In April, the Supreme pharmacy Court’s 5-4 decision in AT&T Mobility v. Concepcion changed how businesses can manage issues that might balloon into class-action lawsuits. The case was initially filed in 2006, when Vincent and Liza Concepcion sued AT&T as part of a class action, claiming that the company used deceptive practices by charging consumers a sales tax of $30.22 on phones advertised as free.
At issue in the AT&T case was the arbitration clause in the contract signed by customers who bought the phones. Arbitration is a method of dispute resolution that takes place outside the courts; an unbiased third party reviews the dispute and imposes a decision which all parties are then legally bound to obey. Some litigants prefer arbitration because it is usually cheaper and faster than resolving the conflict through the courts.
In this case, the AT&T contract required potential litigants like the Concepcions to consent to arbitration instead of filing a lawsuit, and, in addition, waive their rights to form a class in the arbitration proceeding. While the Ninth Circuit Court found that this requirement was invalid under a California law intended to protect consumers, the Supreme Court ruled that the Federal Arbitration Act superseded the California law, and the arbitration clause was enforceable.
The Court’s decision helps businesses protect themselves from class action suits: Companies can now contractually require customers to submit to arbitration if a dispute arises and require all such arbitration proceedings be brought individually, thereby eliminating the class action option for litigants. With this option, individuals are also much less likely to seek compensation when the claim itself is small, as in the Concepcion’s $30.22 claim against AT&T.
Businesses should review and consider revising existing contracts and policies regarding consumers. Because California courts previously found arbitration provisions unconscionable if they precluded class actions, many companies did not include these provisions. The effectiveness of current arbitration policies should be reevaluated to conform with the AT&T ruling.
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