Berk Law reporting from the Supreme Court.
A major case involving the rights of consumers was argued in the Supreme Court this morning. Consumers were represented by Deepak Gupta of Public Citizen. You would never have known it was his first dance with the justices. Despite his youth and rookie status, he was no less than brilliant—brilliant in a clear, plainspoken manner. Winning by his thorough preparation and fearless yet respectful demeanor, he faced a cavalcade of hostile questions, particularly from Justice Alito, whose sneer shifted between disdain and anger, and did not crumble; instead like pitching ace Cliff Lee, he only got stronger as the argument progressed. AT&T was represented by Andrew Pincus, an old hand at the Supreme Court. We expected more from someone who appears before the Court on a regular basis. Not only was he not smooth or flashy, that’s fine, but his arguments were largely convoluted and hardly persuasive; time and again he returned to “his example” – which was in a word: indecipherable.
What is this case (AT&T v. Concepcion) all about? Specifically speaking it is about arbitration provisions in contracts between consumers and large institutions like your bank or cable company. Did you know that most contracts with telephone and credit card companies include an arbitration provision, which in effect shields the company from liability for fraud, product defects and a host of wrongful conduct. They force the consumer to forego any rights they have to file their grievance in court and instead relegate them to proceed before an arbitrator. (OK no big deal – so what? An arbitrator, a judge—isn’t it all the same?). No; in fact, in this and many other contracts a provision within the arbitration clause bans you from filing a class action either in court or before an arbitrator. And the big deal about that is?
The problem is best illuminated with an example: let’s say AT&T has 10 million customers. One day last summer, in an effort to beef up profits before earnings are announced, an AT&T team started adding a bogus “surcharge” to all bills. It amounted to $10/customer X 10 million customers, or 100,000,000 bucks. One hundred million dollars. Nice work. Well let’s say Nancy Jones, who is a very careful and diligent AT&T customer, reads the fifth updated AT&T agreement before recycling it and discovers the $100 million is an illegitimate charge.
What can she do? If AT&T has its way in the Supreme Court she would be limited to filing a claim for her loss and her loss alone. So let’s say she wins – and let’s say she tells her friends and they win. Perhaps a couple hundred subscribers find out. What about the millions of other consumers who for whatever reason are not so smart or diligent? Bottom line: the company gains $99.9 million; consumers get next-to-none of their rightful money back.
But if there is no arbitration provision in place – and class actions are not banned – Nancy can file a case on behalf of all subscribers for the entire $100 million.
Which way is preferable? Under California State law, a ban on class arbitration in a contract (as AT&T seeks) is deemed unconscionable and unenforceable.
The United Supreme Court will decide in this case what law applies. Do they side with the consumers and allow states to prohibit class action bans within arbitration provisions? Or do they once again subjugate consumer fairness to the interests of big business by overturning the lower courts’ judgments and allowing the bans? My sense tells me that the anti-consumer, anti-class action bias will win this one. Not so much on the merits, but because of the politics.
We’ll know by spring time.