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Own a cell phone? Read the fine print
Posted in Litigation

Companies can now use arbitration clauses in contracts to prevent many types of class action claims, according to a recent U.S. Supreme Court ruling.

The decision may impact how a dispute with your cell phone service provider would be resolved.  In AT&T Mobility v. Concepcion, a cell phone customer sued AT&T for advertising that a phone would be “free” but then charging the customer $30.32, the sales tax on the full retail price of the phone. AT&T then asked a Federal Court in California to transfer the case to arbitration, because the cell phone contract at issue stated that disputes regarding the contract must be submitted to arbitration, and must be brought individually and not part of a class action.  The Plaintiff asked the court to uphold a California rule holding that waivers of certain class action rights of customers were not enforceable. 

Writing for the 5-4 majority of the Court, Justice Scalia stated that The Federal Arbitration Act (FAA) pre-empts the California rule.  While the FAA  permits arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract,” the majority held that this clause does not permit a common law right that is inconsistent with the FAA.  On that point, Scalia wrote that “[r]equiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."

Writing for the minority, Justice Breyer asked: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? . . . Why is this kind of decision—weighing the pros and cons of all class proceedings alike—not California’s to make?" Scalia responded that “states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

This decision should provide more protection for companies against costly class action claims. Companies that take advantage of the ability to insert provisions in the “fine print” will be better positioned over the long term. For more information about artibration clauses, contact the Litigation Practice Group at Bingham Greenebaum Doll.



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