US Supreme Court rules that arbitration agreements can bar class action lawsuits

Posted on: April 27th, 2011 by Steve Larson
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Today, the U.S. Supreme Court handed down its decision in AT&T v. Concepcion, which I wrote about earlier in this blog, ruling that arbitration agreements can bar class action lawsuits. In its 5-4 decision, the Court, in effect, reversed the California Supreme Court’s decision in Discover Bank v. Superior Court of Los Angeles, 36 Cal. 4th 148, 113 P.3d 1100 (2005).  In Discover Bank, the California Supreme Court held that class action waivers in consumer arbitration agreements are unconscionable if the agreement is an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud.  The 5-4 majority found that the Federal Arbitration Act preempts California law.

Consumer advocates called this a crushing blow.  “Now, whenever you sign a contract to get a cell phone, 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.

In Concepcion, AT&T customers alleged the company charged an undisclosed $30 for cell phones it advertised as “free.” Customers sought to bring a class action on behalf of millions who accepted the deal believing the cell phone was free. AT&T attempted to avoid the lawsuit arguing that the contract’s forced arbitration clause contained a class action ban.

Advocacy groups for consumers and employees are declaring they will overturn Concepcion.  They hope to introduce a bill this week called the Arbitration Fairness Act (“AFA”) of 2011. The AFA would ban forced arbitration in employment, consumer, and civil rights disputes.