Supreme Court Rules in Favor of AT&T, Large Corporations in Arbitration Case

By Beecher Tuttle April 27, 2011

The U.S. Supreme Court on Wednesday ruled that AT&T Mobility customers must arbitrate their cell phone contract disputes individually, rather than joining in a class-action lawsuit with other disgruntled subscribers.

The 5-4 ruling blocks a class-action lawsuit brought forth by AT&T customers who felt they were misled when the company charged sales tax on handsets that were said to be free. The court's decision enables the AT&T business unit to enforce a contract provision that requires its customers to settle their claims on a case-by-case basis.

The ruling, which was voted along ideological lines, represents a major victory for corporations across the nation. When consumers can pool their small claims into major class action suits, companies are often forced to agree to enormous settlements. A number of major corporations, including Amazon, DirecTV, Comcast and Dell, filed briefs supporting AT&T.

The Supreme Court's decision actually reversed a federal appeals court ruling that found the company's class-action ban in their agreement was “unconscionable,” according to Bloomberg. Speaking for the majority, Justice Antonin Scalia said that the earlier California court decision failed to take into account the Federal Arbitration Act (FAA), which specifies that courts must impose arbitration agreements like any other contract.

“The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly preempted,” Justice Scalia wrote in his 18-page ruling. He also said that class-action lawsuits can hinder the “fundamental attributes of arbitration.”

“The switch from bilateral to class arbitration sacrifices the principal advantage of arbitration – its informality – and makes the process slower, more costly and more likely to generate procedural morass than final judgment,” he added.

Justice Stephen Breyer and the court's other three liberal justices who dissented suggested that the ban on class-action lawsuits would end up hurting consumers, who would most likely be wary of taking on large corporations over small claims. Companies could then “insulate” themselves from the liabilities associated with their own frauds by “deliberately cheating large numbers of consumers out of individually small sums of money,” said Breyer.

Beecher Tuttle is a TechZone360 contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Jennifer Russell

TechZone360 Contributor

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