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Supreme Court weighs whether consumers' small suits can be combined

November 10, 2010|By David G. Savage, Los Angeles Times

Reporting from Washington — In a dispute between a California couple and AT&T Mobility, the firm argues to keep its arbitration clause. The court's ruling could determine whether disgruntled customers can file a class-action lawsuit rather than be forced to arbitrate out of court.

In a dispute between a California couple and AT&T Mobility, the firm argues to keep its arbitration clause. The court's ruling could determine whether disgruntled customers can file a class-action lawsuit rather than be forced to arbitrate out of court.

Vincent and Liza Concepcion bought cellphone service from AT&T Mobility in Southern California because the offer included a free Nokia phone. They objected, however, when they were charged $30.32 in sales tax.

This hardly sounds like a federal case, let alone a Supreme Court landmark, but it could decide the legal rights of millions of American consumers. At issue is whether they can join with millions of others in a class-action suit against a company if they believe they were cheated out of a small amount of money.

Many companies are determined to shield themselves from suits that could turn a $30 claim such as the Concepcions' into a $30-million court case. The fine print that comes with their products often includes a clause that says the purchaser agrees to take any complaints to an arbitrator and may not join a class-action suit.

The Supreme Court heard arguments Tuesday in the case of AT&T vs. Concepcion to decide whether companies can enforce those arbitration clauses, and the justices sounded split.

It "will gut consumer protection laws" if businesses can prevent class-action suits because "small frauds" will go unpunished, argued Deepak Gupta, a Public Citizen lawyer who is representing the Concepcions.

Consumer advocates said millions of customers have complaints about cellphone charges, but no lawyer would take on such a complaint unless they could be combined into a large lawsuit.

State and federal courts in California have refused to enforce the ban on class-action suits, saying it is fundamentally unfair to consumers.

Justices Sonia Sotomayor and Elena Kagan took the consumers' side, noting that unfair arbitration clauses have been struck down under California state law.

"Who are we to say that the state is wrong about that?" Kagan asked.

But in recent years, the court's conservative bloc has regularly ruled in favor of mandatory arbitration, citing the Federal Arbitration Act. The legal question in the case is whether federal law trumps, or preempts, the state's consumer-friendly laws.

Justice Samuel A. Alito Jr. and Chief Justice John G. Roberts Jr. leaned in favor of arbitration, noting that federal law says these contract agreements can be enforced.

In the past, conservatives often argued for states' rights, while liberals favored strong federal authority. But in business cases these days, the sides are reversed. The liberals tilt in favor of state laws that allow for suits by consumers or workers, while the conservatives tilt in favor of federal laws that limit lawsuits against companies.

Alito also questioned whether consumers — as opposed to their lawyers — benefit from lawsuits. "Why are they [the Concepcions] better off with class adjudication?" he asked at one point.

Under the AT&T contract, consumers can obtain as much as $7,500 from an arbitrator if the company fails to satisfy their claims. It is not clear they could obtain as much for themselves in a class-action suit, Alito said.

Critics of class-action suits said these cases often yield large fees for the lawyers but relatively little for the huge number of individual plaintiffs.

Both sides in the Concepcions' case said the court's eventual ruling could be far-reaching.

AT&T said it would be a "death knell" for arbitration if purchasers have a right to join with millions of others in a class-action claim.

On the other side, consumer advocates and civil rights lawyers said customers and employees will suffer if they cannot join with others to sue when they are cheated or discriminated against by a large corporation.

The justices are likely to rule in several months.

david.savage@latimes.com

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