Consumer Class Actions in Danger of being Preempted

The future of consumer class action litigation may be at stake in a case scheduled for oral argument next week before the Supreme Court. In AT&T Mobility, LLC v. Concepcion, the Court will decide whether corporations can ban class actions in the fine print of their contracts with consumers, and thus eliminate the ability of consumers to band together in order to fight unfair and fraudulent corporate practices. The elimination of this type of suit would leave consumers helpless in situations where they were defrauded by companies for relatively small amounts.

In the case before the Court, AT&T convinced consumers to sign up for its wireless service by offering a free phone – then they charged each consumer $30.00 – because the small print in the agreement allowed it to charge a sales tax to the consumer based upon the cost of the phone. Also found in the small print was an arbitration provision. Banks and phone companies have placed these forced arbitration provisions in consumer contracts over the last 20 years – trying to eliminate class action lawsuits.

At issue in this case is whether the Federal Arbitration Act (FAA) impliedly preempts California state law regarding the unconscionability of arbitration clauses in contracts of adhesion. And while the Supreme Court has ruled favorably for consumers in not preempting individual drug cases as we’ve previously discussed on this blog regarding Wyeth v. Levine, the Court has also split 5-4 in multiple arbitration cases, in favor corporations and expanding the availability of arbitration.

The result of this case will have huge implications. A victory for AT&T would effectively strip consumers of their right to pursue small claims because class actions are the only effective way for consumers to halt illegal corporate practices. When thousands of consumers are harmed by the same bad corporate conduct, they should have the right to go to court as a group and spread the costs between them. Otherwise, these suits would never be brought individually. Only with a class action remedy can a large company be held accountable for cheating millions of consumers out of something as small as $30.00. Just the threat of being exposed to millions of dollars in damages should deter corporations from trying to defraud the American consumer. Without a class action remedy, corporations will continue to defraud consumers of billions of dollars without fear of any consequence. AT&T earned $12.5 billion in profit last year.