Cater blog

AT&T Mobility v. Concepcion: Supreme Court to rule on consumers' class-action rights

In AT&T Mobility v. Concepcion, the Supreme Court will decide whether a company has the right to require customers doing business with it to sign away their right to participate in class action lawsuits.

What led to the lawsuit?

The Concepcions signed aand thought they were getting a package discount on two phones, only to pay sales tax on the full price of the phones, which resulted in a $30 claim. They sued, contending it was a fraud for AT&T to advertise the discounted package then charge them tax on the full-price of both phones.

Why does it matter whether this case is heard as a class action?

Every consumer signing the same contract with potentially had an identical claim against AT&T. Individually, each of those claimants, including the Concepcions, were out so little money, it would cost more to hire a lawyer than they could recover if they won. But AT&T collected millions of dollars through these charges. By pooling their resources on legal representation, consumers can afford to pursue their legal claims.

How did the case come to be before the U.S. Supreme Court?

The Concepcions filed suit against AT&T in the U.S. District Court for the Southern District of California. The court combined their case a class action case known as Laster that raised the same issues. AT&T tried to get the case dismissed, arguing that its contract both required the Concepcions to resolve disputes through arbitration (which resolves the dispute outside of the court system) and forbid the Concepcions to pursue a class action. The district court refused to dismiss the case, and AT&T filed an appeal of that ruling to the 9th U.S. Circuit Court of Appeals. , and AT&T appealed to the U.S. Supreme Court.

What is the basis of the Circuit Court decision?

The 9th Circuit said based on earlier court rulings, the Concepcions had to meet three criteria in order for the clause barring class actions to be ruled unconscionable and, therefore, unenforceable. The contracts must be contracts of adhesion, meaning one party unilaterally created the contract and imposed it on the other; the dispute must be over relatively small sums of money; and the party that drafted the contract must be found to have used its superior bargaining power to cheat large numbers of people out of small amounts of money.

What is the key issue before the U.S. Supreme Court?

The Federal Arbitration Act governs arbitration agreements and determines whether and under what conditions they are enforceable. Generally, that law says arbitration agreements are enforceable unless the state law requirements for revoking a contract are met. When a specific provision of an arbitration agreement, like a class-action ban, is unenforceable under state law, does the state law or the FAA determine the outcome?

Why does this case matter?

When a consumer does business with a corporation, the contract setting out the terms is generally a standard one imposed by the corporation. With increasing frequency, such contracts contain arbitration clauses, requiring a customer to resolve any claim against the company through arbitration rather than a lawsuit. The rationale behind such clauses is that arbitration is less expensive and procedurally simpler than a court case. Courts have upheld such arbitration clauses where they don't unfairly limit the consumer's rights to recover damages due them.

If the court rules for the Concepcions, AT&T argues that companies will not be willing to enter into arbitration agreements because they will no longer offer advantages over traditional litigation.

If the court rules for AT&T, plaintiffs whose individual legal fees would exceed their potential recovery in litigation will be deterred from seeking recompense due them, allowing corporations to help themselves to millions of dollars by getting small sums from large numbers of people.