The Fine Print (Supreme Court and lawsuits, class action)
by Beverly Mann
The Fine Print
It’s hardly a secret that Chamber of Commerce types have co-opted a bare majority of the Supreme Court as their proxy in their war against business litigation, and that the most potent categorical weapons are arbitration as a forced substitute for lawsuits and the effective elimination of class actions.
In a manipulative, far-reaching opinion that the Court issued Monday, the five corporate proxies killed both birds with one stone.
The stone was thrown in a lawsuit by a California AT&T cell-phone service customer who signed a service contract with the company and received what the company said was a free phone but for which the customer later was billed $30 in sales tax—the sales tax on the regular retail price of the phone.
The contract, like virtually all consumer contracts and many other types of non-negotiable standard contracts between a business and a customer or client, or between an employer and employee, includes an arbitration provision. The provision waives the right to sue, and provides that any disputes be resolved instead in arbitration, a setup in which the business pays the arbitrator and, as a wink-and-nod practical matter, will use that arbitrator again in other arbitrations, or not, depending on, well … you know. The blindfolded lady holding the evenly-balanced scales of justice isn’t around.
Update: (Dan here…. From Scotusblog AT&T Mobility v. Concepcion (No. 09-893), and the Court’s opinion is here
The arbitration provision in AT&T’s form contract, like the form contracts of many other large corporations or firms, doesn’t just require a waiver of the right to sue. It also bars class arbitrations. It requires, in other words, that each customer who claims to have been defrauded out of a small amount of money proceed through arbitration independently of every other victim of the alleged scam—and, as a practical matter, because the amount is so small, without an attorney.
The Federal Arbitration Act of 1925 requires courts to honor arbitration clauses—that is, to dismiss lawsuits when the business defendant asks the court to do that on the basis of the arbitration clause. But the FAA includes a provision that allows courts to invalidate the arbitration clause under “generally applicable contract defenses.” Such as that the contract was signed under duress, or that one of its provisions is unconscionable as a matter of public policy (usually because one party had no bargaining power and could play no role in deciding the terms of the contract, and the provision is unfair to that party). Normally, contract law, including these defenses to enforcement of contracts, is a matter of state law, not federal law. So usually it is state law that determines the circumstances under which a court can invalidate an arbitration clause and allow the customer, the securities-firm client, the employee, to sue in a real court.
At the center of the Supreme Court case was a 2005 California Supreme Court opinion that interpreted two state statutes. The California court construed those statutes as providing that if three conditions are met, the unconscionability defense can be used to void the part of an arbitration provision that waives the right to arbitrate as a class in California.
The three conditions are that the agreement be a standard-form contract without negotiation (known as a contract of adhesion), that the disputes probably will involve small amounts of money, and that the party who wants the contract provision voided is alleging a scheme to defraud. In its opinion Monday, Scalia, writing for the majority, said this conflicts with the purpose of the FAA, which—he said—was to encourage arbitration agreements and to ensure a quick, easy process. Breyer, though, writing for the four dissenters, pointed out that Congress’s actual stated purpose was to require courts to treat arbitration agreements as contracts, for the purposes of enforcing them and, when required under contract law, voiding them—and that that is what the text of the FAA says.
Scalia also said that class arbitration defeats the purpose of arbitration. Which I suppose is true if the purpose of arbitration, or at least arbitration as the only option under law, is to undermine any real threat of meaningful penalty for corporate wrongdoing.
But Scalia claims a different for purpose for arbitration: to provide a simplified, quick process. He complains that class arbitration complicates the process. Which, as Breyer notes, it does, but says, “So what?” The purpose of arbitration is to provide a quicker, simpler process than full litigation. Which class arbitration does, since it replaces not individual litigation but class litigation.
Breyer doesn’t take the next step, though. But someone should, soon. The Court’s majority interprets the FAA as allowing contracts of adhesion to remove the right to litigate as a class although class litigation otherwise would be appropriate. And the majority interprets the FAA as allowing those contracts to remove the right to arbitrate as a class when class litigation would be appropriate. This seems, I think, to raise questions about the constitutionality of this statute, now that the Court has said the purpose of it was not simply to require courts to treat arbitration provisions as contracts under normal contract law but rather to allow a party to a contract of adhesion to strip courts of their authority to void those provisions, contract law notwithstanding.
If Congress’s purpose was not to allow parties of relatively equal bargaining power to negotiate a contract that provided for arbitration, but was instead to remove access to the court system, independent of contractual rights—and if that is now the statute’s effect—it would seem that the statute itself violates basic constitutional precepts of due process of law. The Court’s majority’s new conflation of arbitration law and class action law, and their imposition of their own surprisingly-undisguised policy preferences as law, appears designed to do exactly that.
crossposted at The Annarborist
…. a lawsuit by a California AT&T cell-phone service customer who signed a service contract with the company and received what the company said was a free phone but for which the customer later was billed $30 in sales tax—the sales tax on the regular retail price of the phone.
The company provided the free phone. It was the State of California that imposed the sales tax. So this is a nuisance lawsuit, a waste of everyone’s time and money, “unconscionable”……..exactly what arbitration is designed to take care of.
Are you sure that California imposed the sale tax? If I buy an item on sale (in California) the sales tax is on what I actually pay. Why should this be any different? Here is one possible reason. Sometimes gov’ts allow businesses to keep the sales tax they collect. Considering the clout of ATT, I would not at all be surprised if ATT does not have such an agreement with California, at least for things such as cell phone sales. If there is such an agreement, then it would not be California that is imposing the “sales tax” on a 0.00 sale, but ATT.
Are you sure that California imposed the sale tax?
Yes. If ATT were collecting money under false pretenses, that would be actionable, probably criminally, and would have been part of the suit.
Sammy, the bill came from ATT. They are responsible for its accuracy. But, whether the tax is being collected lawfully or not, the issue being litigated is ATT’s insistence that arbitration is the consumer’s sole remedy. If a class action suit is not available to all affected customers, then they have no remedy at all against whatever provisions ATT wants to impose on them for accepting a “free offer.” And, the notion of contracts of adhesion is a pretty key feature in a lot of consumer protections from which we all benefit. So, this isn’t the prettiest decision these guys have ever rendered. In fact, it’s a real stinker. NancyO
“quis custodiet ipsos custodes?”
Sammy, why do you think that ATT is on the up and up, but the customer is not?
The only thing that makes sense to me is that ATT is claiming that they sold the phone for, say, $350, upon which the customer owed $30 in sales tax, and then gave the customer a rebate of $350. (I imagine that that would be perfectly legal, and ATT could argue that that’s what they really meant by “free phone”.) Otherwise, how do you generate the sales tax? More to the point, why would ATT do that, unless they got to keep at least some of the “tax”?
The US is pretty good at contract law. Just read the fine print. No one is going to spring “whatever provision it wants to impose.” If they do, fraud is committed, nullifying both the contract and the arbitration clause, and a class action lawsuit is totally available.
And if you don’t want to submit to an arbitration clause, don’t get the free cell phone.
Also, I think the assertion that arbitration is always weighted against the plaintiffs is unsubstantiated.
ilsm: “quis custodiet ipsos custodes?”
Charging sales tax, and then keeping it is a pretty serious offense in most, it not all, states. ATT didn’t do that.
On the rebate thing, you are probably right. I know WA doesn’t discount it’s sales tax for rebates. But I’ll bet you that the ATT offer said something like:
“Free* Cell Phone”
*Amount does not include applicable sales tax and government fees.
Like I said, nuisance lawsuit. It’s a dead weight loss and I can’t believe y’all want to encourage this sort of thing. I know the Trial Lawyers contribute a lot to the Dems, but still….
Well Sammy, I see you did not follow the court’s opinions, and now shoot from the hip. If it was a nusiance even so, the topic was the Court’s opinions and ruling. Your comments also suggests the impetus was somehow related to trial lawyer and/or Dem schenanigans….is that a throwaway comment??
sammy: “Charging sales tax, and then keeping it is a pretty serious offense in most, it not all, states. ATT didn’t do that.”
It’s not an offense if you have an agreement with the state to do that. IMO, such agreements should be revealed to customers, but they are not.
Min: Innocence, 9th grade Latin class, very cool teacher.
Several years before Kent State.
Typically in most transactions with rebates you pay sales tax on the full value and don’t get it refunded (buy some software with a rebate and you will not get the sales tax back unless you buy on-line when you won’t pay any). In general the law treats it as retail price is used to calcuate the sales tax and then if you get a rebate fine, but it does not affect the sales tax.
Anyway lets be realistic how much was anyone likley to get back if the suit had gone thru, very little, the lawyers and the costs of processing imply at best a few cents on the dollar. The court essentially ruled that the lawyer class cant take folks for a ride. (I have seen some securities class action notices that resulted in the lawyers making money and the company saying I won’t do it again with no money for the affected.)
It would be interesting (if you don’t want the service very bad, to cross out the clauses and see what happens). If they say no, just get a prepaid cell phone, no muss no fuss and to boot you can’t be tracked.
“It’s hardly a secret that Chamber of Commerce types have co-opted a bare majority of the Supreme Court as their proxy in their war against business litigation, and that the most potent categorical weapons are arbitration as a forced substitute for lawsuits and the effective elimination of class actions.
In a manipulative, far-reaching opinion that the Court issued Monday, the five corporate proxies killed both birds with one stone. “
We are concerned with the minitiae of the imposition of the sales tax on a what ? Death by a thousand cuts. The SCOTUS is conducting business as partisian, corrupt, political organization, (electing the Duke GWB, King) and we are discussing sales taxes ?
James Madison is rolling over in his grave.
“By 1791, the last ten of Madison’s proposed amendments were ratified and became the Bill of Rights. Contrary to his wishes, the Bill of Rights was not integrated into the main body of the Constitution, and it did not apply to the states until the passages of Fourteenth and Fifteenth Amendments restricted the powers of the states. The Second Amendment originally proposed by Madison (but not then ratified: see United States Bill of Rights) was later ratified in 1992 as the Twenty-seventh Amendment to the United States Constitution. The remaining proposal was intended to accommodate future increase in members of the House of Representatives”
“The Warren Court (1953–1969) dramatically expanded the force of Constitutional civil liberties. It held that segregation in public schools violates equal protection (Brown v. Board of Education, Bolling v. Sharpe and Green v. County School Bd.) and that traditional legislative district boundaries violated the right to vote (Reynolds v. Sims). It created a general right to privacy (Griswold v. Connecticut), limited the role of religion in public school (most prominently Engel v. Vitale and
Your comments also suggests the impetus was somehow related to trial lawyer
It was kind of a throwaway comment. But I’m trying to understand why you libs want this to go to class action status. As Lyle mentioned it is over $30 in sales tax paid to the State of CA. The guy probably would have lost in arbitration because I’m sure ATT covered it’s ass disclosure-wise. He probably would have gotten the $30 back if he went straight to ATT.
But noooooo, you want the lawyers to get involved and burn up millions of dollars defending the idiotic suit (that could be used by ATT to create jobs), clogging up the courts (burning up public dollars), most likely only creating a check for the plaintiff and plaintiff attorney, just to go away. If it does go to court and win, you might get a check for $1.07 (after attorneys fees) if you happened to buy a phone during this time and returned the mass junk mailing.
Why isn’t the Supreme Court opinion available in the post? It’s online.
If it is a bad law, Congress has the ability to change it.
Congress writes laws. The President signs or vetoes.
The Supreme Court is not supposed to write laws.
I personally dislike mandatory arbitration clauses. But Congress passed the law, and Congress should change it.
Totally beside the point whether you or anyone thinks it’s a good claim or not. So you think it’s just hunky-dorry for a telephone company — or an insurance company or a credit card company — along with every other telephone, insurance or credit card company, on page 37 of the fine print “contract” you literally are forced to accept, with or without ever actually signing it, if you want a telephone, home, medical, car or life insurance, to be able to take away crucial aspects of your rights to get redress for being cheated?
Man, I guess it takes all kinds! No wonder this country is in deep shit.
The Roberts court brought shovels. They are not digging us out just piling it higher.
The point is not the pitiful settlements usually awarded per capiita to class action plaintiffs. The point is that these suits and the publicity and expense associated with them were probably the only reliable constraint on corporate overreach. Even regarding their own uh, customers.
Once again the Roberts court tilts in favor of boardrooms and away from citizens. This is hardly news unfortunately. The wars and the deficit were only party favors, this is the real GW Bush legacy. His sponsors are likely happy with their investment.
You have no idea what ‘you libs’ think….by the way, call me rdan please, not ulibs.
At the end of the day these suits are a natural consequence of the bipartisan destruction of the FTC, FCC and other presumptive regulatory agencies (Thanks Slick Willie!). It was probably cheaper overall to pay honest regulators to keep the lawyers out of these cases but the Chamber wasn’t having it.
The Roberts court is only doing what they were hired to do.
Sammy, it depends on who is paying for the arbitration. If ATT is paying, you can bet they’ll win every case. Even if both parties split the bill, the case will be decided based on the language of the contract. If so, ATT prevails. Other court cases and principles of equity don’t necessarily apply. Arbitrators are free to ignore well established legal principles such as the obvious illegality in the contract. And, yet again ATT prevails. 30K plaintiffs all allege the same $30 dollar fraud on the part ATT not one can recover. No way this is contract law under the regular rules. The whole point of this in fact, is to escape from liability they would ordinarily have for cheating the customer. It’s a scam–plain and simple. NancyO
AmSoc–Right. The whole point of lawsuits is to make dishonest or harmful behavior expensive thus discouraging it. “Tort” means ” a wrong or injury.” So, the customers in this case were paying ATT $30 under false pretenses. Maybe people would have gone for paying $30 for a $50 cell phone. But, then ATT would have to say, “$20 rebate applies plus tax.” Oh, well. As Linda says, what you see is what you get with this court. NancyO
Rusty–All courts have the power to make law. And, always have in our system of law. For example, people who seek divorce have to do what the Court tells them whether they like it or not. The law for the Xes is that the kids stay with one parent during the week and the absent parent over the weekend. No if’s and’s or but’s about it. The parties to the divorce are bound by the law the judge makes just for them. The Court can penalize parents who ignore its orders. Sure sounds like law for me–you break it, you pay one way or another.
The meaning of the words in the statute is only the beginning of the meaning of a particular law. They call it “the power of judicial review.” Mr. Justice Marshall explained all that some 200 years ago. Smart guy. People forget Justice Marshalls decision, but Marbury is still good law. Well, until this Court gets around to disabling it. NancyO
There is a huge difference between making judgments and making laws.
Judges make and enforce judgments within the framework of statute and administrative law.
Judges are not supposed to make law…but liberals never let that get in the way.
Lyle: “Typically in most transactions with rebates you pay sales tax on the full value”
But does “free phone” = rebate? A local gas station has a 4 for 3 policy on almost all the food and drink they sell. They do not charge sales tax for four items and then give a rebate. They simply charge for three items and give the customer four. Similarly, here ATT is offering a package deal. “Buy a service contract and we will throw in a free phone”. It is not presented as, “If you get a service contract plus a phone, we will give you a full rebate on the phone.”
Viae Romanae longae sunt. 😉
sammy: “As Lyle mentioned it is over $30 in sales tax paid to the State of CA.”
As Beverly Mann pointed out, the Supreme Court opinion acknowledged that ATT did not charge for the phone. There was no sale to charge tax on. There is no evidence that California got the $30 from ATT, is there?
save_the_rustbelt: “Judges are not supposed to make law…but liberals never let that get in the way.”
Neither, as it turns out, do conservatives.
Actually, Lyle, the opinion says that the customer was not charged for the phone. Period. This was not a rebate situation. But by what authority, in your opinion, can the Supreme Court essentially rule that the lawyer class can’t “take folks for a ride” by representing them in a class action concerning a sales contract, especially when nothing of the sort was as issue in this case?
Here’s betting that you claim to be against judicial activism. So I look forward to your response.
Yes, Rusty, Congress certainly did enact the Federal Arbitration Act. And that Act provides that arbitration clauses be treated as contracts under regular principles of contract law—i.e., contract in the respective state. Section 2 of the Act explicitly says that that includes general defenses to enforcement of the contract—that arbitration clauses may be invalidated by “generally applicable contract defenses.”
Scalia gamed that provision by saying, first, “Although §2’s saving clause preserves generally applicable contract defenses, it does not suggest an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives, “ and then by saying that California’s unconscionability law stands as an obstacle to the accomplishment of the FAA’s objectives. Which, he says, includes artificially reducing the process to a form that precludes class arbitration, and, by which the opinion makes clear, he means eliminating class litigation about business contracts.
As Breyer says in his dissent, Scalia accomplishes this purpose—not Congress’s purpose but the business right’s purpose—by distorting the meaning of the word “arbitration.”
Just because an ideologically driven majority of the Supreme Court says Congress’s purpose in enacting a particular is … whatever they say it is … doesn’t mean that that actually was Congress’s purpose. Sometimes, as here, the actual words of the statute belie what those folks say was the purpose of the statute.
And just because these people claim to be textualists—that is, that they support giving statutes and constitutional provisions the meaning that the words of those provisions suggest—doesn’t mean that they are anything but fair-weather texualists.
The point about the law that is being interpreted is that it has language that expected ordinary state contract law provisions to apply, and many states include exceptions to enforcement of a contract provision that is unconscionable. The Supreme Court here had to reach to find that an unconscionability determination wasn’t permitted by the federal arbitration law.
All this reminds me of a previous class action against ATT, in the 90s I think. We had ATT on our land line and there was some issue they seemed a real stretch.
After years of litigation we received a phone card for maybe $2.50, as did millions of other ATT customers.
The law firm “representing me” if memory serves me correctly, was paid $30 million.
Mass class action litigation is more about the lawyers than about the “victims.”
Actually I’m opposed to mandatory arbitration clauses in any consumer contract, but until Congress changes the law, we follow the law.
Not to mention the merits of the case were shaky, and this was likely a sort of extortion-by-lawyer by the class action bar.
And yes, i do despise ATT wireless, but that doesn’t change the law either.
I’ll try again. The arbitration statute says the opposite of what the Supreme Court said it says. It would be nice if, until Congress changes the law, we follow the law. But what has happened is that the Supreme Court has decided that we won’t follow the law as written by Congress.
You seem unwilling to recognize that the Supreme Court sometimes interprets statutes in a way that is incompatible with the actual words of the statute. Why? It makes no sense to say that until Congress changes the law, we follow the law, when it is the Supreme Court, not “us”, that changed the meaning of the statute from what the words of the statute say.
Btw, the clause in the first paragraph of my response to you beginning with “i.e.” should say “i.e., contract LAW in the respective state.”
Why do so many conservatives habitually memorize some cliché and just keep repeating it and repeating it long after it’s clear that the cliché is irrelevant to the issue at hand?
As for the merits, you, like many others, think that class actions about small amounts of money per claimant are, by definition, meritless, presumably because you think it’s fine for corporations to improperly (by fraud or whatever) get small amounts of money from a lot of people. As long as it’s just a small amount of money from each person ….
But the rule of law the Supreme Court issued yesterday applies in all arbitration-clause cases, not just to ones involving small-amounts-of-money-per-person injuries.
If you want fewer class action lawsuits hire legislators and executives who will enforce consumer protection regulations. Despite the handwringing by some regarding BO’s socialism he is not the guy.
The free market anti regulation types really ought to consider what deregulation has wrought wrt the cell phone business. To wit:
1> Opaque difficult to decipher rate plans and options that are designed to make it difficult to compare plans between providers
2> Bizarre incentives that drive most providers to offer better deals to new subscribers than they provide to existing customers (Where else in business is it more profitable to poach customers than trying to keep the ones you have?)
3> Easily documented evidence that consumers in other more regulated markets pay much less for similar or higher levels of services (My european colleagues routinely pay 10-20% of what US providers charge for data services just to name one example) Even if their provider is a state owned monopoly or near monopoly.
I count myself among the naive that believed that number portability would incent providers to treat their existing customers better – if they can’t hold my phone number hostage then they ought to care more whether I want to stay after my contract is up. But I haven’t seen it. Free market fails again!
The clause in the first paragraph of my response to you beginning with “i.e.” should say “i.e., contract LAW in the respective state.”