Supreme Court Upholds Individual Arbitration Contract Clauses

Published June 20, 2011

The U.S. Supreme Court has ruled in favor of AT&T in allowing a case to go to individual arbitration instead of being filed as a class action. The Court’s ruling in AT&T Mobility v. Concepcion determined the Federal Arbitration Act preempts California law allowing consumers to seek damages as a class. The majority 5-4 opinion, penned by Justice Antonin Scalia, overturned a Ninth Circuit Court decision against AT&T.

In 2010, the Concepcion family received free cell phones from AT&T for signing a new contract. However, California law requires payment of a sales tax for bundled transactions for wireless service. As a result, the Concepcions received a bill for $30.22.

Arguing they should not have been charged sales tax, the Concepcions attempted to start a class action arbitration. A clause in their cell phone contract, however, prevented such a step, so the Concepcions initiated legal action in California Federal District Court. The District Court denied AT&T’s motion to compel individual arbitration under the Concepcions’ contract. AT&T appealed the District Court’s decision, which resulted in the Supreme Court’s ruling in the company’s favor on April 27, 2011.

‘Arbitration Benefits Consumers’
Kirk B. Hulett, one of the members of counsel briefing the court on behalf of the Concepcions, argues the decision limits the bargaining power of individuals against major media companies.

Marty Richter, a spokesman for AT&T, says the decision actually protects consumers by providing a means to arbitrate that avoids long, expensive court proceedings.

“The Supreme Court recognized that arbitration often benefits consumers,” said Richter. “Quoting the lower courts, the Supreme Court noted that ‘the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars,” he said.

“Members of a class action do not fare as well as they do in arbitration,” Richter added. “The District Court cited studies that show class-action members rarely receive more than pennies on the dollar for their claims, and that few class members—approximately 1 percent to 3 percent—bother to file a claim when the amount they would receive is small.”

‘Fair to Consumers’
Ted Frank from, the Center for Class Action Fairness, and the Manhattan Institute agrees with Richter. He says the terms of AT&T’s arbitration proceedings are fair to consumers and the court made the right decision for both consumers and corporations.

Frank says the ruling still binds corporations contractually, which prevents them from “ripping off consumers.”

Frank notes existing legal doctrine “can handle the cases where mandatory arbitration clauses leave consumers without a real remedy. The decision just interprets the Federal Arbitration Act to prohibit state courts from assuming that arbitration is inherently unfair.”

Aleks Karnick ([email protected]) writes from New York City.

Internet Info:

AT&T Mobility LLC v. Concepcion, U.S. Supreme Court decision, April 27, 2011: