Has the Supreme Court Killed Consumer Class Actions?

The U.S. Supreme Court just issued a long-awaited ruling in an AT&T lawsuit involving consumer class-actions. The background is a bit complicated, but this article does a good job of summarizing it.

Here’s the short version: a group of plaintiffs sued AT&T, alleging that they engaged in deceptive trade practices because it advertised that it was selling cellular phones at a discount, but charged sales tax on the full, non-discounted, retail price. The amount of money per phone at stake in this lawsuit is very small; about $30. For that reason, it made no sense for the plaintiffs or their attorneys to file a lawsuit individually. So, they filed a class-action on behalf of everybody who bought a phone from AT&T within a specified period.

However, AT&T’s service agreement has a clause stating that all disputes between AT&T and the buyer have to be resolved in private arbitration, and specifically barred any type of class action in that arbitration. Every customer had to agree to this before they bought the phone. A state court ruled that, although arbitration agreements are generally enforceable, this provision was unenforceable because it was extremely one-sided and unfair.

However, a federal law, called the Federal Arbitration Act (FAA), makes arbitration agreements more difficult to be declared unenforceable than the laws of many states. AT&T argued that this federal law pre-empted the state law (under the constitution, federal laws generally trump contradictory state laws). The Supreme Court agreed.

So, what does this mean for consumer class actions? It will be difficult to tell. But, there’s no denying that it’s now much, much easier for large businesses to contract their way out of class-action lawsuits. Congress can, if it so desires, amend the FAA to nullify this decision (remember, the court was simply interpreting a federal law, not ruling on its constitutionality. Congress can change the law to clarify its intent, if it thinks the court interpreted it incorrectly). But, with Congress being what it is, who knows when this will happen, if ever.

So, for the foreseeable future, it appears that businesses will be able to place arbitration agreements in their contracts, effectively doing away with the right of consumers to file class-action lawsuits.

Although it may not sound like it, this is a very big deal. The class action was created about 40 years ago. Since then, it has become one of the most effective tools that consumers have at their disposal to vindicate their rights. It has been used in cases where relatively small amounts of money are at stake, but where important legal rights had to be vindicated. It has been successfully used to fight employment discrimination, unfair trade practices, and fraud.

Many cases such as this involve companies nickel-and-diming their customers to death. Obviously, when something like $100 is at stake, it’s not worth a person’s time to go to court over it, and there are few, if any, lawyers who would take the case. However, a class action lawsuit can spread the cost around, and make any recovery large enough that it’s worth a lawyer’s time to pursue.

Without the class-action, companies would be able to commit these small, but real, legal wrongs, with near-impunity. Obviously, this would be a bad thing, since a lot of little wrongs can eventually add up, and cause significant harm, in the long run, which consumers may not even be aware of. After all, when a series of small costs add up to a large amount of wasted money over time, it’s easy to overlook it (like how buying a few cups of coffee per day costs you thousands of dollars per year). That doesn’t make the losses any less real, however.

As with many laws that rely on a private right of action as their primary means of enforcement, the threat of a large class-action lawsuit served as a deterrent against corporations breaking the law. Without such a deterrent, it’s tough to say what companies will attempt to pull on consumers, shareholders, and employees, knowing that they can simply contract their way out of the threat of a class-action lawsuit.

While I doubt much of it will be earth-shattering (there are lots of other protections available to consumers, employees, and shareholders, even with this new decision), I also doubt that much of it will be good for anyone but the corporation writing the contract.

The Roberts court definitely seems to have moved in a very conservative, very pro-business direction over the last few years. Obviously, Supreme Court justices all have their preferred interpretations of the Constitution which, shockingly, seem to lead to policy results which they also favor.

The Roberts Court seems to be far less timid about using its position (and its 5-4 majority) to advance a conservative political agenda. Again, I know that this is simply how the game is played. In a common-law system (like ours), judges sometimes make law. There’s nothing wrong with this, and we should stop pretending otherwise.

However, every Supreme Court justice in recent memory has gone before the Senate for their confirmation hearing, and said with a straight face that judges don’t make law, knowing full well that it’s false. At some point, we just decided that that we don’t like the idea of unelected judges making law, and that we should pretend that they don’t.

Whenever an appeals court reverses a long-standing precedent, or sets a precedent that some people don’t like, they’re accused of “legislating from the bench.” And, sadly, this criticism usually comes from people who know better.