John O'Brien Apr. 29, 2011, 3:40pm

WASHINGTON (Legal Newsline) - The U.S. Supreme Court ruled on Wednesday, in a 5-4 vote, that companies can enforce contracts that bar class action lawsuits.

In the case of AT&T Mobility v. Concepcion, Vincent and Liza Concepcion attempted to sue AT&T over a 2002 cell phone purchase.

At the time, the cell phone company had advertised the phone as free, but then it charged customers for tax on the phone's normal price.

In response, the couple brought a class action on behalf of everyone who had taken advantage of the AT&T offer. However, the contract the couple signed said all disputes had to go to an arbitrator.

Parties may sometimes settle disputes through arbitration, rather than litigation. When the dispute involves numerous individuals in the same situation, a few individuals may conduct the arbitration on behalf of the larger groups, similar to a class action suit.

The question before the nation's high court was whether the Federal Arbitration Act prohibits states from mandating that class arbitration be available as a part of every arbitration agreement.

The act, originally passed by Congress in 1925, says states must apply the same rules to arbitration as they do to normal court cases.

The Court, in its 21-page ruling, reversed the judgment of the Ninth Circuit and remanded the case. Justice Antonin Scalia authored the Court's majority opinion.

The "overarching purpose" of the FAA, the Court said, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate "efficient," "streamlined" proceedings tailored to the type of dispute.

"It can be specified, for example, that the decisionmaker be a specialist in the relevant field, or that proceedings be kept confidential to protect trade secrets. And the informality of arbitral proceedings is itself desirable, reducing the cost and increasing the speed of dispute resolution," it wrote.

The Court added, "Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."

Mandatory arbitration clauses appear in most contracts consumers sign, so the case is said to have very broad consequences.

The American Association for Justice, the nation's trial lawyers' lobbying group, said the Court's decision leaves Americans with "practically no recourse" to challenge corporate wrongdoing.

"This is a death blow to Americans' chances for justice when faced with forced arbitration clauses. This devastating decision has the potential to result in virtually no consumer or employee cases involving small claims being heard anywhere," AAJ President Gibson Vance said in a statement. "Corporations will now be allowed to get away with sweeping wrongdoing, particularly where the damages would be too small to justify pursuing individual claims."

He added, "Many states have deemed provisions banning class actions unconscionable. This decision preempts state law and further highlights the need for a legislative fix that would end the use of forced arbitration. It is imperative that Congress pass the Arbitration Fairness Act to protect consumers and employees from these abusive practices."

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