May 5, 2011
Right or Wrong? A pro-business view of consumer arbitration agreements
Last week the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion, ruled that AT&T (and therefore any company) could block class-action suits and force their customers into binding, individual arbitration per the terms of the contract (e.g., a cell phone contract). In an opinion written by Justice Scalia, the Court held that the class waiver language in the arbitration provision was enforceable despite California Supreme Court precedent that invalidated such provisions in consumer contracts of adhesion, like the one at issue in this case.
The result: companies are free to fashion enforceable arbitration agreements under the Federal Arbitration Act (FAA) that exclude class-action options irrespective of state law/precedent holding otherwise.
The Court found that the lack of review and risk of uncaught errors with arbitration, while acceptable with individual claims, to be unacceptable in the aggregate without clear consent/intent of the parties. In contracts of adhesion, consent of the parties means intent of the drafters. Thus, the Court honored the intended scope of the arbitration agreement (i.e., no class proceedings) as written by AT&T. This case, when combined with the 2010 U.S. Supreme Court case Stolt-Nielsen, which disallowed the imposition of class-arbitration procedures where the agreement was silent as to class options, creates a pro-business view of arbitration provisions in consumer contracts and has the potential to decrease consumer class-actions.
While this opinion has been lauded for establishing that consent is king with regard to arbitration, that, of course, only really applies to the business-side of the contract, not the consumer. The consumer has choices-- not enter into the contract, or bring the $30.33 claim individually in arbitration--but are those choices sufficient? In light of the fact that the AT&T contract contained high consumer arbitration awards (min. of $7500 if favorable) and the cut awarded to plaintiff's lawyers in traditional class-action suits, maybe the answer in this case is yes....but is this the right answer for consumer claims as a whole? My jury is still out, and I welcome your comments.
May 5, 2011 | Permalink
Another great post. I share your skepticism. The Weil piece you link to is bizarre in how it buys the Supreme Court's talk that its arbitration jurisprudence is all about contract and contract law, a point I challenge in my new Duke Law Journal piece, available here:
Keep up the great posts!
Posted by: Lawrence Cunningham | May 5, 2011 7:27:02 PM
Lawrence, thank you for sharing the link to your paper. The link you attached won't pull up the paper because the (.) is included. I am re-posting the link so others can download.
Posted by: Anne Tucker | May 6, 2011 11:39:50 AM
I agree that forcing customers to acquiesce, frequenly unknowingly, to arbitration clauses in unread "contracts" is deplorable. But don't blame AT&T or all those other evil businesses for taking advantage of a poorly drafted law. Blame Congress for not fixing the law.
Posted by: Arthur O. Armstrong | May 6, 2011 1:04:25 PM
Anne: In this specific case an aggrieved consumer would be better off with the arbitration procedure provided for in the contract than with a class arbitration or court action. In fact, if class arbitration were a possibility, AT&T would not have provided for such a consumer-friendly process. If the price AT&T had to pay to ensure it could opt out of class actions/arbitrations was real consumer relief, I don't see how this is bad for consumers. My own experience with class actions from a consumer perspective has been less than satisfying to say the least.
Posted by: Brian Rogers | May 7, 2011 7:17:19 AM