Posted on 28 Apr 2011
Ruling in a 5-4 decision, the Supreme Court gave corporations a major win on Wednesday, saying that companies can block their disgruntled customers from joining together in a class-action lawsuit. The ruling was a result of a California lawsuit that involved cellphones, but it's impact is nationwide.
Previously, customers that purchased a product or a service were free to join a class-action lawsuit if they were dissatisfied or felt they had been cheated. By combining these small claims, they could bring a major lawsuit against a corporation.
But in Wednesday's decision, the high court said that under the Federal Arbitration Act companies can force these disgruntled customers to arbitrate their complaints individually, not as part of a group. Consumer-rights advocates said this rule would spell the end for small claims involving products or services.
In the case before the court, a Southern California couple complained about a $30 charge involving their purchase of cellphone service from AT&T Mobility. The California courts said they were entitled to join with others in bringing a class-action claim against the cellphone company.
But the Supreme Court reversed that decision Wednesday in AT&T Mobility vs. Concepcion. Justice Antonin Scalia said companies may require buyers to sign arbitration agreements, and those agreements may preclude class-action claims. Chief Justice John G. Roberts Jr. and Justices Anthony Kennedy, Clarence Thomas and Samuel A. Alito Jr. formed the majority.
Scalia said companies like arbitration because it is efficient and less costly. "Arbitration is poorly suited to the higher stakes of class litigation," he said.
But the dissenters said a practical ban on class action would be unfair to cheated consumers. Justice Stephen G. Breyer said the California courts had insisted on permitting class-action claims, despite arbitration clauses that forbade them. Otherwise, he said, it would allow a company to "insulate" itself "from liability for its own frauds by deliberately cheating large numbers of consumers out of individually small sums of money."
Breyer added that a ban on class actions would prevent lawyers from representing clients for small claims. "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?" he wrote. Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined his dissent.
The court itself divided along partisan lines. All five Republican appointes formed the majority, and four Democratic appointees dissented.
Still pending before the court is a major dispute over class-action suits involving job discrimination. Lawyers for Wal-Mart have asked the justices to throw out a sex-discrimination claim brought on behalf of 1.5 million current and past female employees.