Welcome to the National Campaign to Restore Civil Rights Interview series, a regular examination of the court cases that shape and affect our lives.
It is often the case that those lawsuits that get the least publicity have the most potential for changing our legal system. At the moment, there is a case pending in the Supreme Court that could have a significant effect on our access to justice. Known as AT&T Mobility v. Concepción, the lawsuit has to do with arbitration clauses that endanger established consumer and civil rights protections.
To learn more about this case, we spoke with Suzette Malveaux, Associate Professor of Law at Catholic University of America.
PERRY: What is the AT&T Mobility v. Concepción case about? What happened in this case?
MALVEAUX: Well really, what happened in this case is you have an arbitration agreement where people are supposed to arbitrate any kind of disputes that they have in the future, and in that arbitration agreement it said that you could not have a class action and that California court bided that that arbitration agreement was unconscionable, that it was not enforceable. So what’s before the Supreme Court is this question about whether that California court decision, is it allowed, is it preempted by the Federal Arbitration Act. And I know that that’s kind of technical, but what happened here is very simple. You had two people, the Concepcións, they decided to get cell phone service from AT&T Mobility, in response to an advertisement. And so they went out, they purchased a phone, and when they purchase the phone they were promised a free phone in addition to the purchased phone. Turns out that the phone was not free, AT&T had charged them for the phone, along with sales tax. And so when the Concepcións decided to…they signed a service agreement for the cell phone service, that agreement had an arbitration clause in it, that basically means that they agreed that if there were any disputes with AT&T in the future that they weren’t allowed to resolve those problems in court, they had to resolve them in arbitration. And so this agreement, the arbitration clause, not only did it say you had to go to arbitration but it also said if you’re going to challenge any practices by AT&T you cannot bring a class action, you have to bring your own individual case. So the Concepcións decided…they did challenge the issue with the free phone, they basically said they had misrepresented…that this phone was free, and that this was a violation of California’s consumer protection laws, this sort of fradulently charging them for a phone or misrepresenting that this was free to them. So the Concepcións tried to bring a class action in the federal court in California, on behalf of themselves and all of the AT&T consumers that were in the same boat. Now the arbitration agreement had been revised throughout this time period, and the arbitration agreement included a lot of what would be considered consumer-friendly provisions, things that would be good for consumers, but it turned out that the trial court, the federal court in California said that this arbitration agreement was unconscionable, that it was not enforceable because California state law had certain requirements, said that this was not an enforceable agreement. This went up to the appellate court, the 9th Circuit, and the 9th Circuit also agreed that, under California state law, this agreement was unconscionable of unenforceable, and that the federal arbitration act didn’t in fact preempt California’s decision, this court decision from being able to go forward. So AT&T decided to see if the Supreme Court would hear the case, and the Supreme Court agreed that it would hear this case.
PERRY: How did the lower courts rule?
MALVEAUX: What happened here is the trial court said that the arbitration agreement was unconscionable under California state law, and the 9th Circuit affirmed that decision and also agreed under California state law that this agreement was unconscionable and therefore unenforceable, and that the California court had the right to do this, it was no preempted by the federal law, the Federal Arbitration Act which deals with arbitration. And we know that the Supreme Court has now decided to take a look at that case and in fact has already heard oral argument to see which of the parties is correct. So it’s a really important case to be discussing, we’ve got consumers, we’ve got businesses, practitioners, scholars, people all over the country that are paying attention to this case because of the tremendous impact that this can have on class actions and on the enforcement of consumer laws.
PERRY: What were the arguments made?
MALVEAUX: Basically on the one hand you have…AT&T is taking the position that the Federal Arbitration Act is…preempts this California state decision, right, and says that this ban on class actions or this class action waiver, that it should not be unconscionable and unenforceable and that the case should be resolved in arbitration and it should just be an individual case. We know the Concepcións take the position that the state of California has a right to hold under its state law that a class action ban is not permissible, is unconscionable, under its state law, and that this case should be resolved as a class action and it can take place in arbitration. So the big argument here between the parties was whether or not California courts…are they discriminating against arbitration agreements, are they somehow treating arbitration agreements differently or worse off than other kinds of contracts. Because if that were the case that would be considered a violation of Section 2 of the Federal Arbitration Act, because the Federal Arbitration Act says that arbitration agreements are on the same footing as all contracts, to be treated equally. And the Concepcións are arguing that California is not targeting arbitration agreements, what they’re doing is they’re targeting all contracts that basically immunize the defendants from complying with state consumer laws. The Concepcións are very concerned that if you don’t have a class action, if you’re not allowed to bring your case as a class action, then it’s going to be really difficult to enforce California’s consumer protection laws, and that this approach is not just being target to arbitration agreements but to any agreement that would allow the defendants to get off the hook in some way and not have to comply with California’s consumer laws. AT&T, on the other hand, is arguing that as a matter of federal law, arbitrations agreements should be enforced unless they’re invalid in some way under state law and they’re arguing in fact that California is discriminating against arbitration agreements, that they’re being treated in a more harsh manner than other types of contracts, in a variety of ways, that these arbitration agreements are in fact being a disadvantage and that that’s not fair.
PERRY: Why are class actions important?
MALVEAUX: Excellent question…and I think this really goes to the nub of what’s going on here, they’re very important because it creates an incentive for people who have very small claims, consumers often have small claims, here you’re talking about a free phone, charges for sales tax on that free phone not a lot of of money is at stake. So people who have these small claims don’t have the incentive to in fact challenge wrongdoing. And so a class action creates incentive for people who have small claims to come together and to challenge wrongdoing, systemic practices, and it gives lawyers incentive, in fact, to bring those cases. And so a class action is a tool that really enables individuals to challenge systemic wrongdoing in a way that, you know, individual cases are not going to be able to do that. And often, even federal government agencies, when they try to address wrongdoing, may not have the kinds of funding, may not have the sort of…there’s a lot of bureaucracy and…the sort of capacity to enforce consumer protection laws and even some of the civil rights laws that we think of in a way that is aggressive. And so consumers are really relied upon to function as private attorneys general, to bring some of these cases to make sure that the consumer laws are enforced. You know, it’s certainly, if you have a class action you’re able to challenge systemic discrimination, you’re putting everyone else on notice that hey, there may be some deceptive practice out there that you need to be aware of that most consumers would not be aware of if there wasn’t a notice given through the class action. And so the class action really does tend to deter wrongdoing. I think businesses and companies are very mindful of the power of the class action. So when you have these small cases there’s sort of…there’s strength in numbers, and those little cases get added up together and can be a very powerful case in terms of enforcing the law. And I will add that class actions are very efficient. So if you think about each individual bring their own separate case over and over and over again you have the same issues coming up, you know, they have the same interests but that’s a very inefficient use of the courts’ time and money and really everybody’s. So it makes sense to take all of these cases and put them together and to make a class action so that there is strength in numbers and you can overcome what might be a divide-and-conquer kind of strategy on the other hand. And that’s really what was at the heart of this case, because the Concepcións are arguing that if you forbid class action, then you’re not going to have that effective enforcement tool, and that the state of California was very concerned that under certain circumstances, if you have a contract of adhesion, meaning it’s a take it or leave it agreement, and it involves really small claims like we’re talking about here, and you have an allegation that there’s a party with greater bargaining power that’s trying to deliberately cheat lots of consumers who have small claims, that all of those things together really make it so that the company, the defendant, can escape liability, and can be exempt from the consumer laws, because under those circumstances, it makes is incredibly difficult to challenge systemic misconduct.
PERRY: There have been other cases in recent years in which the Supreme Court has ruled that the courts should enforce mandatory arbitration clauses. Why should we care about mandatory arbitration? What effect does this stance have on our access to justice?
MALVEAUX: Mandatory arbitration…I think what’s really important to pay attention to about mandatory arbitration is this notion of consent, right? When we think about mandatory arbitration, it’s fine if it comes out of, you know, if it’s really the product of two people sitting together, knowing what they’re getting into, it’s a consentual agreement between the parties, right? Because arbitration can have a lot of positives. And so the Supreme Court has deferred to the enforcement of arbitration agreements within a certain context, and it made sense before because they Supreme Court’s deference to arbitration agreements comes out of, you know, you have a union and you have an employer, and they together sit down and hammer out problems, work out issues through arbitration. So in the collective bargaining context it really makes sense that you would have mandatory arbitration. And so that’s where the Supreme Court’s deference came from, because you really had two sophisticated, equal players, repeat players that were hammering out, negotiating in the context of arbitration.
Now, sort of fast-forward, and what’s happened is, the problem is you no longer have…mandatory arbitration has expanded to cover lots of types of contracts that deal with people of unequal bargaining power. So let’s say you have a consumer or you have an employee on the one hand, versus their employer or some big company on the other, so it’s a David versus Goliath kind of situation. And now, mandatory arbitration, you sign an agreement and it says, you know, if you want this cell phone, if you want this bank account, if you want this job, then you are going to agree to go into arbitration if you have a dispute in the future. And quite honestly, nobody is really in a position to negotiate, well let me cross out that arbitration clause, well no I don’t think so, let me cross out that ban on class actions, nobody is in a position to really bargain and negotiate. It is presented to the regular consumer, the regular sort of employee, everyday person, as hey, this is a take it or leave it situation, right? You either agree to this or you don’t get the job, or you don’t get the cell phone or whatever else it is. Unfortunately I think what’s happening is this notion of consent, negotiation that really starts to fall apart when you look at those mandatory arbitration agreements in some of these contracts where there really is unequal bargaining power.
I think, in terms of access to justice, the explosion of mandatory arbitration agreements does have an impact on people’s ability to have access to justice. On the one hand I will say there are good features…there can be good features about arbitration, which is why you want it to be consentual and we want it to be available so it’s truly really embraced. So you think about arbitration can be less expensive and it can be faster, it can be a more convenient and flexible way of resolving problems, so you have that on the one hand. But on the other hand I think people need to be aware of some of the pitfalls of arbitration, not be sort of forced to go into something without really having their eyes open. So when we think about some of the downsides of arbitration, you have very limited review of an arbitrator’s decision, there’s limited discovery in terms of being able to get access to information, there’s no jury trial, it can in fact turn out to be expensive if you’re paying for the arbitrator’s time and you’re paying for the fees and things like that. There’s no written record often, the arbitrator doesn’t have to follow precedents, doesn’t have to follow binding law, there may be limited remedies, it may be confidential, there are a lot of things, provisions, and of course there may be no class actions. So there are a lot of things in arbitration that in fact can be barriers to relief or barriers to what we think of as sort access to justice that people need to be aware of and really do need to give up those sorts of rights knowing and understanding the impact of that.
PERRY: What is at stake in this particular case?
MALVEAUX: There are sort of two ways of looking at it. Depending on who wins there’s a lot that’s going on and a lot of people are focused on what might happen as a result. So for example, if it turns out that AT&T wins, then the question becomes, are businesses going to rush to insert in their arbitration agreements a ban on class actions, right, you can put that in your arbitration agreement and if that is what happens, the real concern is that this is going to eliminate class actions, or eliminate class actions certainly for consumer claims that deal with small amounts of money. And that’s a problem here in terms of what we were talking about before in terms of jeopardizing the enforcement of consumer laws that is so important to be able to have a class action when you’re talking about these small amounts of money so that you can get systemic change. It’s really the only way consumers can do that, is to push that systemic change which is brought about through the class action mechanism because individual lawsuits, each one by one by one by one is not going to do it, and government agencies may in fact not be able to play that greater role. They can play a role, but there’s a role that the citizens have to play in terms of law enforcement here, and we have found that that is very critical in terms of countering systemic discrimination. And so that’s the problem and we may see legislation that may come out of it. If AT&T wins there’s the Arbitration Fairness Act of 2009, in fact may get some more support for it and start pushing that legislation again to say that these kinds of mandatory arbitration agreements are not permitted, right, in certain types of arrangements, in certain types of civil rights cases or consumer cases, that that may not be permitted. So we might see some legislative pushback if the Court goes in that direction.
On the other hand, if the Concepcións win here, the argument by businesses is that they’re going to walk away from arbitration entirely, altogether, because it’s…really this may be the end of arbitration in California or other states where it’s a lose-lose proposition for business, because class actions are so risky that business would be afraid to be exposed to a class action. So if they can’t have an arbitration agreement that excludes class actions or prohibits class actions, they’re not going to have arbitration at all. And that’s because if a business gets stuck with a class action in arbitration unfortunately they’re not in a position…there’s no meaningful review of that decision, so it’s way too risky, it’s a lose-lose proposition for those business. So the concern on their part is that this is really going to discourage if not kill arbitration in certain states, because of the way that state law looks at unconscionability and tries to figure out whether or not the arbitration agreement is enforceable. So, this is considered a consumer-friendly arbitration clause, and if this consumer-friendly arbitration clause doesn’t survive, then the thinking is, what will? And so I think that a lot of businesses will actually be running from arbitration, which is exactly what the Federal Arbitration Act is supposed to avoid.
PERRY: This case was heard in the Supreme Court last month. What were your impressions of the arguments?
MALVEAUX: You know, I think…very interesting. I think that there is a really tension that the court is dealing with and probably that tension may exist more for the conservative justices than for the others, which is state’s rights. States rights on the one hand versus business rights on the other, business interests on the other, which seems to be somewhat of a tension because I think the Court was really wrestling with, you know, this is state law, this is California’s…the courts in California, federal and state courts in California, they have a right to their contract law, right? If they say that here are the three things we find that make a contract unconscionable, then the Supreme Court is thinking who are we to tell them otherwise, right? Who are we to dictate to the states what their contract law should be? And so I think they really have some concern there, where’s the line? And they don’t want to cross the line there, because that’s not what the Supreme Court is in the business of doing, to start micromanaging the states and telling them what their state law should or should not be. So it’s one thing to disagree with the state of California, or really any other state. There are about 20 states in fact who have found these class action bans in arbitration agreements unenforceable. So I think that there’s a concern that the Supreme Court doesn’t want to tell those states what their law should be. So that’s certainly something that I saw coming out of the argument.
I think another interesting issue that came out of the argument there was understanding what’s the boundary line, what can states sort of control in terms of arbitration, what is arbitration? Is is okay to not allow class actions? Is it okay not to allow a jury trial? At what point do we start forcing arbitration really to look just like litigation, just like the legal system? Because these are two different systems and you should be able to choose to go to arbitration because it has all these different features that you might like over other features, and to what degree are we sort of imposing on people’s ability to freely contract with one another and in fact to embrace a form that looks very different from the court system?
And finally I think one of the interesting issues that came up in the argument was this whole issue of discrimination and whether or not the courts, the state law coming out of California discriminates against arbitration agreements. Well, it doesn’t say on its face that it discriminates, in fact it says, you know, we have the same rule across the board for litigation and arbitration, we want to make sure defendants are not, you know, escaping the consumer protection laws. But if there is something that’s neutral, but has an impact that is negative on arbitration, that is negative, then is that discrimination and how can the Supreme Court tell, right, when that discrimination exists if it’s not obvious? So I think that that was an interesting debate and issue that was going on. So, really tough issues before the Supreme Court, and it’s going to make a big difference in terms of class actions in the future.
PERRY: Great. Thank you so much for speaking with us today!
MALVEAUX: Oh, thank you!
That was Suzette Malveaux, Associate Professor of Law at Catholic University of America.
The National Campaign to Restore Civil Rights is a collection of more than 100 civil rights organizations and numerous individuals who came together to ensure the courts protect and ensure justice, fairness and opportunity for everyone. The campaign focuses on public education and outreach, finding ways to get the message out about the impact of court rulings on our communities, our opportunities and our rights.