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SCOTUS mulling the future of class-action suits

November 9, 2010

Defense and plaintiffs attorneys alike have their eyes on the Supreme Court of the United States, which has before it a case that some say could spell the end to class-action lawsuits in the name of contractual arbitration.

The nation’s highest court is considering AT&T Mobility v. Concepcion, No. 09-893, a case that comes from California and the 9th Circuit Court of Appeals. The issue is whether the Federal Arbitration Act preempts states from allowing class arbitration or litigation as a part of an arbitration agreement. Dozens of amicus parties have filed briefs and the SCOTUS heard arguments today, meaning they’ll likely issue a decision at some point before the term ends in June 2011.

In this case, the consumers  - Liza and Vincent Concepcion - sued the phone giant after entering into a purchase agreement for cell phone service in California, claiming that AT&T fraudulently charged tax on a “free” phone despite advertising otherwise. The Concepcions sued on behalf of a class of consumers who’d also allegedly overpaid, but part of a customer service agreement they’d signed included an arbitration clause that requires the customer and company to arbitrate any disputes arising from the agreement.

When the Concepcions in 2006 filed the suit in the Southern District of California, AT&T argued the suit shouldn’t have been allowed because only arbitration could be used to resolve the dispute. The District Court held that the arbitration clause was unconscionable under that state’s law and wasn’t enforceable because it didn’t allow for class-action litigation, and the 9th Circuit affirmed on the grounds that the Federal Arbitration Act didn’t preempt California law on unconscionability.
Now, the justices are considering the issue and some national legal experts have opined that the justices may rule in AT&T’s favor. As a result, that could lead to significant changes throughout the country.

The National Workrights Institute argues that a court decision in AT&T’s favor could mean that employment cases wouldn’t be able to use class-action litigation and that wide-spread discriminatory practices would become more common because of the arbitration requirements. The Institute’s brief spells out how it fears attorneys wouldn’t be willing to take these and similar cases without the assurance of adequate attorneys’ fees that can come from class-action suits. Similar thoughts are echoed by other groups, such as the NAACP.

AT&T and some amicus parties, such as the Defense Research Institute, argue that the court striking down its arbitration clause would distort contract law and also signal a willingness to interfere with corporate operations. Millions of parties enter into arbitration agreements annually, and this case could determine what might happen with those agreements inside or out of court.
 

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