By Brian S. Kabateck '89, Guest Alumni Blogger
Concepcion v. AT&T, 131 S.Ct. 1750 (2011) is arguably the worst consumer Supreme Court decision in the last 20 years. Interestingly, there hasn't yet been a public outcry. In this horrible decision, the court held that the Federal Arbitration Act trumps all other laws. If you don't know the case and have been living in a bubble for the last two years, the facts are simple: The Concepcions sued AT&T Mobility claiming that their cell-phone company had engaged in deceptive advertising by falsely claiming that their plan included free cell phones. Their suit became a class action. The U.S. District Court for the Central District of California refused to dismiss the suit despite the fact that the contract mandated binding arbitration and prohibited class action lawsuits. The district court ruled that California law prohibits consumer adhesion contracts that waive the customer's right to a jury trial, mandate arbitration and purport to waive the right to participate in a class action lawsuit. The Ninth Circuit Court of Appeals upheld the District Court's decision. The Supreme Court disagreed and held that the Federal Arbitration Act (a law that was written before the Great Depression) mandated that any arbitration agreement was absolutely enforceable, even if it appears in a contract of adhesion.
Before Concepcion, contracts of adhesion couldn't force people into arbitration in California, and class action waivers were generally held unenforceable. There are many cases all across the United States today with varying decisions on the enforceability of mandatory binding arbitration agreements. There is no doubt that mandatory arbitration in consumer contracts of adhesion is bad for most Americans. The only groups that like the idea of mandatory arbitration are big business and the chamber of commerce. Arbitration doesn't discourage consumer litigation; it eliminates it entirely. Who is going to arbitrate a $75 dispute with your phone company provider? And if your phone company is overcharging you $75, where does the consumer go? Or a $500 dispute? Or a $1,000 dispute? While a $75 rip off may not be the worst thing that happens to a consumer, it nevertheless is wrong and should be stopped. And a $75 dispute magnified over tens of thousands of customers means millions of dollars the corporation is stealing from its consumers. The state and federal governments have neither the ability nor the resources to litigate these cases on behalf of consumers. So if class actions are eliminated for this category of cases, and the government won't enforce the laws, it is a license to steal from America.
The advocates of arbitration say it's economical and fast. It's neither. A single day of arbitration costs thousands of dollars. Some arbitration agreements call for three arbitrators, so triple the cost of arbitration. And often arbitration drags on for months and years. There is usually no right of appeal, which means the arbitrator's decision is final. And the arbitrator doesn't have to follow generally accepted rules of evidence and precedent. In other words, the arbitrator does what the arbitrator wants to do. Now, considering most consumers may have one case in their entire lifetime, and a corporation has many arbitrations every year, you can figure out who the arbitrator is going to favor. Meanwhile, the whole process is masked: While court trials are public and open, arbitrations are closed.
I'm not saying that all arbitration or private judging is per se bad for our justice system. If parties agree to arbitrate post dispute, that's a knowing and intelligent decision. There may be good reason to arbitrate, but the decision should be made after a dispute is acknowledged. Generally, business versus business doesn't opt for arbitration; they want to use the courts. Who can blame them? The court system and jury trials are the cornerstone of American civil justice; we need to protect them from these kinds of business-oriented attacks on the rights of ordinary people to bring lawsuits. We are looking at state-based restrictions on contracts of adhesion and state protection of our citizens. Real change, however, must occur with changes to the Federal Arbitration Act (which hasn't been modified since it went into effect more than 80 years ago) at the federal level.
Brian S. Kabateck is the founding and managing partner of Kabateck Brown Kellner LLP and president of the Consumer Attorneys of California.