Apr
29
“Arbitrate down at the River Styx”
Posted by Claudia J. Serviss
In Wednesday’s 5-4 decision, our U.S. Supreme Court dealt consumers a painful upper cut. SCOTUS ruled companies may require consumers to individually arbitrate their claims rather than join a class-action lawsuit. AT&T Mobility LLC v. Concepcion, No. 09-893, arose in California. The Concepcions had signed a cellphone contract with a “free” phone. The contract included an arbitration clause that required claims to be brought individually, not as a part of a class action. When the consumers learned they had been charged a $30 tax for their “free” phone, they sued as representatives of a potential class. The U.S. District Court and the 9th Circuit applied California law, (See, Discover Bank v. Sup. Ct. , a case holding such arbitration clauses unconscionable.) The class action litigation was permitted despite the contract language.
“Because it ‘stands as an obstacle’” to the objectives of Congress, Justice Scalia, joined by Chief Justice Roberts, and Justices Kennedy, Thomas and Alito, held California’s law was preempted by the Federal Arbitration Act. Each consumer will now have to arbitrate, individually, if at all. Justice Breyer, in a dissenting opinion, noted California courts had found “that the terms of consumer contracts can be manipulated to insulate an agreement’s author from liability for its own frauds by `deliberately cheat[ing] large numbers of consumers out of individually small sums of money.’” “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” We say “well said!”
Arbitration started out to be the faster and cheaper alternative to litigation. It has become, sadly, a costly “favored” industry. With AT&T Mobility, consumers will not be able to escape even unconscionable contracts of adhesion, at least in federal court. First, don’t sign a contract which includes an arbitration clause. We know—that’s not realistic if one actually wants a cell phone or a credit card or, well, a life in the 21st Century! Second, attorneys representing a party to an arbitration clause should strive mightily to stay the heck out of federal court. (File in state court if you can.) Third, if the defendant participates in discovery or otherwise delays in moving to compel arbitration, oppose the motion to arbitrate on the basis defendant has waived the right to arbitrate. Our firm recently was successful in obtaining exactly that kind of ruling in Zamora v. Lehman (2010) 186 Cal.App.4th 1, 111 Cal.Rptr.3d 335. Check it out.
Claudia J. Serviss
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