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AT&T Loses High Court Bid on Arbitration Rule

Justices decline to hear the phone company's argument to restore its method of settling customer disputes.

October 07, 2003|From Bloomberg News

In a victory for consumers, AT&T Corp. on Monday lost a U.S. Supreme Court bid to revive its requirement that California customers settle most disputes through arbitration.

The court refused to hear AT&T's argument that customers couldn't use state consumer-protection laws to challenge its arbitration rule. A lower court had ruled that AT&T's nationwide customer service agreement violated California law by restricting consumers' legal rights. A federal appeals court in Chicago issued a conflicting ruling in a separate case.

AT&T's customer service agreement requires customers to take most disputes to arbitration before private judges, bars customers from pursuing any claim as a group and limits the amount of damages that can be awarded.

Business groups support arbitration as a way to cut litigation costs. Consumer advocates say the process favors companies.

The California ruling "will adversely affect the entire long-distance industry" if allowed to stand, AT&T's lawyers had said in court papers. Most major long-distance companies have similar provisions because consumers "place little value on judicial and class remedies and prefer the lower rates that these provisions allow carriers to offer," they said.

Supporting AT&T in court briefs were Verizon Communications Inc., the biggest U.S. local-telephone company; BellSouth Corp. and Qwest Communications International Inc., the third- and fourth-largest local-telephone companies; and WorldCom Inc. and Sprint Corp., the second- and third-largest U.S. long-distance phone carriers. AT&T, the biggest U.S. long-distance telephone company, issued a statement that said courts had disagreed on such arbitration agreements.

"We continue to believe that arbitration is the most efficient manner of resolving consumer disputes," though the company will comply with the ruling in the California case, the company's statement said.

F. Paul Bland Jr. of Trial Lawyers for Public Justice, representing the California customers who sued, said the high court's action "shows that corporations like AT&T cannot enforce abusive arbitration clauses that make it impossible for consumers to enforce their rights under consumer protection laws."

AT&T's service agreement notifies customers that their use of the firm's long-distance service counts as acceptance of the agreement's terms.

The agreement, mailed to customers in May and June 2001, was challenged by an individual customer and the group Consumer Action on behalf of the company's 7 million residential customers in California. AT&T said it has 40 million customers nationwide.

A federal judge ruled that the arbitration requirement and the ban on class-action claims violated California consumer laws because they were one-sided. State law also barred a provision that would limit AT&T's liability for willful misconduct, the judge said.

The U.S. 9th Circuit Court of Appeals in San Francisco affirmed the judge's decision in February. The 7th U.S. Circuit Court of Appeals, based in Chicago, ruled the other way in a separate case last year, deciding that AT&T could require arbitration of consumer disputes and bar class-action claims.

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