27 April 2011
Companies looking to avoid class arbitrations gained a powerful tool Wednesday, thanks to AT&T and an appellate team led by Mayer Brown.
In a 5-4 decision, U.S. Supreme Court said AT&T Mobility could enforce a contract that required cellphone customers to arbitrate disputes individually and waive the right to bring claims as a class. The decision could have broad implications for disputes involving not just consumers, but employees who sign arbitration agreements.
"It should have the effect of reducing certain types of class actions, those [involving plaintiffs] with a contract," said Alan Kaplinsky of Ballard Spahr, a lawyer who has long advised clients on consumer arbitration agreements with class action waivers.
The decision stems from a 2006 lawsuit filed by Vincent and Liza Concepcion over a $30.22 sales tax that showed up on their cellphone bill from AT&T, which they said promised free service. After their suit was consolidated in a class action, AT&T moved to compel arbitration. The federal district court found the arbitration clause unconscionable under California law because it prohibited class actions, and the U.S. Court of Appeals for the Ninth Circuit affirmed.
On behalf of AT&T, Mayer Brown partner Andrew Pincus argued to the Supreme Court that the Federal Arbitration Act pre-empted the California law. Justice Antonin Scalia, writing for the majority, agreed. "Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA," he concluded.
The Litigation Daily talked to winning lawyer Pincus on Wednesday. "What the court is saying generally is that states can't say we'll only enforce your arbitration clause if it includes procedures that basically turn arbitration into the equivalent [of a class action lawsuit]," said Pincus, who has argued 22 cases before the high court, according to his firm biography.
In his dissent on behalf of the court's more liberal wing, Justice Stephen Breyer invoked principles of federalism. "Recognition of that federalist ideal, embodied in specific language in this particular statute, should lead us to uphold California's law, not to strike it down." Justice Breyer pointed out the most obvious practical problem with contracts that ban class arbitrations: "[They] can lead small-dollar claimants to abandon their claims rather than to litigate them."
Deepak Gupta, the lawyer at Public Citizen who argued for the Concepcions, said the decision dealt a "crushing blow" to consumers and employees. "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," Gupta said in a statement.
Defense lawyers told the Litigation Daily they were already getting calls from clients looking for advice on how to use the decision to their advantage. "It's going to change the leverage in these sorts of litigation situations," said employment lawyer Gerald Maatman of Seyfarth Shaw. "Why would any company now want any agreement that would allow for a class action, given the problems that a class action can allow?"
Plaintiffs lawyers, of course, expressed dismay. Jeremy Heisler of Sanford Wittels & Heisler, whose firm won a $250 million gender discrimination verdict against Novartis, called the decision "extreme" and predicted it would cause employees to keep quiet about discrimination and overtime abuses. "A class action is a necessary weapon for an employee whose rights are being violated," Heisler said. "Unfortunately, it seems the court made a policy and political decision that the employer's interest must come out ahead."