In AT&T Mobility v. Concepcion, the U.S. Supreme Court struck a serious blow to class action suits.

Concepcion, the plaintiff in the case, alleged that AT& T acted fraudulently while selling a cell phone.  Essentially, AT&T advertised and stated that the phone was free but then ended up charging Concepcion $30 for the phone.  Concepcion did not notice the error until after signing the contract.  Concepcion sued for return of the $30.  AT&T denied any wrongdoing.

Concepcion hired a law firm that attempted to frame the case as a class action.  They claimed that AT&T had done the same thing 17 million times.  Instead of suing for $30, they were now suing for $510 million.

AT&T defended by pointing to a clause in the cell phone contract that required that all cases against AT&T be arbitrated and that no class actions were allowed.  The California State court held that the clause was invalid under California law and allowed the suit to go forward.

The U.S. Supreme Court reversed.  The court was split with the conservatives stepping to the defense of AT&T and the liberals stepping to the defense of the consumer.  Justice Scalia wrote for the majority.  He said that a 1925 federal law preempted State law.  In other words, California was not allowed to apply its own law to the case.  Instead, the case was governed by the Federal Arbitration act of 1925.  He went on to explain that under federal law the clause in the contract was valid.  He justified the decision stating, “class arbitration greatly increases risk to AT&T . . . .”

The liberal minority on the court disagreed.  They said that the Federal Arbitration Act says that arbitration clauses are valid “save upon such grounds as exist at law or in equity for the revocation of any contract.”  Since California law allowed the contract to be revoked for fraud, the clause was invalid.  The liberal minority justified their decision by stating, “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30 claim. The alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

This holding has the effect of immunizing AT&T, and others, from small claims.  Arbitration is an expensive process.  If Concepcion had been allowed to go to small claims, she could have pursued her claim for a small filing fee, represented herself and gotten a $30 judgment plus her filing fee.  The only thing she would have lost would have been her time.

Under arbitration, she will be forced to pay 1/2 of the arbitrator’s fees.  Those fees would have been $300 per hour for each of the three arbitrators.  If the trial took 1/2 hour, she would have been forced to pay $225 in arbitration fees.  She would not get those back.

Arbitration is more expensive for most litigants because the Government subsidizes the court system by paying the salaries of judges, clerks and the rest of the court staff.  The government does not pay anything to arbitrators.  The parties pay that.