An Anniversary You’re Forced to Remember

Friday, April 27, marked the anniversary of a Supreme Court decision that you are probably unaware of, but will be forced to live with if you end up in a dispute with a corporation.

One year after a U.S. Supreme Court decision gave corporations free rein to block class action lawsuits, judges have used the decision in blocking at least 76 potential class action suits from going forward, a new report by Public Citizen and the National Association of Consumer Advocates has found.

The report, Justice Denied, tracks the anti-consumer effects of AT&T Mobility v. Concepcion, in which the Supreme Court ruled that corporations could block consumers’ rights to sue collectively—even in the 19 states that have laws protecting such rights.

What began as a dispute over $30 between Vincent and Liza Concepcion and AT&T has turned into a legal monster worth millions of dollars to corporate bottom lines. The corporate lawyers and Court put profits before people, and a year later we are seeing the ripple effects, as people seeking fairness are losing their legal rights.

The report details three cases in which consumers have felt the direct impact of the ruling.

• Class Actions Against Career Education Corporation (CEC). Before Concepcion, thousands of students collectively sued Career Education Corp., a company that owns a chain of for-profit culinary schools, for misrepresenting the potential earning power its graduates. The misleading numbers enticed many students to enroll and thus take on debilitating student loans to finance their education. According to the lawsuits, students attending the schools typically emerged with debts in excess of $40,000 and were not able to obtain jobs that paid enough to provide a reasonable chance of repaying their loans. At the time of the lawsuits, CEC did not include a class action ban in its contracts with students. The collective cases proceeded in court and resulted in payments of up to $20,000 per student. While these cases, filed before Concepcion, achieved a meaningful settlement, other cases are still pending. In a post-Concepcion era, however, students with similar collective claims may not be able to pursue redress because it would be too difficult to overcome the class action ban the
  company is now including in its contracts.

• Putative Class Action Against Nissan. Matthew Wolf, a member of the Army reserves, returned an automobile before the expiration of his lease because he was deployed overseas. The Servicemembers Civil Relief Act (SCRA) clearly permits service members to terminate car leases without penalty and to recoup the pro-rated share of payments they have made in advance. But Nissan refused to reimburse the prepaid amount to the reservist. He sought a class-action lawsuit on behalf of an estimated 1,000 service members in similar situations. But, citing Concepcion, a judge ruled that he could only pursue redress for himself, not on behalf of a class.

• Putative Class Action Against T-Mobile. Trent Alvarez’s frequent use of his so-called “unlimited” data plan triggered T-Mobile to slow down his service. T-Mobile had inserted a forced arbitration agreement into the contract when Alvarez signed for the phone, but he said he never saw it and filed a class-action complaint against T-Mobile in 2009. The company convinced the judge to suspend the case until Concepcion was decided; the court then rejected Alvarez’s argument that the class-action ban in the arbitration agreement was unenforceable.

These examples are among the dozens of instances documented in the report by Public Citizen and the National Association of Consumer Advocates (NACA), revealing that the decision has already left consumers worse off. Other areas where class action suits have been restricted include cases against payday lenders, debt collectors and banking institutions.

Technically, the Court authorized companies to block class action lawsuits by permitting them to include such language in the forced arbitration clauses of their contracts. Those clauses dictate that any dispute must be settled in a private arbitration forum. By itself, the use of forced arbitration is plainly unfair for many reasons. Typically, corporations outsource the settlement of these disputes to private arbitration companies to handles the cases, where the firms have little intention of redressing fair grievances.

Concepcion was the latest in a series of decisions, beginning in 1984, in which the Court has expanded the ability of corporations to impose arbitration on their customers. These decisions have been based on an ever-expanding interpretation of a 1925 law, the Federal Arbitration Act, which was intended to support the ability of businesses to settle disputes among themselves. Since then, corporations have commonly imposed arbitration clauses on consumers as a condition of renting a car, signing up for a credit card, or purchasing a cell phone. In Concepcion, the Supreme Court opened up a giant new area for arbitration clauses to be used against consumers. Essentially, the Court ruled that if companies inserted anti-class action language in their contracts, consumers and states would be forced to live with the terms. The case was brought by a couple, the Concepcions, who were charged $30.22 in taxes on a phone that AT&T had offered for free in exchange for purchasing their service. The Concepcions believed this charge violated AT&T’s promise to provide a free telephone. They filed a class action lawsuit on behalf of themselves and the thousands of other customers who had paid similar charges for “free” phones. However, AT&T sought to block the class action because its contracts included a class-action ban. Although a district court and federal appeals court ruled in favor of the Concepcions, the Supreme Court reversed the decision in favor of AT&T.

The Court’s 5-4 decision amounted to “a shield against corporate accountability,” said Deepak Gupta, the Public Citizen attorney who argued the case. Gupta likened the decision to a shield because bringing a class-action lawsuit is often the only economically viable way for consumers to hold companies accountable for systemic wrongdoing.

There is hope. The growing use of arbitration has not escaped federal regulator’s attention. The Consumer Federal Protection Bureau (CFPB) has announced its intention to study the effects of arbitration agreements in contracts. CFPB has the power to restrict the use of forced arbitration in contracts for financial services products. The Bureau has proposed the investigation in the Federal Register, and welcomes comments until June 23, 2012.

But until federal policy-makers take action to protect consumers from one-sided contracts, April 27 will always mark the anniversary of a devastating day for consumers’ rights.