from joining forces in a class action.
Under arbitration, two parties allow a third to resolve their dispute. Businesses prefer arbitration to lawsuits, which can be time-consuming and costly. Consumer groups prefer lawsuits over arbitration because of the openness of courtroom litigation.